Costly College Loans as Bad Debt

With more than $1 billion loans, the college loan debt has recently exceeded the credit card debt. Since borrowers cannot get rid of college loans, even in bankruptcy, these can be carried to their Social Security. The following is an explanation of how college loans can be a bad debt.

At present, student borrowers tend to be immature in terms of loans so they take on too much debt than they can afford. Fortunately, the Obama administration created a program that encourages colleges to ask the students answer a “shopping sheet”, which shows the actual cost of the debt.

According to Dawn Lockhart, CEO of Family Foundations, this program is a great idea. Family Foundations is a nonprofit organization that offers good consumer services in relation to credit counseling and has a history of excellent community service.

Lockhart added that the proposed checklist of college costs will be much better if it includes options on possible careers that indicate the likely income the student can expect to earn. One of the factors that can help lenders in deciding what loan to give is the income of the profession the student is pursuing.

For the moment, President Barack Obama has suggested using federal funding as motivation to encourage colleges to cut down on their costs. The president will be declaring Race to the Top, a new contest that grants funding to colleges that minimizes their costs.

Based on figures from the Wall Street Journal, student loan rates begin at around 5 percent. Consequently, families rely on other means to pay for college expenses, for instance, installment plans, low interest loans from colleges, home equity loans, and insurance loans.

However, it’s sad to know that college loans are now considered as bad debt to the extent that the nation’s top financial newspaper is trying to find ways to avoid them.

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