College loan defaults carry steep penalties, panelists say
DEERFIELD Tuesday Aug 14 2012 Pat Coles, Director Financial Aid at Trinity International University, addresses a panel on paying for college, avoiding student loan default.| Michelle LaVigne~Sun-Times Media
Updated: September 24, 2012 6:06AM
DEERFIELD — Consider these horror stories from student-loan purgatory, courtesy of Toni Payne, a panelist Tuesday at a forum on paying for college sponsored by U.S. Rep. Robert Dold (R-10).
One young mother was counting on her tax refund check to pay for her daughter’s preschool tuition, but the Internal Revenue Service redirected her refund to the unpaid balance on her loan.
A college football player borrowed as much as he could, figuring “no problem,” as he’d be turning pro — that is, until he was sidelined by an injury and earned too little on his job to pay off the $50,000 loan.
Then there was the lawyer whose $69,000 in student loans quickly ballooned to $300,000 with interest and penalties. He figured it would take 21 years to pay it off. The total cost: $1.5 million.
“I am not here to scare you straight, but I am here to tell you about the dangers of defaulting on a student loan,” said Payne, a former default and preclaim manager with the Illinois Student Assistance Commission. She is now is director of student loan counseling for a default prevention counseling firm that assists borrowers who are delinquent on their loans.
“If the financial aid director says you can borrow $5,000, and you only need $2,000, that is what you borrow because you are eventually going to have to pay it back,” Payne said.
Payments typically begin six months after the student no longer attends school full time. “The penalties added to the original amount can be astronomical,” Payne said.
Last year, the nation’s student loan debt topped $1 trillion and eclipsed consumer credit card debt for the first time, raising alarms with lawmakers and economists about the load college graduates and drop-outs are carrying into adulthood.
As of last fall, colleges must include a net price calculator feature on their websites that asks families for detailed financial information and provides a customized estimate of what they will pay in out-of-pocket costs.
Matthew McLaughlin, manager of admissions and testing at Harper Community College in Palatine, noted students can lower the cost of a college education by earning college credit for courses taken in high school.
One student from Fremd High School in Palatine took so many Advanced Placement courses in high school that he had 49 course credits, about 41 percent of a four-year degree, before taking his first class at Harper.
Many area high schools also have dual-credit arrangements with community colleges for courses that prepare students for careers in fields like criminal justice or health occupations.
In brief introductory remarks, Dold noted he was a co-sponsor of the Making College Affordable Act of 2012, introduced this month as House Resolution 6289.
The measure would increase from $2,000 to $10,000 the amount families could contribute to educational savings accounts. The contributions are not tax-deductible but grow tax-free until distributed to the student, who only pays taxes on any amount that exceeds the cost of tuition.
“This is a common sense idea that will help families save,” said Dold, whose 10th Congressional District extends from Glencoe north to the Wisconsin border.
“I believe it will help alleviate some of the stress that families face when dealing with rising tuition,” he said.