Skip to comments.Dave Says Don't Pay Those Student Loans
Posted on 08/22/2012 3:49:59 AM PDT by Kaslin
Ive been working the Baby Steps and doing a budget most months. But how does someone who is single stay motivated and focused with something like this? It feels sometimes like it would be easier if I had someone holding me accountable.
The first thing is to make sure you do a written budget each month. Not once in a while, not most monthsevery single month. If you dont draw the out-of-bounds markers, theres no way to know when youve stepped over the line, right? A monthly, written budget becomes your self-accountability tool, especially when youre single.
Still, theres nothing wrong with introducing a little accountability into your life. You dont have to be married to be accountable to someone other than yourself. Ask a good friend or maybe even your pastor to have a look at your plan and see what they think. Just make sure this person is someone who knows a little something about money and finances.
Honestly though, Rick. I think doing the Baby Steps and following my plan can be easier for single people. Think about it this way: You dont have to talk someone else into coming along for the ride. You also dont have to come to an agreement with someone else on everything financial. All you have to do is get serious, look in the mirror, and say, Quit being stupid with money! In other words, you just have to do it.
Admittedly, you dont have the built-in accountability in a singles situation. But on the other hand, you dont have someone calling you a doofus when you mess up!
My brother was killed earlier this year, and my mom is finalizing his estate. He had a couple of federally insured student loans through Sallie Mae totaling $8,000 at the time of his death, and the attorney probating the estate says mom now has to pay off those loans. Is that correct?
Im so sorry to hear about your brother. But no, your lawyer is not correct. Payment for federally insured student loans is not due upon the borrowers death. They are waived.
Im going to give you two pieces of advice. The first is to fire your attorney. Were talking about basic knowledge when it comes to probating an estate here. If he got that wrong theres no telling what else hes told you thats off the mark.
Second, you can take care of this by sending a copy of the death certificate to Sallie Mae. Ill warn you ahead of time that it may take a while to jump through all their hoops. I mean, youre dealing with the federal government. Theyre not exactly known for getting things right the first time. But once youre declared permanently disabled or you pass away, federally insured student loans are discharged and not held against the estate. Dont pay it!
If student loans were capped at $30k....I wouldn’t say much. But the odds of a guy being able to save and pay off his $80k student loan....is just a joke. No degree is worth putting yourself so deep into debt at age 21. You’d have to be a fool.
It’s $8K, not $80K.
and student loans have become a racket.
I see a wave of disabilities in my crystal ball.
” and student loans have become a racket.”
(from the article)
“ once youre declared permanently disabled [....], federally insured student loans are discharged and not held against the estate “
Record numbers of Americans are now receiving ‘Disability’ compensation...
Connect the dots, and say with me, “Hmmmmmmm....”
I’m pretty sure if mom was the co-signer, she’s on the hook for the student loans. I know a family to whom this happened.
If is the keyword.
You’re right, of course. But it’s my understanding that most student loans these days require co-signers. We don’t have an idea of the details in this instance, but I think a co-signed loan is a common enough occurrence that Dave should’ve mentioned it before he talked about firing the attorney.
And that differs from most colleges how? ;)
I was actually quite pleased when my niece dropped out of college and opted for taking the classes she desires on an as needed basis. She says most of the classes were garbage that had nothing to do with physical therapy.
She’s been cultivating relationships with local doctors and just opened her massage therapy business less than a block from the hospital the other day.
Students and their parents complaining about student loans are a huge thorn in my side.
I am a parent. Why didn’t parents SAVE for their children’s education? When my child was born, back in the early days of the internet, there were still magazines and newspaper articles about the amount needed to be saved to finance a college education. Of course, in today’s society, the new car in the driveway, the newest electronic gadgets and Jimmy Choo shoes seem to trump the responsibility of actually saving for the education of your own children. So, you don’t buy the newest gadget, instead you *GASP* put away a little money for your child’s future. And then, put some away for your own retirement. I really hate to see the mess this country’s going to find itself with the generation that didn’t save for their own children’s education reaches retirement age.
And here’s news for all of these parents. If you can’t afford to send your child to a school with $50,000 tuition, don’t. But then, that means actually being a parent and not your child’s best friend.
