Why Students must Read about Private Student Loans

Earlier this year a young graduate wrote about her experience with Sallie Mae private student loans, which should be compulsory reading for students who don’t give enough consideration to the amount of student loans they sign up for. The pathetic tale of Fruzsina Eorbogh shows that teenagers are often not equipped to deal with the realities of loans and over extend their borrowing on degree courses without considering if the degree attained will assist in providing a job which will pay enough to allow the loans to be repaid.

Fruzsina was an immigrant whose parents had bad credit and were not financially able to assist with monetary aid for college. Nevertheless she embarked on a degree course in English at a private university, taking both federal Stafford loans and Sallie Mae loans. At the time Sallie Mae did not require a co-signer so Fruzsina was able to borrow $43,000 at 9.5%, with no one to advise her of the folly of borrowing such a large amount without any notion of how it should be repaid.

After graduation no well paying job came along and Fruzsina deferred the loans whenever possible. Deferment for three months at a time was possible at a cost of $150, whilst the interest still accrued. The $43,000 will total $123,500.00 by the time the loans are repaid, an exorbitant amount.

The student demonstrated complete naivety in both borrowing such a large amount and in the way she has attempted to repay the loans, even now citing either prostitution or bankruptcy as the easiest way to clear them. Despite carrying such large loans and having obtained a private university education Fruzsina still demonstrates naivety as should understand by now that the loans are not dischargeable so bankruptcy will not help.

It is important that students in similar situations should educate themselves to the reality of student loans before committing to them. No student now would be able to obtain a private student loan without a co-signer, but many co-signers are as equally naïve as the young people they stand as guarantor for, when it comes to loans, and thus not best places to give advice.

What students can learn from this is that the most expensive education is not always a practical route and cheaper colleges should be considered to lessen the debt burden. Whilst it is admirable for anyone to try and achieve a college degree students need to be pragmatic about the type of course they sign up to, and consider if the degree will lead to employment, which will allow for loans to be repaid.

Students should never borrow as much as offered on private loans as the interest rates are higher and should first source financial aid in the form of scholarships and grants. State loan forgiveness programs should be explored as a potential option to have loans repaid whilst employed.

Fruzsina wrote that she had no financial advice before taking on the loans. In reality most 18 year olds do not have the financial know how to deal with this type of borrowing alone, and if there are no family members to assist then read about the subject, ask local business people for advice, bank managers, anyone who has life experience in dealing with finances.

Whilst it was undoubtedly Fruzsina’s own actions which lead to the postion she is in today it is deplorable that teenagers can be entrusted to make such huge life decisions without guidance, and that lenders do not fully explain their products and the long term consequences. At least her story may have some influence in preventing other students making such mistakes.