[cue Joan Crawford voice]
No...Student Loan Debt....EVER!
I don't disagree that many students have overborrowed. I'm a card-carrying member of the club. And I don't disagree that it's generally good to figure out ways to avoid that debt.
But she could have questioned the increases in tuition or the fact that limits on federal loans (which are more often cheaper and more likely fixed than private) have not increased since 1992 [pdf]. She could have suggested flex programs or workplace education incentives. Instead, she jumped straight into the glorified situation in which someone who already HAS a job was deciding whether or not to pay off their debt.
I was particularly confused by her reaction to the son whose father left him $30K to help pay off his loans ($39K). He wondered if he shouldn't save the money elsewhere and pay back his loans while the funds earned interest.
"Your father did know best. Pay down the debt."
This is not exactly an unreasonable final answer. It makes sure that he is (almost) debt free, and that he knows he's complied with his father's final wishes immediately. But to ignore the fact that there are almost dozens of insured savings accounts making better than 5 percent when he has his loans at below 3.5 percent seems disingenuous. Maybe he has a tenuous job situation. Maybe he has health issues that might require cash on hand in the future. I don't know.
But neither does Ms. Singletary, and yet the "debt is bad" drumbeat was the only one she played. I think this question deserved a little more nuance. And if she'd still come to the same conclusion, after raising those points, I might even have agreed with her.
As it is, I would argue that if he has cheap debt, then he has the luxury of deciding on his financial priorities, and one of those might be to cover all his bases by saving and paying down debt at the same time.
No...Student Loan Debt....EVER!
I don't disagree that many students have overborrowed. I'm a card-carrying member of the club. And I don't disagree that it's generally good to figure out ways to avoid that debt.
But she could have questioned the increases in tuition or the fact that limits on federal loans (which are more often cheaper and more likely fixed than private) have not increased since 1992 [pdf]. She could have suggested flex programs or workplace education incentives. Instead, she jumped straight into the glorified situation in which someone who already HAS a job was deciding whether or not to pay off their debt.
I was particularly confused by her reaction to the son whose father left him $30K to help pay off his loans ($39K). He wondered if he shouldn't save the money elsewhere and pay back his loans while the funds earned interest.
"Your father did know best. Pay down the debt."
This is not exactly an unreasonable final answer. It makes sure that he is (almost) debt free, and that he knows he's complied with his father's final wishes immediately. But to ignore the fact that there are almost dozens of insured savings accounts making better than 5 percent when he has his loans at below 3.5 percent seems disingenuous. Maybe he has a tenuous job situation. Maybe he has health issues that might require cash on hand in the future. I don't know.
But neither does Ms. Singletary, and yet the "debt is bad" drumbeat was the only one she played. I think this question deserved a little more nuance. And if she'd still come to the same conclusion, after raising those points, I might even have agreed with her.
As it is, I would argue that if he has cheap debt, then he has the luxury of deciding on his financial priorities, and one of those might be to cover all his bases by saving and paying down debt at the same time.
Labels: loans
2 Comments:
Michelle made a similar recommendation when she was filling in on Clark Howard's radio show last week. She advised a caller to cash out his Roth IRA instead of taking out student loans and then hung up on the next caller when he told her that was dumb advice. :)
Well, at least she's consistent?
As I said, it's worth at least examining the difference between the interest one expects from the asset and the interest one would pay on the loan.
But apparently that won't make me the big bucks.
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