This country is in a world of hurt.
All colleges play money games. Not like someone isn’t paying for state colleges/universities which let people in. The difference in a public university is that the taxpayer is on the hook from the very start, and there’s no potential for the student to pay for most of his education.
are there non profit schools. in some way all are for profit.
I don’t know how they handle a co-signed college loan on death, but I do know a divorced woman who signed for her daughter’s loans and now the girl says she’s not going to pay them. Mom, who has just retired, is on the hook for the loans, of course. The daughter is married and she and her husband have their own house.
Lovely daughter. I would contemplate hiring someone from the mafia to “talk” to her.
“Why didnt parents SAVE for their childrens education?”
I’m not going to criticize anybody who actually saves for something they want or need - clearly that mindset is something this country needs to relearn.
But it’s not unusual for colleges to exploit people with that mindset. At many of the better private colleges, almost no one (except for the genuinely wealthy) pays the “sticker price” - most students get some degree of financial aid. And unless that financial aid is “merit based”, the amount of financial aid is determined by a complex formula that takes into account the family’s income and assets.
That approach generally punishes middle class families that actually save for college - the more you save, the more you get bonged on any “need based” discounts you might have qualified for.
One caveat - those policies vary from school to school - but as a general proposition, financial aid policies at most schools are designed to actually punish responsible families.
I agree that the mother doesn’t have to pay the loans if she didn’t co-sign for them, but it does say that she is handling the estate. IF their is any money left in the estate it should go to pay off the bills.
I knew the rules a good while ago. I took out loans in my name for my two children
Still owe 99 grand. They pay me monthly and I pay gov. They don’t have responsibility for loan.
I am 69. Don’t think I will outlive the loan. I had this advice from a college loan officer..
That’s the first thing I thought of. This attorney probably isn’t that stupid....mom probably cosigned.
So, it’s very simple. If you can’t afford that private college, don’t allow your child to attend that private college.
Now, I agree about the “punishing” part. As a responsible family with one child, the high school guidance department had meeting after meeting regarding financial aid. From the paperwork, we knew we would not be eligible. But, that’s not the point. My child could also not afford one of those “better private colleges”, so guess what? We didn’t even look at them. We looked at the schools we could afford and the schools with the curriculum we thought would match his goals. What a ridiculous strategy, huh?
What we SHOULD have done, the new American way, was to send him to the most expensive school in the country and then write the President a letter complaining that his entry level job won’t cover his student loans.
“... as a general proposition, financial aid policies at most schools are designed to actually punish responsible families.”
This is so true. Universities, whether private or public, have a voracious appetite for every penny you have, yet have no accountability for actually educating your child.
I am paying two kids tuition at the moment.
My sons university (public, local) announced plans to raise tuition nearly 10% last year. I complained - for all the obvious reasons. I got their budget, and I eventually met with the CFO.
He told me “Kids ‘demand’ the amenities” His biggest issue was another public university that stressed amenities over education - he literally stated “They are kicking our butt”
He indicated that they were sliding down SAT scores to get more students.
He blamed increasing tuition on state funding cutbacks - but I pointed out no obvious efforts to cut back on costs, regardless of funding sources. He accepts that regardless, state funding will not meaningfully rise in the future.
He indicated that he was going to be ‘forced’ to increasingly use Adjunct Professors rather than tenured/benefit consuming professors
I pointed out that “public private partnerships” for dorms were long-term drains on finances - and that I knew he was never going to repay them. I pointed out that administrative costs were not being controlled (He disagreed).
The interesting thing about looking at University budgets is that in reality all the money goes into one pot - Room, Board, Fees, Tuition....it’s a game to simply extract money from students and call it whatever necessary to get the money out of them.
This CFO realizes that he will not be able to raise tuition over a sustained period of time.
The bottom line: If you don’t want to drop your pants and show greedy university staff every asset and income source you have and have them punish you for being even semi-successful, (Look at the FAFSA form!) then you have to go it alone, like me and pay for your kids education - or let them slit their own throats and become a debt slave through student loans.
