Student Loans Suck!
Student loans suck – for students and their parents. I am still paying off my undergraduate student loans and I have been out of college for more than a decade. And I still have my graduate school loans to worry about.
There is something very important every parent and their college bound child should understand.
Student loan debt will only be discharged through a bankruptcy if you can demonstrate repayment will “impose an undue hardship on you or your dependents.” Now, you might think…well, doesn’t the fact that I am seeking bankruptcy protection demonstrate I am in financial hardship? Sorry, that isn’t the way it works.
My point is this. If you take out student loans you are going to repay them one way or the other.
Wanna hear something else utterly ridiculous about student loans? You are charged a higher interest rate on your student loans than for a home mortgage loan. You may be asking, why is that relevant?
The interest rate charged by a lender is supposed to factor in the riskiness of the loan – meaning borrowers with poor credit scores are charged higher rates of interest and so forth. It also means that when a lender has greater security or collateral they will offer better terms.
In California and several other states, home mortgages are non-recourse loans. What this means in very simple terms is that when you buy a home and take out a mortgage the bank can only take the home back if you stop making the payments. They cannot come after you for any money that you may owe them. Take someone who bought a house for $400,000 in 2007 at the top of the housing bubble that is now worth $250,000. If the homeowner decides to walk away, the bank can’t sue them for the $150,000 they lost on the home loan.
And they didn’t even have to go into bankruptcy to do that! Yet, it is nearly impossible for a student to discharge a student loan and they are often required to pay interest rates that are 50% higher than a traditional 30-year home mortgage. How is that fair?
The risk pricing model on student loans is out-of-whack and just another example of how student loans suck.
If you are interested in learning more about fantastic and rewarding careers that do not require a traditional four-year college degree, please visit the Ditch College career portal.