Monday, 12 November 2012

Uh oh, Default! (Student Loan Defaults)

One of the most excrutiating experiences one can have with a student loan is when your loan goes into default.   What does it mean when your loan goes into default?  This means that you no longer are making your payments on time or regularly.  This was the reality for me at one point as I didn't have a stable job and as a result could barely afford rent, food and power, so I didn't really have enough cash left for anything else, let alone my student loan.  Of course once your loan goes into default, things get a bit bizarre!

What do I mean?  Well when you first get a student loan, you usually get a federal part of the loan and a provincial part.  At the time when you are using  your student loan, you don't notice any difference as you get your full loan through your bank.  Yes, the bank actually signs off on the loan along with your educational institution and once the bank processes the paper work, you get your money usually in couple of parts.  Now once you get behind on your loan payments, the bank will try to collect for a short period of time (phone calls, letters).  However, after a period of time they'll send the loan to collections for them to collect on the loan. 

Now that's not good, but it gets even worse. The bank can send the Federal part back to the government to collect on,  one of the provincial loans to a collections agency and if you had another provincial loan to another collections agency.  Now just imagine,  one collector can become two,three! (Or...more!)  Now, yourproblems multiply as each will agressively try to collect their portion of the loan.  So now you more mail, more phone can get crazy.

Talk about being overwhelmed and shocked.  When applying for a student loan, you might not realize that you're actually taking loans from multiple creditors.  You think that you are just getting a government student loan and  not potentially servitude to a number of 'masters'.  But that's what happens when you are young, and not financially educated about the nuances of student loans.  It's not a position you want to be in.

Another downer of this scenario is that you might not know what you really owe as you might get a letter from the government showing a loan amount. You might think it's your total loan amount.  However, it's only your federal loan (which is you largest portion) and your provincial loan (s) are still out there with only a phone call or letter away from financial mayhem.

Lastly,  even though your federal loan will not show up on a credit report, your provincial loan does and this does affect your credit rating!  This could cause you to not be able to lease a car and get a credit card at "loan shark" rates.

So the moral of the story is that you have to be mindful when taking on a student loan.  You have to know who your creditors are and make sure you can cover your loan payments after you finish university.  This mean you need to make sure you have a plan on how to pay it back (not just say, "I 'll get a job after I graduate").  Because if you do not have a plan and you get behind and default on your student loan, life then gets a bit more hairy and you do not want that.

Thursday, 25 October 2012

Good advice, Bad advice

I was just watching an interesting show on the sports network about how many professional athletes end up bankrupt a few years removed from their playing career.  It was pretty sad to think about  how these ones lose so much money but when I think about how young they were and how inexperienced  they would be in finances, it's not a surprise.

Actually, it's pretty similar to ones who take on student loans like myself once upon a time.  I was pretty young and pretty inexperienced when I first took out my student loan.   That's why one of the most important things for young people who all of a sudden get a lot of money or all of a sudden take on a large debt is to get good advice.  And that's where the problem lies with both scenarios - where to get good advice?

When you think of sources of getting good financial advice for the future for a young person, what comes to your mind?  A teacher or guidance counsellor perhaps?  How about a financial advisor from a bank or an advisor from the college or institution you plan to attend or how about family, in particular your parents?  At first glance, you would think that these would be great sources of good advice and I am sure in many cases they are.  However for some (myself included) they were not and in some cases were the source of bad advice. Bad advice that cost me dearly.

For example,  in all my classes including classes in economics in which I took, not once did any teacher ever discuss student loans in any shape or form.  Not once at all.   Even the guidance counsellors at my school never once openly initiated talks with students about pros and cons of student loans.  And it's pretty sad because I remember the first day of school in my senior year, the principal was actively pushing us all to graduate and move on to university or college.  I even remember one of the university recruiters answering a question about covering costs by saying, "just get a student loan."  Yes I even got my student loan forms from my highschool but not any advice.  Student loan forms were being passed out like candy.  Bad advice indeed.

What about the banks who issue these students loans?   I don't remember much about them giving me advice.  You filled out their forms, you go to the bank and get them to sign and you send it off.  A few months later (sometimes a lot longer, but that's another blog!) and voila,  you got money. Bbut no advice, not even a brochure about how to manage a student loan or the risks involved in it.  You don't hear much from them, until you get behind in your loan payments(another blog!).  No advice!