Acquiring student loan debt is the easiest path - deliberately so. It is the only way universities get to live to the next day. For how long can it continue? who knows...but not much longer according to one CFO.
I see a wave of disabilities in my crystal ball.
A wave???...for the past ten years ...it's a continuous tsunami...the recipients already call it 'crazy money'.
Discern most media legal ads...they are for processing SSI disability claims (i.e. drugs/obesity/depression/falsified injuries (back/neck/shoulder/leg/sight...)/can't get of bed/can't seem to mind/can't hold on to that man of mine...ok last three a stretch...maybe!)
Amazing that once an individual processes a claim...they receive funds (Federal Order). Then it's not until the SSI Hearings and Appeals judge renders a decision that the funds are made permanent or disallowed...quite the (DIS)incentive for the individual to show up /schedule / reschedule /reschedule / reschedule their hearing. Quite the ongoing scam.
Thanks for the 411. Is SSI mental impairment considered a permanent disability for the purpose of discharging a federally insured student loan? I mean, oncest in a while the crazy are cured. Knowing that there’s an 80K + interest loan waiting for you certainly provides a disincentive for gettin’ better.
Another issue would be prohibiting funds for being used to buy a car, take Spring Break trips or use for “enrichment” activities.
Because it's not their responsibility.
My parents (and my wife's also did the same) were quite firm that high school graduation marked the end of their assuming total responsibility for me. If I wanted college, "I" had to pull the wagon. They might throw some money into the wagon occasionally, but "I" had to provide the majority of it.
And by a combination of scholarships, student jobs, and "living within my means", I did precisely that. My wife wasn't as lucky scholarship-wise, but she worked summers in high school (and later in college), and paid her way through. She lived at home and commuted as an undergrad to save on expenses.
The Government needs to budget funds for an increase for investigators/examiners to pursue, to examine, to uncover these ever increasing entitlement scams. The Hearing's offices are simply too swamped to process the current workloard much less revisit previosu cases.
Have a brother-in-law diagnosed being Bipolar...received disability most of his life, but continues to work 'under the table'. But being Bipolar and taking your meds...one soon feels uplifted, great, normal...thus proceeding to quit taking meds...soon to fall under the depressive mode once again. Sometimes an unavoidable vicious cycle.
There are true needed cases for disability, but far too many are taking the easy way out and applying for the aforementioned 'crazy money'.
Note this little gem in there & then consider obamacare: “ Ill warn you ahead of time that it may take a while to jump through all their hoops. I mean, youre dealing with the federal government. Theyre not exactly known for getting things right the first time.”
Dave Ramsey ping!
Thank you Kaslin for posting Dave’s articles and I am sorry I wasn’t very quick with the ping..
Dave Ramsey Ping!
“Why didnt parents SAVE for their childrens education? “
Many people have little to save since the government taxes us half our incomes. Most people find even $10 a paycheck too much to put away and that is without spending anything. Let’s not forget we might not be talking just one kid to save for.
My parents had five kids and were military. There is no way on that paycheck could they have saved more than maybe one kid’s tuition at best.
“Don’t pay the loans” is here applied to a very narrow situation: death of the borrower. By law the loans expire when the debtor expires.
Persuade the kids to work hard, be flexible, and research options: cheap unto free education may be had if one seeks it. If you’re paying list price, you’re doing it wrong. Good inexpensive schools exist (if you’re willing to relocate), free money is available for all kinds of reasons, employers will often foot much/all of the bill, and a growing range of free online programs can help jumpstart that education.
And make sure the kid knows WHY s/he is spending time & money at university.
“If youre paying list price, youre doing it wrong. “
Without question that is true. So many pay way beyond their means or the paper’s worth because student loans became easy for anyone to get. There simply isn’t competition for quality education anymore.
He should have said “if your mom didn’t cosign them don’t pay them”.
Dave Ramsey has some good ideas (actually, he’s just spouting common sense but plenty of people need someone to do their thinking for them, apparently) but he’s a big blowhard and his legal advice, as it were, is usually wrong.
"Why didnt parents SAVE for their childrens education?"
