Post Academic

Just How Far Will Banks Go to Collect Student Loan Debt?

Posted in The Wild World of Student Loans by Caroline Roberts on February 12, 2011
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Image Source,Photobucket Uploader Firefox ExtensionRemember how I said that it is almost impossible to escape a student loan debt, not even through bankruptcy? A recent news story served as a reminder that banks will go after that money by any means necessary, no matter how vulgar their behavior may be.

Consumerist shared a story about a young woman who passed away from a rare form of cancer and left her student loan debt behind. According to the rules, no one else is responsible for her debt as long as no one else cosigned the loan. No one else did. So, when she passed away, the banks couldn’t go after anyone else for the money. This woman followed the student-loan rules and did not ask her parents to co-sign, so they didn’t have to pay her debts.

But did that stop Wells Fargo from going after her parents for money they didn’t owe? Nope.*

This isn’t a message to avoid Wells Fargo or one specific bank in particular. The name of the bank doesn’t really matter. What matters is that student loans are serious business. This young woman did everything right and had her loans in her name–yet one of the banks still made trouble. Whenever you take on a student loan, know the rules, and let your family know about your financial situation so they are prepared no matter what happens.

*After a local news story and some richly deserved public shaming, Wells Fargo backed it up. When in doubt, call “Seven on Your Side” or your local equivalent. It appears to be almost as effective as calling a lawyer.

Image of $620 in 31 twenty-dollar bills by Merzperson from Wikimedia Commons, public domain.

The Law School/Grad School Parallels Strike Again!

PhotobucketGiven the state of the economy, attending law school might be as bad of an investment as attending graduate school–a situation that several publications have noticed recently. Now Psychology Today is getting into the act with some practical advice for those considering a postgraduate education in the legal realm.

For anyone tempted to go to grad school or considering quitting, this post is a must-read. I say this a lot, but the article makes it crystal-clear that the life of the mind isn’t right for everyone, especially those who are already in a troubling financial condition.

The smartest tip from the article is to calculate your best-case-scenario hourly wage after you get out of law school. In this case, take the law school stats in the post and substitute with the stats you think are likely for your career or debt situation:

–Suppose you land a legal job after graduation paying $65,000 (which sounds good). First, assorted taxes will take about 25% of your salary, so now you’re earning about $4000 per month. (And if you’re working 60 hours a week– not uncommon in the law– your net hourly wage is about $16.00/hour).
–Now let’s say you have $100,000 in student loan debt at an average interest rate of 6.8% … and you plan to pay it off in 10 years. That means you’ll be paying about $1150.00 a month for the next 10 years– making your actual law school debt about $138,000. (If you lower your payments by extending the loan for 20 years, your overall debt for law school becomes $184,000.

On the bright side, grad students tend to get a free ride plus stipend, so they don’t rack up the kind of debt that law students do. But keep in mind that, even with all the handwringing and hairpulling that law-school students are dealing with right now, they still have a better shot at a job.

To be blunt, it sucks that those who have the talent but not the funds can’t pursue their academic or lawyerly dreams, but do you want to roll the dice on getting a job and losing? Do you want to be the guy or gal who defaults on a student loan because you can’t find a job? Even if you choose to go anyway because it is your passion (and no one here at Post Academic wants to get in between you and your passion), you need to know the numbers up front, and you can’t always count on your advisors to reveal them to you.

Caricature of lawyer and politician Jules Favre from Wikimedia Commons, public domain.

How to Avoid Student Loan Debt

Image Source,Photobucket Uploader Firefox ExtensionIf you insist on taking out a loan for graduate school, remember …

Don’t do it. That’s the easiest way for potential grad students to avoid student loan debt.

But who are we to get in the way of a career dream? So, if you insist …

Don’t take out anything more than you think you can make in the first year. Assume that you’ll be employed at a state school, not at a private school. Visit sites that list the salaries of state employees, and look up the salaries of people you know are assistant professors in your field. (It’s a lot more polite than asking people what they make.) Type in “state employees salary database” in Google and see what comes up. Many newspapers keep a database for muckraking purposes. If you’re in California, start here:

Get federal loans at a fixed rate. Perkins or Stafford loans, for example, come from the government, and they have a fixed rate. You don’t want to get a private loan with a variable rate. That variable rate might seem low when you first get the loan, but it can go up based on market whimsy, and the market has been unusually whimsical as of late. At least with a fixed rate, you will have an easier time setting a budget.

More after the jump! Cover of Bleak House from Wikimedia Commons. (more…)