Stafford Loans, Good or Bad

[RoyGBiv]

I'm curious what the general feeling is around these parts regarding Stafford Loans.

The original loan program was defined and governed under Title IV of the Higher Education Act of 1965, one of LBJ's Great Society programs. It has been amended in various ways over the years, e.g. changing the standard for discharge of loans for disabled persons to the same one used by Social Security, this being a more realistic standard.

In the interest of disclosure, I work for one of the largest colleges in the country, and a significant portion of our student body finance their education in part through both subsidized and unsubsidized student loans. Many of these students would not be able to attend college without them.

[SemiCharmedQuark]

1. Couldn't have afforded college without it.

[Orrex]

2. Student loans are a greater evil than just about any other debt instrument available

Far worse than predatory credit card schemes and likely worse than toxic mortgage programs.

Horrible, horrible, horrible.

[RoyGBiv]

5. Really?

I'd agree to a point by noting that students do get themselves in trouble with these every single day (I'm the person they have to go to when they do), but worse the predatory credit card schemes? Really?

If you're not exaggerating for effect, how do you see it that way?

[TwixVoy]

8. Are you kidding?

Student loans can NEVER be discharged in bankruptcy unlike credit cards. They will literally follow you around to death. Not only that - also unlike credit cards - they can even take your retirement money AND your social security.

When someone defaults on a student loan the feds literally PAY THEM the money, but YOU are still on the hook for life. For a lender it is the best kind of loan business to be in.

You keep going around on financial threads making blissfully ignorant comments such as this.... so I doubt you'll even do this.... but go to www.studentloanjustice.org and actually educate your self as to how these student loans are ruining lives. There are countless stories of how $50,000 balances doubled to over $100,000 in a few short years, for example, due to default rates and fees imposed by lenders compounding rapidly.

Keep in mind it is mostly the CURRENT generation of students that are suffering because of massively higher balances than those before them. Student loans will be the next major financial crisis. Most people don't realize that yet.

[RoyGBiv]

12. No, I'm not kidding ...

I'm questioning the association between "predatory credit cards" and student loans, emphasis on "predatory."

I understand how they work. I deal with them every day and have personally seen more horror stories than you could find for me. I get it.

I also know that I sit down, personally, with each and every student who gets one and verbally warn them of the dangers associated with not taking the loan as a *loan* seriously. I read to them the terms of their loan. I explain interest rates, how much they'll be paying off, when, etc. To clarify, I work for the educational institution, *not* the financial one.

In any case, I don't know any credit card company that explains things as thoroughly and honestly as the Stafford program does, which is why I question the comparison.

[Orrex]

14. If you actually do sit down that way, then you are close to unique

The only thing that most colleges tell their students in this regard is "you need to pay your tuition in advance, or your registration is canceled."

In any case, I don't know any credit card company that explains things as thoroughly and honestly as the Stafford program does, which is why I question the comparison.

Oh, come on. A 40-page manual of gobbledygook may be a "thorough" and "honest" explanation, but it's no less predatory than a four-page brochure of fine print that a credit card company sends out.

Additionally, student loan companies make one thing very clear: students who drop below "full time" status will lose their loans, so you'd better sign up for that great big loan so you can take 12+ credits.

[RoyGBiv]

18. I have an advantage ...

We take it seriously.

Unfortunately, you're probably correct about most colleges. (I don't know. I've never worked at another one and only have occasional contact with others.) And, admittedly, there are counselors and other finance people who are less serious about their jobs than others.

I'm not unique, though.

I've attended a yearly conference for the past three years in which people in my position all across Texas get together and discuss these things. It's taken very seriously by the participants. Some colleges have even better systems than we do and more dedicated personnel. Some have worse. Some try but are constrained by governing boards that don't want to hire financial counselors or who are more concerned with enrollment numbers and think explaining the realities might scare away prospective students. Sad part about those that do get scared off is they tend to end up at a far worse institution, e.g. a for-profit college where they simply do not care about your after-college financial burden.

In any case, thanks for your insight. I do not think this is as black and white as you seem to make it, but I agree there is vast room for improvement.

[Name removed]

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[Orrex]

13. "Student loans will be the next major financial crisis."

I'm just about 100% certain that it's already underway.

I know a great many people who've been crippled by student loan debt, much worse than medical bills, credit card debt, or car payments.

When I went into default on my loan, I called to see what my choices were.

"Well," they said, "you can pay us $300 per month, or we'll take $300 per month from your paycheck."

"But I'm the sole income provider for a family of four, earning just $X per year. Do I have any other options?"

"Oh," they said. "In that case, you can pay us $300 per month, or we'll take $300 per month from your paycheck."

[Orrex]

10. Because they're inescapable, for one thing.

Actually, that's more than enough reason all by itself. If you wrack up $20,000 in credit card debt, even for legitimate reasons, you can often declare bankruptcy and start over. Not so with student loans, which are emblazoned upon your soul forever and ever.

And because they're sold to vulnerable 18-year-olds (and their families) when those students have no other means of paying for college. Coupled with the societal myth that college education will lead to prosperity--or at least to an income capable of repaying the loan--they create the impression that students will be screwed forever unless they sign on the dotted line.

If such lenders had even a shred of honesty or integrity, they would provide a detailed amortization schedule to students, so that they'll see in advance how easily a $12,000 loan can turn into a $60,000 albatross before it's all over.

Additionally, colleges should tell students that a degree in, say, communications will very likely result in a job making $22,000 in a wholly unrelated field, so that a prospective communications student should think very carefully about taking out that loan.


I could go on and on, but that's enough for starters...

[RoyGBiv]

16. Okay ...

But let me add this.

