The Difference Between Student Loans and Normal Loans

January 27, 2016

 

Ok let’s jump right in; we all unfortunately know what a loan is at this point in our lives. You borrow money from a lender, the lender puts interest on the loan to get compensated for lending you the money, you pay it back as soon as possible, the lender gets paid and you get whatever it is you bought. You used money that wasn’t yours and everyone is happy right?

 

I am not going to delve into all that is wrong with the debtor nation we live in or the concept of buying something you can’t afford. We all know how stupid it is and what is even dumber is that we have built our entire economy on just that system magnified a billion times. This article is not about how insane this system is or that it is unsustainable (though Ilieve both those statements are true). If you would like to read more about that I recommend Charles Eisenstein and Sacred Economics

 

What I want to do here is simply have you shift your thinking from how you perceive a “normal” loan to a student loan. Because of some huge key differences these loans are almost completely opposite and you have to really turn your mind around on how you think about them.

 

Key Difference #1: 

 

Anyone who is breathing can get a student loan. If you are a young adult going to college you can get federal aid for your tuition. Now of course there are exceptions and rules that affect maybe 10% of people who apply for federal aid but for the other 90% of kids out there student loans are easy to get. What I mean by this is that a student loan is in no way based on yourcredit or the ability to pay back the loan like any traditional loan “Why would they do that?” you may ask, “why would they lend kids money without credit?” A couple reasons, first as stated they are kids, usually 18 - 22 and don’t have any credit whatsoever but obviouslyneed to go to school. To keep America’s economy moving 

forward and to keep the American dream alive we need wage earners. And for anyone who has been through the public school system knows “You have to go to college to get a good paying job.” So we are trained early to look at college as the next logical step in our lives, high school, then college, then get the job I went to school for, then the white picket fence and 2.6 children. The second reason the lenders don’t care about credit and are more than willing to give anyone a student loan is because they know the system. They know you can never get rid of your student loan. Because they are taking the “risk” on an 18 year old with no credit they have insured their risk by getting the law and the powers that be on their side. What I am talking about is the fact that you can’t bankrupt a student loan which is the next key difference.

 

Key difference #2:

 

All bankruptcy law excludes student loans which mean there is no way out of them other than paying of the loan; and of course what I will teach you later in the article. You can’t push the bankruptcy reset button to start over with a clean slate like you can most normal loans. Imagine you are fresh out of college and strapped with $30,000 - $40,000 (Average loan amount for a 4 year degree), what are you going to do? Well you have to start working immediately. Now there is the initial 6 month deferment but that is a scam not a benefit and I will get into that in another article. But for the most part you have to hit the ground running. No more trying to figure out what to do with your life or where to turn from here. You are going to get a bill in the mail that is pretty high just for that education so you better get to work...like now. 

 

So what are your options? Well the ideal situation would be to get a job in the field you studied for. However unless you happened to roll the dice and pick a career 4 years ago that is in high demand today then you just need to get a job anywhere that pays decent. Yes I know I am glossing over the fact that very few people (only 27%) in our society today actually get to do the job they went to school for. So the options again are you can get a job in your field, out of your field, go back to school, have someone else pay your loans or put your loans in deferment or forbearance until you can do one of those other options.

 

Lastly you could ignore the problem of the student loan payment. I don’t recommend this at all because if you knew what I know not one American would ever be in default (7 million reported Americans are in default and almost 25% of all borrowers are struggling). So if you don’t pay your loan for a period of over 9 months on the 271st day of non-payment you are now in default. Your loans have been sent to a collection company and the fees begin. The collection company (who is usually owned by the servicer or the servicing company’s close friend) is allowed to tac on top of your loan balance an additional 18% for fees. That is just on top of theloan; there is still interest and fees growing on top of that as well. Now your loan has become a monster and is growing every single day. The loan never sleeps it just keeps growing.

