Life and Debt

Glad to have my taxes finally done and over with. Dealing with them has not been fun this year, but online resources certain make life easier.

I've been too busy and lazy to cook decent meals in the last couple of weeks, but coincidentally, there were many great lunch-time events on campus. Yesterday was pizza during a talk given by the General Counsel of the Los Angeles Dodgers (very interesting; the career trajectory was nothing I expected). Monday was lunch from the Corner Bakery, complete with sandwiches, salads, and dessert (mmm...best free lunch I've had in a long time), served with a lecture on the "War on Terror." Sunday was pizza (again) when I was at school carry out my mandatory editorial duties for the last time...OK, so this isn't exactly "great" in terms of being enjoyable, but I'm proud of how things ran smoothly and we got the job done quickly. Last Thursday was pizza (again) for a talk on student loans, presented by a student loan "portal" that bills itself as different (as in they want participating lenders to provide full disclosure). Since I don't know enough about this very young company, I'm not going to reveal who it is lest someone thinks I'm giving a recommendation--I'm not. I just thought the factual information presented at that talk was very enlightening.

Since many graduate and professional students will incur 6-figure loans, it's best to shop around for the best rates. Even slight percentage points can make a huge difference, as in thousands of dollars. Unfortunately, many companies don't tell you what the APR percentage is, just a certain percentage plus, say, the LIBOR index. What's more complicated are the terms after you graduate. Some offer a percentage reduction after a certain number of consecutive payments, others offer a percentage reduction up front, and still others do a combination of both. Unless you set up an Excel spreadsheet to calculate out all these numbers, which many of us lack the acumen or time to do, we'll never actually see what the best deal is. The company (let's call it G) offers to crank out the APR of all the different student loans (that allow themselves to be listed in the database) so that people can compare more easily and see what they're getting into. When a student signs up for a particular loan through the G, G gets a commission from the loan company. This service wasn't available when I started school, but at least I keep track of what my interest rates are by paying attention to the rise and fall in interest rates in the news.

While money spent throughout the life of a loan is a big concern, the thornier issues for me are the terms of the loan--I'd rather spend a little more money now than to deal with trouble later. Most people don't know that their loans can be bought and sold by the loan companies; I have a friend who had to deal with problems springing from this. Another issue is what happens if you're having a hard time financially--does asking for a forebearance terminate the percentage decrease benefits, even though you've been diligently paying your loans and had trouble for just one time? These are things hidden in the fine print, and it's best to read it carefully. It's like drinking icky medicine, but it's better for you once you do it.

Consolidation is another issue. The rules have changed--students can no longer consolidate while they are in school, only when the loan enters the grace period (after graduation). For those who consolidated before this change, it's important to think carefully before consolidating again. It used to be a no-brainer option, since it locks in the low interest rates of days past, but now that interest rates are high, it might be a good idea to keep separate consolidated loans. It's something worth chewing on.

Choice of loan is also important. Last summer I talked about the federal Graduate PLUS loan program (GPLUS), which has a fixed 8.5% rate for the life of the loan. Sounds high, but compared to private loans that run from 9 to 11+%, it's a good deal. My school did a great job letting us know about this before it was time to apply for loans. However, other students may not be so lucky and not know about it. Last year things were still in flux and many school administrators were trying to sort things out, but now they should be more knowledgeable about it. It's definitely important to learn about it if you've been saddled with tons of private loans.

Last but not least, there's the issue of loan management while we're in school and after we graduate. It's common knowledge that there's bad debt (credit card debt being one of them) and good debt (student loan falls into this category), and it's important to manage them. It's common knowledge that there's bad debt (credit card debt being one of them) and good debt (student loan falls into this category), and it's important to manage them. The speaker advised students to take out more student loans to wipe out credit card debt, and I agree it's the right approach. The interest rates on credit card debt are so high that it would be stupid not to get rid of the debt as soon as possible, provided that the student loan rate is lower.

What I have a bit of difficulty with is the advice of taking more time to pay off your loans. The rationale behind taking time to pay off your loan is this: the money you use to pay off your loans could have been used to generate savings, and in the long run, you'll save more money than if you pay off all your loans at once early on. I believe this is a valid theory--I've seen the numbers--but I just don't like being saddled with a loan like this. I haven't decided if I should change the way I'm thinking. After all, a lot of people have mortgages; some debts are just facts of life. But it would definitely make me feel better if nothing is hanging over my head.

I guess the best solution is to make tons of money. Easy, right? ;-)