| Right now, college-bound students in Florida (where I | | | | screeched to a halt simultaneously with the collapse |
| live) and across the country are getting bombarded | | | | of the secondary mortgage market, slumping real |
| with ads for student loans from companies such as | | | | estate values and a slowing economy. |
| Monticello and Astrive: "$40,000 in Two Days!" | | | | The result: subprime borrowers were denied credit, |
| "Better Rates if Your Parents Co-Sign!" | | | | were forced to stay in their unpayable loans and |
| This coincides, of course, with college acceptances. | | | | pushed into default or, unfortunately, foreclosure. |
| Many parents and students are opening letters telling | | | | Right here in Florida and across the country, college |
| them they've been admitted to the college of their | | | | graduates burdened by student loans face similar |
| choice, only to have that brief elation met with the | | | | problems. Just like the mortgage companies, student |
| harsh reality of having no clue about how the heck | | | | lenders offer a low teaser rate which adjusts upward |
| they're going to afford college. | | | | (it's almost always up, not down, unfortunately!) after |
| One such option is applying for financial aid. | | | | the introductory period. |
| Unfortunately, the "rules of the game" behind how to | | | | Next comes the inevitable late payments, |
| maximize the money you're eligible for are | | | | non-payments, defaults and ensuing credit problems. |
| complicated, to say the least. Most families (78-90% , | | | | It's a slippery slope! The result - payments get |
| according to some industry estimates) fill out the | | | | jacked up a few years after the loan originated. And |
| FAFSA and other forms incorrectly. This results in the | | | | the new spiked payment almost always catches the |
| student receiving less aid than he or she would have | | | | borrower by surprise. Just like their subprime |
| normally qualified for, or, sometimes, no aid at all. | | | | borrower counterparts, student loan holders are |
| All too often, the student turns to alternative means | | | | unable to make payments once the loan adjusts |
| of college funding: private student loans. However, | | | | upward. |
| you need to think twice if you're planning on financing | | | | In most cases borrowers of both student loans and |
| your college education this way. | | | | subprime mortgages claim that they were misled |
| Before you sign your life away, take a deep breath | | | | about the terms of their loans. They cry that the |
| and consider what you might be getting yourself into. | | | | lenders withheld vital information, or glossed over |
| Most parents and college-bound students do not | | | | important information. |
| realize that student borrowers are not-so-distant | | | | The good news is that Congress has begun calling for |
| cousins to headline-making borrowers with subprime | | | | increased regulation and disclosure in the student |
| mortgages. Many experts, present company included, | | | | lending industry. |
| believe that the student loan market is poised to | | | | Don't hold your breath, however. This could take |
| experience the devastation currently affecting the | | | | years. Your best bet to protect yourself is using your |
| subprime mortgage industry. | | | | own brain - asking the right questions, listening to the |
| To be sure, when I rant about the similarities | | | | answers. "What is the interest rate?" "When can the |
| between subprime, predatory lending and student | | | | loan adjust, if at all?" "If I cannot make a scheduled |
| loans, I'm not exactly the most fun at parties. I am | | | | payment, what is the consequence?"?" |
| and, let me tell you, the similarities are alarming. | | | | To be fair, many student lenders offer this |
| For starters, student borrowers and subprime | | | | information voluntarily, which helps borrowers make |
| mortgage holders are ill-advised on financial matters | | | | better choices. But this is the exception, not the rule. |
| (present company excluded, of course) - specifically, | | | | Another favorable trend is that many colleges and |
| the consequences of their borrowing decisions. | | | | universities have become more proactive and |
| It is not exactly news that that adjustable-rate | | | | supportive in educating students about all the details |
| mortgages (ARMs) resetting to high interest rates | | | | surrounding student loans. Many schools have made |
| are the main culprit behind late payments, defaults, | | | | available a "borrowing consultation" offered by their |
| foreclosures and ruined credit. | | | | financial aid advisor. And in some instances, particularly |
| Here's how it works - mortgage companies offer low | | | | among the elite higher education institutions, the |
| teaser rates to get homeowners in the door, but | | | | financial aid packages feature little or even no loans, |
| frequently, the initial required payments are not even | | | | opting instead for "free" money awards - scholarships |
| enough to pay the interest on the loans. It gets | | | | and grants. The top schools, such as Harvard, |
| worse. | | | | Princeton and Yale, are leaders in this area. |
| Then, after the ARM "resets," homeowners are | | | | It's clear that there is no easy solution for this |
| stuck with payment increases and are faced with the | | | | problem. However, it's imperative to be mindful of |
| unpleasant and costly alternative of refinancing. This | | | | the example set by the subprime mortgage |
| worked for years, because it was relatively easy to | | | | meltdown, and avoid the consequences that |
| qualify for new mortgages, but this rosy scenario | | | | accompany irresponsible and borrowing and lending. |