Finally, you have your family.  Unfortunately, many parents do not know anything about student loans and have little experience in finances and think getting a loan is a great idea as they have no money to help their child go to college.  However, there are some families and I remember a few who had money to help their kids to go to school but didn't want the burden of it and wold write letters for their children to student loan stating that they would not support their kids at all for schooling (to absolve them from any financial responsibility in their kids' education).  Or like in my case where my parents were divorced and the one parent I lived with was too poor to help me and knew little of student loans and the other parent who had money but didn't live with me just said, " get a student loan."  Bad advice.

So what's my point?  My point is just like those atheletes, the places where we should be getting good advice, ends up being the sources of bad advice and actually puts us on the path of financial ruin.  Unfortunately this is part of a bigger problem with society in that most of us are inherently selfish and in the end we look out for our own interests no matter what.  It's short term thinking because in helping the next generation now is helping ourselves later.  But that's the problem.  So what is the solution?

The solution for now is for you the student to do your research and look for the pros and cons of student loans.  Fortunately, with the technology of today this can be done.  Also,  don't make any quick decisions about your future regarding school, particularly if you are not sure on what you want to do and don't know how you would pay off your debt.

 In short you have to become your own guidance counsellor, financial advisor, teacher and in some cases parent when deciding your financial.  That is a lot of pressure for a young person and it's a lot of work.  However, the work put in can pay off in a big way down the road.  Yes, you still could make the choice for yourself but at least it will be an informed choice which in a sense is good advice.

Monday, 1 October 2012

What is debt? What one cab driver taught me

Definition of Debt
I thought I would start this off by going to and defining the word "debt".  Here's what I found:

1. something that is owed or that one is bound to pay to or perform for another: a debt of $50.
2. a liability or obligation to pay or render something: My debt to her for advice is not to be discharged easily.
3. the condition of being under such an obligation: His gambling losses put him deeply in debt.
4. Theology . an offense requiring reparation; a sin; a trespass.
So why did I put this here?  Well, I think it shows one of the root problems of being caught in the snare of student debt which is that many do not understand that student loan debt is something that you owe and are obligated to pay back.  Now some might say that I don't know what I am talking about and that everybody knows that a student loan is debt but think about it for a moment and while you do, I'll give you an example.
What one wise cab driver taught me about debt
About 10 years ago at my previous job I met a client who had two sons.  He was from the middle east and was trained as an engineer but when he came to Canada, his credentials weren't recognized and so he ended up driving a cab and was struggling.  He said his sons are working so they can go to school and he was doing all he could to help them and trying to make money to help put them through school.  I said why don't you tell your kids to get a student loan? (Remember, I was deep in student loan debt back then.)  He looked at me with a stern and serious look and said, "How could I as a father allow my kids to take on a small mortgage?  They aren't ready for that kind of financial obligation.  As their father, I can't do that to them and I won't." 
"Wow!"  I said to myself and the reality of a student loan hit me like a ton of bricks.  At that point, I realized that I have a small mortgage to pay back and that's a big commitment that you pay because a mortgage is debt in a big way.  
Student Loans Equal Debt
 And that's the problem, you are never told what a student loan really is.  For example,  I remember guidance counsellors saying, "just get a student loan" like it's no big deal.  I remember the loan forms being passed around like candy at school.  Also, there were no classes or units that talked about student loans and the ramifications of them.  Even my parents said get a student loan.  One parent knew nothing of student loans but wanted me to do better, as she'd always struggled to keep us afloat.  And the other parent simply didn't care. He just said casually to get a student loan.  There's nothing casual about a student loan.  Unfortunately, I think a lot of us were told similar things and got duped.
So when you think of a student loan as debt - and serious debt like a mortgage - that you have to pay back your mentality changes.  If you have a mortgage, you make sure that you make the payments each and every month.   And prior to getting a mortgage you think about how you'll repay it as opposed to saying that "I'll get around to it after graduation and once I get a job."  Also, with a mortgage you realize that you owe the bank money they lent you to purchase your home and know that you have to pay them or there could be consequences.  A lot of people got student loans (me included) and treated it as "free" money and never really gave thought to the consequences of taking on a debt that equals a small mortgage.
So if you are thinking of taking a student loan in the near future, remember the cab driver and hope that you have a parent, friend, teacher or someone smart enough to recognize what a student loan truly is: debt.

Monday, 17 September 2012

Why go to university in the first place?

