Student Loans Debt

[aggieAXO]

My student loan interest was 8.9% in 1997 after consolidation with Sallie Mae. Another DVM I work with who graduated in 92 had an interest rate over 11%. I would have been very very happy with a 2-3% interest rate.

I thought interest rates were now 6.8% no matter what. Is this incorrect?

[UGAalum94]

Originally Posted by Munchkin03

But, you're not borrowing directly from the government. You're taking loans out from a bank; in the event that you completely default (which is next to impossible since they garnish your wages and/or reduce your income tax refund if you don't pay), the government backs it up. Also, since loans can't be discharged in bankruptcy anymore, it's not as if people are shirking their responsibilities. In my mind, it's no different from a VA or FHA mortgage except you can't foreclose on it.

Oh, most people who go to private schools don't "mortgage their future," either, unless they're going to law or medical school.

What do you mean? Are you saying something about the scale of the loan or the connection to future employment? I just meant, in an offhand way, that one would take a huge financial obligation in the future for something that might provide little tangible reward in the present.

In terms of the loans, I think I knew that they are just federally insured rather than federal loans for the most part. (Do we have any straight federal loans, rather than grants, for low income students?)

Not having a tangible valuable asset changes the nature of the loan quite a bit from a VA or FHA mortgage to me, but I'm with you about how the loans pretty much stay with you forever. I'm not even sure you can default really. Wouldn't you almost have to be a position of drawing no income? I'm not at all concerned that people are ripping off the government or anything.

It's a safe risk for the government to take, but it's still kind of a strange one if you really start thinking about it. If they were tied to high income majors or degrees that were associated with delivering needed services it makes more sense than simply insuring loans regardless of institution or degree. And I say that as a big fan of the liberal arts.

I guess as someone noted earlier your taxable income goes up so it makes sense of that level, no matter what degree you earn.

[Munchkin03]

Originally Posted by UGAalum94

What do you mean? Are you saying something about the scale of the loan or the connection to future employment? I just meant, in an offhand way, that one would take a huge financial obligation in the future for something that might provide little tangible reward in the present.

What I meant was that with undergraduate loans, there is a cap on how much you can take out, to prevent someone with just a BA in Art History from going into serious debt. Those limits are much, much higher for graduate programs, and even higher for medical and law school loans because someone with a professional degree will have the ability to make more over their lifetime than a college graduate would.

[UGAalum94]

Originally Posted by Munchkin03

What I meant was that with undergraduate loans, there is a cap on how much you can take out, to prevent someone with just a BA in Art History from going into serious debt. Those limits are much, much higher for graduate programs, and even higher for medical and law school loans because someone with a professional degree will have the ability to make more over their lifetime than a college graduate would.

It's good to know. Do you have a sense of what the undergraduate cap is right now?

I thought you could get loans for the whole cost of undergraduate school and at some places if it's estimated to be 50,000 a year. . .

I'm probably not considering how much schools will typically give kids in scholarships and grants.

[Munchkin03]

Originally Posted by UGAalum94

It's good to know. Do you have a sense of what the undergraduate cap is right now?

I thought you could get loans for the whole cost of undergraduate school and at some places if it's estimated to be 50,000 a year. . .

I'm probably not considering how much schools will typically give kids in scholarships and grants.

I have no clue. But remember, the majority of the most expensive (and selective) schools do not give merit scholarships; at those places, financial assistance is based on actual need.

[PeppyGPhiB]

Originally Posted by Munchkin03

I have no clue. But remember, the majority of the most expensive (and selective) schools do not give merit scholarships; at those places, financial assistance is based on actual need.

Here's the deal with financial aid at most elite (but not Ivy) private schools. They do give merit scholarships, but very few of them. The point of merit aid is to attract the stars of the applicant pool, usually meaning students that are in a whole 'nother league versus the rest of the applicants. For example, a student who gets a perfect score on the ACT or SAT and has a 4.0 unweighted gpa will probably need an extra incentive to get him/her to actually attend Small State University, and money or a free ride is a great incentive. But many private schools have what's called a "self selected" applicant pool, meaning certain types of students tend to apply there - usually high achieving students - whereas other types won't bother. When everyone applying is in the top 10% of their high school class, with great test scores, and extracurriculars out the ears, there's only so much you can do to decide who is the cream of that crop. My school, if I recall, gave merit scholarships to the top 1% of the incoming freshmen, because, well, with so many excellent students, how are you supposed to separate the excellent from the more excellent? At a point it gets silly.

Instead, most private schools tend to give out need-based grants. They're conditional on family finances, but since private schools are so expensive, most students qualify for them. 75% of the students at my school were on financial aid. Since my school has a good endowment for its size, half of my tuition was covered immediately by grant aid from the school. Compare that to the $0 in grants I was offered from Univ. of Washington.

Then there are the loans. The first loans a financial office looks into on behalf of students (the purpose of filling out the FAFSA), are federal stafford loans. There is a maximum amount one can take out each year. Right now, the annual limit for first year is $3,500, $4,500 second year, and $5,500 for remaining years of undergraduate work. There are also federal Perkins loans, which are lended from the school. These federal loans are capped at low interest rates, and I was able to consolidate mine when I graduated to lock in my 3.0% interest rate. However, if you are still not able to pay your school fees with the grant and loan aid I've listed so far, you may qualify for private loans also offered through the financial aid office. These have higher interest rates (I have a small one with an interest rate of around 8%), and they are variable. There's no point in consolidating them because their interest rates cannot be locked in. And you're right, usually you can take these out for the remainder of what's needed for tuition, room & board, etc.

