21
Jun

I recently read the following article about a bill being introduced trying to regulate student loan interest rates: http://www.cnn.com/2013/06/06/opinion/jones-student-loans/index.html?iref=allsearch

Although I agree with the writers point of view that student loan interest rates are on the rise, unfairly burdening the American public while banks are able to lend to huge institutions at insanely reduced rates.  I think there’s a little bit of responsibility that is lacking in regulation of how and when banks can loan money.  

For example, if you buy $100 worth of merchandise from J Crew, they might offer you 10% off.  But if you purchase $500 of merchandise, you would get 30% off.  The same principle applies in the lending world.  If you borrow $100,000 in student loans, you might get a 5% interest rate, but if a huge corporation borrows $1,000,000,000, isn’t it the American way for the lender to have the right to decide what interest rate they offer that individual in order to get their business?

I often have clients who owe tens of thousands, sometimes hundreds of thousands of student loan debt.  The first problem that comes to mind with these individuals is, “What we’re you thinking in borrowing this money?”  “How did you expect to pay this money back?”  I have encountered instances where students borrowed money to “study” abroad or obtain a doctorate.  Did the borrower really evaluate the cost/benefit of borrowing for these purchases?  Are you going to be paid more as an employee if you spent the summer drinking beer in Costa Rica?  Was obtaining your doctorate financially lucrative if you paid $40,000 for it only to make $5,000/yr more than you would otherwise?  The amount of the monthly payment to obtain the degree is going to eat up the amount of money you’ll have to pay out in student loans, leaving us with a bunch of “smart” people who earn $30,000/yr and will live paycheck to paycheck trying to keep up with the Joneses.

In my opinion, the government should get out of the way and figure out a way to incentivize banks and colleges to offer affordable loans to pay for affordable education.  It would be nice to see fewer students in my bankruptcy office after graduation day because they are unemployed and have no dischargeable student loans coming due…

For more information on bankruptcy, please visit www.abankruptcyfirm.com/ or contact your local Kansas City Bankruptcy Lawyer, Betsy Lynch, at 816.434.6616.

6 Responses to Student Loan Interest Rates

  1. I agree with many of your points, but have one point of contention with your comment on studying abroad. Yes, there are plenty of people who go abroad during their educational career and don't learn the language, party a lot and pretty much do the same thing they can do at their home campus/state. There are plenty of people who do study abroad (like myself, both during undergrad and my masters program) that do foster skills and understanding that can't be done at their home campus that do help them get a better paying job and the money is a good investment. I think it is the responsibility of the student, the parents and lenders to make sure the person that borrowing the $$ knows how much they will have to pay on a monthly basis, for a VERY long time.

  2. You are absolutely right – while I am an advocate of higher education – this comes in all sorts of forms. Individuals should be more mindful of what is realistic for them to take out in student loans vs: what their expected income will be the 1st 10 years. When I took out my student loans – I had to pay them all back AND DID at over 8% thank you very much.
    I'm curious also about your thoughts on the State of KS raising tuition so that the administrators and professors could get raises. I'm sure these folks are paid fairly for the work they do and since when did getting a raise become a thing that people EXPECT or are entitled too?

  3. I couldn't agree with both of you more. Miguel has an excellent point: it would be a fantastic investment for someone studying International Business to study abroad, learn the language, make business connections, etc. Skills, knowledge, and relationships that will lay the foundation for a successful career enabling the borrower to not only repay student loans, but earn a living for oneself and family. Karen also makes a good point about the expectation of a raise and who's really paying for the raise. Although perhaps the overall effect of a tuition increase was thought out at the same time legislators contemplate eliminating state income taxes, assuming that students are working while attending school and after obtaining degrees, the additional tuition they may pay will balance out with the taxes they are no longer required to pay; thus they break even?

  4. Massive student loan defaults will probably be the next crisis (after housing) requiring another government bailout (since people are becoming accustomed to the idea that their debts should be forgiven).

  5. Student loan debt is already the next crisis. We have an entire generation paying debt over decades rather than saving for retirement, just as we have a baby boomer generation retiring without enough savings to afford elder care. We're saddling 20 year olds with 100k+ in nondischargeable debt and thereby denying them an economic future in America.

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