With mounting struggles in the finance industry and the declining confidence of the American consumer, debt has never seemed so fashionable! But for some students it may turn to a rags-to-Ragu story.
CNN ran an article last week profiling the phenomenon of students fleeing the country to avoid paying their student loan debts. According to two students, the terms of the loan payments were not clear and before they knew it, the loans were "insurmountable". One student was forced to pay $2300 a month for a Masters degree in Music! That’s a sad song. So what exactly is going on here?
One of the major gripes with private student loans is how the loans affect student credit scores. Many colleges and universities have “preferred” lenders and of course, students borrow from these institutions an estimated 90% of the time. These young, impressionable adults trust the educators. Cute, right? Sometimes the lenders and the universities are in cahoots — leaving the student with higher debt than if they had shopped around for better rates.
New York State Attorney General Anthony Cuomo filed suit against some such universities and lenders last year, resulting in six schools multi-million dollar settlements. So why don’t students shop around? Well, they’re essentially penalized for their youth and lack of credit. Since lenders quote higher interest rates to applicants with lower scores, some students could end up paying thousands of dollars more in interest over the life of their loans. This is damaging to students now more so than ever as banks and lenders are less accepting of home equity loans from parents who might co-sign loans. There are also higher minimum scores in some lending houses.