More notes on Midmorning student-loan talk

Gotta earn it

Part II of the Midmorning chat with Erica Sandberg, financial education director and co-host for the web-based video program Change Starts at Home, as well as a columnist and reporter for CreditCards.com. She is author of Expecting Money: The Essential Financial Plan for New and Growing Families.

Caller: I’m going to grad school. Suggestions?

ES: You’d better have a well-paying degree. I know young lawyers with $100,000 to $200,000 in debt. So you’ll find that a consequence of debt is that it often forces you into certain jobs. A friend can’t be a district attorney, because he has to go into a high-paying area of law.

Caller: I went to Augsburg. I’ve been paying off loans for eight months. I have four separate loans – two at $5,000 and two at $2,500 each. Should I consolidate? I heard stories about people who consolidated but ended up paying more money.

ES: The great thing about a consolidated loan is that you make one payment, so it’s easier. You may also get a break on the APR. Ask your lender about what you’ll save. They’ll tell you. It’s no secret. It’s definitely worth looking into, but it’s not always to your advantage. Still. it can simplify your life.

Caller: Is it true that loans can be forgiven, such as after 25 years?

ES: Never the private ones, but yes. But it’s difficult to have them forgiven — old loans you haven’t completed. Talk to your lender.

Caller: I graduated two years ago. I worked as waitress and saved. I found out I need internships for a career. I did that and averaged a dollar an hour. My father offered to pay off my loans in full, so now I owe him. He’s not charging much interest but treating it like a savings account.

ES: That’s a great idea if your dad can afford it.

What are the rules? Must student make payments?

ES: Yes. Parents can even take out the loans and make payments. But I’m not in favor of it. I’ve seen too many problems. If you as a parent can finance college yourself and have extra cash to help out, terrific. But borrowing indicates you don’t have enough to do it. Put money into your own retirement account first. But don’t go into debt for your child’s education. Often it doesn’t pay off. It could end up being a burden to your child, who might one day have to take care of you because of that.

Children, take a look at what’s going on inside school. Can it be done? Can you work your way through school? Yes. If it can be done, it tells me it should be done.

But in this society we’ve been indoctrinated that you should borrow. Should we not?

ES: Absolutely not. We borrow for this and borrow for that. We shouldn’t be doing this. All this borrowing doesn’t mean we shouldn’t be working our way through school.

Caller: I’m a recent grad working in local government. I heard about a new program where if you work 10 years in the public sector, a large amount of loans will be waived. It’s a great opportunity. But I’m not necessary in favor of forgiveness in general. I see it as a duty to pay it back. When I hear about defaults, it’s a lot about personal choice and responsibility. Defaulting disgusts me.

ES: I agree. If you can pay them off, do pay them off. Don’t just take loans just because they’re there.

Caller: Students don’t know how to live frugally. I work at the U and see students drinking $5 lattes and $3 power drinks and driving expensive cars.

ES: Yes, what happened to the starving student days? There has been a lessening of frugality that us older students went through.

Is there a sense of entitlement on campus? Are students just carrying over their old lifestyles from home?

ES: Sure. It’s hard to go down in lifestyle. That’s the problem with loans. If you can continue your old lifestyle, you do. It’s harder to sacrifice when the ability to borrow is thee.

Caller: My parents took out PLUS loans so I could go to top-tier school. How can I help them pay?

ES: They are in your parents’ names. You can pay your parents back or make the payments yourself online.

Caller: In the 1980s it wasn’t so hard to find grants and cheap loans. Now I have two kids in college. Where are those grants and 2 percent loans from the ‘80s?

ES: Yes, some cheap stuff is out there. Pell grants are rising. The max is $5,500. It’s not a lot, but it’s there. Where’s cheap money coming from? Not private lenders. You can get cheaper loans through the college financial aid office now that there’s no middle man (because of recent legislation).  A lot of fees have been saved by cutting out the middle man.

What about for-profit colleges? I hear students there are twice as likely to default as in other colleges. I hear they also have harder time getting jobs.

ES: Yes, that’s true for a lot of reasons. A lot of for-profits have no credibility in the labor market. A lot of students don’t complete their education, so they don’t get a degree – but the loans don’t go away. And these colleges are expensive, and some of the vocations they teach don’t have many jobs, or they don’t pay much.

What do you advise parents considering for-profits for their children?

ES: I’m an advocate of going to college for love – not as a vocation. Study what you enjoy. You’re not going to get much out of it if you don’t like it and only look toward a job.