 

Here comes the fun part, the federal government is behind the student loan industry, remember I said earlier about how the lenders “risk” so much so they got the government to give insurance.” Here it is; the collection company is legally allowed  to garnish up to 15% of your wages and your entire tax return for as long as it takes to satisfy the debt 

 

So you tell me where the “risk” is? The lender gives you alone that you can never escape and if you don’t pay they can come after your wages and tax returns and keep charging you fees and interest that go way above and beyond what you originally agreed to be lent. Kind of feels like a giant cattle prod doesn’t it; “oh you are done with school well you better get to work to pay for that school like right now because there is no way out.”

 

 

Part II

 

Ok enough conspiracy theory and focusing on the negative, let’s look at the bright side and how you can beat the system if you truly understand the next key differences. Here is where you need to turn your brain around.

 

Key difference #3

 

You can sign up for a repayment plan with loan forgiveness. 

Forgiveness changes everything. It is the most important difference. Imagine you have a balloon payment on a loan but instead of having to come up with some ridiculous amount at the end of the term the government pays the balloon payment and it’s all over. With forgiveness there is a light at the end of the tunnel. The best part is it doesn’t matter how much is left over at the end, whatever is left the federal government foots the bill. If you’re like me the first thought should be “how do I make sure there is a lot left over at the end” and “how long is it until the end?”

 

The length of time on a repayment program depends solely on your occupation and when you took out the loans. If you are a public service employee, government employee, work for a non-profit (and a few otheroccupations) then your loan forgiveness period is 10 years if you sign up for it (come to my site I’ll show you how). 25% of the American work force falls in that category. For the rest of us the loan forgiveness period is 20 - 25 years depending on when you took out the loan.

 

If you are mad about the 25 year thing then just remember there are plenty of people right now who are in their 60’s and 70’s who still have student loans (mainly because of the deferment and forbearance scam). Just remember a light at the end of the tunnel is better than none at all. Plus none of that will matter when forgiveness is coupled with my next keypoint.

 

Key difference #4

 

You can apply to be put on Income Based Repayment Plan (IBR). Ok to fully understand this most pivotal point you need to understand the standard repayment plan. The Standard Repayment plan is the plan absolutely everyone gets put into after they graduate college, it is by far the worst repayment plan available to anyone. It is just like a normal loan, a 10 year note with interest. As I hope I have already shown student loans are not like normal loans so why they decided to stick you with the worst terms imaginable on top of everything else right out of school is flat out ridiculous. It is a system where the lender has literally set you up to fail because as previously stated you can’t ever get out of the loan, plus the lender will get their money from you one way or another and they will get much more than originally owed.

 

With income based repayment however your monthly payment is based on your income...pretty simple right. It is a long formula based on a percentage of your discretionary income. But the beauty of it is if you don’t make a lot you don’t have to pay a lot. It keeps the payments low for now and quite possibly for the life of the loan. If you are making under $50,000 a year you can bet your payments will be lower than they are now. It is perfect for the 73% of Americans who aren’t working in the field they went to school for. Or for any American who doesn’t live in San Francisco or New York City where the standard of living and therefore incomes are extremely highcompared to the national average.

 

My personal expertise is using everything in my arsenal of legal criteria to get you to pay as little as humanly possible using the system they designed. I turn this house of cards on its head and pull my clients out of the quicksand. I guarantee every one of my client’s that they will never overpay their monthly payments, never leave money on the tab le and never pay their full loan amount (unless they start making a very high salary, and then it doesn’t really matter because they have a lot of money and can then afford their loan payment)

 

The name of this game is survival folks, to do that you keep your monthly payments small and stay the hell away from the “benefits.” (deferment andforbearance) So month after month your payment is extremely low, and year after year of low payments the light at the end of the tunnel is coming. Then it becomes a game of how much of a bill can I stick the government with?

 

Hopefully now you see that instead of trying to pay off your loan fast, or on time, so you can get out of debt and can keep more of your hard earned money in your pocket like a “normal” loan, it is the opposite with student loans. With a student loan you want to keep your payments as low as possible for the life of the loan and have whatever is left over forgiven, thus ensuring you never have to pay the entire loan balance and also that you keep your hard earned money in your pocket right now.

 

Larry Morrison

The Student Loan Expert

 

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