Privacy Policy

Borrowing

Introduction

This section is written for both those who are considering undertaking education and how to finance and for those who have already made commitments to a school or loan contract. A number of the points are fundamental to being a smart consumer and financially literate, so they will be valuable in many areas of life.

We make the points here because student loan borrowers often have little experience buying large-ticket items, like a brand new car. You need to be fully prepared at the outset because there is no margin for error.

You can divorce from a marriage. You can lose a mortgage and the house in bankruptcy. You can default on a car loan and have it repossessed. You can refinance a mortgage at a lower rate with a competing lender. You can negotiate a settlement of back taxes with the IRS. You can discharge credit cards in bankruptcy. You can register for the draft and be disqualified for physical reasons or simply never be called to service. There is nothing comparable for a student loan. You must get it right the first time.

Our intention is not to dishearten or scare people considering a student loan. Student loans have their virtue. But they also are like a four-wheel drive off-road SUV: a great way to get stuck someplace you could not otherwise reach. NSLA's intention is to empower you, so that when you sign the contract, it is with fully informed consent. Through our education, you can avoid getting yourself stuck.

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Guiding principles

In the future NSLA will develop separate subsections here for high school students and different profiles of student borrowers (two year, four year, vocational, graduate). As an interim step, we offer the following principles.

  1. You are a consumer buying finance services and education products. Lenders and schools are not doing you a favor or giving a gift. No matter how kind and likeable people are lenders and schools always advance and defend their interests. You must too. This is a negotiation and financial transaction.
  2. You've got to have a plan and it's got to be realistic.
  3. The goal of lenders is to make profit and there is no such thing as too much profit. With student loans, they make some profit through the fees and guarantees built into the system, but most of the profit comes in the form of interest charged on the loan principal amount. This creates an incentive for them to encourage maximum borrowing and slow payment.
  4. The goal of schools is to get a set number students and at least a target amount of money. There is no such thing as too much revenue, so long as students keep enrolling. The amount charged for your tuition is not all spent on your education. Some of it goes to support unprofitable parts of the college, to support research on topics you do not study, to support the sports teams, and in the case of large universities things like the hospital. This creates an incentive for them to minimize the grant funding they provide and maximize your reliance upon student loans. It is important to understand that the interests of the school are in harmony with the interest of the lender. They are not always in harmony with your goal of getting the best education for your needs, at a price you can afford after graduation. No Office of Financial Aid will advise you to attend a different school because the financing package they are offering is unaffordable.
  5. Anything anyone promises you, get their name and get it in writing. This especially includes conversations which suggest that something you signed means something different than what it said. Conversations cannot change what the signed agreement says. Getting it in writing includes emails and faxes. Keep it in the binder.
  6. Keep a 3-ring binder. Include your copy of every document you sign; every document that contains the lender/school policy; your FAFSAs; and the name/contact info of everyone you work with. Keep the binder until your loans are paid off.
  7. Keep a log of your communications: who at what organization told you what and when, and how to find them again (name, phone number and extension, and if a customer service rep, the name of the call center they work in). This includes emails and faxes. Keep the communications log in the binder.
  8. Never sign anything until you have read every word, understand every word, thought about its impact on your life, and agree with every single thing it says. This includes all the fine print on the back.
  9. Never sign anything if you feel emotional, pressured, cannot think straight, or have doubts. Walk away. You can say, "I need some time to think about this, I'll get back to you".
  10. Use the NSLA affordability calculators to reality-test the whole cost of the school experience (tuition + room + food + fees + books + travel) and the financing you are considering.
  11. Drive the bus or others will drive it for you, taking you somewhere you do not like. This is your life. No one else can decide what is in your best interest. This includes parents.
  12. Stop the bus if you don't like the direction the road is going.
  13. Staff at schools and lenders are likeable and genuinely want to be helpful. But the powers of likeable staff are limited by their institution and its interests.
  14. You can take care of your interests and remain friendly, by de-personalizing the interaction. ("It is my policy to review documents for two days before signing them", "It is my policy to document agreements in writing", "My mission is to buy a good education at an affordable price.")
  15. Take emotions out of your decision making. Be dispassionate, calm, objective, and rational. Money is about numbers not feelings. Keep a close eye on this. The more you feel you need a loan the more hopes and dreams are wrapped up with them.
  16. You cannot start too early looking for grants. It takes time, energy, and persistence.
  17. If you think you might want the option to go to graduate school, be even more conservative with college debt.
  18. How much student debt you can afford depends on how much other debt you have. Once you commit to the student loans, you absolutely must avoid all other debts. This especially includes credit cards.
  19. Make the lenders and the schools compete for your business. In the process, each will try to show why they are better. Use each interaction with one to inform and strengthen your negotiating position with the next.
  20. Carefully consider the source of your information. Do not take advice from people who directly gain if you take their advice. Do not assume the information they provide is accurate and complete; it usually has some spin. Seek disinterested sources of information such as NSLA.
  21. Recognize when you are hearing a sales pitch. Common techniques include: the bandwagon (everyone's doing it); the ticking clock (Only one day left! It's now or never!), glittering generalities, testimonials, snob appeal, fear, and other emotions.
  22. Debt limits your future opportunities, experiences, and lifestyle for a long time (10-30 years).
  23. Debt freezes you in time at the age when you signed the papers, making it hard to adjust your life as you change. Think how different you are today from when you were three. You will change at least that much from the day you take a loan to the day you pay it off.
  24. Every dollar borrowed costs more to repay, sometimes a lot more.
  25. Borrowing too much can make you poorer after graduation than you were before.
  26. Find the policies that benefit you (esp. reduced interest rates for on-time payments) and be absolutely vigilant about finding and meeting the requirements. Read the fine print. Very few people manage to benefit from these policies because they are not well advertised and it is very easy to disqualify yourself. If you find something you like, make it obvious in the binder so you can remember it years later.
  27. Often the check you get is less than the loan you must repay, because of guarantee and origination fees. The shortfall can be 10% but your expenses are still the same. Plan ahead. Keep it off the credit cards.
  28. Fixed interest rates protect you by shifting risk to the lender. They might cost a more than an adjustable rate or might save you some, but you will not know which until they are paid off. Knowing that your repayment amount cannot skyrocket gives peace of mind, and being able to accurately budget for the payment amount gives you certainty.
  29. You are "excessively indebted" if your loan payments are 8% or more of your income after graduation. That is not a big loan. And it assumes you have no other debt. Check it out on our affordability calculators.
  30. You will tend to underestimate your loans and overestimate your future salary. Adjust your estimates. If debt payment is a surprise, you want a pleasant surprise.
  31. If you want to major in fun, do not buy it with student loans. Get serious; choose a school that does not involve loans; or postpone college.
  32. Diversity helps get grants. Especially if you are not a standout achiever, look for schools in which you are different personally than most of the students. Emphasize your different-ness and how it enriches the school and the students' experience, so that the school is motivated to attract you. This includes institutional balance issues: a single-sex college that just went co-ed; a college where everyone is the same race or class; a college whose students are from the same geographic area.
  33. College admissions and college financing is governed by the laws of supply and demand. The lower the supply of desirable students, the more you can demand in grants. The more desirable students there are, the choosier the school can be.
  34. The cost of school gets more expensive every year. Once you decide what you can afford for the whole program (say, $20K over 4 years), allocate an increasing ratio for each year (not $5K for each year but $3K, $4K, $5.5K, and then $7K).
  35. Avoid credit cards like the plague. They are very dangerous. They feel like free money, the rates are high, the late penalties are big, and they will happily let you spend too much. The #1 and #2 money-makers for banks are student loans and credit cards.
  36. Never combine your loans with someone else's, it if makes you liable for combined amount.
  37. When a lender offers to make your life better (lower payments) look for how it benefits them (more interest) or what they could do to back out (fine print and policies).
  38. You must contribute religiously a savings account, no matter how strapped you are. This is how you absorb unexpected big costs (car repair, airplane ticket to a funeral) without getting into trouble with credit cards.
  39. If the money isn't working, talk about it. If you can't live on your financing package, talk to the staff. If you cannot make the payments on time, call and write the bank. The worst thing you can do is stop talking to them ("What can we do to solve this problem?")
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Finding and funding education

