Pay down mortgage or save for retirement?

[dmc]

I don't understand where the "scam" comes into play. A person borrows money, for whatever purpose, and there is an expectation that what is borrowed will be repaid, with interest. I could see where it might be considered a scam if the borrower were led to believe that the borrowed money did not require repayment, but that's not the case, is it?

In the liberal mindset these people are just victims. Its just bad luck that they can't pay back their loans. Or they just were to stupid to understand at the time what they were doing.

It has to be someone else's fault.

[onlinemoniker]

Lainey: I agree. Student loans in their current form are totally predatory lending.

That’s why I am just so grateful that President Bush signed the Public Service Loan Forgiveness Act of 2007. With this program, a public school teacher like me can pay an income-based payment on her student loan for 10 years and if she is still in public service at the end of ten years of payments, the balance of the loan is forgiven!

Without this program I was looking at a totally unfair payment of nearly 60% of my net salary going to repay my student loans each month. As that would have been an impossible payment if I also wanted shelter and to eat regularly, I knew I was going to be taking this debt to my grave. But now, my payment is a very reasonable and fair 9% of my gross salary or just a little less than 20% of what I would have paid on the standard 10-year repayment plan.

I can eat, buy a house, pay my bills and plan for my future retirement! And the best part is, I can spend my entire career doing what I dreamed of doing; giving back to my community as a public servant.

I encourage every public servant I meet who has crippling school debt and is concerned they may have to leave public service for a more lucrative career in the private sector to look at this program. I am so happy that President Bush and the 110^th Congress realized the critical importance of public servants to the welfare of the nation and made this act a reality for struggling government and non-profit workers.

Redfox: I don’t know if you’re a public servant but if you are, please look at this program! It may be your answer. If not, keep your fingers crossed. Congress is working on another loan forgiveness program for private sector workers.

[Alan]

The scam comes from the insertion of the private sector into the student loan business in the first place.....

As I recall, the private sector was always the lending agent in the process, albeit with government guarantees.

...and also the predatory nature of these loans - hence, the numerous lawsuits against for-profit schools with recruiters paid based on how many people they can sign up to attend.

Are you saying that recruiters were responsible for the loans that students received? Is a car salesman responsible for someone buying too much car, or a credit card company responsible for the $60K of credit card debt many run up? When does an individual become responsible for their actions?

Who in their right mind would loan some kid over $100k that could just come out and default just out of school?

That's just it. The default rate on student loans is very high, something like 20% at two years into re-payment and higher at each additional year in the re-payment schedule. Who in their right mind would assume that risk without adequate protection?

[Alan]

With this program, a public school teacher like me can pay an income-based payment on her student loan for 10 years and if she is still in public service at the end of ten years of payments, the balance of the loan is forgiven!

That sounds like quite a deal. I went to school without loans, although as a Vietnam era veteran I did receive approximately $350 per month in Veterans benefits, as long as I kept my grades up and attended class regularly. I also worked full time while attending evening college. Those two factors ensured that I graduated without a penny of debt. If I had been smart, I'd have taken out enough school loans to purchase a house and then let the government forgive the loan after 10 years.

[ApatheticNoMore]

Maybe the scam is they create the money out of thin air (and they really do loan it into existence) and then charge interest on it. I think state schools are a way better way to go about it (just hard if you can't get classes). But then I have little in the way of formal degrees (and the 2 year degree from city college - relatives paid) and I have even less debt (as in not a penny of debt to my name - well ok I haven't fully paid off this years auto insurance - so may pay a small amount of interest there).

[catherine]

Student loans are really, really costly. But I don't necessarily see the difficulty in getting out of paying them (not bankruptable, etc.) as a bad thing. I think Alan's right--the rate of default is probably very high. If it were easier to default, no doubt they'd have to raise interest rates or something like that to cover their losses.

However, I also think that people (kids and their parents) go into borrowing blindly, and I think it's been so ingrained into our consciousness that student loan is "good debt." Well, it's not good debt if you are a slave to it. How ironic is the situation that onlinemoniker mentioned--to go to school for your dream job and then you have to defer your dream job because of the high cost of the education that got you there. Also, people also have the very erroneous belief that an expensive school has inherent good return on investment down the road. In fact, Malcolm Gladwell's new book says the opposite--that it's better to be a big fish in a small pond than a small fish in a big pond. Those small ponds have smaller price tags typically.

These are all things I learned with my experience with my kids. Two of my sons went to community college and then to the State university. No debt--totally cash-flowed. One is now a lawyer and the other got his dream job up in Vermont. My daughter wanted to go to an expensive private, liberal arts college. Because my grandfather funded my education carte blanche, I wanted to do the same for her. I cash-flowed two years, and took out student loans for the other two years.

If I had it to do over again, or even if someone had explained to me how repayment is different for student loans than it is for other types of loans (three years of interest only, for instance) I would have discouraged my daughter from going to the expensive school, I'm sorry to say. The other frightening thing was how easy it was to get those loans! I got one student loan approved in a lunch hour--from the initial call to the acceptance. I was shocked at how fast they were willing to give me money.

My son, who now works at the school that he graduated from, tells me there are bills in the New Jersey legislature that would mandate full disclosure of the downside of student loans by the lender/school at the time of application of the school loan, very similar the the new credit card laws that tell you on your bill how much interest you pay if you only pay the minimum each month.

These student loans are one more thing now coming between me and a financially healthy retirement... arghh...

[Teacher Terry]

I went to school as an adult & saved the $ first so no student loans. However, unlike Alan I don't begrudge the people that need to take them.

[Alan]

I went to school as an adult & saved the $ first so no student loans. However, unlike Alan I don't begrudge the people that need to take them.

Begrudge? Why would you say that?

I'll admit to being skeptical of the concept of "student loan scams", but I'm a free market kinda guy. If someone wants to borrow huge amounts of money for their education, more power to them. And, I'll also admit to being intrigued by the nature of some of the programs designed to forgive that debt. It seems that an enterprising person could benefit in many ways, outside of simply receiving a discounted education.

I re-mortgaged my house 5 years ago in order to pay off my daughter's student loans, as it became apparent that she would not be able to afford the life we wished for her as a result of the debt. We'll take it off of her inheritance.

I believe that the current problem with student loans involves those who default on the loans, making it harder for the next group requiring assistance, as lenders try to protect themselves. Adjusting for risk is a natural component of lending.

[Teacher Terry]

I made that comment Alan because you said you should have borrowed enough student loan $ to buy a house & then get it forgiven in 10 years.

[Alan]

I made that comment Alan because you said you should have borrowed enough student loan $ to buy a house & then get it forgiven in 10 years.

Are you aware of any safeguards to prevent it from happening? Also, if a person borrows $100K through the student loan program, what are the odds that the entire $100K went to education expenses? Just curious.