bankruptcy and student loans - Page 3

poetgrl · 10-10-2009, 11:34 AM

Right. Last year was the first year I was on CC, and the whole financial aid thing actually brought me out of lurking to comment. I was horrified to hear kids thinking of taking out 200000 in loans (!) to get a college education. The cost of loans, as we all know, are so much more than just the loans.

But, the question that comes up for me around this issue is why GC's don't go into this very, very heavily during the application process. I mean, there ought to be some mandatory meetings in which "meets full need" and the place and price of loans is discussed. I know it is not politcally correct to talk about it, probably, and the party line is "you can go anywhere you can get in." But......I think it is really a disservice to these very young adults not to explain that if college is meant to make your life better? That kind of debt is a huge drag on any benefit you might recieve from an education. Just my opinion.

owlice · 10-10-2009, 12:13 PM

Quote:

If student loans were dischargeable, no student in their right mind would repay their loans and the system would collapse.

They used to be dischargeable; plenty of students repaid their loans, and the system did not collapse.

kelsmom · 10-10-2009, 01:16 PM

Let's see ... no loans. That means no assistance for families earning more than $40,000 (just a rough estimate using $8500 annual tuition) at my relatively inexpensive public university. The reality is that the majority of families at this income & at much higher incomes have not saved for college nor are they prepared to pay for college out of current income. These families will STILL want to borrow, even if loans are no longer available. And there WILL be lenders who will be happy to fill the void of educational lenders ... it will be especially lucrative without any kind of oversight. The more risk they bear, the more these lenders will charge in interest, of course ... and students/families will blindly borrow regardless.

This is the reality of America. We want what we want, and we will borrow to have it. Financial aid offices can stop offering loans in their packages and the government can get out of the educational loan business. But folks are still going to borrow.

It is all well & good to say that colleges should just lower costs & somehow the need for loans will disappear. Consider my school, though. At $8500 annual tuition, a family earning $90,000 a year "should" be able to afford tuition without borrowing. Many such families borrow the entire amount of tuition plus extra for books/etc. These are unsubsidized loans. So just how low do we have to go with tuition to get to the point where people will be happy with the cost? FREE, I guess.

Maybe that is the next step. Then we'll have angry CC'ers who want the ivies to be free for all, too, I'll bet. It never ends.

poetgrl · 10-10-2009, 02:18 PM

Well, we have no problem paying for our kids education. We're not even in a position to get financial aid. My point is really that 18 year olds do not understand the real cost of debt. Given the complete train wreck our economy is in, right now, most American's don't seem to understand the cost of debt, but there you have it.

I do believe that GC's ought to discuss this more fully as a part of the process instead of simply saying, "Apply and you can figure out how to get the money later." There were a number of incredibly diappointed kids on this website who seemed to believe that just because the college or the GC said they could figure it out later that they would actually be able to figure it out. Many were not this year.

But I'm not personally "angry." It has no effect on my or my children's lives at all. It was just heartbreaking for me last year to hear the sadness and angst of kids whose expectations were unrealistic, or the defiant tone of education majors taking out 200000 in loans because they "could." Education would seem, to me, to be about educating the kids about all sorts of things....this includes the cost of debt.

kelsmom · 10-10-2009, 02:45 PM

Poetgrl, I do not disagree with you. I agree that GC's should not advise students to ignore financial realities - although I do feel that students should certainly try for schools where they "might" get enough aid (but they also need to understand that if they do not, then they should not attend).

More than that, though, we need to educate our families about debt - educational and otherwise. I don't know the answer, I just know it needs to be done. Ideas include personal finance courses in K-12 school (that would also include college financing discussions), community workshops aimed at helping parents (and other adults) understand what debt IS, etc.

We have offered numerous workshops at my college aimed at helping students understand debt, learn to live on less, etc. We offer a $1000 scholarship at each workshop, and we still get extremely low attendance.

Students are required to do entrance counseling before borrowing Stafford loans. Parents do it for their kids many times - that is not a good idea, folks. Many students who do it on their own don't really read it (you can just do it over until you pass) - and if they read it, they don't really understand it (nor do they ask when they do not understand).

We give students information that shows them the effect of borrowing. It doesn't seem to make an impact.

