College Students and Loan Payback: Lending Agencies Make Profits Preying on Students and Parents

Student lending organizations and collection agencies make money various ways. One of the most profitable is to convince graduates, who have already borrowed to pay tuition and fees for four years, to take out further loans for advanced degrees.

The agencies defer interest payments on the original loans until the student graduates with his or her new degree. Then they add the amount of the interest deferred on the original loans with the interest deferred on the graduate school loans to the principle on both the first four years and the advanced degree to arrive at a massive amount of money owed by the graduate.

Jorge Was Such a Student

I sometimes write about a wonderful young man whose name was Jorge. He was the first of his family to attend college. To do so Jorge had to take out student loans. He could not get a job after his four years so a representative from a collection agency suggested he earn an advanced degree. Although the lending agency deferred his original loans, they accrued interest and, along with his new loans for graduate school, came to an extraordinary amount (over $150,000).

Jorge, as with most students, could not get a professional entry-level position after he earned his graduate degree. The pressure from collection agencies was so great that he felt he had no choice but to take his own life. (I continually counsel graduates in this situation that suicide is never an acceptable alternative.)

Student Loan Organizations Make Lots of Money Off These Unfortunate Students

Many students still cannot get jobs after graduate school, and neither the banks who loaned the students their money, nor the collection agencies are sympathetic to this situation. Quite frankly, this is a successful gambit of the student loan industry: Lend students lots of money, defer these loans for many years during which they earn lots of interest, and charge huge late fees and collection agency charges when the graduates cannot pay them back.

Parents Often Use Their Own Savings to Pay the Loans

If the student does not commit suicide (many lending agencies can collect insurance on the loan) the lending agency (including the Department of Education) passes the loan on to collection agencies who will put an excruciating amount of pressure on these hapless graduates. The unemployed graduates often have no choice but to appeal to their parents to help them out of their predicament. The parents, who are now preparing for their own retirement, are now forced to take out a mortgage or home equity loan. Then the student loan (in many cases in excess of $100,000) is now paid.

Think of what has just happened here. The lending companies and collection agencies have extended exorbitant amounts of debt to students who never had any chance of paying their loan back. When mom and dad pay back the debt with their own retirement savings and home equity loans, the agency makes huge profits on the current interest, deferred interest, collection fees, late fees and various other charges.

Politicians Also Make Money Off Student Loans

No wonder the lending agencies dole out so much PAC money to politicians. They need to keep bankruptcy, as an alternative, out of the picture. If the government passed a law that gave graduates the same right to declare bankruptcy as other citizens, a major form of revenue for the lending industry and politicians would be destroyed.

My point is that there is no excuse to refuse bankruptcy to any graduate who reaches such a point of destitution. When graduates take their own lives or parents lose their life assets and life savings to help their children out of this mountain of debt we must change the laws.

This article was created by J Roberts also known as Professor Roberts. He is a noted counselor to parents and students alike and is the author of the book "Colleges Behind Closed Doors: What You Need to Know (Long) Before You Go." He is an authority on the inner-workings of colleges, college preparation, selection, and finances. Visit him at http://www.ProfessorRoberts.com.

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How to Get A College Tuition Loan

Getting a college tuition loan seems hard at first, but it gets easier as you learn how to do it and what to look for in a loan.

Here you'll find several places to look for a loan, and what kind of loans work best. These pointers are guidelines, of course, but can help you get better loans.

First, places to look for a college tuition loan:

1. Your bank or credit union

2. Your school

3. Federal financial aid (using the FAFSA form)

4. State financial aid

5. Independent lenders like Sallie Mae, Citibank, Chase, and so on.

What Makes The Difference in a College Tuition Loan

Borrowing money for school hinges on just a few points. Your credit is important typically in the case of a private loan. Your school mainly becomes a factor because it needs to participate in the government financial aid system if you use government aid. Qualifying for government aid, whether grants or loans, depends on your income or the income of your parents.

Beyond those, you may have to be careful of hitting the ceiling on your government loans, or limiting yourself to less private loans.

The above comprise the top sources for a student loan. I'll give you a few more below, less common.

Get The Best Student Loan You Can

First, look at these things to remember when you look for a college tuition loan. Remember, I list these as guidelines. If you can get all of them, great. If not, get the best you can, and understand how the loan characteristics affect you.

1. Low, fixed interest rate

The benefits here should be obvious - stable and hopefully less interest, lower payment, faster payback. A variable interest rate opens your loan up to a higher rate. Of course, during recent events, many variable rates have dropped, but that is not the rule. With a fixed rate, you can set your payment and not have to worry that it will rise over time.

2. Forbearance and deferment available

These can be very helpful. Deferment and forbearance allow you to miss payments at certain times. You will have to apply for these, but the application is easy.

In many cases, when you do not have a government subsidized student loan, you will your interest capitalized, which is bad and increases the balance of your loan.

However, having the safety valve of deferment and forbearance available is a good idea in any college tuition loan. Just don't use it much. If you have to use it, often you can still pay the interest payment on your loan to avoid capitalization.

3. No capitalized interest

When you use forbearance or deferment, many unsubsidized loans will capitalize your interest. This means that the bank adds it onto the loan, and you then pay interest on the capitalized interest.

Your small loan can become much larger very fast - bad idea. If you can, get a loan that doesn't capitalize interest. This one can cost tens of thousands in your future.

4. Consolidation

When you finish school, you might have more than one loan. If so, consolidation may help you get a lower payment or a longer payoff. This can really help you.

Those are the most important options to look for in a college tuition loan.

Emergency Sources

When you can't find a loan from the tuition sources listed above, consider some less common places. IF you have a 401K, you might want to borrow from it. Understand that this may mean you will not have it to grow for your retirement, but you might finish your degree.

Another place to look, your home equity loan. Many people have used a HELOC to go to school. And finally, if you expect a sizable tax refund, use it for tuition instead of a cruise.

Now get to it!

Need more info? Come to Beat-Tuition.com and download my free ebook on grants and scholarships all over the US. Thousands of students every year get free money for tuition. I can show you several places - I've done it. You'll find tons of sources in my free grants ebook at Beat-Tuition.com

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