Tuesday, January 29, 2019

Why is the Department of Education Sugar Coating Student Loans? Essay by Steve Rhode

By  (Originally posted at Get Out of Debt Guy on January 21, 2019)

I’d love to take credit for this observation but a reader sent me an email and said, “My granddaughter got this email. The Department of Education is marketing their product by saying “maximize the financial aid you may receive.” Nowhere in here does it use the word “loan.” Just the DOE looking for prey among uninformed young almost adults.”
The reader has a very good point.
The term “financial aid” certainly can have a different meaning than “student loan.”
For example, the Department of education also talks about free education benefits as financial aid. This includes educational awards, training vouchers, scholarships, military service aid, etc.
The government website says, “The U.S. Department of Education awards more than $120 billion a year in grants, work-study funds, and low-interest loans to more than 13 million students. Federal student aid covers such expenses as tuition and fees, room and board, books and supplies, and transportation. Aid also can help pay for other related expenses, such as a computer and dependent care. Thousands of schools across the country participate in the federal student aid programs; ask the schools you’re interested in whether they do!” – Source
And while the marketing hype from the government does say student loans, it also says low-interest which is also a bit of a sugar coat on reality.
While the interest rates are in the 5% to 7.6% range there is no warning that you will be easily eligible to borrow more than you may be able to afford to repay.
For once maybe I’m not blaming the Department of Education for poor rules and horrible service. This issue about talking factually about money for higher education permeates all of society from schools to parents to high school counselors.
I wonder if student loans were portrayed accurately instead of sweet frosted “financial aid” if the very people blamed for taking out excessive loans, the 18-year-olds, would get a real jolt?
Consider this. Instead of talking about access to financial aid, prospective students received a cigarette package like warning notice.

WARNING: This product may cause life long debt and keep you from saving for retirement or buying a house.

At the very least, what if borrowing money for college had a window sticker on it like when you purchase a car.
We want the borrower to be held responsible for taking out the loan so let’s give the borrowers the facts.
Fact 1: This is a loan. You will have to repay this loan with interest. The repayment cost of this loan will be more than the amount you borrow. It may be substantially more.
Fact 2: If you don’t finish school or obtain your degree you will still have to repay this loan.
Fact 3: The degree program you are enrolling in typically results in a salary of $X. This may be insufficient to be able to afford to repay the amount of money you are borrowing. Your chosen school has an X% graduation rate for this degree program.
Fact 4: Your obligation to repay your student loans may result in the reduced ability to save for retirement, purchase a home, or live on your own.
Fact 5: Failure to repay your federal student loans may result in a garnishment of your wages, forfeiture of any tax refund, and the garnishment of future Social Security payments.
The terms parents and schools use when freshman are headed to college don’t accurately reflect the financial reality of borrowing for education. If we want to blame borrowers then let’s give them the facts and not sugar coat it before they leap.

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I highly recommend Mr. Rhode's blog site, getoutofdebtguy.org--a robust ongoing commentary on consumer debt issues.

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