Poor Student No More

We live in a nation in which higher education has become the goal of many, a necessity for most, and certainly a step in the right direction toward achieving the “American Dream.” Politicians base entire speeches on the promise of ensuring the opportunity to go to college exists for all. Teachers in primary and secondary education design their curriculum to prepare students for college, not necessarily for life (which is why we have such a problem with personal financial education — but I won’t digress to that topic here).

Since a college education has become such a commodity (with such a high price) in our nation, wouldn’t you think the government would offer students more opportunities and incentives to go?

There are federal loans (of which only some are subsidized) and grants, but overall, the federal government has not done an adequate job of protecting students from the debt trap that college can cause. Quite ironic considering they are encouraging American youth to go to college and achieve their dreams.

So, what is our government doing to protect students from high interest rates, defaults, and unforgiving lenders? What happens when higher education’s promise of a better financial future isn’t kept?

Right now, Congress is considering ending a program that backs private loans with government money. Instead, the money used to back the private loans would go directly to students, increasing the funds available for Stafford, Perkins and PLUS loans. This would not only save the federal government money, but also save students from high interest rates, unforgiving deferment policies and ridiculous calls from lenders telling you it’s time to start paying up. Yes please.

The most important legislation, however, comes from state legislatures. When there are budget cuts in the state, student aid often goes down, tuition for state universities goes up, and student debt goes up. For example, New York is thinking of cutting its student aid programs mid-year in response to a huge budget cut.

Jon Chattman wrote an article for The Huffington Post arguing that forgiving student debt would stimulate the economy because it would put extra money in pockets without decreasing taxes or giving stimulus packages.

Debt forgiveness is extremely rare, but there have been some ideas floating around Congress in recent years. The late Senator Kennedy introduced the Student Debt Relief Act of 2007 that increased the Pell grant, introduced a student aid reward program, cut interest rates in half, and offered fair payment assurance — meaning that there were less restrictions on granting forgiveness for all or part of student loans.

Keep pushing for more protection for students against private lenders, especially at the state level!

Contrary to my assertions on this website, student debt is not a major problem, according to New York Times writer Jack Madden. The article “Student Debt Rises, but Is Termed ‘Manageable’ for Most,” says that the majority of students who take out loans actually graduate with a manageable amount of debt according to a brief released by the College Board.

A concern arises in reference to the word “manageable.” What exactly do they mean by that? That may mean that you will be able to afford to pay the minimum monthly payment, finally paying off your loans in 30 years. Rather vague, isn’t it?

What if it means that, based on your salary, you can afford to pay your loan payments but can only afford to pay $200 per month for living expenses. Here’s another twist: your job is in New York City. Do you really think that’s “manageable?” I hope you can find a roommate for the refrigerator box you’ll be living in.

Of course, this is all a bit far-fetched, and probably not the scenario in most cases. Graduates usually find a way to make their monthly payments — otherwise the whole model would fail. But being able to make your payments and having the ability to pay off your debt are very separate and different things. Paying off your debt requires more than “manageable” payments — it requires an action-oriented plan toward your own financial freedom.
Peace, love and loans,

Jess