Help With The Hard Stuff: Managing Student Loans

Part 2 (of 5) – “What are the Kinds of Loans Students (and their Co-Signers) Can Get?”

By Gini Nelson, JD, MA

I referred in my last column to “the new normal” – how much more difficult life is coming to be for many because of the massive changes to the global and our own economy, and more – but I think calling it “the new reality” is more accurate. Many Los Alamos readers are not directly affected, perhaps because already well-along and well-established in careers, but even these readers might notice and wonder what is in store for their children and the children of others they know and care about. 

It is not only the children’s future well-being that is at risk. Parents of students who borrow, or of students who then cannot find lasting, well-paying jobs, bear real risks themselves.

Parents often co-sign their children’s student loans, making them 100 percent responsible for the loans if the child defaults. Parents extending post-educational financial assistance to their adult children (whether in direct money subsidies or by permitting them to live in the family homes) don’t have that money available for their own retirement savings.  (And each dollar delayed in retirement savings is often multiple dollars lost by the time of retirement.)

Parents with children facing the prospect of student loans can help their children immensely by being aware of the enormity of the commitment the child and any co-signor parent faces, and helping the child select (and commit) carefully.

Students – possibly still legally minors when they first sign promissory notes for student loans (I was 17 when I took out my first college loan, and the age of legal majority in my state was 21) and at best young adults with little real life experience – can’t be expected to know how to effectively analyze and plan for their plans not working out. That’s their parents’ job, at least for those first student loans.

Parents – who may also cosign their children’s student loans – might not realize how much the world has changed since they were young and starting out.

What are the kinds of loans students (and their co-signers) can get? The short answer is: many, and with very different terms, and with different work-out options if there are difficulties, and with very significantly different consequences, if defaulted on. In the new reality, the work-out options and the consequences upon default are, to me, equally important to understand as the interest rate and initial repayment terms, but they are seldom discussed.

The single biggest distinction, when considering the work-out options and default consequences, is between federal government loans and private student loans. Simply put, federal government loans give you more and more effective options for further work-out if you have repayment difficulties than private student loans.

And if there is a default, the federal government has many more and more effective collection rights and options than private student loan lenders.

Next: More about federal government loans and private loans, and beginning comments about the kinds of schools and school programs loans are used for.

Here’s the link to #1, Managing Student Loans: As Serious as a Home Mortgage Obligation and Harder to Work Out

Editor’s note: Look for “Managing Student Loans” every second and fourth Thursday of the month in the Los Alamos Daily Post.

Gini Nelson, JD, MA has been practicing law since 1983. She’s a member of the State Bar of New Mexico’s Law Practice Management Committee, and the State of New Mexico’s First Judicial District Court’s Access to Justice Committee. Views expressed in the column are hers and not necessarily those of these Committees. This column is providing public information through the auspices of the Los Alamos Daily Post at www.ladailypost.comand is not providing legal advice. Nothing in this column is intended to be an advertisement or solicitation of business. Ms. Nelson’s law office website is at www.gininelson.com. If you have questions that might be of general interest if answered in this column, please send them to column@gininelson.com. ©2013 Gini Nelson Law Office