As I was thinking about my previous life in student loan debt, one word came to my mind.  Why?  Not why did I get a student loan but why did I go to school in the first place?  Yes, I finally realized that this was the most important question one comtemplating taking student loans should ask themselves.  Unfortunately for me, I asked this question 23 years too late.  However, I think it's important to answer because it was what sent me on my student loan journey.

So, why did I want to go to school?  As I am sitting here typing this blog, nothing earth shattering comes to mind.  Things like, I always wanted to be a doctor (that's what my father wanted me to do) and needed to go to school to fulfill my dream.   You see I had no dream job that I wanted to do.  I thought about being a chemical engineer.  I did like chemistry in school but I think the job just sounded cool.  I really didn't know anything about it.  My English teacher wanted me to major in history in university.  I liked history but never really dreamed about being a history teacher. 

There was also all my friends and peers who were going to university.  We used to talk about being on our own and making our own decisions, being old enough to drink, being able to go to whatever parties you want to, getting that college experience.  I guess therein lies the problem.  You see,  if you want to go to school for the college experience, to find yourself, to try different things, to be personally enlightened that's your choice.   However,  if you are going to go school for those reasons, you'd better have all your university tuition already paid for.  Why you might ask?

Because if you don't you'll have a small mortgage to pay for after you finish university, if you ever finish.  Yes, you'll be in debt and with no plan to get yourself out of it.  The reasons above have university as the zenith or pinnacle of your dream.  So while you are in university, you enjoy that life but once you are out reality sets in.  You need a job, you need food to eat, you need a place to live and yes, you need a plan to pay back your student loan.  However, if your reasons for going to university are for the above, you'll have little or no plan;  I know I didn't.

So what's the moral of the story or the answer to why?  Well, if you plan on going to any post secondary institutions after high school, you'd better pick a field or job that you can pretty much guarantee a job after completion.  I am not talking about taking an arts program or business administration.  No something that gives you a specific skill and that will be in demand.  If you are taking a student loan, you don't have the luxury to find yourself and waste time in university.  You've heard the saying time is money and it's true, the more time in school; the more money it is going to cost you.  So, you have to take the emotion out of going to school and look at going to school as a purely financial decision.  You have to look at it this way because you are taking a student loan and this will affect you financially for the foreseeble future. 

So if you are thinking of going to university or college and taking a student loan and not strictly looking at the financial aspect of getting a job that can cover your expenses and your loan then you should rethink the thought of going to school because you might be living your fantasy but not taking a hard look at reality.   Eventually, we all fall back to reality, trust me.

Sunday, 16 September 2012

Trapped by a student loan

Imagine that you are a hungry rabbit in the forest looking for food.  You haven't eaten in days and you are feeling desperate.  You have to eat or you'll perish.  Just when things look bleak you see an oasis.  Actually you see food, a big carrot!  It looks so good.   You notice a ring around the carrot but you are not concerned.  You also see a string on the carrot but it's no big deal as you know you can chew right through it.  All that matters is that you are going to eat and eat well!  You make your way to the carrot; sniff it a couple of times and then take a big bite. Then snatch!  the ring that was around the carrot is around your throat.  It's a rope and it's too big to chew through.  You try to wiggle out of it  and pull hard to break it but it just gets tighter, choking you.    You realize that you are trapped and there is nothing you can do about it. You are in big trouble.

Have you ever felt that way?  Have you ever felt like you were trapped and there was no way out of it?  I did for a long time; actually for 22 years.  No I wasn't in prison or locked in a dungeon but that was how long I had a student loan.  For over half my life, I had to live with the yoke of having that student debt.  It was incredibly hard and frustrating and I honestly thought that I would never pay it off.   But just over a year ago, I finally did pay my loan off and boy my first year without student loans feels really good.  I feel like that rabbit who somehow got free of that trap after things looked so desperate.   Yeah, I feel good.

And that's why I started this blog. I know there are many people - in fact potentially millions -  that are in the situation I was in.  You know, middle aged ( I am 41 now), your student loan in default and you don't know how to get out of it.  I know there are others who are comtemplating taking a student loan for schooling but they don't know all the pitfulls and traps.  I want to share my experiences with having student loans so that others can be more informed and have a better outcome.  So that's what I am going to do; I am going to share different aspects of my student loan experience and my family's(yes some of them got trapped too! In fact, some of them are still deeply in debt).  All with the goal of either helping you avoid the trap altogether or if you are caught in it, to break free of it. I will talk to you soon!