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On Avoiding Student Loan Payments

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Debt is a bitch and student loans have taken center stage recently as the credit crisis threatened the ability of students to get loans. However on this day, I read a story about how some people have resorted to moving overseas to avoid paying their loans, a step that seems like a lot until you realize the size of their loans.

Initially, I felt bad. Then I thought about it some more and realized that we all make choices and trade-offs in our lives and education is merely one of those choices you make. The story talks about Chris, who graduated with $160,000 in student loan debt and a master’s degree in music. Chris admits he could’ve (he didn’t say he “should’ve,” he said he could’ve) gone to a cheaper school but that he’s “most angry at the fact that for anyone who has debt that’s not student loan debt, there’s relief. You can get into $150,000 worth of credit card debt and you can declare bankruptcy and you can go on with your life. But with student loans, you’re being punished for being a better person.”

First, I’m sorry Chris, but you’re not a better person and someone with $160,000 worth of credit card debt is not a worse person; you both made your choices and are now are forced to live with them. It doesn’t matter what the money was spent on, it was spent and now you owe it. There is no woe is me, you can’t blame someone else, it’s all on you.

Second, $160,000 is a lot of schooling. Let’s say he went for six years (4 years undergraduate, 2 years master), that’s about $27,000 a year. He could’ve gone to a public school, he could’ve paid off more while in school, he could’ve done a lot of things. $160,000 for a M.S. in music seems very expensive to me (but I have no experience in that, it could be spot on).

Third, bankruptcy is not a panacea. It’s not like you walk into some courthouse one day, declare bankruptcy, and you’re free to do what you want the next day. When you declare bankruptcy (and prove it, which is not a simple task), it stays on your record for the next seven years. At a minimum, you can’t get a loan for anything. No car loan, no mortgage, no credit cards, no 0% financing… the list goes on.

Finally, and I know everyone is thinking it, but how could you expect to pay $600 a month? At 0% interest, it would take you 22.2 years to pay off a sum of $160,000. As a testament to how off his estimate was, his payments were four times as much – $2400 a month.

Running from your problems doesn’t solve them, it makes those problems harder to solve.

{ 31 comments, please add your thoughts now! }

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31 Responses to “On Avoiding Student Loan Payments”

  1. NickFro says:

    It seems that he was a music major, and not a math major, for a reason. In all seriousness, though, this is a problem far too many students are facing. I blame both a lack of controls in the system (i.e., is a lender who affords a music major $160k in loans any less awful than the subprime lender who gave a family making $40k/year a $500k APR mortgage?) and a lack of education on the part of the students. Basic life skills (debt management, how to review a lease, how to set up utilities) aren’t taught in most university contexts; maybe they ought to me.

    There are a number of books out there designed to address this; maybe Jim could review a couple for the masses…

  2. OldGuy says:

    “…you’re not a better person and someone with $160,000 worth of credit card debt is not a worse person”

    I think he meant he feels he’s being punished for making himself a better person through education. Regardless, the phrase “what the hell were you thinking” comes to mind.

    I don’t see how the monthly payment can be $2400. $160k, with interest between 6.5% and 7%, paid over 25 years comes out to around $1100/month. Even at ten years for repayment you’d have to pay 13% interest to pay $2400/month.

  3. YoungGirl says:

    Gee, I feel like a sucker now for paying off my student loans. Why didn’t I think of doing this?

    This story both saddens and angers me. Where has our sense of responsibility gone? What happened to working through college, applying for scholarships, and living within our means? My future children will now be forced to pay higher interest rates for their student loans, thanks to people like this.

    And HOW do you get $160,000 in loans over 6 years? I went to a private women’s college 2003-2007 and took out $25,000, but I paid most of it off before graduation. So glad I did!

    My interest rate in 2007 was 5.25%, in reference to OldGuy.

  4. I worked through collge and always worked 2-3 part time jobs during breaks just so I could pay off my education and my living expenses. I graduated in 3.5 years with the major I wanted and $2000 in the bank. Unresponsible people like Chris should definitely be ashamed of themselves. People like Chris are what really led to the current state of the economy.

    I don’t think that schools should teach money management to people. It’s all common sense. Next thing you know people would be cutting themselves when cutting an apple because college didn’t teach them that..

