TakeAway: As tuitions rise, many students are borrowing heavily to pay their bills. Some no doubt view it as “good debt,” because an education can lead to a higher salary. But in practice, student loans are one of the most toxic debts, requiring extreme consumer caution responsibility.
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Excerpted from WSJ: As Default Rates on Borrowing for Higher Education Rise, Some Borrowers See No Way Out, Feb. 13, 2010
There is an estimated $730 billion in outstanding federal and private student-loan debt — and only 40% of that debt is actively being repaid. The rest is in default, or in deferment, which means that payments and interest are halted, or in “forbearance,” which means payments are halted while interest accrues.
When Michelle Bisutti, a 41-year-old family practitioner in Columbus, Ohio, finished medical school in 2003, her student-loan debt amounted to roughly $250,000. Since then, it has ballooned to $555,000.
It is the result of her deferring loan payments while she completed her residency, default charges and relentlessly compounding interest rates. Among the charges: a single $53,870 fee for when her loan was turned over to a collection agency. Now, the entire balance of her federal loans will be paid off in 351 months. Dr. Bisutti will be 70 years old.
Dr. Bisutti says she loves her work, but regrets taking out so many student loans. She admits that she made mistakes in missing payments, deferring her loans and not being completely thorough with some of the paperwork, but was surprised at how quickly the debt spiraled.
As tuitions rise, many people are borrowing heavily to pay their bills. Some no doubt view it as “good debt,” because an education can lead to a higher salary. But in practice, student loans are one of the most toxic debts, requiring extreme consumer caution responsibility.
Unlike other kinds of debt, student loans can be particularly hard to wriggle out of. Homeowners who can’t make their mortgage payments can hand over the keys to their house to their lender. Credit-card and even gambling debts can be discharged in bankruptcy. But ditching a student loan is virtually impossible, especially once a collection agency gets involved.
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Lenders say student-loan terms are clear and that they try to work with borrowers who get in trouble.
Loan terms, including interest rates, are disclosed “multiple times and in multiple ways,” says Martha Holler, a spokeswoman for Sallie Mae, who says the company can’t comment on individual accounts. Repayment tools and account information are accessible on Sallie Mae’s Web site as well, she says.
Full article:
http://online.wsj.com/article/SB10001424052748703389004575033063806327030.html?mod=WSJ_hps_MIDDLESixthNews
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