I noticed the slide Professor Bassett had about how the Gov't is trying to lower the cap to 5% of paycheck for repayment as a way to "help" with student loans. However, the problem with this is that it actually makes the student loan worse for the borrower. How so? Well, if you look at the proposal, you would be paying less of your check towards the loan, you would be correct. It would help the person in day-to-day spending, but the longer payoff = more paid in interest. The scam with student loans is like most other loans, people pay just the bare minimum payments and think theyre doing good. The lowering to 5% would have a similar effect, where most people would then just make the bare minimum payment. The difference between normal loans and student loans? Most normal loans have a lower interest rate and a definite end period for when the loan is paid off. There is a similar term option you can choose for your loans, but if you choose the 5% option, that is not the case. You are paying that amount until it eventually is paid off, and that is dependent on the 5% to loaned amount, making it case dependent and some people could result in several decades.
Paying smaller payments and depending on how low your income is compared to how much loan you borrowed, you could just be paying the accruing interest only and nothing on the balance. That could potentially make you perpetually in debt, never decreasing the principle and depending on your 5% payment and interest rate on the principle, you could potentially be accruing more interest than what youre paying down too on the loan.
Never make the minimum payment. If you can afford to pay more on loans, you should. It saves you more money in the long run with the loans as your overpayment will go directly towards the principle, meaning less interest being accrued over the life of the loan because you're paying it off faster.
Now, what really is the scam of student loans? There are multiple parts to it. First is that with the government guaranteeing the students payment of tuition through these loans, all schools are happy to raise their prices. Why wouldn't they? It's guaranteed money. That is why tuition costs have raised astronomically and their curriculum require you to take courses that don't correlate with your field of study, because they can extend the number of semesters you have to take with the filler classes. Second is the hassle free, unsecured, loaning practices the federal government pushes. Applying for a loan is extremely simple, and quick to do online in just a few minutes. Couple that with the fact that its targeted consumer base is fresh out of high school 18-21yr olds, its practice should be considered predatory as they make the loan seem so appealing and easy without giving the borrower all the financial training or protection you would expect the federal government to do for vulnerable people. Third is that student loans aren't like your typical consumer loans. It's a loan from the federal government. Bankruptcy will not save you from the federal government. It will always get its money and there is no one to stop it from doing so otherwise. It can garnish your paychecks, not allow you to have a passport, and many other consequences that are not explained as punishments for failing to pay when you get your loans. Lastly, society as a whole has perpetuated this scam on the vulnerable young. All throughout my schooling, I was constantly pushed and brainwashed that you have to have a college education to get a high paying job. Then when you graduate, the job posting for those degree's either barely pay anything or are seeking unrealistic experience expectations for entry level positions. What kind of crap is that?
Overall, education is important. This post is not to knock the education we have received, as it is one of the few things in life that cannot be taken away from you. This was more of a rant of the absurdity that are Student Loans and to shed some light for some who might fall into the trap that is being touted as a helping hand for borrowers of student loans when in actuality, its a bigger trap. Here's to drowning in our loans together, Cheers!
This was a very informative post for me. I come from a first generation family and none of this information was really ever relayed to me by family or anyone else. When I saw loans when I was 17 and just starting college I literally thought "oh wow, free money" which is pretty bad haha. Ofcourse I knew I would have to pay it off at some point but there was no other option for me to finance college so I just took whatever I could get. Subsidized or unsubsidized was all foreign language to me. I still dont fully get it, but hoping that I make enough as an attorney to aggressively pay it back before I get a new car, and the finer things in life. All that being said thank you for posting this very important information, helps me understand the whole scam alot!
ReplyDeleteWhether the new SAVE program is worthwhile will depend on individual financial circumstances. In general, the interest subsidy for people with a less than six-figure adjusted gross income will make the program worthwhile - but there are exceptions. See the scenarios in this Reddit post. http://tinyurl.com/27kbxvsy
ReplyDeleteHi Clayton, I really enjoyed reading your post especially since this hits so close to home. Not only has Stetson raised the tuition pretty much every year but I do sometimes sit in some courses and think how pertinent is this really to my success as a lawyer.. would we all be better of just finishing in 2 years and taking bar tested subjects? Your post really illustrates how much money and profit is a driving force behind pretty much every decision. I also feel pretty frustrated in that in my experience looking for a job in today's market it seems that this bigger law firms are mostly looking for summer hires or attorneys with 2-5 years experience. Its hard to find firms that really want to invest is training and teaching fresh out of law school attorneys. It can be quite discouraging when you have huge loans hovering over you.
ReplyDeleteClayton, this is such an interesting post. I did a deep dive in to the Biden student loan forgiveness initiatives this summer while researching for my law review article, and learning about how expensive school has gotten over the past several decades was infuriating. There is an inherent accessibility problem when it comes to higher education–it is so terrible that we have to cripple ourselves in debt in order to take on our profession. Fingers crossed we see some changes to the student loan structure soon!
ReplyDeleteClayton, this is such an important issue and thank you for the advice. I might be wrong but I'm pretty sure college was free up until the mid 1960's or so. Reagan made a proposal in CA as governor to charge for school in part because of students protesting. The idea was if you have to pay for college you might not spend time protesting since it was your money. In addition to being anti-American, in my opinion, it also served as a foundation for the mess that we find ourselves in. Additionally, as you mentioned, the practice is extremely predatory. Eighteen is not old enough to understand the magnitude of student loan debt. Often times, the student has to opt-out of acceptance and just might not know.
ReplyDeleteClayton, I find the points you raised in your article about the government's proposed 5% cap on student loan repayment quite compelling. It's alarming to see how such a measure, intended to assist borrowers, might inadvertently worsen the situation by prolonging payoffs and increasing interest payments. Your breakdown of the unique challenges posed by student loans, such as the indefinite nature of the 5% option and the potential for perpetual debt, provides valuable insights into the complexities of the issue. The broader critique of the systemic flaws in the student loan system, from inflated tuition costs to the lack of financial education for young borrowers, resonates strongly. Your call for a comprehensive reevaluation and reform of the system reflects a need for meaningful change to alleviate the burden on borrowers.
ReplyDelete(Ai helped in this response)
What a hot topic. Student debt is really a crazy thought to me as to just how difficult it is to pay back at a new entry job level. I agree with what you are saying and it also reminds me of something my friend told me the other day. They said what if there is a requirement that the job themselves look at your degree and loans and pay you based on those loans. Practically speaking, this would be near impossible to do and would have major policy disadvantages. At the end of the day, its a big complex problem with not a clear solution.
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