    • Edwin says:

      Get over yourself no one cares. I went to Devry Univ and I owe 111k, it was about 8k a semester over 3.5 about 10% on the loans because I didn’t have any parental help. I worked full time and did school full time thats how I got into my debt. You need to have some compassion for other people, my monthly payment is 1100 a month and I know in this economy that is impossible. I currently pay 6100$ a month on my loans but I am blessed with a good job and I am in Afghanistan way from people like you in the USA, live or die I will pay mine off. I feel sorry for the Op :(

  5. Ladam8518 says:

    I have 50k in student loans at varying interest rates from 4.25 to 10% and pay $523 monthly. This is higher than my minimum payment (I pay extra and I also got stuck with graduated repayment terms). The 50k covers four years of private school at 30k per year back in 1999. IN addition there are three years of accrued and then capitalized interest in there as I pursued my MS on full scholarship and enough stipend to make rent.

    It was a difficult decision choosing the private school over the cheaper public schools. I could have gone to most of the public schools near me for free, and some of the state schools that offered my major for only $12k. Instead I went to a private school almost 10 hours away. This was based on the job placements of graduates. I would not have my current job if I did not attend the school I did; not because of differences in education, but because most of the mid level managers here also attended my choice of schools.

    I studied chemical engineering, and even with the expected 50-60k starting salaries for my field, would have realized the difficulty in paying back 150k in loans. Education is important, but one must take a realistic look at where it will get you. Not to insult anyone, but in my experience (and my wife’s, who was a music major) very few music majors end up in much better than a teaching position in an elementary or high school if they plan on working in the music field.

    There are several factors to look into when choosing schools, price should be one of them, especially with the offering of online courses and cross registering. $150k student loans are a great motivator to look for much more reasonable educational options.

  6. Jim says:

    Shirking any debt is not the right thing to do.

    To have a $2400 payment he must have a high interest rate and a short payoff term. HE ought to be able to extend the payoff term. Its unfortunate he got himself into that problem but he did it himself by going to an expensive school and getting so much in loans. Unfortunately this kind of thing happens a lot and it happens to young inexperienced people who don’t know much better. There should be more regulation to cap the amount you can take out in loans and to require better education to the students on the real costs. Its not very responsible on the part of the lenders to loan someone $160k if they have no assets and will probably end up earning $30-50k annually. Some of the private student loan are virtually predatory in nature just like the credit card companies praying on college students.

  7. So he’s complaining that it’s unfair for him to have to pay back his loans when someone else doesn’t? I guess that’s no different than people complaining about having to pay their mortgages when other people are walking away from theirs. I guess there is nothing surprising about that.

  8. Jim,

    I’m with you all the way on this one. He made his choices – no one forced him. He needs to own up to his mistakes and figure out how to fix it. Complaining and whining about how it’s not fair isn’t going to fix anything at all. It just uses up time you could have been using to solve your problem.

  9. tchoup says:

    I don’t fully understand Chris’ situation, but having decided on a college to attend within the last year, I understand how crazy the costs can get. I was considering going to a private school in California with a yearly cost (not just tuition) of about $45,000 per year. Instead, I chose a public university in California priced at about $19,000 per year.

    I don’t think people realize the increasing cost of college. It’s not like it was 10 years ago. According to a recent New York Times article, the cost of college is growing at double the rate of inflation. Plus, grants and scholarships are increasingly hard to come by and it can become a sort of second job just trying to find ones that you qualify for.

    I’m not trying to justify Chris’ debt, I’m just saying that things aren’t like they used to be.

    http://www.nytimes.com/2007/10/22/education/21cnd-tuition.html?partner=permalink&exprod=permalink

    • Edwin says:

      Welcome to the 100k student loan…By the time you graduate at that rate you’ll owe over 100k, enjoy!

  10. poor boomer says:

    Normal student loan repayment is usually based on a 10-year payoff, so a $2400 monthly payment might be expected, esp if he has high-interest private loans.

    I have a monthly income of $900 and a student loan payment of $136 – now that is ridiculous.

    • Mary K. says:

      How can you pay this with a 900.00 a month income???? I am 54 years old, had my loans consolidated, only to receive a letter two months ago, AES/Dept. of Education/PHEAA “found” a loan “out there” that was not consolidated, they gave me 30 days to pay back $1,160.00, or garnish my wages of 10.50 an hr. Well, I ask them to send me the loan document with my signature on it; what was sent to me does not even come close to matching this particular loan which is now paid in addition to the 29,000.00 I owe. I called Joe Pitts office in Pa., they could CARE LESS! This person is my elected representative and they NOTHING of federal student loans. I applaud anyone who can find the means to leave the country! I just wonder if this “found” loan and maybe more “loans” out there are $$$ going in someones pocket. The documentation just does not add up!

    • Edwin says:

      Wow, your super lucky, my Minimum is 1100 over a 10 year period. I wouldn’t be able to pay my loans with your income. What exactly brings in 900 a month. I know Unemployment brings in about 880$ or so, are you using Tax dollars and being a lazy citizen?