The process of finding and funding education is somewhat circular. We do not necessarily recommend what we describe below, which envisions a four year college, however, this is our observation of what tends to happen.

  • Explore colleges
  • Find ones that rank well and attract your attention
  • See if you have a chance of getting in
  • Visit the school to see if you like the environment and it meets your specific needs and interests
  • Think about the order of magnitude of the cost
  • Think about what you can pay out of pocket
  • Look for other colleges that might be a better match
  • Look for ones in this new group that you like
  • See if you have a chance of getting in
  • Get admitted (spring of your Senior year in high school)
  • Wait for the school to give a financing package
  • Compare the desirability of the schools where you got admitted
  • Compare the financing packages of the schools where you got admitted
  • Compare the lenders from whom you might choose to contract for financing
  • Enroll
  • Each semester re-evaluate the financing you need at that point and try to reduce the amount of loans and increase the amount of grants and scholarships, and to a lesser degree work earnings.
  • Each semester be reminded you must repay the loans
  • At graduation be counseled that you must repay the loans
  • Receive the lender's statement that tells you your monthly payment
  • Adjust the payment plan to reduce your monthly payment
  • Start getting the repayment bills
  • Pay until its gone or until you decide to get more education (in which case, repeat the process)

We suggest a process that looks more like this:

  • Decide how much you (and your family) can pay for your education and find a grand total
  • Project what kind of jobs you might want and where you might want to live after college
  • Using the NSLA affordability calculators. decide how much debt you are willing and able to pay after graduation
  • Compare these factors and see how far apart they are
  • If they are not a good match, reconsider the amounts you started with
  • Identify schools that interest you and that provide programs that are individually well regarded (as opposed to the school as a whole being highly ranked) in the areas of study that you might want to major in
  • Narrow the field to schools that are most likely to provide a higher level of grants and scholarships, due to your special talents of other forms of diversity that you represent which are of particular interest to the specific school
  • Communicate with the school to explore this angle
  • Consider the estimated costs of the schools of greatest interest
  • Assess whether you can lower the cost in any way (off campus housing, reduced use of the meal plan, no car, used textbooks)
  • Do your own calculation of the estimated cost for each school
  • List all the factors important to you in this decision (location, overall rank, program rank, campus environment, size of student body, presence of a sports team, etc) and rank them in their importance to you.
  • For each school, rank it for each factor, in relationship to the others (if considering 4 schools, assign each school the number 1, 2, 3, or 4 for each factor).
  • Total them up and see if you can live with the amount of debt involved in attending the top-scoring schools.
  • Use the NSLA Repayment Savings Calculator to assess which payment trajectory you might choose.
  • If yes, sign up, enroll, stick to the game plan, periodically confirm you are on track, constantly look for ways to reduce the loans, re-assess the plan if necessary, graduate confident you are in control of what happens next.
  • If not, re-visit prior steps, explore less expensive schools; negotiate a better financing package and let them know it's a deal-breaker; explore joining the military; wait until next year and keep researching to find the combination you need while working in the industry that most interests you to see if you like it enough to change the calculus and looking for grants/scholarships.

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