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Lauren is in a Fabulous Foreign Country and Can’t Afford Her Student Loans

“Dear Steve,

Okay, I am currently a grad student in a foreign country which is cool and wonderful and educational and definitely worth the money. However, it’s costing me money. I currently have a $77,000 price tag in student loans and would like to reduce this amount. Because I am overseas it is very difficult to get a job and work through the university pays according to the local economy which is much less than required.

Are there options for me to begin paying off some of this debt (at minimum the interest that is accruing) while enrolled? What steps can I take to set myself up to be successful when the deferment ends?

Lauren”

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The Answer

 

Dear Lauren,

I’ve been a critic of student loans for some time. My primary issue with them is that they are pushed on students and people believe that they are ‘good’ debt. Yet, they are the largest debt that a college student will have, they can’t be discharged in bankruptcy, if you don’t graduate you still owe them, and if you default, you can pay as much as a 40% penalty.

Total borrowing for school has more than doubled to $85 billion in the 2007-2008 school year from $41 billion 10 years earlier, adjusted for inflation, according to the College Board, the research and testing concern. The percentage of private loans, which generally carry less-generous terms, has ballooned to 23% from 7%. Meanwhile, subsidized federal aid has remained relatively flat at about $42.8 billion per year.

The fear is that default rates on student loans will increase, as seen in the mortgage and credit-card worlds. SLM Corp., or Sallie Mae, the largest private student lender, reported a delinquency rate of 9.4% in September, up from 8.5% a year earlier. “It’s clearly because of economic conditions,” says spokesman Tom Joyce. “The credit crunch has washed onto the student-loan beach.”

That prompted state and federal governments to pass legislation allowing them to seize income-tax refunds, withhold professional licenses and enlist collection agencies to gather payments. Meanwhile, the U.S. Department of Education withheld eligibility from federal financial-aid programs from institutions that didn’t keep their default rates low. – WSJ

Student loans can hold your career and dream job hostage and I’m afraid you are learning about the realities of that first-hand.

The lender will say that that it is your choice to place yourself in a position where you can’t afford to pay and that is not their problem, it’s yours.

Going to college is one of those things that is beaten into many of us from a very young age. We are programmed that we must go to college to succeed, but is that really a valid belief to have?

The cost of a college education does nothing but go up, up, up. And more and more of those expenses are being financed with student loan debt. This isn’t necessarily a good thing.

Student loan debt ends up being rationalized as being good debt. It is a debt worth undertaking to get the payoff of having a college degree. Parents want their children to succeed and students are eager to attend college to get that diploma that will either allow them to follow their dreams or get a better paycheck. Least we forget the college student aid offices that enthusiastically want students to take on loans to attend. We can’t forget that colleges make money by having students pay tuition and fees. For profit or not-for-profit, all colleges at their core are a business that yearns for income.

Nearly 66% students today are graduating from a four year school with $19,202 in debt and if they went to a private four year school, 87.3% of students graduate with $28,138 of student loan debt.

Interestingly, many cry out about the evils of credit card debt and college students and want to ban on campus credit card marketing but the amount of student credit card debt is about $2,200. And surprisingly the number of students with credit card debt is declining.

Debt is debt. Debt does not care what form it is in. A debt for $28,138 and $2,200 must still be serviced the same way; labor must be converted to common currency to repay the obligation owed.

Student loan debt is the bigger obligation and more financial threatening than you would imagine. You see, unlike most other types of debts a student loan is a loan for life. A federal student loan has no statue of limitations and you may be chased for the rest of your life to repay. It can’t be discharged in bankruptcy. You can have any tax refund due you intercepted and used to repay the loan and massive collection fees and penalties of 25%-40% of the loan balance can be added to the loan balance if you default, raising the amount you owe by a very large amount.

If you have been paying attention to all the facts that parents and teachers have been telling you, you’ve heard how college graduates earn an average of $82,000 while those with less than a high school diploma earn around $21,000. Those numbers certainly help to persuade many to go for the college degree.

But let’s challenge those assumptions for a moment. If we look at the 87.3% of private college student graduating, their student loan debt might be $28,138 as they leave school but with 20 year financing and monthly minimum payments of $214 that debt blossoms into $51,548. That’s significant.

By this point in the article you’ve got to be saying that all these numbers are nice and all but how can going to college not be a smart economic move. Well here is the often skipped statistic that you never hear. Of those that enroll in college, only about 37% actually complete their four year degree.

That means there are a large number of people that have gleefully taken on student loan debt as a good debt, are obligated to repay it, but receive none of the benefit for it. For those people, college becomes a massive financial noose around their neck.

There is no doubt that attaining a college degree is a good thing but in order to receive the financial rewards, you must obtain your degree. And what about those that do make it all the way to graduation, are they better off?

More and more I am talking to recent college grads that are not able to pursue jobs in their desired fields because they have to find any type of employment to service the student loan debt. They have obtained the degree but can’t use it. Before you know it the ability to just follow your dreams is gone, replaced with rent, car payments, student loan debt and increasing credit card debt.

I am a firm believer in education. There is tremendous value in education. But students need to not be feed a mantra of student loan debt is good and gladly embrace student loan debt unless they understand the consequences. The largest of those are: 1) You must finish your degree to get the full benefit of your investment, 2) If your dream field is in a field with low starting salaries, you simply may not be able to afford servicing your student loan debt and following your dreams at the same time.

One of the most disturbing trends I have watched over the past years are those students that work hard to obtain advanced degrees in specialized fields such as law and medicine but what they discover along the way is that the field really isn’t for them.

Instead they wind up owing $150,000 and more for education only to just not want to or be able to graduate in the field they originally started in and obtain the income necessary to repay those very high levels of student loan debt.

Let’s not forget, student loans and financing college can be a tragedy for many. We can’t blind ourselves to that reality and maybe student loans need to carry warning labels. Caution: If you don’t finish your degree this loan could be detrimental to your financial health.

You do have some options for repaying the student loans. Please see a previous article, “I Have Three Degrees But I’m Broke And Miserable” for details.

Big Hug!

Lauren is in a Fabulous Foreign Country and Cant Afford Her Student Loans
Get Out of Debt Guy – Twitter, G+, Facebook

Don’t miss our free Get Out of Debt – “How To” Guide Series on a number of topics, for loads of practical advice, tips, and help to beat back debt. – Click Here

The Answer

 

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About Steve Rhode

Steve Rhode
Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.

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