Sunday, August 24, 2008

Are student loans really "good debt" ?

According to this recent New York Times article, That Student Loan, Hard to Shake:

"Student lending is a big business, one that has been the subject of many complaints over the past two years after revelations of questionable ties between lenders and colleges’ financial aid officers. More recently, tight credit markets raised the possibility that some students might not be able to borrow to go to college in the fall.

But much less attention has been paid to what happens to students after they borrow. Lenders who make loans guaranteed by the federal government can more easily take steps against borrowers — like garnishing wages and benefits — than they can with other kinds of unsecured consumer debts. And all student loans, federally guaranteed or not, are extremely hard to get rid of in bankruptcy proceedings, more so than credit card or other debt.

More borrowers may begin to discover the harrowing consequences of reneging on student loans in the current economy. Numbers of borrowers behind on payments and in outright default are rising for some types of loans, and the tight job market makes it harder for graduates to find jobs that let them pay off debts. At the same time, investors are pressuring lenders to raise revenue by minimizing losses. Investors also expect more revenue from those lenders that operate collection agencies."

For this reason, any type of debt, even student loans are "bad debt" to me. I think colleges should require students to take some type of financial awareness course before taking out loans and even to graduate from college. I know I'm not the only one that didn't understand the gravity of student loan debt and how it can follow you even beyond bankruptcy when I took out my student loans.


Me said...

entrance and exit counseling are required to get student loans. If you pay attention to them, they do inform you of the risks you are taking and they do inform you to keep your borrowing to a minimum.

Small Budget, Big Style Chick said...

I vaguely remember some type of exit/entrance interview I had to attend before taking out my student loans, but I really wish I had more information given to me about how loans fit into your whole financial picture when I was an undergrad student.

Lady Dove aka Pheralyn Dove said...

As someone who financed nearly 100% of their college expenses via student loans, I know all too well the consequences post graduation, when it's time to pay back. (Ouch!) However, without the loans, going to college at an out-of-state, private institutution (my coveted first choice) would not have been possible. Now, in hindsight, with my loans all paid up, I belive it was worth the risk, especially because of the intangible benefits as far as my quality of life.
Lady Dove