Thursday, November 27th 2014
 

Life After Higher Education: Navigating Student Loans

I have one friend, who attended public universities on scholarship and received a partial scholarship for law school, and barely makes ends meet as a judicial clerk. She is paid bi-monthly. Her first paycheck of each month goes towards student loans, leaving her with barely $150 to live on for the two weeks until her next paycheck, which covers rent and living expenses. Although she likes her work in the public sector, she is now searching for a firm job in this uncertain legal market, because of worries that her student loans will be with her for the next 30 years.

Another friend of mine dreams of becoming a pediatric surgeon. She is three years into her general surgery residency, with another 6-8 years of residency and fellowship before her. She is training in the Pacific Northwest. On her resident’s salary, she cannot pay for her living expenses and pay her student loans. She has deferred them and only services the interest on her loans at this time. The returns on her investment in her education and training will pay off in about a decade. She will be in her late 30s at that point. She doubts whether she will start a family. Between the total commitment that she must make to her training, it is unlikely that she will be able to afford the cost of a child before she is in her mid-40s.

My friends’ stories are not so different from Fruzsina Eordogh or family practitioner Dr. Michelle Bisutti or even Robert Bowman.

For years, discussion of education policy has focused on elementary and secondary schooling with diatribes against the No Child Left Behind policies of the second President Bush. But, shouldn’t we also bring more of a focus to higher education? Attaining a college degree should not result in students starting life with undergraduate-level student debts ranging from $20,000 – $100,000 before they hold their first job. And, yet, that is the reality of many Americans. Our Constitution does not mention education anywhere in its text, yet jurisprudence has used the equal protection clause to create a framework of education policy in this country that has resulted in formal equality. But, it has done little to increase the attainment of a college education in this country. Given all this, do you believe that Americans should have a fundamental right to education? What I mean by this is, should we provide our citizens with equal educational opportunities? Do we only need to guarantee equal educational opportunities through secondary school or should we take into account the level of education necessary to be competitive in a global marketplace and extend that right through undergraduate studies?

Inflation of college tuition is many times that of overall inflation. American families cannot keep up. College funds — if they exist — are rarely enough. But, our youth has been drilled with messages that we will not succeed in life or be able to get a decent job without a college degree. So, instead, our youth gets college degrees. And, many end up in situations like that of Fruzsina Eordogh or Dr. Michelle Bisutti.  I will give you that attaining that level of education is costly, but both women made bad financial choices.  In Bisutti’s case, her irresponsibility and negligence resulted in student loan debt that more than doubled.  So, how much student debt is too much?

There are lessons here. Ramit Sethi talks about them. So, too, does Jim Wang of the personal finance blog, Bargaineering.  Jim’s blogs on student debt can be accessed here, here, and here. And, to an extent, I agree with their thoughts — scholarships help. So, too, does negotiating financial aid packages. Living frugally also helps. But even more so, remembering to read the fine print on contracts. Furzina talks about not realizing what she was getting into. Dr. Bisutti was irresponsible, defaulted on loans and expected us to sympathize. But, I’m sorry, pure ignorance or a lack of caring doesn’t make me sympathetic.

I fully acknowledge that paying for college is tough. Meeting loan payments after college can be even worse. But, there are ways to avoid creating a vacuum into which your salary disappears with enough foresight and planning:

  1. Apply for scholarships and fill out your FAFSA applications. Do the hard work early. Scholarships are not just granted for grades. Being tall or left-handed can get you a scholarship. But, one must do the leg work to find these scholarships. It won’t be handed to someone just because that person is going to college and feels she deserves it. No, you actually have to put the effort into finding these scholarships and applying for them.
  2. Understand the difference between federal and private loans. Attempt to avoid private loans at all costs. Do your research. Don’t blame your immigrant status, your parents’ lack of financial planning skills, or anything else for taking out the maximum amount of student loans. Take personal responsibility for educating yourself.
    - Be aware of the difficulty of consolidating private loans.
    - Also understand that student loans generally cannot be discharged in bankruptcy.
  3. Read through and understand the fine print in your loan applications. Find out your repayment deadline. Understand the default provisions. Know how you will be affected by late payments or delinquency.
  4. Start early. Take AP classes and junior college courses before attending a university or four-year college.
  5. Research and understand student loan forgiveness programs, like Income Based Repayment Program and teacher loan forgiveness programs.  Other options also exist.

Beginning this year, the Obama Administration sought to introduce middle-class aid initiatives by offering more debt relief to student borrowers via the Student Aid and Fiscal Responsibility Act (SAFRA).  Those reforms and aid packages were passed as part of the reconciliation health care bill.  The biggest provisions of the new law?  It nationalized the government-backed student loan industry, capped repayment, and increases Pell Grants.

Now let me turn the conversation over to you.  I’ll ask again:  Should Americans have a fundamental right to a college education?  What is the government’s responsibility in assuring that its citizens attain a quality college education?  Does the SAFRA do enough to “bail out” debtors?

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Posted by Krystyna on April 13, 2010 at 12:07pm.

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