I just read an article about a girl who incurred $100,000 of student loan debt attending NYU. Thus, as a CPA/tax lawyer and writer of financial books, I thought I would address the issue of incurring large amount of undergraduate student loan debt for a "dream school."
Student loans are among the worst loans that you can get. First, they charge a hefty interest rate of almost 8%,which is much higher than most mortgage loans today.
Secondly, they generally can NOT be discharged from bankruptcy. They only exception that I am aware of is when a student is totally disabled and can't work forever.
Thirdly, if you owe student loans, the government can use your tax refund to pay off the loan
Fourthly:many student loans require parental guarantees. You would be surprised how many times students can't pay off their student loan debts thus forcing the banks to go after the parent's assets. It is a real disaster. Even worse, if there is a default on some student loan debts, such as Plus Loans, the federal government can garnish your Social Security to pay off these defaulting debts.
.Finally, If all this isn't bad enough, you can only deduct up to $2,500 a year in student loan interest and only if you make under a certain amount of money. This translates to about $31,000 worth of loans that would allow the deduction for interest.
Bottom line: I do NOT ever recommend incurring more than about $31,000 of student loans for undergraduate education,which is what would produce the maximum deduction for student loan interest. If you need to incur more, and I hope it isn't much more than $31,000, I would either recommend going to a less expensive school or consider doing what you can to reduce them such as work study, seeking scholarships etc. I know many people who didn't mind incurring student debts while in college ,but I know NO ONE who liked paying them back!
Trust me on this, it is NOT worth sending a kid to their "dream school" for undergraduate education if they have to incur much more than $31,000 in student loan debt.
NOTE: This discussion only relates to student loan debt incurred for undergraduate education. Graduate and professional school might be a different matter. Some of the issues still apply however.
↧
