Student loan forgiveness is a topic that is uppermost in many graduates’ minds right now. Part two of our “Teach your children well”, series will go over the stress caused by this massive debt.
According to the Wall Street Journal around 284,000 college graduates were working in jobs that pay minimum wage in 2012. According to the Center For College Affordability And Productivity, nearly half of the college graduating class of 2010 are working at jobs that do not require a college degree and 38 % of those graduates hold jobs that don’t even require a high school diploma.
We highlighted the dilemma of student loan default numbers in a previous page. Today I’d like to talk about a very present danger to those college students and those who are out of college and looking for work to pay off those loans.
Out of this crisis a new business model is taking shape. Well, not really a new model. Maybe just a revised edition of a proven idea. You’ll need to teach your children well if they find themselves looking in this direction.
I’ll take you back a few years. Things were booming in the real estate market. I was a mortgage broker at that time. Home valuations were going up faster than I had ever seen. Banks were rolling out loan programs that made little sense at all.
Some lenders were offering loans that didn’t require income verification to hourly rate borrowers with very low credit scores. Those of us who were trying to do the right thing could see even then that house values were way out of line when compared to income levels.
And even though we wouldn’t write those questionable loans, there was always someone down the street willing to take that easy commission because they knew the loan would be bundled and sold long before the inevitable default occurred.
The housing bubble burst, just as we expected, although the supposed leaders of the country missed it. As is the case in all things in life, out of bad times springs opportunity.
A wave of offices opened up promising to stop the foreclosure process. They would negotiate for you. Nothing to worry about. Unfortunately, many of these companies were frauds.
When people get scared, they don’t think clearly. The crooked companies played on the fear of people losing their homes and talked them out of up front cash while doing nothing.
The same thing happened with the crush of credit card debt. The identical formula was used. These opportunists received money up front and did nothing to help.
For sure there are some reputable companies in these two fields, but you need to really be careful and diligent in research.
Now the radio airwaves are full of companies offering to help students and graduates eliminate student loan debt. There actually are some options for federal student loan forgiveness. There are requirements such has working in a particular field or participating in a service organization.
There are also plans out there to help with repayment. You can research these options without paying a third party anything upfront. Be aware that in many cases, any loan amount forgiven can be considered ordinary income and is taxed as income. These plans don’t include all types of loans in all degree programs.
So as parents, teach your son or daughter to handle due diligence on their own if they are hoping for a program to reduce their loan debt. Anyone asking for upfront money is likely to be cheating them.
But even better, help them understand that there are alternatives to just filling out a loan request. College needs to be a means to a planned end result, not a government subsidized five year party. That plan needs to include attaining a skill that the current world needs. Possibilities for young entrepreneurs will abound in the changing world. The flip side is many of the former great jobs will be unnecessary.
Teach your children well about money. If they have to learn it the hard way, there will plenty of people willing to take advantage of their dilemma and make it much worse for them.