Most of the students today taking on the insane amounts of loan debt ($50k, $60k, $70k, etc.) have private loans - the worst kind. Stafford loans don't allow students to rack up that much in debt, only private loans can do that. And unfortunately, they're going to end up paying a ton of interest on those loans because of the rates. I am a big fan of a liberal arts core curriculum, and I believe education is one investment that will pay off, but I don't think I would (nor would my school) ever advise a student to take on $50,000 or more in private loan debt. When students are in college they have no idea how hard it will be for them to make those payments for many years after they've graduated.

[UGAalum94]

Thanks for all the info. It's interesting to think about.

I think that most of the student I know who are looking at colleges are from an income bracket where they won't seem to have that much need on paper for college generally, but, unless your parents have saved a ton of money for you, who can really afford 50,000 a year for an expensive private?

I'm sure the information they fill out reveals that though and then can pick up some grants and lower interest loans.

[PeppyGPhiB]

Originally Posted by UGAalum94

Thanks for all the info. It's interesting to think about.

I think that most of the student I know who are looking at colleges are from an income bracket where they won't seem to have that much need on paper for college generally, but, unless your parents have saved a ton of money for you, who can really afford 50,000 a year for an expensive private?

I'm sure the information they fill out reveals that though and then can pick up some grants and lower interest loans.

This was certainly the case with the families of the kids I went to high school with (from a wealthy area), as well as some kids I went to college with. But like you said, while a state school may be very easily affordable for a couple, a private school tuition can be impossible for even a couple bringing in six figures. Therefore, "need" as determined by a private school will be much higher than need judged by a cheaper state school. Really when all was said and done, my expensive private school that I wanted really bad was only a few thousand more per year for me than my state school, because UW judged me to have no "need" financially (which is fair).

[AGDee]

The private loans have also become more scarce with the credit crunch/banking crisis according to my friends with college age kids. The way one co-worker explained it to me, when I was complaining that my daughter has very expensive schools in mind... the FAFSA figures out what you can afford to pay and that amount is the same no matter how expensive the school is. So, if they say you come up with $10,000, that's true whether your kid is at a community college or at an expensive private school and she found that the expensive private schools made that extra money available somehow, much like Peppy was saying earlier.

As my kids are quickly approaching college aid, I'm becoming more acutely aware of these issues. I'll get them through somehow though.

[Munchkin03]

Originally Posted by AGDee

The private loans have also become more scarce with the credit crunch/banking crisis according to my friends with college age kids. The way one co-worker explained it to me, when I was complaining that my daughter has very expensive schools in mind... the FAFSA figures out what you can afford to pay and that amount is the same no matter how expensive the school is. So, if they say you come up with $10,000, that's true whether your kid is at a community college or at an expensive private school and she found that the expensive private schools made that extra money available somehow, much like Peppy was saying earlier.

As my kids are quickly approaching college aid, I'm becoming more acutely aware of these issues. I'll get them through somehow though.

Good luck with it! College admissions is one of the things I'm really interested in, and I've been following it pretty closely. I don't have that much experience with the financial aid aspects of the whole thing, but I know private loans have been harder to find.

For private schools, you'll also have the CSS PROFILE, which looks at your assets a little bit more than the FAFSA. A lot of people say--I don't know if this is true--that the Profile expects you to tap into your home equity if you live in an expensive area. Also, the Profile looks more sympathetically to families putting more than one kid in college/taking care of an older grandparent.

It's funny how sometimes private schools end up being more affordable than state colleges.

[Munchkin03]

Originally Posted by UGAalum94

Thanks for all the info. It's interesting to think about.

I think that most of the student I know who are looking at colleges are from an income bracket where they won't seem to have that much need on paper for college generally, but, unless your parents have saved a ton of money for you, who can really afford 50,000 a year for an expensive private?

I'm sure the information they fill out reveals that though and then can pick up some grants and lower interest loans.

A lot of people, it seems. At my undergrad, only about 40% of students received financial aid when I was there; most of that 40% were still middle to upper-middle class. That meant that 60% of students had parents or grandparents forking over the $35K a year. There were no merit scholarships--neither academic nor athletic.

Now, I think it's more 50/50, with more students who could be considered working or starting class.

There are definitely other schools where a lower percentage of students receive assistance, and tuition is about the same or higher.

[AGDee]

Originally Posted by Munchkin03

For private schools, you'll also have the CSS PROFILE, which looks at your assets a little bit more than the FAFSA. A lot of people say--I don't know if this is true--that the Profile expects you to tap into your home equity if you live in an expensive area.

We have a few years yet, but the home equity line made me chuckle. The joke is now on them.. nobody has home equity in Michigan anymore!

[UGAalum94]

Originally Posted by Munchkin03

A lot of people, it seems. At my undergrad, only about 40% of students received financial aid when I was there; most of that 40% were still middle to upper-middle class. That meant that 60% of students had parents or grandparents forking over the $35K a year. There were no merit scholarships--neither academic nor athletic.

Now, I think it's more 50/50, with more students who could be considered working or starting class.

There are definitely other schools where a lower percentage of students receive assistance, and tuition is about the same or higher.

I guess some folks have saved a bunch in college funds for their kids too. If you started early enough, you could probably get a lot socked away, even if you had a moderate income.

I think I've mentioned the HOPE scholarship before on here. If a kid graduates from a public high school in Georgia with a B average, he or she can qualify for free full tuition at a public Georgia college or university as long as he or she maintains a B average. (Keeping it is certainly harder than the initial qualification for it.) If a kid attends a private college in Georgia, I think they get 3,500 a year towards tuition. While this doesn't make school completely free, it does make is hard for a private school to be anywhere near as cheap as a public school for any student who qualifies for HOPE.