Federal Student Loan Program: The Nightmare and Wake Up Call

The federal student loan program seems to be the answer to our American dream to get a college degree. The Stafford loans, federal direct loans, and federal plus loans seem to be solutions to afford college education.

There is a price for college. College financial planning is not given too much priority. The economic indicators are clear as crystal: skyrocketing college tuition fees, declining student grants, soaring student loan debts, flat wages, and no improvement in the US economy. Are you just going to close your eyes and dive in the college bandwagon?

For the silent majority of Americans, repaying their student loans is a nightmare. You or one of your family members may be a victim You probably think, like most Americans, getting a student loan is the only way you can afford college.

The problem with student loans is as distressing as sub-prime housing loans. It is easy to get with "zero down payment" but default rates have been rising dramatically. A law student loan debts average $150,000. It is the new financial crisis in the US.

Colleges and universities seductively lure prospective college applicants to their campus. College counselors imply that a good job follows a college degree. The admission officers even offer a generous financial scholarship package incorporating the Stafford loans, federal direct plus loans, and federal direct loans.

A Case Study

For example, the tuition fees of a private university totals $54,000 a year. The expected family contribution in FAFSA in zero. The university's financial aid package offers $42,000 in federal education loans and university scholarships. The remaining balance of $12,000 is expected to be secured through private scholarships and one of the federal student loan programs such federal plus loans and federal direct loan program.

Your child must be ecstatic about the generous scholarship monies, but did your child scrutinize first the terms of the agreement before accepting the offer? Can you expect an 18 year old teen to sit down and dissect the terms and agreements of a student loan? Do they really understand their financial obligations? They are probably in "lala" land thinking they will cross the bridge when they get there.

Parents must enlighten their children about the harsh realities and consequences of acquiring debts-for-a-diploma. Do you really understand that if 50% of your child's future paycheck consists of repayment of student loans, then immense sacrifices need to be made in the home front. Second hand thrift shopping and yard sales may be the main sources of your clothing and household purchases. You may also end up in welfare. If not, feeding your grand kids "peanut butter jellies" and "Ramen noodle soup" may be a regular meal.

What happens if you get very sick in college or disabled and couldn't continue to finish your degree? The creditors won't have mercy. Your wages may be garnished. They can give you some hardship alternatives which they call forbearance and deferment. A $5000 student loan can turn to $50,000 due to interests and penalties racking up. It is almost heartless reality that there is no student debt relief especially when a family emergency creeps in your life unexpectedly.

Student loan debts pulls out a huge chunk out of your paycheck. The low paying entry level job does not provide the means to survive and pay the loans at the same time. It affects your credit rating tremendously. How do you juggle personal bills, car loans and insurance, mortgage, food, shelter and pay back student loans on an average pay of $40,000 per year?

Conclusion:

Isn't it funny how employers couldn't care less what school you attended? They only care what you know and what your experiences are all about.

SBI!