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The Dark Side of Student Loans

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Warning: This turned into a bit of a personal rant!

If you have 50 minutes to spare, let me recommend that you track down an interview with Alan Michael Collinge, author of The Student Loan Scam: The Most Oppressive Debt in U.S. History — and How We Can Fight Back.

Collinge is angry about his personal experience with student loans. After losing a job, he applied for forbearance and not only got rejected, but also had his interest rates completely jacked up. His rage over what happened to him compelled him to talk to hundreds of others like him and to do an obscene amount of research into the history of student loans, political warts and all. The result: The Student Loan Scam.

In this interview, Collinge openly compares student loans to predatory lending. My first reaction was “Whoa, now, that’s a stretch,” but after listening to his personal experiences — and those of the hundreds of others he’s interviewed — I can see how he has come to this conclusion.

Look, I know that for many of you, college just isn’t going to happen without student loans. That was the case for me, so I’m certainly not judging anyone. I had my heart set on a particular private school and barely even considered public options. With some help from my family and some maxed out Stafford loans, I also save money by doubling up on my course load and transferring in summer courses from inexpensive state universities near home.

My debt to Sallie Mae was pretty overwhelming, though, and for several years it was the bane of my existence. I finally paid off that burden a few years ago and I have to admit that now, when I think about my little ones going to college, I am pretty determined that they won’t have to take out student loans. Of course, getting to that point will take planning, saving (okay, scrimping) and a good deal of luck.

If my kids were starting school next fall, we’d be up a creek. Even if we had done everything right and saved religiously in a 529 Plan, the market devaluation over the last year would have all but wiped out the account. My point is: Even with the very best of plans and the very best of intentions, sometimes student loans are inevitable.

So, if that’s where you are sitting right now, I think Collinge’s interview (and probably his book, though I will admit to not having read it) has a lot of value. Buyer beware, and all.

His point that made the biggest impact on me was this: You can only consolidate your federal student loans once. So if you happen to be currently eligible to consolidate, with interest rates at a record low, you are probably going to come out ahead… way ahead! But if you consolidated five years ago, or five years from now, well, you might not come out so ahead. You might actually be stuck in a terrible interest rate with your hands completely tied.

On a personal level, I think it’s a good idea to heed Collinge’s warning about consolidation. Consider the terms — and the times — very carefully. Don’t fall prey to aggressive loan guys pushing you to consolidate.

On a political level (what’s that they say about the personal being political??), I think his point challenges us to lobby our members of Congress to review the policies governing student loans. Especially if Obama’s vision for direct federal lending of student loans comes to fruition. But even if not, we the consumers have a right and a responsibility to have our voices heard on this issue.

At least that’s what I think. What do you think? Share your thoughts in the comments section!

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