Paying for College

Student Loans: Paying The Piper

Borrowing money from various sources is part of the college process for most college students today. I’ve discussed this topic before here in my blog, noting that the level of student loan debt, both individually and collectively in America, is staggering. I’ve cited a few college graduates who have amassed a six-figure debt.

To me, coming out of college owing $100,000 (or more) for college loans (let alone other necessities such as a car, home, etc.) boggles my mind. The current federal administration has been making vague teases about forgiving student loan debt, but I wouldn’t be placing any bets on that. If you do, you’ll just owe more money when your prognostication goes south.

So, what’s a young person to do when faced with this level of indebtedness? The answer is simple: Pay up!


There are consequences if you don’t. It’s odd. Some graduates, probably more than we realize, view college loans as a minor annoyance, something to put on the back burner. Unfortunately, smart graduates view their college loan debt the same as apartment rent, car payments, or credit card debt. In other words, if you miss paying on time for those kinds of bills, you could be evicted from your apartment, have your car repossessed, and face merciless dunning by credit card collection agencies.

 

Now, as I see from media reports, hard actions are being taken against graduates who have back-burnered their student loan payments. Here’s part of one new news item:

$176M In Wages Garnished For Unpaid Federal Student Loans In Just Three Months

Millions of would-be students turn to the federal government in order finance their education, each taking out thousands of dollars in loans. While that influx of funds allows borrowers to seek a better life by obtaining a degree, it also has to be repaid. And when that becomes impossible for some consumers, debt collectors hired by the Department of Education sometimes resort to garnishing wages. 

According to recently released data from the Department of Education, that strategy paid off in the last three months of 2015, with debt collectors bringing in more than $176 million in garnishments [PDF].

Debt collectors, even those working for the federal government, can only garnish a borrower’s wages after they’ve defaulted on their debt — failed to pay for a certain number of months — and received a court order allowing the deductions.

While the Dept. hasn’t provided much historical data on previous garnishments, it did report the collection of $170 million in garnishments between July and September 2015, MarketWatch reports.

When attempts by servers and collection agencies fail, the government doesn’t simply give up on its owed debt. Instead, the Treasury Department turns to garnishments of Social Security, tax refunds or wages, according to a report last year that looked into the relationship between federal student loans and private debt collectors.

The Treasury said it had net offsets of $2.27 billion for education debts in fiscal 2015.

Still, the $176 million collected at the end of 2015 represents just a drop in the bucket when it comes to private debt collectors recovering money for the Dept. …

… Chris Hicks, an independent researcher who focuses on student debt, tells MarketWatch that the amount of money being taken from borrowers’ paychecks is “horrifying.”

“These are people who can’t afford to pay their student loans and they’ve garnished $176 million in three months from them,” Hicks said. “You have to wonder what conditions people are living in when they’re seeing that much of their wages garnished.” …

I couldn’t agree more with Hicks. With the average level of debt today’s graduates are burdened with, this wage-garnishing process may become a lifetime anchor, bleeding much needed income from young lives.

Here are some other thoughts on this situation:

Americans just had $176 million in wages garnished by the government due to unpaid student loans

Despite more programs available to federal student loan borrowers to manage their loans, borrowers are still struggling. In fact, between October 1 and December 31, 2015, private debt collection companies hired by the Department of Education garnished more than $176 million in wages from defaulted student loan borrowers in order to pay back their debts, according to data released last week.

Though the government provides a variety of options to help student loan borrowers manage their payments, it also has extraordinary powers — including wage garnishment — to collect on the debt if a borrower defaults …

… More than 336,000 borrowers entered default last quarter alone and more than 1 million borrowers entered default last year, according to the Department’s data. This is the first time the Department has released this metric, so it’s hard to say if it represents an improvement from previous years.

[Chris] Hicks said he’s particularly concerned that it appears that tens of thousands of borrowers are entering default for the second time each quarter the Department measured. Borrowers who default more than once on their federal student loans have limited options to become current on their payments and get their financial lives back on track.

All of these defaults keep happening even as the Obama administration has made it easier for borrowers to make payments on their student loans tied to their income, a step which should theoretically prevent borrowers from defaulting. In its data release, The Department also noted that as of December 2015, nearly 4.6 million borrowers with direct loans were taking advantage of these programs, a 48% increasefrom a year earlier. This growth in uptake of these programs is partially responsible for the decline in the share of borrowers delinquent for 31 days or more from a year earlier …

There are some very enlightening comments following this article.

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This highly sobering information should serve as notice for this year’s high school seniors and their families, as they prepare to make their enrollment decisions and accept financial aid packages, many of which are bloated with student loans.

 

Okay, then. How can you go about avoiding the unfortunate situation of heavy debt and possible future wage garnishment? Here are a few of the …

7 surprising ways to minimize student debt

– Take a gap year.

“Sometimes it benefits students to wait until they have a better sense of why they want to go to college and what they want to study,” says Michele Kosboth, director of student financial planning for Lasell College in Newton, Mass. …

– Pick a major.

“Changing majors even just once can add on a year of school,” says Heather Doe, associate director of marketing and communications for the Iowa College Student Aid Commission in Des Moines. …

– Stay in school.

If you’ve already put in a few years at a four-year institution, it’s smarter to stay in school and keep taking on debt rather than dropping out. A study by the U.S. Census Bureau shows that full-time workers holding bachelor’s degrees earn an average of $15,400 more per year than full-time workers with some college, but no degree. …

– Attend summer school.

If you’d like a sweet 25 percent discount on college costs, hit the books this summer.

“If you can get your degree finished in three years by taking more courses than the normal, average 12 credits or taking summer courses, that will save you money,” says Kosboth. …

– Pay the interest.

Taking a job or paid internship while in school can also help keep student loan interest in check, says Rambo. While students with unsubsidized Stafford loans aren’t required to pay loan interest while they’re in school, they’ll save a bundle if they do. …

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Finally, a few thoughts from the Brain of Dave, be it ever so humble:

– Put some serious thought into why you want to go to college.Once you have decided that your life and goals will definitely benefit from a college degree, do some intelligent consideration about which school you would like to attend, along with some rational reasons about the match between you and those schools. That should help you distill your list of candidates.

– “Prestige” wears off quickly when the bills come due. If you have to borrow heavily to attend a prestigious (whatever that means) college, consider the “morning after effect” of long years of heavy payments on those loans. Forward thinking can save you a lot of later grief.

– Maybe community college or a trade school is what you really need. Not all of us need a four-year (which sometimes turns into a five- or six-year) undergraduate degree. There’s no shame in not going to a traditional four-year school right from Day One. You can always transfer from a community college. You can also go straight from a trade school to a good paying job. Beware the illusions of prestige and tradition.

– Don’t fool yourself about debt amnesty. One of the worst things you can do is sign on the line which is dotted, taking on multiple large loans across your college years, thinking, “Well, everyone else is doing it,” or (far worse still), “What the heck? The Government will eventually cancel all this debt anyway.” Wrong. Wrong. Wrong! When you signed for it, you agreed to pay it back! Think before you act!

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Be sure to check out all my college-related articles at College Confidential.