I'll grant you the "till death do us part" bit, although there are more ways to get a student loan discharged than you imply, e.g. the bit I mentioned in the OP about disabled persons.

I'll also grant you that the financial institutions themselves are not forthcoming with information about all the loan entails.

However, as I mentioned in another post, I do in fact sit down with students and explain all these details and quite a few more not mentioned. I spend a lot of time (and so do the counselors) discussing potential after-college incomes associated with fields of study and how that compares to their loan requirements. Then we think in terms of investment. Is this is a good investment? For most, it actually is. For others, not so much. Most students don't get loans for all semesters and/or not at maximums, in which case the loan as investment does make sense.

The problem is, far too many of them do not listen. I've seen many students get into trouble who complain and complain that "no one told me" this or that would happen, and then I go through my files and pull out a form with their signature on it. If that form is in my files, it means I had them sign it, and before I let them sign it, I read them what was on the form and had them explain to me what it said.

But these are a minority. Most of the students I have dealt with are not in default.

[Orrex]

19. I can tell you for an ironclad fact that "no one told me"

In fact, no effort was made--at any level--to counsel students about the implications of their huge loans. The college was only too glad to accept the funds and move onto the next victim.

As I mentioned in another post, if you truly do sit down with students as you describe, then you are the rarest of creatures. I had a long stint in college, and not once during that time was I ever warned against taking out too large a loan.

How large an educational institution do you work for? I attended a university with upward of 70,000 students, and I'm certain that there was no conscientious adviser cautioning students against ill-considered financial choices.

Also, to tout "full disability" as a means of escaping the debt is almost literally telling people to chop their own legs off. That's hardly an argument against the reality of these lenders' predatory tactics.

[TwixVoy]

20. Jesus christ on a cross I hope you aren't really working with students

I hope to god you aren't actually telling students this BS. Are you on the Sallie Mae payroll?

"bit I mentioned in the OP about disabled persons"

Yea, did you also mention that the person must literally be paralyzed from the neck down to qualify?

And what other ways are there to bankrupt a student loan? Tell us Mr. Sallie Mae.

[YOY]

3. They're great. Should be expanded....but I'd prefer education was made more affordable.

I have 1/2 Stafford and 1/2 private. The private (was the only thing I could get 1/2way through grad school) had a delightful variable interest rate.

Fuckers jacked it up so high I was paying nearly twice on the private as I was the Stafford.

Had to get family to pay it off and now I pay my family off. I wrote Citi and told them they'd never have me as a customer again.

[RoyGBiv]

7. More affordable being the key ...

At one time a lot of students got their grants and then chose to get the loans or not and use the money for living expenses if they needed it. More and more, they need the loans just to pay for *part* of the tuition and fees that Pell doesn't pay.

It's really disconcerting to see a student who has maxed their Pell and their loans and still have to sign up for a (thankfully) no interest payment plan just to pay their tuition.

Then they get to worry about books, which are outrageous.

[Hannah Bell]

4. in the 80s i was surprised to find students were taking out student loans at market rates.

my understanding was that student loans should be below market; at least, they used to be.

so if student loans = market, i don't see the point.

[RoyGBiv]

9. It's the fixed rate ...

... and the fact that people get them who otherwise would not be approved.

For students who do take a moment to think about what they're getting themselves into, that's the key factor. Students I deal with often come from very poor families who have no collateral to put up against a loan of any kind, but they can still get a Stafford to help pay for school and/or living expenses.

[Orrex]

15. Here's the key

Students I deal with often come from very poor families who have no collateral to put up against a loan of any kind, but they can still get a Stafford to help pay for school and/or living expenses.

Then there should be some means of paying for their education other than saddling them with thousands of dollars of inescapable--and frequently insupportable--debt.

Students and their families would actually be much better off taking out $40,000 worth of cash advances on their credit cards than signing their souls over to Sallie Mae et al.

[RoyGBiv]

21. Yes, there should be ...

Loans are a last resort. We always make that clear to students, "we" being me and those with whom I work.

There should be a better way. I personally think higher education should be fully funded for lower-income individuals up to the BA/BS level.

But I have to disagree with you on the cash advances from credit cards. For one, the people who need that don't have a credit card that allows a $40,000 cash advance. And, unless you want to counsel that the student should do this and then intentionally default, declare bankruptcy, and move on, the interest they are going to back will be staggering. That would not be legal advice for me to give.

[Hannah Bell]

23. student loans used to be below maket, when i was in school, & most kids didn't

get need to get them. something happened under reagan, i believe.

[RoyGBiv]

24. Yes ...

... and Clinton and Bush.

The act that established them had to be reenacted. Every time it was, it was changed. There was a big thing about it during Bush's last term.

[StarfarerBill]

6. All I have to say is: Thank goodness for Pell Grants.

I would never have been able to go to college if it hadn't been for them.

[notesdev]

11. Loan programs have become self-defeating

Tuition has risen to meet the available funds to pay, rather than meeting the value of the education. The result is that attending college for many is a negative-sum game - tuition so high it won't, on average, be amortized positively against increased income over a lifetime.

At some point it is the either cost of tuition or the number of students which will have to give way.

In my opinion, there's no reason a year's worth of college education for one student need cost more than $5000/year on average - you can pay your teachers pretty well on that. Yet $10,000/year and more is becoming more commonplace every year. Someone is siphoning off a lot of money in the process and using it to be players in real estate and investing markets, while shortchanging deserving students of an adequate education.

Sadly, even education has turned into the subject of financial manipulation where an elite few get to control enormous resources and everyone else ends up screwed.

[RoyGBiv]

22. .