Student loans have reached the trillions of dollars.
The government is now suing some college chains for being predatory lenders. That’s great news, but there’s always more to the story than meets the eye…
On February 26, 2014, the Consumer Financial Protection Bureau (a government organization set up to protect us from shady financial companies) made history by suing a for-profit college chain: ITT Educational Services, Inc.
The bureau has since filed another such lawsuit against Corinthian Colleges, Inc. Schools that operate under the Corinthian company name are Everest, Heald and WyoTech.
The CFPB found both schools to be predatory lenders. You normally think of payday lenders and car title lenders as being predatory lenders, not student loan lenders. But start thinking that way, because they are. If you are paying tens of thousands of dollars for a product (education) that doesn’t get you what you pay for, there’s a problem.
What I wish would happen is the CFPB would call out all the offenders. Shocking amounts of college students who take out government student loans aren’t faring much better than the students at ITT and Corinthian colleges do.
But remember, the CFBP is a U.S. government organization that President Obama made possible. It wants us to look away from the federal student loan problems by highlighting the few bad private lenders.
Here’s five reasons you should avoid student loans altogether if possible:
1. Students might think they’ll graduate in 4 years, but they typically take 6
The numbers of students who graduate in four years are shockingly low. Only 19 percent of students graduate from a public college or university in four years.
And of the best, most selective colleges (the ones with a whole lot of super motivated students), only 36 percent of full-time students finish in four years, according to The New York Times.
This is not all because of students taking too few classes. Anyone who’s been to college knows that it’s often impossible to get the required classes needed to graduate on time because of scheduling difficulties. Or if you transfer colleges, your credits don’t transfer.
And why is this significant? Because when you figure how much college will cost, you probably figure the cost of four years. This might not be a news flash, but it costs more to go to college for six years than it does if you graduate in four. You’ll wind up with nearly 70 percent more debt, according to a couple of university studies. So those extra two years become a huge unwelcome expense.
2. 41 percent of students don’t graduate at all after 6 years
The government has to fess up because of the Student Right to Know Act. Otherwise, you’d probably never know this figure. And you only know it now if you think to look it up (or read it here). The reality is those are pretty bad odds, odds you should consider before placing your bet. Do you really want to spend all that money on college with nothing to show for it? If you want to go to college and need to borrow money to do so, make sure you’re serious.
3. You probably won’t be able to buy a house for a long time
Traditionally, first-time homebuyers have been recent college grads. Now, many can’t afford or qualify for a mortgage with student debt dragging them down. And if you think that relaxing lending standards is the answer, I would hope that the 2008 mortgage crisis was not too long ago to remember.
4. Student loan delinquencies are rising
If you research default rates, you’ll find all sorts of stats. Most put the default rate (the amount of people who aren’t paying back their student loans) at somewhere between 10 and 13 percent. But a more accurate figure is closer to 30 percent.
Some stats don’t count you late until you are nine months behind instead of the standard 90 days behind. And some stats don’t consider all the people who have gotten their loans deferred or are in other programs.
But if you run the numbers without fudging, you get 30 percent.
5. Student loan debt just doesn’t go away
You can’t discharge this debt in bankruptcy as you can credit card or mortgage debt. Interest keeps accumulating, and late fees are tacked on. This can double or triple the original loan amount. If you default on a student loan, the government has many ways of getting its money — short of breaking your legs.
- It can tank your credit score so you can’t get any other loans.
- It can take your federal and state tax refunds.
- It can take 15 percent of your Social Security and Social Security Disability benefits.
- It can garnish your wages without taking you to court first.
If the CFPB were really looking out for consumers, it wouldn’t focus only on “high-cost private loans.” There’s a problem with the student loan system — period.