Wednesday, May 2, 2012

...No One is Doing the Math...

I talked a bit about this last week (or tried to. Not sure why the new, improved Blogger scheduling function works at will, but…).

Since that time I’ve come across some of the most ignorant and infuriating things I have heard in a long time around this student loan thing so I need to elaborate for all the “educated” folks that can’t do the math.

In reference to keeping the student loan interest where it is, certain people with certain interest will have you believe in any number of half-truths and un-truths.

But we’re smarter than that.

We understand that opting to not raise the interest rate is not the equivalent of a “cut.”

We can probably guess that people that opted for private loans were probably trying to avoid the larger interest rate with Stafford loans, and somehow missed the fine print that the loans really weren’t that different where it counts most: the repayment period.

And we know that people who accepted the fed loans are not trying to get out of repayment, but trying to get out of the infinite loop that forces you to keep making payments on a bill paid off ages ago because the interest rate is so high.

Some years ago I had a wonderful conversation with a very kind and helpful man from the US Department of Education.

Student loans are like any debt in that your name, contact, and debt information floats around in a kind of “pool” for lack of a better term.

Any bill collecting agency can pay to fish names out of this pool, and go after that person for repayment. (Plus their administration fee which is almost always what they paid to get your name in the first place.)

So collection agency X contacts you,  forcibly sets up payment arrangements, you keep the arrangement,  pay off the debt and wait to receive your “paid in full” letter from agency X.

Instead, you are contacted by agency Y about the same debt.

The heck?

According to my good friend at the USDOE, some of these agencies can take your money, NOT turn it over to your original creditor, AND sell or otherwise drop your information back into the pool for someone else to find and harass you about. You probably knew this about credit card debt, but I was surprised to learn this about student loans.

 Fortunately, I was only bilked once by this particular scheme. I lost about $1200 which is a lot of money to throw at nothing but it was throw or be robbed via payroll garnishment.

Looking through my original loan paperwork (I told you I have a bad habit of keeping stuff), I found the Department of Ed contact information where I was given a list of approved service providers who could help get my loan back on track.

I applied for the graduated repayment plan. I pay the same amount monthly for two years and then experience an increase, and this continues for a period not to exceed 30 years.

The other option was the ICR, or income contingent repayment where a percentage of my income is my standard payment until my income changes. The repayment period for ICR expires after 25 years.

Before you kick me for not jumping at the shorter repayment period, know this: Nowhere in the paperwork did it expressly state the percentage of the income to be taken.

 It was based on some formula that included some numbers that would vary based on a government mandate. So it could be half for all I knew. I didn’t like having that big of a blind spot, so now we’re back to a 30 year payment.

Now with all that in mind, let’s review some facts about my loan:

My loan started out at $8,000.

Stafford loans (like private loans) have to be repaid in full within 6 months of graduation, or the interest can raise to anywhere between 18 and 33%.

Depending on whom you ask the loan goes into default anywhere between two months and two years after you cease making payments. Once the loan is in default, you incur additional fees and charges. I went into default. Then lost the money to the bogus collection agency, then found the payment rehabilitation program.

The rehabilitation program is the audition for the graduated repayment program . I had to maintain payments of some $300 a month. That total was applied to the multiplying interest, not the amount due, but it’s intended to prove that I am “sincere in my repayment efforts.” This started around the fall of 2003 and continued until the spring of 2006. I survive the  rehabilitation.

I am now in the “official” repayment phase with a fixed interest rate of 4.25%.  I am due for an increase in May 2012, so we’ll see what’s different now that I have not only been involuntarily moved to a newly approved service provider, but the increase on the interest rate in general is looming.

As of November 2011, according to the biennial statement I receive,  I have paid $18,837.78, which means, obviously I have paid off the original $8 thousand. I will remind you- again- this  does NOT include the  30 months of the loan rehabilitation program. Or the money I lost with the non-approved provider/collection agency.

So even though I have paid everything I owe and more than enough in interest, I am locked into the repayment plan.  I have to continue making interest payments on growing interest until I pay it off entirely or until the end of 30 years. There is no refinancing.

See how that makes NO sense whatsoever.

Even as you pay the interest mounts, and for every month that I wasn’t paying after my six month deadline, the interest was mounting. And while I was rehabbing the interest was mounting. The interest accrued is a little more than half of whatever the payment due is. My total due column has yet to drop below $45,000. Essentially the more I pay, the more I owe.

People either laugh or shake their head when I tell them this. They can’t believe it.

I can’t believe it.

But I have the payment schedule to relieve my disbelief and it very clearly states that by the time  I make my last payment on due October 28, 2028 my total paid after 300 payments will be $83,257.69.

For a loan of $8,000.

So you can imagine how ridiculously frustrating it is to be in this situation. All I  wanted was to continue my education, learn stuff, meet new people and earn a living as a tour publicist while writing a best seller on the side.

Instead I ended up here.

It doesn’t add up to me either.

Obama’s plan would keep the interest rate reasonable and shorten the length of the repayment period. And my understanding is the shorter length is not guaranteed, but the possibility will exist.

So when you hear things that say, this plan will cost the tax payers thousands/millions/billions of dollars, bear in mind that I am a taxpayer, too. It has already costs me thousands of dollars.

In all the years I was in default on this loan, the interest stacked up against me, not you or any of your bills.

When they say it will cost “us” money, the “us” they mean is “them.”

They’re saying “this money that we’ve been bathing in from the student loan payments will have to come from someplace else. We’ll have to find some other way to get the money from the public for our undeserved exorbitant lifestyles.”

And let’s say somehow it would cut into some kind of service for the people (which, dang, which service is that? By the time I make the last payment I’ll be just in time to NOT collect any of my social security), there is a solution.

The government could easily recover this money by taking pay cuts just like the rest of us.

I keep hearing the average American makes a little over $50K a year So no one in Congress should be making more than this.

Or better yet, you wanted to be a public servant, so why are you paid at all?

Try getting by on minimum wage for a minute and after you’ve had some time to sit at your table, shift the bills around and have to make decisions on what’s not getting paid this month,  then we can all sit down together  and figure this stuff out for real.

He was talking about  the music industry, but it applies to so many other things

Mos Def  - The Rape Over

Someone’s cool video for a hot song. That Thich Quang Duc self-immolation photo gets me every time.
Stevie Wonder – You Haven’t Done Nothin’

Mom and I were thinking of this song at the same time. Not sure about the video image, but the sound quality is good.

Bill Withers – Grandma’s Hands

And if you’ve got about an hour…

“New ideas in college get beaten down.” Speak it sister.

Seems the only people making money off your higher education are the people who own or run the school.

View College, Inc and learn about the profit of education.

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