MONEYSCHOOL'S Simplified Guide
to FAFSA and Federal Student Aid

Section 18: What to Watch Out For!

Many students and parents put their faith in higher education as a good investment. You may have heard it said that, on average, someone with a Bachelorís degree will earn $1 million more over a lifetime than someone with only a high school diploma.

As we explain in our special report on student loans, that ďstatisticĒ is highly misleading. But faith in the financial benefits supposedly assured by higher education is one of the main reasons people assume that student loans are ďgood debtĒ and that borrowing for school is a good investment. That assumption isnít always valid.

Student loans make college possible for many individuals who otherwise could not afford to attend. But they are a double-edged sword. Student loan programs allow young adults to borrow very large amounts of money, and since repayment doesnít begin for several years down the road, borrowers often donít think too hard about the burden those future loan payments will impose on them.

Some young borrowers have unrealistic expectations about their post-college in-comes, and donít appreciate the difficulty they may face in repaying their student loans. Few are aware of the financial devastation that awaits them if they default on those loans.

The fact is, student loans come with none of the consumer protections that apply to other types of debt. They cannot (except in the very rarest of circumstances) be discharged in bankruptcy. And if you default, in addition to ruining your credit and garnishing your wages, issuers of student loans can and will grab tax refunds and even social security and disability payments to satisfy the debt.

As the economy has worsened, a growing number of borrowers have found them-selves struggling to repay student loans because they canít find a job or donít earn enough money to make their loan payments on top of their other expenses. That is a desperate situation.

Itís not hard to find horror stories about borrowers who have defaulted on student loans and have found their loan balances increased by 50% or more as a result of penalties, attorney fees, and collection charges.

These people couldnít afford their student loan payments before, and now they are even deeper in a hole. Of course, after defaulting they are tainted by bad credit, which makes it harder to get a good job. And since there is no way to escape from student loan debt, once you start down that path you are pretty much doomed to life as a permanent member of the underclass.

Upcoming Special Reports

MONEYSCHOOL will soon be releasing two special reports—one on how to protect yourself from the risks of student loan debt and one on how to evaluate college or career training as an investment.  If you haven’t already given us your email address, you can sign up here and we’ll let you know when those reports are available.  We’ll also send you the latest updates on federal student aid programs.

Other Resources

This Guide provides only an overview of federal student aid programs.  We recommend that you download the official publication, Funding Education Beyond High School: The Guide to Federal Student Aid, to use as a referenceHere’s a link for that booklet and many other FSA publications on student financial aid programs.

Important Tip: The best source of information on financial aid specific to a particular school is the financial aid administrator at the school.