Sunday, September 12, 2010

Trouble With Student Loans

I've known for years that some students are getting themselves into trouble with student loans.  Years ago I rented a house to three young people recently out of college.  While they could afford the house by living together, the situation of one was in scared me then--and still does.

This young woman had a degree in social work, and worked (mostly nights) in a group home.  Her annual income was a bit over $19,000, and her student loan debt was just about $50,000.  Apply $19,000 (after taxes) to a $50,000 debt (with interest), and you've already got a tough situation.  According to, the monthly payment could be $575.40.

Add in rent, car payments, insurance, utilities, etc., and the situation looks almost impossible.  And apparently it is.  Check out the incredibly poor repayment rates cited below:
Ironically, the worst results are for the for-profit schools that advertise on billboards and TV specifically to people who might be looking for a job that will finally give them a chance at a better life. These schools offer short-term programs such as cosmetology or various types of technicians, and among the for-profits are DeVry, Strayer, Phoenix, and Capella. While some of the schools dispute the findings, the government found that only 36.4 percent of people who attended the for-profit schools are repaying their loans in full each month. Some payment rates are 20 percent.

But public universities and private colleges, in general, have not had an admirable record either. Mark Kantrowitz, publisher of and, notes that only 53.7 percent of people who have graduated or left public colleges and universities are paying as expected. The record of community colleges is almost as bad as the for-profit degree programs, he said. And 56 percent of the people that attended private colleges are paying as required.

Defaulting on student loans is no joke.  Develop a bad credit score, and you'll limit your access to credit, and pay more for it, for years to come. 

I like to compare borrowing for college to driving through an intersection.  In driver's ed we're advised not to drive into an intersection until we can see clearly how we're going to drive out the other side.  That's good advice with borrowing too.

Don't borrow unless you can see how you'll make the payments when school is over.  And while you're planning, try to make realistic assumptions about how long it will take to graduate, and what you're employent prospects will likely be when you do.


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