  11. Steve says:

    The author of this article and many supporting commenters are dead wrong. Chris’ situation is EXACTLY like the mortgage crisis. Lenders make gigantic low-interest loans knowing full well that many borrowers are unlikely to ever be able to repay them.

    I am in the same situation ($100K+). When I was loaned that money I certainly hoped and expected that I would be able to repay it, but stuff happens and things don’t always turn out the way you had hoped. The lenders know this and make the loans anyway. The risk should be on the lender.

    Now everyone is up in arms about mortgage foreclosures and the government is scrambling to find ways to bail people out. Why shouldn’t it be the same for student loans? How is this any different?

    • Edwin says:

      You are TOTALLLLY CORRECT Steve. These idiots are posting about how he needs to own up to this? What about all those Responsible Adults walking away from homes cause they thought they were gonna flip a home and took a loan they KNEW they couldn’t afford. Difference is schools promise big jobs and don’t bother telling you the 30k in interest when you start paying on your loans. I took a job in Afghan and pay 6100 a month for my loans which leaves another 2k each month for me to save for my vacations :)

  12. jim says:

    As the original author, I didn’t write anything about how this was or wasn’t like the mortgage crisis. I was sharing my opinion on the idea that somehow Chris was preyed upon as if he had no choice but to take the loan, go to an expensive school, and somehow find himself in a situation that wasn’t his own doing. It’s about personal accountability.

    Is this different from mortgages? No, ultimately a loan is a loan.

    Steve – do you want a student loan bailout? I can’t tell. First you rail on lenders for loaning you money, then you rail on the government for bailing out mortgages, but then end it by asking for one for student loans? It’s unclear.

  13. If so many parents were so incompetent at personal finance, or too timid to guide their children properly, we wouldn’t have so many ignorant young adults “hoping and expecting” to be able to re-pay six figure student loans on a starter salary. I think you will find that in these cases, the apple doesn’t fall far from the tree. Mom and Dad are broke so the kids fall right along that same path.

  14. poor boomer says:

    WTF is ToughMoneyLove? I am confident that overspending or poor money management is not the reason I am broke.

  15. Patrick says:

    For the record, people with bankruptcy are the first people credit card companies go after. You can’t use bankruptcy again to get out of the debt. I’ve had two friends get a bankruptcy and they had credit cards like the next day.

  16. Mark C Brown says:

    Hi,
    I do agree with Jim.
    Its unfortunate he got himself into that problem.
    :)

  17. LAL says:

    Running away from money you owe is ALWAYS wrong. That being said, how is it different from walking away from foreclosures? Or declaring bankruptcy for credit card debts?

    One thing, I will point out, when you run up credit card debt or walk away from a foreclosure, typically people are older than 18-22. Right?

    Well people who sign on the dotted line for $100k+ student loans are 18 years old when they do it. OFTEN they are encouraged by their parents, friends, teachers, coaches, to take out loans to go to the “best” school possible. They are told it’s an “investment” in themselves.

    It’s not like a car loan, mortgage, or credit card debt. People easily justify the student loan debt of any amount.

    Plus when you think about how young and typically financially unsavvy you are at 18? I feel a lot more sympathy for people who are 22 and finishing college with massive loans. Many had no idea about money or paying it back, or how hard it would be.

    BUT for mortgages, you know you’d have to pay your mortgage, and typically you were renting before so YOU know about the monthly payment. To declare CC debt BK? It usually takes years to run up enough to make it worthwhile.

    So how young and stupid are you? Student loans are typically the first debt you get yourself into at 18.

  18. Andy says:

    I don’t want to bore anyone with the details of my personal circumstances, but I do want to comment on the morality question of paying back loans as a matter of principle. I’ve borrowed $30k for a Master’s course, with half coming from the federal program and half from a private lender. I have done my best to make payments every month and have paid at least a few thousand dollars toward the debt.

    I used to regularly pay above the minimum until I realized that this merely delayed my next payment due date and did not affect the principal balance at all. This was the first realization I had about how unfavorable the terms of the loan actually are. The interest rate on the private loan is now down to an acceptable 7%, it has been as high as %14 in the past. On top of that, there are questionable insurance add-ons that have been piled onto the principal balance. Despite everything I’ve paid, I now owe $33k. I’m perfectly happy with the terms of the federal loan but the private one is killing me. They want it paid back over 25 years, which means I’ll have paid back nearly double the original amount by then. I’ve tried to move to a different payment plan but been rejected as the monthly payments would be higher and I therefore don’t fit the income-sensitive ‘relief’ category they use to help people with unmanageable monthly amounts.

    I’m doing a PhD in the UK now and seriously considering just letting the loan default. I don’t plan to return to the US any time in at least the next five years and can’t bear the thought of living with this nightmare for the next quarter century.

