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Bad Advice for College-Bound Students

Written by Gary North on July 27, 2012

A newspaper article on four women with student debt concludes with really bad advice.

Student loan tips

Take out student loans only after you’ve exhausted efforts to get grants and scholarships.

The correct advice: never take out a student loan.

If you need loans, take out federal ones before private ones, said Janice Riutta, director of student financial aid for Gateway Technical College.

Federal loans are easier to defer and come with more loan forgiveness and repayment options, Riutta said, adding students should also choose subsidized federal loans over unsubsidized ones because interest kicks in later.

The correct advice: never take out a student loan.

If you must take out a private loan, be careful, Riutta warned.

The correct advice: never take out a student loan.

“The private alternative loans are a big market and it’s a competitive market and it’s not always very easy for the student to navigate,” she said. “One company may have up-front benefits while one may have back-end benefits.”

The correct advice: never take out a student loan.

No matter what, don’t default.

The correct advice: you can’t default without a decision by a judge that yours is a hardship case.

If he lets you default, you will owe the IRS a large tax bill. The loan is considered taxable income when it is revoked by a judge. If you live in a state with an income tax, you will owe the state, too.

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3 thoughts on “Bad Advice for College-Bound Students

  1. "The rich ruleth over the poor, and the borrower is servant to the lender." (Proverbs 22:7)

    "In cowboy terms: 'Debt doubles the weight on your horse and puts another in control of the reins.' When usury is involved, the weight of slavery is compounded many times over:

    ' …Woe to him that increaseth that which is not his! How long? And to him that ladeth himself with thick clay! Shall they not rise up suddenly that shall bite thee, and awake that shall vex thee, and thou shalt be for booties [plunder NASV] unto them?' (Habakkuk 2:6-7)

    "Thick clay tablets were what ancient Babylon used to engrave their usurious loan contracts. Borrowers were literally laden with weight. Today, the weight is worse in that most people are laden with usury their entire lives, so much so that many, upon their deaths, pass their outstanding debts on to their children.

    "Verse 7 warns that usurers rise up and bite. The word "bite" is translated from the verb form of neshek, which means interest on debt. Debt is bad enough. But interest-encumbered debt will rise up and bite you. It will certainly take a bite out of your bank account and ultimately your children’s inheritance.

    "Usury helps divert the wealth of a nation to the ungodly. The usurer plays no productive part in a nation’s economy. Instead, he takes a "bite" out of others’ productivity for his own gain, while producing nothing of value himself. True producers earn by the sweat of their brow; the usurer earns by someone else’s sweat…."

    For more, see "Thou shalt not steal," the eighth in a series of 10 Commandment booklets. Click on my name, go to our Online Book Page, and scroll down to the Eighth Commandment booklet.

  2. I am a student loan collector for a large, private university, and the last statement that "The correct advice: you can’t default without a decision by a judge that yours is a hardship case" is false. A student loan can be declared in default when it reaches 240 days past due for a monthly bill, or 270 days past due for a quarterly bill. No judge's input is required. Most Federal lenders will make the minimal due diligence attempts required, then let the loan go until it hits 12 months past due, at which point they tack on 30% collection costs, the whole loan becomes due at one time, you lose all deferment eligibility, and the loan is placed with an Federal department, which can sue you, garnish wages, offset taxes, or place you with an outside collection agency. If a judgement against you is rendered, the JUDGEMENT becomes the instument of collection, instead of the original promissory note.

    If a borrowers files bankruptcy, student loan debt is NOT generally dischargable, EXCEPT in cases of "undue hardship". In this case, YOU the borrower have to sue for undue hardship, and it is a VERY difficult standard to reach, and it DOESN'T happen often. (One example of a successful undue hardship case was for a music teach whose hands were mangled in a car accident) I suspect that THIS is what the author may have been referring to.

    I have set up a website to function as a starting point for students trying to find, track and consolidate loans:

    click on CONSOLIDATION for these resources.

  3. "A student loan can be declared in default when it reaches 240 days past due for a monthly bill, or 270 days past due for a quarterly bill.."

    Yes. The Clock can start arbitrarily. My "default" began four months "early" because a Clinton era "forbearance" due to a "weather emergency" was retroactively "annulled" by the Administration. I received a default notice a few months later.

    Default is a true horror show. You might as well walk around with the "Scarlet A" on your face. The most obvious problems are the explicit ones – no Federal guaranteed mortgage, no more student loans and possibly other Federal aid.

    The less obvious problems are the fruit of Credit Checks – employers who pass you by for responsible (ie, decent paying) work because you "cannot handle money", grotesquely high interest rates on automobiles, consumer credit. being denied credit cards and consumer loans, being excluded from decent housing (landlords do credit checks too) and other problems. What is hardest to bear – you can't even deny what is going on. You get phone calls several times a week.

    Imagine receiving a phone call whose "core" issue is, "Hi, you owe us the equivalent of sixty percent of your annual take home pay, before taxes. We'd like the entire amount right now". You will get this phone call at least twice a week. Other "measures" that Student Loan agencies can use to collect include garnishment and withholding Income Tax refund checks.

    Best advice is to avoid these loans.

    Once you're in Default you can get out through "rehabilitation", aka "Rehab". You pay the "agreed" rate for a year. No, you don't negotiate a rate. They tell you what you'll pay. Take it or leave it. I got through it with Temp employment. No credit check because I was a "temp".

    I was in Default for five years. I was in Student Loan purgatory for a quarter century, from the mid 1980s until 2009. If I had to do it again I would have still gone to College but I would have financed it quite differently than I did.

    Signing those Loan papers was so easy. It was like "free money". Well, no, it wasn't free. Most expensive money I ever handled in my life.