You gotta play the hand you're dealt. For most folks, between providing a decent living, paying taxes, saving for retirement, there already isn't enough money. Saving $200K to go to a private university, or even $100K for many public schools per child isn't in the cards.
I own my own business and am entirely responsible for: Both sides of payroll taxes; my own health insurance; my own health savings account contributions; my own disability and life insurance; my own retirement savings. For many years, I maxed out my retirement account contributions at 15% per year of my income. Between that and all the payroll and income taxes, health insurance premiums (which only became fully-deductible for the self-employed in the late 1990s), life insurance, disability insurance, etc., well, I was able to save a few bucks on the side, buy a nice house, keep a couple of decent cars in the garage, and send my kids to Catholic high school (we homeschooled through 8th grade, so we gave up hundreds of thousands of dollars in second income over the course of 10 years - best investment we ever made).
I had to prioritize my savings. After accumulating a little cash as a cushion, I first funded my retirement accounts. Did my best to max them out.
After that, I tried to save to make sure that we've always had a cash cushion, especially for tough times.
I never saved for my kids' college educations, and have nowhere near enough money in our general savings for them.
But I do have decent retirement account savings, and with a little luck, and recovery from the Obamadepression, my wife and I will retire comfortably.
From my own perspective, one should never put a dollar into a formal, tax-deferred college account or fund.
The key to what schools will charge you is not the official rate of tuition, room, board, etc., but your Estimated Family Contribution (EFC). Most schools try to charge a family no more than the EFC, or at least to try to get near to it. Some schools provide 100% of demonstrated need, meaning, you're only on the hook for your EFC. Some schools provide a smaller percentage of demonstrated need. The more prestigious a school, generally, the more generous the need-based aid.
So, the goal should be to minimize one’s EFC.
Each school has its own formula for EFC, but they all derive from the federal guidelines, which are based on data submitted through the FAFSA.
Your EFC will comprise several parts. First: A big chunk of your annual income. The more income you have, the bigger the chunk they look for. At the top end of the financial aid range, some schools are essentially adding to your EFC at a marginal rate of 35% - 40% of marginal dollars. Ouch. Next, approximately 5% of your general savings. But generally, unless you're well into seven figures, NOTHING of your retirement accounts. Next, 25% of formal, tax-deferred college accounts, and 25% of your kid's assets.
So, maxing out retirement accounts minimizes EFC.
Putting money into formal college savings accounts MAXIMIZES EFC.
Putting money into regular savings accounts or financial investments ahead of maxing out retirement accounts increases EFC.
No matter what you've saved or haven't saved, whether in college-specific accounts, retirement accounts, or the passbook account at your local bank, your EFC will be large enough that you will likely not have enough money, while your kids are in college, to continue to fund your retirement accounts. Unless you're rich or you live very frugally.
Thus, maxing out your retirement accounts will reduce your EFC, but it also makes sure that you will have had some chance to fund a decent retirement before your kids get to college.
I followed my own advice. I make a comfortable, upper middle class living. I have money in the bank as a cushion. I've done my best to max out retirement contributions, and have a modest retirement fund (more modest than it was a few years ago, LOL, but I'm hopeful it will recover before I retire).
I have no college-specific savings.
I don't have anywhere near enough money in savings to pay for my two sons to go to college without loans, except maybe at the local community college.
But my son applied to college last year (he's a freshman at his chosen school this year), and we filled out the FAFSA and all the supplemental forms asked for by each school. He was accepted to most of his schools, and received offers of financial aid or merit scholarships at all of them.
Because our EFC includes no contributions from savings, and only contributions from current income, and because my son chose the school with the most generous need-based financial aid package (although he turned down a full merit-based package at another school), I should be able to pay for my son's college education out of my current income, without any loans. And although I won't be contributing to my retirement accounts for some years (my other son is a high school junior, so he's up next), because I focused on saving there through my 30s and 40s, I should be okay.
If you have kids whom you think will eventually go off to college, you should fund retirement savings first, general savings next, college-account savings never.
Thank you very much for that detailed explanation. I ran my own company until becoming an employee at a larger company recently. I maxed my SEP IRA then and I never opened a college saving account thinking there was hook.
