Parents Losing Retirement Savings to Pay Children’s Student Loans
Parents who take out loans to pay for their children’s college education are making the student loan crisis worse.
Parents are currently taking out student loans at a bigger rate than students themselves.
“Parents of every income level are increasingly borrowing for their children’s college education. It doesn’t matter whether the parents are low income, middle income or upper income. There’s been dramatic growth in the percentages of parents who’ve been borrowing,” says FinAid.org founder and publisher Mark Kantrowitz.
Many parents who co-signed loans or borrowed money on their own for their children’s education now face the loss of their retirement nest eggs, homes and other assets. As student loan debt has topped U.S. credit card debt, “America faces the very real possibility of another major threat on par with the devastating home mortgage crisis,” according to a new study by the National Association of Consumer Bankruptcy Attorneys (NACBA).
As parents get older they’ll find that re-paying loans will become much more difficult as they transition from a salaried job to a fixed retirement income.
The fixed-rate PLUS loan is a poluar option for families over private student loans, whose rates may vary. While that option is always there, it’s best as parents to avoid taking out loans and look for less costly options.
For more info visit CNBC
College Humor: Student Loans STD’s
Check out this comedy skit from College Humor that unfortunately rings true for many recent graduates.
Is the Media Ignoring the Student Loan Crisis?
Many feel the media is ignoring the looming Student Loan Crisis
Forbes contributing writer Peter J. Reilly recently wrote an interesting article on the the apparent student loan debt crisis blackout in the media. Credited with breaking the story of the US having more Student Loan debt than Credit Card debt, Reilly speaks on his stories of Student Loan debt being repeatedly passed over by NPR.
While I single our NPR because they are among the worst offenders, it is fair to say that the media generally, have almost completely failed to investigate the important facts that have come out on this issue over the past year. Facts that compel further investigation, and which would illuminate directions for the solution of this problem.
For example, no one has bothered to ask the question: Why has the Department of Education, if it knew the default rate across all schools was greater than 1 in 5 for so many years, failed to warn the public about the true risks they were taking on when signing for their student loans? By my best estimate, the true default rate, today, is flirting with 40%, and may even be higher, actually, but even at 20%, the point remains. Today, as a decade ago, the schools, lenders, and even our Department of Education talk only about “cohort” default rates, which are but a fraction of the true default rate. At the minimum, this is obvious big, bad government stuff that should have been followed up on the day after the initial story broke (and acted upon by the President and Congress, I might add).
Visit Forbes for the full story.
Should I cash out my 401(k) to pay off my student loans?
Expert Advice: Should I cash out my 401k to pay Loan Debt?
I graduated in May with a master’s degree, but I am currently unable to find full time work in my field. Soon I will be on the hook for my first student loan payment of $628 a month and I will have 10 years of payments. Because I am only working part time, I will not be able to cover that payment along with my other living expenses. Should I cash out my 401k from a former job? It is worth about $46,000 right now, and that would almost cover all of my student loans. —Name withheld, Boston
While it’s tempting to consider using retirement funds to pay off student loan debt, there are huge drawbacks, warns Mark Kantrowitz, founder of Finaid.org. For one, you won’t have that money and the substantial earnings that may accumulate when you retire. Instead, you’ll have to start your retirement savings from scratch again. What’s more, you’ll be subject to a 10% penalty (assuming you’re not yet 59 ½) and income taxes on the 401(k) withdrawal.
There are better other options, besides. If you have federal loans—such as an unsubsidized Stafford loan or Grad PLUS loan—take a look at the extended repayment option, which could cut your monthly payment by more than $200 by increasing the loan term to 25 years, says Kantrowitz.
Or, consider the income-based repayment, which would base your monthly payment on a percentage of your discretionary income. This may result in an even lower payment while you are underemployed.
There is also something called the economic hardship deferment that suspends your repayment obligation temporarily, though the interest will continue to build during the hiatus. If you think you’ll get a full-time job soon, this option may work for you. Kantrowitz recommends that people who opt for a deferment continue to pay the interest on the loans during the suspension period to keep the balance from growing.
