Financial advice - The lowdown on everything to do with student loans
Just ask Arlington!
IrishCentral Community News is pleased to continue with our bi-weekly financial column, courtesy of Sean O’Sullivan of Arlington Financial. This time around Sean tackles Student Loans.
It can be somewhat daunting the cost of an education in the United States. For example, a $17,000.00 loan at 7.900% originated in September 2012 and having its payments deferred until May 2016 can have the following impact on a Student. Although the payments are being deferred, the interest due is still accruing and being compounded every month from September 2012 through May 2016. So at the end of a four year College term the fun begins. The unpaid interest that has been accruing over that four year period is now up to $4,725.00 plus the $17,000.00 loan (principal) is now $21,725.00 for a one year College term. Then if you were to take the four year term and times it all up, you will owe $86,900.00 in principal and interest. If you're one of the lucky Students that are able to pay it in full, then just write a check for $86,900.00 and it’s over with.
However, most Students when they graduate are far from being in that position financially. So now you’re presented with a ten year repayment term of $1,052.64 per month. This ten year repayment plan consists of the following breakdown;
$ 17,000.00 Initial loan amount
$ 4,725.00 In deferred interest
$9,853.00 Interest payable during the ten year repayment period
$ 31,578.00 Total, times the four years
$126,312.00 What your $68,000.00 has become ($17,000 x 4 years at College)
The above calculation does not take into account if you do not pay your loan according to the terms agreed upon such as Late Charges and Collection Charges. This could be anywhere according to the Lender or Collection Agency. In some cases it could be as high as a third of the balance owed.
Some Students when they graduate have difficulty either getting a job, paying their Student loans, or both. This affects your credit and in many cases your employment opportunity. Many employers in this market are checking credit as part of your employment application. A negative credit history can affect an otherwise perfect Résumé. Employers are of the opinion that if you are under pressure financially you are more likely to commit a work related crime than those who are not.
The situation can get somewhat messy if this happens. In some cases, it leads to depression which can affect the Student’s performance at work and lead to additional work related problems, perhaps job loss. Especially if the loan is in Collections and the Student is being harassed by letters and phone calls which are all new to the Student. There are agencies in place to help Students deal with Loans that have gone wrong at no charge to the Student. One in particular that I like and find very informative is “Student Loan Borrower Assistance."
I also believe that Student Loan education should be part of the initial first or open day at College having both the Parent and Student in a classroom and given a thorough explanation as to the pros and cons of what can happen if it’s not paid.