"Nailor files paperwork every year to stay on a repayment plan that keeps monthly payments manageable and less than what he used to pay. He says he now pays about $530 a month, which does not cover the interest on his loans.
This means that even though he’s making payments, his balance continues to grow. The total of $130,000 he now owes is twice his annual salary after 18 years of teaching, and nearly $100,000 more than his initial balance."
He borrowed $35,000! He will never get this paid off.
Sorry but responsible borrowers need to know the consequences of payback when the loan comes due. Accrued interest is the killer. Don’t get caught in these “income based” repayment plans that don’t cover the interest. So at least figure out a way to pay off the monthly interest. Interest on the $35,000 would have been about $175-$200 per month. Sounds like a lot as a recent grad, but is chump change compared to $130,000.
I had a conversation with the mother of my kids’ guidance councilor that scared me even more. Daughter has been working as a GC in high school for 10 years under the assumption that her student loans would be forgiven after 10 years. She never verified that working as a GC would provide loan forgiveness and now mom and daughter are upset that it wont’ be forgiven. Bless their hearts but isn’t the daughter the one supposed to be advising our kids on these things? So much lack of financial education even by the so called educators!
The HS guidance folks at our schools are not allowed to discuss finances…at all. And the very LAST thing they would be discussing with student would be their college loan repayment plans.
HS counselors are NOT college loan pay back advisors.
However, having said that…this kid absolutely did not do her homework. Is her HS a priority low income school?
I get robo calls from someone telling me that my student loans are eligible to be forgiven through a new federal program. There is no such program. And my student loans were paid off 33 years ago!
I have had some fun calling them back at the toll free number they indicate. Oh, and the first thing they ask when I call them is for my Social Security number.
@thumper1 It is not a low income school - I didn’t know they weren’t allowed to discuss finances - they hold “paying for college” info sessions every semester so I assumed it was part of their role. We are full pay and didn’t attend after our oldest one was in the application process and we knew nothing. The GC wasn’t discussing it with me - her mom came in to my office to pay a bill and got chatty. It’s still rather discouraging that she of all people didn’t do her homework. I believe she assumed that because she worked in education and had taken out loans they would be forgiven after a period of time. I hound my kids so hard to get through undergrad with no loans! Some of the smartest people I know took out heavy loans because they didn’t understand compound interest. I even crossed a little line and started discussing it with sons girlfriend because her parents let her take out $30K for the first year alone (according to her - can’t imagine how except she went to a private school that may have offered loans). She has made much better decisions since then but still . . . .$30K!
A huge number of people seem to lack a basic grasp of fundamental concepts when it comes to loans. I think any publicly-financed loan should come with a mandatory requirement to complete an online course that describes the basics like the definitions of principle, interest, repayment period, etc. It boggles my mind that someone can pay less than the interest on a loan then be surprised that the principle went up, but that sort of thing can be easily addressed (for most people) with an or two hour of basic education.
I wish that personal finance was taught in middle school or high school, even if just for one semester. I briefly attended public school and our jr. high taught basics such as how to balance a checking account, how to complete a basic tax return, etc. Compound interest was explained, too.
I’m afraid that we’ll all end up paying for the lack of financial education. Some people seem to intend to die in debt and not care about the impact on others.
A lot of personal finance classes in high school are flat out useless. For some inexplicable reason, our hs chose to give kids real life roles ("Sally, you’re a surgeon. Susie, you work part time at the market. Etc.)
Nor is exit counsealing going to put the cows back in the barn.
The problem, as I see it, is more that people (including folks here at CC) repeatedly posit that college is worth it and has a “payoff”. Sometimes, sometimes not. If schools are going to hammer college admissions so much, they should be prepared to discuss finances, too. I volunteer at a school where all of the middle schoolers are divided into groups based on different colleges. Like, there would be the BU homeroom and the Harvard homeroom and the Northeastern homeroom. This kind of thing is very common around here. If schools are going to shove the dream down kids’ throats, they have a very heavy responsibility to explain how it all works.
Don’t the federal loans have required counseling before you take the loans that explains all that? We took a small loan (~$3500) one semester and I seem to remember my son doing an online counseling module that walked him through everything to do with loans including length of repayment for various amounts of debt, length of the repayment term, and the effect of minimum payments. You could just click through it, I suppose, but then it’s your fault if you don’t understand it.
@austinmshauri I think the problem is by that point you are so invested. You’ve accepted the admissions offer, your parents are thrilled, your HS counselor is happy and taking on crazy loans has been completely normalized. How would a 17 or 18 year old suddenly realize something is terribly wrong?
Do any of you follow Humans of New York on Facebook. Today (1/4) a college grad was interviewed and his story of trying to get a job and pay off student loans ties into this discussion thread. He clearly has no real clue about he will pay off his student loans. It is just so sad.
Simple interest compounds when it is added to the principal because it isn’t paid when due.
In fact, even when paid on time, interest adds up. I worked in mortgage credit decades ago and had a guy come in and righteously complain that he was paying 2.5x the value of his loan under this “rigged” system. Indeed, since the interest rate was about 7.5% for the 30 year loan, he was right—his total payments were about 250% of what he borrowed.
The bottom line is that if you are borrowing money for something, it had better be worth it.
@bookreader I just checked that out. Written Arts is the new moniker for an English major! There are 2700 comments on his post. It seems that the poster sort of expected a well paying career job to fall in his lap. He does not state what type of career he had hoped for either. He had no idea how to network despite a couple of internships (unpaid probably).
@threebeans, what is the reason she was given regarding the loans not being forgiven? Is it a charter school? Was she on a graduated repayment plan? Did she neglect to certify her employment?
Even rehabilitated loans will eventually be forgiven, as long as the borrower keeps paying. Of course, the amount forgiven is taxable in the year it’s forgiven …that can really hurt. I always tell my students to think about their tax hit for a forgiven loan, in hopes of persuading them to pay their loans off as quickly as possible.
@TomSrOfBoston No, it’s really not. Looks like there is one school that uses that title for a major, Bard, and it combines creative writing with literature study.
So now it’s not “the new moniker for an English major.”
They also have a “Literature” major. I hope that’s not too fancy schmancy for you.
Oh, and the first thing they ask when I call them is for my Social Security number.