Friday, January 31, 2014

Student Loans: Think Before You Borrow

The total amount of outstanding student loan debt in the United States now tops $1 trillion. To make matters worse, recent graduates have been emerging from colleges and universities, with diplomas in hand, into one of the worst job markets in living memory.

Yes, we have had higher unemployment rates in years past: It reached 12 percent during the height of the 1981-82 recession. But that recession was over relatively quickly. And we have never had the combination of stubborn unemployment, underemployment and high student loan debt that we have today.

College costs have been outpacing incomes for a generation, fueled in no small part by the easy access to credit for college costs. The federal government has sought for years to make college more accessible for middle and working-class families. It routinely provides generous guarantees against default for student loans. However, the more money that’s available for any commodity, the higher consumers will bid up the prices for it, and education is no different.

Many of today’s students are having difficulty in making the payments on their student loans once they’ve graduated or left college. This is particularly true of humanities and arts graduates, who could wind up working low-skill service jobs that pay wages that are not designed to support a hefty student loan payment and the raising of a family.

As a result, the rates of default on student loans are soaring. An October 2012 report from the U.S. Department of Education notes that 13.1 percent of student loan borrowers have defaulted within three years of graduating. The Bureau of Labor Statistics is reporting that over 14 percent of Americans aged 20 to 24 are unemployed. That figure drops to 7.9 percent for 25-34 year-olds – but a large number of them are underemployed.

Bankruptcy is Not an Option
Most people who get into debt over their heads can seek refuge in America’s generous bankruptcy laws. Low-income individuals who can’t pay credit card debt or consumer loans, for example, can file a Chapter 7 personal bankruptcy and discharge some or all of the debt. They are allowed to keep a limited amount of assets with which to start over.

But federally-guaranteed student loan debt is not normally dischargeable through bankruptcy. The courts only discharge federally-guaranteed student loan debt in the event of extreme hardship.

How You Can Protect Yourself
Consider your employability after graduating. Some fields, such as psychology for example, tend not to pay well until you have a master’s degree. Here are a few additional tips to consider:

  • Lean towards STEM majors. That is, science, technology, engineering and math. These fields provide students with hard skills that are more marketable to employers.
  • Don’t co-sign student loans for your children if you cannot afford the risk of default – especially if they won’t be obtaining a marketable degree, or one that is not from a recognized, accredited institution.


A scholarship can make a big difference in the costs of your schooling. A $10,000 Cal Grant can pay $2,500 in tuition annually. That is $10,000 that does not have to come out of your pocket or borrow in a student loan and pay interest on! Also, many credit unions offer scholarships and student cash awards. Meriwest Credit Union has an annual Essay Competition that offers up to a $1,000 cash award for winning entries. We are preparing to announce the winners of our 2013 Essay Contest in February.

If you know a high school student or are one currently and wish to participate in our contest next year, put a mark on your calendar in September and watch our Meriwest Messenger Newsletter and emailed announcements for details.

  • Make maximum use of scholarships and the Post 9/11 GI Bill. Tip: Some veterans with the Post 9/11 GI Bill are able to transfer unused GI Bill benefits to family members. If you have a veteran in your family, explore this option.
  • Here is a great site for scholarships:
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Have you made your IRA contribution yet? Yes, it is that time of year. Our Financial Service Representatives are ready to assist you in making your annual contribution. 

This is also a good time to do an annual review your investment portfolio. Meriwest Credit Union can connect you with licensed Financial Consultants* who are available to help you and share a second opinion on your personal and retirement investments. 

Comprehensive financial planning, long-term and short-term investment strategies and retirement planning are available to all of our members on a confidential basis. They can also help with your education planning. How much will it cost to send your child to college in ten years? Our Financial Consultants can help with those answers.

You can discover your options by meeting with one of the registered representatives in the convenience of any of our Meriwest financial centers or by calling (408) 866-1002.

* Security and advisory services offered through Cetera Advisors LLC (doing insurance business in CA as CFGA Insurance Agency), member FINRA/SIPC. Cetera is under separate ownership from any other named entity. The products offered are not insured by the NCUA, NCUSIF or any other regulatory agency, are not deposits or obligations of, nor guaranteed by the credit union or any affiliated entity, and may lose value.

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