A friend of mine recently asked if I knew of any solutions for his 50+ year old brother’s student loan. I did some googling as I figured for sure there must be some sort of statute of limitations (time limit for a debt to be collectible). There is a statute of limitations on most other forms of debt, bankruptcy, etc. Even the IRS has a 10 year statute of limitations for collecting back taxes where if they haven’t gotten you to pay your debt within those 10 years, you’re off the hook, free and clear. What I found about student loans is disturbing and I wanted to let all my college age friends and family know what I found in case you’re considering going for one of those “easy to get” student loans to pay for college.
Basically, federal student loan debt is one that you cannot get out of unless you can prove your situation has no possible way of improving, you are disabilitated, etc. Apparently, there was a big uproar back in the early 90’s. The hype (or maybe it wasn’t hype) was that students were taking out billions of dollars in student loans, getting them discharged and then going on to make big bucks without any thought to repayment. So… President Bush and Congress kindly stepped in and changed the law making it virtually impossible for anyone to discharge federal student loans. They even went so far as to make it retroactive back to 1965.
Studentlawslave.org explains it in more detail, but basically, stay away from federal student loans unless you are sure you’ll be able to pay them off right away or will make enough when you get out of school to pay them off asap. Non-federal loans or private student loans have a 5-10 year Statute of Limitations, but you’ll want to check what kind of loan it is.
An article in MSN Money entitled 3 ways to Avoid the Student Loan Trap talks about a divorcee in her 40s who ran up a 50K debt while in college. She now owes over $100K due to interest. The collection agencies worked out a payment plan where they pull a quarter of her paycheck every month until she’s 75 years old to repay the loan. She was wishing she’d just put in on her credit card which would have allowed her to declare bankruptcy if she became unable to repay the debt as at least that would only follow her for 7-10 years.
I was relating this to a relative recently and they told me their story. They now wonder what they were thinking taking out a student loan which has now gone up to $150,000 (including interest) to get a job that pays $45K a year. Their payments go till they’re 105 years old and their paycheck gets docked 20% each month to pay for the debt.
Here are 3 steps/tips on this topic of student loans. (courtesy of Liz Pulliam Weston with MSN Money)
If you’re thinking of borrowing money for school, or already have, keep in mind the following:
- Don’t take on too much debt. Most students would be smart to limit their total borrowing to no more than two-thirds of the annual salary they expect to make in their first year after college. If you’re at or near that limit and haven’t finished your schooling, consider transferring to a cheaper college or taking a year off to work and pay down your loans.
- Lock in low rates now. Student-loan rates will jump significantly July 1, and Congress is considering abolishing fixed-rate consolidation loans in the future.
- Talk to your lenders if there’s a chance you may default. As you’ve just read, ignoring student loans won’t make them go away, and your options for dealing with the debt may wither the longer you fail to pay.
I know no one goes into these things thinking they may not be able to pay, but especially in today’s economic climate, it’s at least nice to know what you’re signing away and not have it hit you by surprise when you do hit hardship sometime down the road. Those student loans are easy to get, but you may end up a slave to them for the rest of your life if you’re not careful.