Are Student Loans the Next Mortgage Crisis?
(UPDATE: 1/17/08 - Small Student Loan Lenders are closing up shop, cutting back on incentives and pickier about who they will lend money to.)
This article from US News and World Report questions whether student loans could be the next meltdown after the mortgage crisis.
There are growing worries that millions of college and graduate students may have borrowed too much, creating a predicament that parallels the current mortgage meltdown. Bond-rating agencies last week noted a troubling uptick in defaults on private educational loans, and the U.S. Department of Education reported that almost 12 percent of all federal loans that came due in 2001 are already in default.
And the Student Loan Borrower Assistance Project has this to say:
The existing counseling requirements for federal loans are ineffective, simply one of many hoops students jump through to get their student aid checks. However, the poor track record of mandatory counseling should not obscure the potential benefits of targeted counseling for student loan borrowers.
Early intervention is essential because the costs rapidly pile up once trouble begins. Student loan collectors are allowed to charge enormous collection fees that are not even tied to the amount of effort expended. At the same time, interest accrues and the borrower is hounded by collectors and faced with the prospect of never-ending collection efforts.
Never borrow more then the barest minimum you require, not even for that 'well-deserved vacaction' after the bar exam. And do not let the financial aid officers push you into loans that are unworkable. Their primary mission is to collect tuitions in full and fast. (Remember THIS student loan Watergate?)Secondarily, they will see if they can help you negotiate the best deal for yourself but not if it means sacrificing their jobs or their perks.
I remember one semester my financial aid officer did not like the idea of waiting an extra three weeks for tuition because there was a delay with my preferred lender and it was a federal loan fully subsidized. She said, 'you are going to simply have to get a private loan because we need tuition by such and such date or you will not be permitted to start classes. " I told her very politely, "you will either wait an additional two weeks for your money coming from the lender of my choice or I will withdraw myself right now." Surprise. They waited.
You are going to be lawyers. Read these promissory notes you are signing. And start advocating for yourself the way you expect to advocate for others because once you graduate you don't want to walk into a nightmare.