    I’m speaking as someone who has TRIED to pay back a loan in the most honest way possible and been royally screwed by the lender. I’d much rather live with the satisfaction that I dutifully paid back borrowed money than the anxiety that will come when the debt collector notices appear, but I feel like I’m out of options. I’m not defending loan avoidance on principle, but just to balance the ethical argument, I think people should take into account that money lending is a pretty immoral affair, and sometimes you’ve got to act in your own interest rather than that of the banks.

  19. Anonymous says:

    These people moving overseas to avoid their loans should have done so at 18. Then they could have gotten their educations at reasonable prices, without incurring ridiculous mountains of debt.

    A mortgage and a private education in the US are similar in that they both generally involve ridiculously inflated numbers that essentially border on imaginary, fuelled in both instances by credit games played by the banks. Of course, in both cases, glassy-eyed consumers tend to take on these ridiculous debts because they are sure that they will, in the case of a mortgage, make a killing selling the property, and in the case of an education, make 6 figures someday as Grand Poobah of fillinthegap, because, like everyone else in their career program, THEY are above average.

    I suppose the responsible thing for these people with mountains of student debt to do would have been to get out and pull themselves up by their bootstraps by flipping real estate and engaging in day-trading on the derivatives market. Then they could sit smugly and blather on about personal resonsibility on internet message boards….well, until we exhaust the world’s supply of rare metals, that is.

  20. zhivka says:

    andy, i have private loan too (through a loan company which keeps my just under 14K at a 4% annual interest rate), and i’ve talked to the folks in customer service about my options. rather than making greater than minimum monthly payments, i’m putting the extra money aside, and waiting to have 1) enough to pay the entire remaining amount off or at the very least 2) enough to make a good dent in it (c. 5K or more) in order to negotiate a lower monthly payment for the reminder of the loan (c. 9K). in adjusting my payment, i would request that the principle to interest payoff per month be at least in the 1:1 ratio with respect to the principal.

    lower monthly payment would then translate into more extra savings for paydown of the next segment, and hopefully it wouldn’t be more than a couple of years before the entire loan would be paid off.

    my real problem with the student loan conundrum is the lack of jobs. the reason i took the education loan in the first place was to put myself in a better position to obtain a job in the field i studied. but now, with the unemployment in the double digit percentages and no responses from prospective employers, i feel like buying a ticket far away from here myself. i really don’t need any bailouts or forgivenesses. i just need a job.

  21. zhivka says:

    my real problem with the student loan conundrum is the lack of jobs. the reason i took the education loan in the first place was to put myself in a better position to obtain a job in the field i studied. but now, with the unemployment in the double digit percentages and no responses from prospective employers, i feel like buying a ticket far away from here myself. i really don’t need any bailouts or forgivenesses. i just need a job.

  22. funArmadillo says:

    Here is the comment that you’ve all been waiting for: Two types of lenders that I’m concerned with are those that have paid off their debts and praise themselves: “I’m a shiny polished red apple, look at me, those sinners are aweful, pay you dirty dog!”, and those that have found themselves in a god-awful mess and are truely sorry: “I wish that I had made better choices, now I must suffer poverty … and then die”. The fact is, school is a gamble, some win, and some lose. Some winners gloat, and others are more understanding. Some losers don’t care, and others do.

  23. Patrick says:

    There is simply right and wrong. You can be understanding about a situation but that doesn’t mean you condone people who chose the easy way out by avoiding responsibility. Our nation is in the situation it is because of people avoiding accountability.

    I have made bad choices and now I will suffer and pay back my debts. If anything, I am a loser who is gloating that I maintain the moral high ground by paying back my debts, no matter the cost.

    • TJ says:

      Of course, if you did not have a job, or had a job that did not pay you enough to pay for reasonable living expenses and your student loan payment, then you could say “I’m going to pay it back” all you want, but, of course, you would not really be able to do so.

  24. Ted Browner says:

    Go Chris! I totally condone his behavior – move to a different world, enjoy your educated life, forget the middle america bull shit. I agree with the blogger that some taking a 160000 credit card debt is worse then Chris who was just seeking enlightening through education and music. Some idiot put that it would take him 22.1 years to pay off $661 a year with zero interest. No student loans subsidized or not offer rates like that – zero interest haha, give me a break. My advice to Chris is max out your credit: take a person loan, go full hilt with your credit cards. Then move to some county with hot babies and free medical. F*** creditors, thats what Jesus would say. Let the Banks and anyone who leads money burn in hell. No should every pay interest on debt. Leading is wrong the bible clearly says it therefore those doing wrong deserve nothing!


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