Sallie Mae Debt Sets Student’s Finances Back by 17 Years

The Watchdog, a consumer-protection section in the Star-Telegram, recently ran an article about a student loan debt gone wrong. I was interviewed for the article to clarify the state of student education loan borrowing. I feel it is imperative that I share the story with you.

Seventeen years ago Darren Bergman graduated with a degree in telecommunications management, and $35,401 in student loans. Due to the financial strains of supporting a wife and child, he chose to go into forbearance (a time during which interest would accrue, but he would not have to make payments) for a total of nearly 4 years.

With his interest rate increased to 10% and no payments being made, the interest over those 44 months added up to over $14,000. After 17 years of payments totaling $64,000, Darren was in shock when he found out he still owed Sallie Mae $35,485-more than he borrowed in the first place!

I have said it before, and I will say it again: you and your family must be extremely careful when taking out private student loans. They are a unique type of loan in that does not have the same consumer protections that other types of loans offer.

It is crucial to your family’s financial wellbeing that you know the differences. Student loans have very limited refinancing options. What’s even more frightening is that student loans do not qualify for bankruptcy protection, nor does defaulting allow you to escape them. Since last year standard consumer protections were removed, including adherence to state usury laws and fair debt collection practices. And, as you can see from Darren’s story, the way you handle the loans after you take them out can seriously affect your or your student’s future.

I recommend you explore every other financial avenue before taking out student or parent loans. Loans can be part of a college funding plan, but there are numerous other types of strategies and options you have available to reduce the cost of college. Loans should be last on your list. And even when you need to resort to loans, you should use federal loans first, because they have the best terms, including fixed interest rates. Just make sure you stay on track with and monitor your payments!

Keep your eyes on the blog for more student loan info and news.

All the best,
Deborah Fox