Enjoyed Studying Abroad? Considered Fleeing Student Loan Debt Abroad?
With mounting struggles in the finance industry and the declining confidence of the American consumer, debt has never seemed so fashionable! But for some students it may turn to a rags-to-Ragu story.
CNN ran an article last week profiling the phenomenon of students fleeing the country to avoid paying their student loan debts. According to two students, the terms of the loan payments were not clear and before they knew it, the loans were "insurmountable". One student was forced to pay $2300 a month for a Masters degree in Music! That’s a sad song. So what exactly is going on here?
One of the major gripes with private student loans is how the loans affect student credit scores. Many colleges and universities have “preferred” lenders and of course, students borrow from these institutions an estimated 90% of the time. These young, impressionable adults trust the educators. Cute, right? Sometimes the lenders and the universities are in cahoots — leaving the student with higher debt than if they had shopped around for better rates.
New York State Attorney General Anthony Cuomo filed suit against some such universities and lenders last year, resulting in six schools multi-million dollar settlements. So why don’t students shop around? Well, they’re essentially penalized for their youth and lack of credit. Since lenders quote higher interest rates to applicants with lower scores, some students could end up paying thousands of dollars more in interest over the life of their loans. This is damaging to students now more so than ever as banks and lenders are less accepting of home equity loans from parents who might co-sign loans. There are also higher minimum scores in some lending houses.
According to a New York Times story on the student loan crisis, “To quote a rate, lenders check an applicant’s credit history. And every time a shopper asks a lender for a rate quote, it can show up as another inquiry on a credit report. Lots of inquiries send the wrong signals to the formulas that create the popular FICO credit score that Fair Isaac administers, namely that borrowers may be applying for multiple loans because they’re financially troubled and potentially going bankrupt.” Other industries like auto loans and mortgages filter out these alarm signals but this has not happened for student loans.
So what should you do? According to the Times article, start checking out one or two preferred lenders from your school and make sure to ask if there are any non-profit lenders that serve the college. Err on the side of caution and try to stick with as much as possible in scholarships, federal loans, and saved birthday money. There's as much risk in gambling as there are in loans, it seems. You might be good at that. Give it a try!
But seriously, federal loans are guaranteed against default, making them very low risk. In Vermont, VSAC is a great loan resource. Make sure to do enough research so you don't end up owing $160,000 for a music degree, plucking pennies from the couch cushions. If not, I hear the weather in Brussels is great this time of year. And next year, and the year after that, and the year after that...
Oh please. Yet another round of victims. If some schmuck is *stupid* enough, yes stupid, to ring up $160K of student loan debt for a Masters in MUSIC he deserves to be hung out to dry.
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Posted by: satria | November 07, 2008 at 02:54 PM
I recently came across your blog and have been reading along. I thought I would leave my first comment. I don't know what to say except that I have enjoyed reading. Nice blog. I will keep visiting this blog very often.
Susan
http://www.car-insurance-choices.com
Posted by: Susan | November 10, 2008 at 09:39 PM
I recently came across your blog and have been reading along. I thought I would leave my first comment. I don't know what to
say except that I have enjoyed reading. Nice blog. I will keep visiting this blog very often.
Betty
http://www.my-foreclosures.info
Posted by: Betty | November 12, 2008 at 09:52 PM
This is another human being and I feel sorry for them. Where is the responsibility of the government that backs these loans? Where is the oversight and regulation? And if the government is going to make these loans, where are the basic consumer protections?
Shame on the first poster for pretending that this is only the students fault while not mentioning the responsibility of the government in backing these loans.
Posted by: Sam | February 24, 2009 at 03:09 PM
For me it was like this: No private loan, no college. I was suckered into the private loan scam. I am now sporting a six figure debt. I say leaving the country is a great idea. It would serve the banking system and the government right.
Posted by: jimbo | September 06, 2009 at 08:28 PM