This post was originally published on CNN Money
A College Degree is still worth the rising cost
Is College still worth the money?
The LA Times recently featured a story from recent college graduate Sarah Millar, who conducted a study on if a college is still worth the rising cost.
The good news is that college pays off, Millar concludes, citing data from a variety of government and private sources.
The average take-home pay of college graduates is nearly twice that of their high school counterparts: $38,950 vs. $21,500. Even factoring in student-loan payments, college graduates make more in their first year of work than those with only high school diplomas. And history shows that a college graduate can expect his or her income to increase 2.2% annually over a lifetime vs. 1.9% for the high schooler.
The advantage of college shows most clearly in the vastly different unemployment rates of the two groups: 4.4% in November for collegians compared with 9.6% for those with only high school diplomas (and an abysmal 13.8% for those who never finished high school).
Over 40 years, the college graduate’s earnings would top that of a high-school counterpart by more than $1 million. Financially speaking, college is worthwhile as long as the total four-year cost is less than $715,000, which, at least at the moment, it is.
“The bottom line of this analysis is that college pays, literally and figuratively,” Millar writes.
Her study, combined with her own experiences brings her to the conclusion that brand of the school itself and the intended course of study is important.
Average starting salaries of new graduates generally are higher at big-name schools such as Caltech ($69,600) or Princeton ($56,900), Millar writes. The average for a UCLA grad is $49,200.
More importanty, and spoken on College Loan Helper before is what a student majors in.
Read more at LA Times
Student Loan Debt for the Middle-aged piling up
Are you middle-aged and thinking of going back to school?
In a new analysis obtained by Reuters Middle-aged borrowers are piling up student debt faster than any other age group.
Educational borrowing is up for every age group over the past three years, but it has grown far more quickly among those between 35 and 49, according to the analysis of more than 3 million credit reports provided to Reuters by the credit score tracking site CreditKarma (CreditKarma.com). That group saw its school debt burden increase by a staggering 47 percent, according to the analysis.
According to Credit Karma CEO Kenneth Lin the reason for the jump in middle aged debt is the economy making people return to school for more skills and training.
The average student loan debt for those aged 38 to 41 was the biggest of that group — about $12,000, up from just under $9,000 in 2009. Young people still carry the biggest student loan burdens; those aged 26 to 29 have an average of $14,000 in student debt. But the increased levels in middle-aged student debt is a new phenomenon.
Visit Reuters for the full story.
10 Leaders Who Are Fighting for Student Loan Reform
Our nations student loan debt has reached the forefront of issues pertaining to the economy and the nation’s brightest minds have been starting discussions in the media on how to change our student loan problem so our future generations can afford their education. Graduates feeling the pain of loans in a bleak economy have made their voices heard in the past year, with online and street movements that have reached the oval office. President Obama recently made changes to ease the debt, but there are still people fighting for a better system. The following article from Online College.Org gives us a background on their top 10. We’ll focus on 2:
ALAN COLLINGE
Considering he founded StudentLoanJustice.org and makes appearances in numerous media, it’s safe to say that Alan Collinge probably ranks up there as a popular student loan reform activist. His grassroots organization, which calls the aforementioned website home, focuses particular ire on Sallie Mae and other businesses heavily profiting on those wanting to pursue higher education. In 2007, student loans totaled in the $80 billion range, the majority of them coming from state and private lenders. Collinge and his supporters want to see the processed streamlined, less stressful for the struggling, and generally less compelled by greed.
BRIAN W. JONES
Latimer Education Founder and President — not to mention the Chairman of the District of Columbia Public School Charter Board and a former General Counsel for the U.S. Department of Education — Brian W. Jones spent three years as the Executive Vice President and General Counsel of College Loan Corporation. During his stint, which ran from 2005 to 2008, he ensured that any students applying to the $10 billion private company fully understood the process and received a fair shake. 2006 saw the company honored with the Better Business Bureau’s Torch Award, praising its “ethical business practices” in the service of college and university enrollees. The organization’s efforts to transparently provide student loans without preying on those seeking their services serve as a great example for policymakers, activists, and (of course) other businesses involved in the reform process.