My oldest is going to be a high school sophomore. I’m starting to look in earnest at how to approach college financing. Your post has given me a great leap forward!
The post just scratches the surface of the topic, but I’m glad you found it helpful!
This is what’s wrong in our country right now.
You can’t afford a 200K private school. You’re not alone, most can’t. So, here’s what you do. When your child starts visiting colleges, in that summer before their junior year, or during their junior year of high school, don’t visit the private schools. Visit the schools that are affordable in your own situation. Tell your child to *gasp* work during college, attend part time, or get a job after high school to save a little for college. There are just so many ways to have your children attend college. There’s also absolutely nothing wrong with community colleges.
If your child received a full ride at a school and didn’t take it, well, you’re in great shape. Attending college has become a political football with the democrats, telling people that they should attend the most prestigious university out there and don’t worry about those darned student loans, Obama will forgive them!
I just think that as parents, it’s up to US to teach our children responsibility. I still have little sympathy for parents who claim to have no savings for their children’s education, yet are running around with the latest iphone, acrylic nails and brand new cars in the driveway. It’s just priorities, but I do fear this country has lost its way.
“You cant afford a 200K private school.”
Who said that? I didn't say that.
What I said is, I can't afford to pay $200K each for my sons’ college.
The problem is that you're looking at the listed tuition, room, board and other expenses of a given college or university and saying “that's what it costs.”
And, if THAT'S what it costs, then I can't afford it, and I'm not going to borrow $200K to be able to pay for it.
But that's rarely what the school actually costs. It will cost that much if you have a lot of income. It will cost that much if you have a lot of money in the bank (not in retirement accounts). And it will cost that much if you actually used one of those tax-deferred college savings plans and saved up $200K.
The price of the school depends on the income and assets you bring to the table. The more assets you bring to the table specially-dedicated to college costs, the higher will be your price.
“When your child starts visiting colleges, in that summer before their junior year, or during their junior year of high school, dont visit the private schools.”
Good idea. If you can't afford the final price that will be offered to you, strike the school from your list. Every school that takes financial aid now has a “net price calculator” that will estimate YOUR family's price to send a child to that school. Before getting all involved with a school, check its net price calculator to see how much the school will cost YOU if you send your kid there.
But by your child's junior year, a lot of stuff is already “baked into the cake.” If you have a tax-deferred college account, well, it's there, just waiting to be devoured by every school to which your son or daughter applies! If you haven't saved up anything for retirement, well forget about it for the next few years, because when you see the EFC from the net price calculator, you're going to quickly realize that you won't be able to afford anything more than community college AND contribute any significant part of your income to retirement accounts. Unless you have very little income and your kid gets into a top school or unless you have scads and scads of income.
For those that are interested, go to the financial aid web page of a college and find the net price calculator and try it out. Here's the calculator for Harvard. I'm providing it as an example because it's the single easiest to use that I've found:
“Visit the schools that are affordable in your own situation.”
Certainly! But don't be put off by the published “price” of a school when determining whether or not you can afford it.
Like it or not, nearly all four-year colleges and universities engage in wealth redistribution. The published prices are not what the school needs to run itself. The published prices are what they think the upper end of the market will bear, based on the school's reputation for excellence, general exclusivity, and a few other factors. The published prices of nearly all of these schools are not calculated on a “cost plus” basis. It's on a “what the [top end of] market will bear,” with discounts from there, as needed, to attract the students they want to attract.
It's like the progressive income tax. The more you make, the higher percentage you pay.
If you want to debate the fundamental morality of that, you've got the wrong guy. I think there are moral arguments for and against. But I don't think I care very much.
What I DO care about is taking care of my sons, as best I can. That includes trying to send them to the college that is right for them, and trying to be able to afford that college.
And “affording” means that I have to operate within the system that is established. Whether I think it's right or wrong, a good idea or a bad idea, or needs work, or tweaking, or whatever, it doesn't matter. None of these schools is going to change the way they operate just for me. They're attitude is take it or leave it. I know this personally, as my son didn't get to go to his No. 1 choice school because, well, they didn't give us enough financial aid, and I'd have had to take $25K - $35K in loans over the course of four years, and he had three other choices - all excellent - that were less expensive and for which I would have needed less in loans, or in the case of two of the schools, no loans at all.