Thursday, an 18 year old called me because he thought he should have received a larger refund. He had $10,000 in grants and $9500 in loans (parent PLUS denial). He lives in the dorms with a full meal plan, and he received a refund of $1853 at the beginning of September. He wants to borrow more, telling me he needs to buy his books (school started in early September - this phone call was October 8th). I asked him what happened to the refund check. He laughed & told me American Express needed it. THAT is the reality I deal with on a daily basis.

poetgrl · 10-10-2009, 03:00 PM

No, I know you are right. The truth is we live in a debt-culture, top to bottom. I'm not sure what the answer is, either. I would like to see some emphasis put on this in the lower grades, since it is really rather important. But, yeah, I mean, grown up economics experts barely seem to understand the long-term cost of debt. How on earth can you get a college student to understand the future.

It is sad, though. I'm sure you find it incredibly frustrating.

swimcatsmom · 10-10-2009, 03:07 PM

I am not an FA officer but am a parent and a student. From my limited experience I am surprised at how little people keep tabs on their own financial situation as regards college. I know to the penny what I am expecting in refund and also what my daughter is expecting (she likes me to keep tabs on the financial stuff so gave me her password to her financial aid page). When my refund was less than expected I was able to get it sorted out pretty quick (my Stafford loan had not been certified by the school - for some reason there was a blip in the system and it happened to a bunch of students). Later bumped into my son's girlfriend (well ex since then) who was in a panic because her refund was so low but had not queried it. She had no clue what she was likely to get. I told her to go check her loans out and she had the same problem. This would not have been resolved without her going and asking about it as it seemed rather random who it happened to. She had not even investigated and did not seem to have plans to. I asked her if she does not keep tabs on what she is expecting and she said she liked getting a surprise. Not this time though!

There does need to be some sort of financial education going on. I am constantly surprised at how little effort some students make to try and save money in areas such as books. I stood in line behind people paying enormous sums for books this semester. if I had just bought them at school I would have paid nearly $800. I ended up paying a little over $200. I have to pay those loans back so they are not magic money that I am willing to blow off. That seems to be the attitude of some students.

sk8rmom · 10-10-2009, 04:26 PM

Well said, SCM! D's friends all were surprised when she bought some books online instead of just ordering from the bookstore. Apparently their big loans didn't deter them from taking the easy, expensive route. She also thoroughly searched for the best price she could get on a very good business class laptop. We didn't do as well as you did on the books (only one was used), but managed to save $300 this semester and her $1300 computer ended up costing her $650 on sale with a $200 rebate. She also thinks it's funny that her friends all have the biggest meal plan and can never manage to use all their weekly meal swipes, much less the extra dining bucks that come with it. She chose the smallest plan and uses her dining bucks for lunches (savings $300/semester) and should have close to $0 left by the end of the semester. Yes, it took an hour or two to figure out how to save that $1300 but it sure wasn't rocket science! She took only what subsidized loans she needed (I think her refund was a few hundred due to a deposit I'd paid and forgotten about) and has enough left from her grad and summer job savings to cover next semester's books and a summer class (which she has me "shopping" for now, lol). She hasn't touched her college fund or her savings bonds yet, and wants to save them for grad school or to buy a car when she has to do rotations.

It's apparent from kelsmom's stories that the easier it is for most people to borrow money the less likely they are to figure out how to make do on less. Little do they know they're missing the thrill of the hunt, lol!!

mom2collegekids · 10-10-2009, 04:47 PM

>>> Let's see ... no loans. That means no assistance for families earning more than $40,000 (just a rough estimate using $8500 annual tuition) at my relatively inexpensive public university. <<<

I wouldn't advocate "no loans" - but I don't like that many families have no idea that their f/a packages are going to be mostly or all student loans. I know this from talking to people. During the fall months, these people happily declare that their child has applied to schools that give away money and have generous F/A. They think they've talked to the "experts" (the schools) so they don't heed my (or others') warnings.

Then...spring comes...and OMG...there are those pesky student loans that dominate their F/A packages. Many of these people would have made other application choices if they had known. I just would appreciate more honesty from colleges in regards to F/A. They should stop saying they're generous with F/A unless they're giving free money away.

jamma · 10-10-2009, 04:53 PM

owlice: You're recalling an America that no longer exists. A generation ago, bankruptcy (along with adultery, abortion, fornication, etc.) were socially unacceptable and anyone filing for bankruptcy was scorned. Come with me to today's America. In California, 1 in 4 adults have filed for bankruptcy relief -- and that number is growing. There is no social stigma in filing for bankruptcy today, so please compare apples with apples.

kelsmom · 10-10-2009, 05:32 PM

But that's the thing, mom2collegekids ... so many folks ONLY qualify for loans!! If you have an EFC of $15,000 for a school with a COA of $18,000 you are not going to get anything but loans. At a state school, if you have an EFC of $8000 or even $6000, you often won't get anything other than loans. That's just how it is.

