Student Loans- Some General Observations

Posted by Kevin on January 28, 2015 under Bankruptcy Blog | Comments are off for this article

Took a little break from blogging.  But, now I am back.  Eventually, I will be setting up a student loan website and blog.  In the interim, I will be making comments about students loans in this bankruptcy blog.

I guess I am dating myself by the next comments.  It is unbelievable what people are paying for college and grad school in the US.  I went to Dartmouth College from 1969-1973.  The first year was  about $3000.  The last year was about $3500.  I had a 50% merit scholarship from my father’s union.  He paid the rest out of his salary of about $18,000 (median income in US was $10,512).  Mom, like most mom’s in those days, stayed at home.  I provided my own spending money by loading trucks during summers and holidays.  Forget about the scholarship.  The basic nut at Dartmouth was about 17-19% of my father’s gross salary, and 31% of the median income.  State colleges would have been less, say 15-20% of median income.

My youngest graduated college in January, 2013.  His school, which was a private school, ran about $45,000 on the average.  Not anywhere near the most expensive, but pricier than a State school.  Median income for 2012 according to the US Census Bureau was $51,371.  In other words, where my son went  to school, the cost would be 88% of the median income in the US.  If he went to a Rutgers, the estimated cost in 2012 was $26,627 or 52% of the median income.

See where we are going here.  College costs are out of  whack.  What you get or don’t get  for the money is another question.

Now, I am not an expert on FAFSA.  I have read the material, and heard numerous lectures about how it supposed to work.  Then, I had to fill it out for my kids.  Then you get another picture.

It seems to me that if you earn under say $85,000, a good portion of your kid’s education will be covered by grants and school work programs.  If you are over $100,000, however, you are pushed into the realm of student loans.

This is not a fun place to be.  In future blogs, we will be going into the law and the practicalities of student loans.  Today, I want to give a head’s up not the the parents and students who are already strapped with loans, but the parents and students who are facing the prospect of student loans.

The head’s up is to be pro-active in the process.  At the minimum, read everything you can get your hands on.  The past few days, I was reading about the dreaded NJ Class loans.  These come from the State of New Jersey.  Their reputation is that if you are in collection, it is not a walk in the park.

That being said, the website was helpful.  Not only did they tell you what could be borrowed and the interest rate, there was a section called the Student Loan Game Plan.  The game plan is to make sure that your loan payment is no more than 8-12% of the student’s starting salary.  It gave good advice how to prepare for employment during your time at college.  Moreover, it provided an extensive listing of occupations together with the average annual starting salary and the amount  of student loan principal that could be supported by such an annual salary within the 8-12% guidelines.  Finally, the Game Plan warns the parent and student to not over-borrow.

I advise parents to review this website.  I am sure that other States have similar websites.  Then, take the information to heart.  If the State of NJ is telling you not to borrow more than 12% of your student’s intended income, then you better make sure that your kid’s financial aid package does not  contain 35% of annual income in loans.  Make the tough decisions upfront and avoid a world of pain down the line.