Financial Compass: Relief from college loans
A caller from Wallingford asked me where I get my ideas for new articles.
Although I usually wait for lightning to strike me, sometimes I get them from people who call in to ask questions, like my caller from Wallingford.
Here is this fellow’s story.
He is retired from the U.S. Postal Service. He has a reliable pension, but no IRA, and very little savings. He has no significant invested funds. The only store of value is in his home and a vacation cottage. The problem arises because his only child decided to attend an expensive private college. The necessary funds were borrowed using various student loans.
Dad agreed to repay half of the required loans. She has now graduated and has not found employment that pays enough to make the other half of the payments. Since he has co-signed the loans, default is not an option. He cannot afford to make the entire payment. Options he is considering are selling the cottage or selling the house and buying one somewhere cheaper.
My suggestion was to use an equity loan on the house to carry the payments for a short while. It needed to be made crystal clear to the graduate that she must make arrangements to pay soon. She must take responsibility because she would not be allowed to force her parents into a pauper’s retirement due to her college choice.
In hindsight, alternatives such as cheaper schools and plans to control or repay debt should have been discussed upfront. What happens when the graduate cannot pay? That should have been addressed before the school choice. I have always maintained that retirement comes first. Children’s education is second because there are alternatives to pay for that. Not saving for or jeopardizing retirement has few alternatives.
This dilemma started me thinking about how this could be resolved.
The opportunities that follow should be part of your planning before college as well as after.
• Teachers who work in a designated low-income public or private school for five years can receive $5,000 for debt reduction. Those who provide early intervention service for the disabled are eligible also. If you teach math, science or special education you may be eligible to reduce debt by $17,500. www.studentaid.ed.gov.
• Alternatives include working full time for a public or nonprofit family services agency, nursing, medical technology, law enforcement, corrections officer or education staff at Head Start. www.bankrate.com.
• Employment in the National Health Service Corps for at least two years can forgive $25,000 for each year and $35,000 for a third year. Eligibility includes doctors, physician assistants, midwives, dentists, hygienists, psychologists and therapists. Attorneys who pursue public interest careers can get assistance from 50 schools. www.equaljusticeworks.org.
• Peace Corps, AmeriCorps and Teach For America all offer debt relief for service.
• Military service is a great way to pay for college. All branches offer the Montgomery GI Bill. Everyone is eligible after three years of service to receive $1,075 for each month of full time enrollment up to $38,700. If you score over 50 on the Armed Services Vocational Aptitude Battery you can get $2,025 monthly up to $72,900.
While you are on active duty, you are able to get tuition assistance of $250 per credit up to $4,500 per year.
You may also receive college credit for military specialty training through AARTS.
If you have already gone to college, sign up with the Army or Navy for three years and you can receive $65,000, payable one-third each year for debt reduction. You must pay the interest and not be in default.
The bottom line is that anyone smart enough can go to college. There are lots of ways to get the money, and in a few short years, pay down your loans. By trading a few years early in life, you can reduce, wipe out your debt or pay for advanced training. You will gain some valuable, probably life- changing experiences that will pay unanticipated dividends for a lifetime.
Donald Hutchinson lives in Milford. Questions may be addressed by calling 203-301-0133. Securities offered through Linsco/Private Ledger Member NASD/SIPC. The opinions in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial adviser prior to investing.