The real problem may be un-truth in advertising. However, I also see cluelessness on the part of families. My school really ramped up need based aid this year, and we sent a letter to families. We clearly explained how our packaging would work ... the federally determined family contribution combined with grants would cover the average cost of tuition. Yet families took federally determined family contribution to mean whatever they wanted it to mean. As those who frequent CC know, there is often a large difference between FAFSA-determined EFC and family-determined EFC. Parents were upset because they read our letter as meaning that they would receive grants to fully cover tuition.

mom2collegekids · 10-10-2009, 05:57 PM

kelsmom...

I've read enough of your posts to know that you are an honest upfront person. I'm sure that you don't mislead prospective students or families.

And, it's admirable that your school has tried to educate parents and families...unfortunately, other schools are too busy trying to increase their app numbers so they do mislead.

>>> But that's the thing, mom2collegekids ... so many folks ONLY qualify for loans!! If you have an EFC of $15,000 for a school with a COA of $18,000 you are not going to get anything but loans. At a state school, if you have an EFC of $8000 or even $6000, you often won't get anything other than loans. That's just how it is. <<<

Oh, I know the score...

It's just that kids and parents don't know that until it's too late. Starting with sophomore year in hs, kids start getting mailors from colleges bragging about their F/A programs...this gives many a false sense of security. Then senior year comes, and the fine print comes and...whammo! Right between the eyes.. LOL

Out of curiousity...at your school...if the COA is - say $30k for an OOS student, and his EFC is $15k, would your school also give an F/A package of mostly student loans? I'm guessing the answer might be yes. And, if the family can't pay the $15k EFC (maybe can only pay $5k), then won't they also likely have to take out loans for that (and those loans would be at a higher rate.)??

There is one thing that confuses me and you would know the answer....When your school gives an F/A package of - say $3k in student loans - what does that "cost" your school? Does it cost your school anything? That is something I don't understand very well. Thanks.

mom2collegekids · 10-10-2009, 06:15 PM

>>> kelsmom quote: Yet families took federally determined family contribution to mean whatever they wanted it to mean. As those who frequent CC know, there is often a large difference between FAFSA-determined EFC and family-determined EFC. Parents were upset because they read our letter as meaning that they would receive grants to fully cover tuition.
<<<<<<

I hear ya...and maybe high school counselors could do a better job with this. I know that it is probably unreasonable for college reps who do hs visits to make this clear since it's their job to bring in more applications.

And..you're right about the confusion about what families think is "need"...they think they should get to decide what they "need"...not some 3rd party. Plus, only a tiny number of parents understand that EFC is based on the assumption that families are supposed to be saving for college all along...and not just pay out of current income.

swimcatsmom · 10-10-2009, 06:52 PM

Also people start of very unaware of what the EFC means. For instance so many think that a 0 EFC means you are going for free. While that may be the case for some schools with large endowments it is just not the case for many schools and many students. I remember a student last year who came on asking what he would get in the way of aid for the OOS public he was accepted to. He had a 0 EFC so thought everything would be covered. I listed all the max federal aid he would be eligible for, which of course was nowhere near the full cost of the school (he did not have the stats for merit aid). He got very irate with me and some other posters and did not believe us. Seemed to think we were we were making up numbers just being mean to him. When he got his financial aid package it fell far short of what he needed. I think he actually still went and then was back posting and unhappy and wanting to transfer during his first semester. Don't know what happened to him in the end.

And when a student comes on looking for advice and other students tell them to follow their dream whatever the cost I just want to reach through the computer screen and throttle them sometimes. Dreams can quickly become nightmares. But hopefully we persuade a few to not get themselves mired in debt.

owlice · 10-10-2009, 07:19 PM

jamma, I said nothing about the existence or lack of social stigma for bankruptcy; didn't mention it. When financial aid loans were dischargeable, the financial aid system did not collapse. Did some people abuse the system? Probably. And still, banks lent money, which they wouldn't have done if there had been no profit in it.