(April 7th,
2007)
You have gone to school for many years and
have accumulated thousands of dollars in debt. Does it make
sense to pay off this student loan debt as fast as possible
or should you just make the minimum payments required on the
loan? If you refinanced or consolidated your loan at a low student
interest rate, you could invest the money you would have otherwise
used to pay off your student debt into Money Market Accounts
(MMAs), Certificates of Deposit or a regular savings account
that will yield higher interest returns. Furthermore, any interest
you pay on your student loans is tax deductible! Most people
are smart enough to know both of these points. However, there's
a 3rd point to consider:
"If
a student borrower who has received a loan described in subparagraph
(A) or (B) of section 428(a)(1) dies or becomes permanently
and totally disabled (as determined in accordance with regulations
of the Secretary), then the Secretary shall discharge the borrower’s
liability on the loan by repaying the amount owed on the loan."
Source: Higher Education Act
of 1965, Section 437 (a).
This above paragraph states that if you were
to die while still owing student loan debt or become physically
disabled, you will be discharged from the loan and will NOT
have to ever pay it back! Let's consider this example. Say Peter
has an extra $800 every month left over every month after careful
budgeting and minimizing his expenses. What should he do with
this $800? Should he save it in a Money Market Instrument yielding
higher interest rate returns, or should he pay off his student
loan debt?
i) Peter uses his $800 saved up every month
to pay off his student loan debt for a total of 5 years. Unfortunately
after 5 years, Peter gets in a bad car accident and becomes
permanently disabled. At this point, Peter does NOT have any
student loan debt, but he does NOT have any savings either!!
ii) Peter makes minimum monthly payments on
his student loan debt for 10 years of $50. He therefore saves
$750 a month every month for that time period. At the end of
10 years, Peter gets into the same car accident described above
and becomes permanently disabled. At this point, all of Peter's
student loan debts will become discharged and he will be debt
free. Furthermore, he will have a nice saved up amount of $750
/ month x 12 months x 10 years = $90,000!
The above 2 scenarios are fictitious but they
do make sense! At the end of 10 years, Peter would have $90,000
saved up (a nice amount) as opposed to having saved up nothing.
2 Things to Watch Out For
If you are in student loan debt, then this
article probably relates to you and you can post your constructive
criticisms below here in the comments field.
i) You Could Lose the Tax Deduction Right
If you refinance your student loan and this
increases your minimum payments by even 1 single cent, you will
lose your right to deduct the interest on your student loan
as a tax deduction. Therefore, do NOT refinance your student
loan, even if its a lower interest rate.
ii) Higher Education
Act of 1965, Section 437 (a).
If you die or become permanently disabled,
your loan will be forgiven or discharged ONLY if you are the
sole person responsible for the loan. This means if you have
had co-signors signing your student loan (example your parents,
sister, brother), then they will be responsible for paying off
your loan! Also, if you refinanced your student loan and put
your spouse as a co-signor, then your spouse will be responsible
for paying off the loan should you become permanently disabled
or die!
Forum Discussion
You can post your constructive criticisms
about this article on our Forum Thread: http://www.3debtconsolidation.com/forums/showthread.php?p=3 Please join in and contribute!!
Comments
Lozarn Edward J Comments on July 4th, 2007
For students who aren’t committed to
the notion of attending one specific university but still want
to receive priority consideration and express their interest,
early action applications are the way to go. This is a non-binding
application that is usually submitted around the same time as
an early decision application (usually before December of the
student’s senior year). |