Read More: 10 Leaders Who Are Fighting for Student Loan Reform
Article: I Repaid My Student Loans While Still In College
Can I pay back my student loans while i’m still in school?
It is possible to pay back loans while in school if you are smart with how you save your money and have a focused plan. The following article was spotted at Yahoo Contributor Network.
The first two years of my college experience was spent at a community college. My tuition was covered, but I took out a loan for $20,000 to cover living expenses. Upon transferring to a costly four-year university I received a hefty scholarship, which covered most of my expenses. Still, my loans were at $11,500 per year. The day of my graduation, I received the coveted diploma and a not-so-coveted array of bills for my student loans.
However, the difference between other students and myself was the large sum of money lingering my savings account that I started four years prior. Let me explain how I managed to pay off my bills on the same day that I graduated from college:
Federal Loans Only
The first goal during my college career was to stay away from private student loans because they are nightmares. Trust me, I know. I took out a $5,000 private student loan in my first year of college and watched it as it was passed around from lender to lender and the interest rate jumped around, ranging from 8% to 20%. Not to mention the compounding of interest that increased the loan nearly $1,500 in eight months. Needless to say, I paid that off with every dime that I had to give to it by taking on a job. Please, if you can avoid them, do not take out alternative loans.
The government offers student loans at wonderful interest rates and the government will pay the interest of the loan while you are pursuing your education.
Monthly Payments While in School
Let’s evaluate my loans. During years one and two, I took out $7,500 for each year. My plan was to get a job that I could take the money that I would need to pay off the loan in one year and pay it into a high-interest savings account. That meant that for years one and two, I paid $625 into my savings account each month. During years three and four, I took out $11,500 per year, which meant that I had to contribute $960 each month to the savings account. This may seem like a lot of money, but at the time I was single and still didn’t have my daughter (until the fourth year), so it was easy to have all of my expenses paid, get a job on the side and contribute all of that money into a savings account.
At the end of the four years, I had contributed $43,000 to my savings account and earned about $1,000 in interest on the money.
On the day of my graduation I was able to pay off my student loans and never had to pay a cent of interest. If you are financially capable to do this, then I suggest that you do it. All it takes is finding extra income through a part time job or funding. You will save thousands of dollars in interest if you can manage this. If you cannot afford to pay the monthly payment, then pay half of it or pay what the interest would be on the loan. That way you can make a lump sum payment at the end of your college education.
2.5 Million Young Americans Now get Health Insurance Under Affordable Care Act
College students and young Americans now have health insurance
Great news for (formerly) uninsured college students and recently graduated students entering the work force without health insurance.
More than 2.5 million young Americans under 26 now have health insurance who would otherwise not be covered thanks to the Affordable Care Act, the Department of Health and Human Services announced Wednesday morning.
Previously, the department had reported that 1 million young people were covered under the provision in the act, which also helps recent college graduates without a job but not on a parent’s plan stay insured.
The news is a positive indicator that the provision is working, said Health and Human Services Secretary Kathleen Sebelius.
“Thanks to the Affordable Care Act, 2.5 million more young adults don’t have to live with the fear of going without health insurance,” she said. “Moms and dads around the country can breathe a little easier knowing their children are covered.
Campus Progress, which has advocated for the provision, also lauded the announcement.
“As young adults pursue financial independence, they face significant challenges ranging from mounting student loan debt to employment that may not provide sufficient health insurance,” said Campus Progress Communications Manager Tobin Van Ostern. “Thanks to the Affordable Care Act, the millions of newly insured young adults can now have confidence that they won’t go into deep debt if they get sick or injured.”
Source: Campus Progress