Since it was my son's first pick, I spoke to the financial folks to try to wheedle a few more dollars in aid. They didn't budge a penny. Their game. Their rules. Take it or leave it. We left it.
My son DID pick from one of the schools that was most affordable to us.
“Tell your child to *gasp* work during college,...”
Most financial aid packages include a work/study component. My son's does. He's expected to contribute about $5K per year from part-time work. That doesn't amount to 10% of the published price of the school, but it's a reasonable contribution to ask him to make.
“...attend part time,...”
Increasingly, the better four-year schools don't permit folks to attend part-time. Part-time is for community college and what we used to call “night school.” My son's university doesn't permit folks to attend part-time, unless it's to finish up a course or two or three at the end of the process of getting a degree.
“...or get a job after high school to save a little for college.”
Even a public university will be out of reach on even the full-time earnings of the typical high school graduate. In my own state, tuition, room and board exceed $20K per year for in-state students pretty much at all the four-year public universities. Even just tuition, books and incidental expenditures amount to $10K per year, for folks inclined to live at home.
Without financial aid, few folks would be able to afford four-year universities and colleges, and only wealthy folks would be able to afford the top-tier private schools.
“Theres also absolutely nothing wrong with community colleges.”
That depends on the student. Community colleges are designed nowadays as gateways, stepping stones to four-year universities. They're appropriate for high school grads who might not be quite ready for a four-year school, or for high school grads who are “middle of the pack.” But they're not oriented toward very bright, high-achieving students. The research I've read suggests that really bright kids are less likely to complete college if they go to schools that are insufficiently challenging. Folks should try to go to schools that are well-matched to their maturity, talents and achievements. Kids who are Ivy material aren't well-served going to the local community college.
“I still have little sympathy for parents who claim to have no savings for their childrens education, yet are running around with the latest iphone, acrylic nails and brand new cars in the driveway.”
I have much sympathy for people who have saved large amounts of money in tax-deferred college accounts, as they have wasted their resources. The money would have been much better saved in retirement accounts, and beyond that, in a regular savings account, or an ordinary investment account.
Here's the thing. Johns Hopkins, as an example, publishes prices for tuition, room, board, books, etc., that add up to nearly $60K per year. But you're not obligated to do whatever you can to arrange your finances so that you can pay the published price for a Hopkins education, or as near to it as humanly-possible. You have no moral or legal obligation to give them $60K per year if you can arrange your finances in such a way that they will offer admittance to your child for less (obviously, as long as you're doing nothing illegal or intrinsically evil). If you save $240K over the course of many years in your retirement accounts, rather than in a tax-deferred college account, Hopkins will charge you A LOT LESS than if you put that money into the college account. In fact, if you put all that money in the college account, Hopkins will charge you THE FULL PUBLISHED PRICE.
If your kid gets into Hopkins, the aid they give you may fall short of what you need to pay for it without taking out loans. But here's the thing, if they give you $40K in aid, and ask you to pay $20K, and you can only afford $10K, if you don't want to borrow the extra $10K per year, YOU CAN TAKE IT OUT OF YOUR RETIREMENT ACCOUNTS! LOL! And much better to take $10K per year (plus taxes and penalties) out of a $240K account than SIXTY GRAND per year out of the college account!
Folks should be careful about taking out large amounts of loans to finance education. But most folks can go to pricey four-year universities and incur little or no debt, if they're smart about arranging their own finances, and if they're smart about fitting the college to the student, and looking for the deals that are out there.
I meant to courtesy ping you to the above post.
Let me know when you start a college finance blog!
Just ran the calculator at my alma mater. I need to go back to running my own business again!
The real problem is that there are many people going to college that would never had qualified for college in the past.
College educations are merely indoctrination for the masses.
How many businesses are going to hire people that majored in mickey mouse courses like “women’s studies” or “bowling management”?
Libs have made college a scam just like they have every education program.
Many of the people that owe now, should have, and never would have, been qualified for college.
College is now the equivalent of an expensive high school education.
Everything about this is wrong.