Dear John: My question is about the excessive interest rate for student college loans.
Currently I owe over $200,000 for my son who just graduated college. Another will graduate next year.
The interest rate is 8 percent. This is a government loan through the Department of Education’s direct-loan program.
It was then transferred to Sallie Mae, however that works. With car loans and mortgage rates in the area of 3, 4 and 5 percent, my question is: Why is the government charging so much?
I have written my congressman regarding this, but I really don’t have much faith in the system. Please give me your views on this matter. Thank you, sir. R.R.
Dear R.R. Most of us want to do what is best for our children. And that includes a college education. But sometimes the most prudent thing to do is shop around for the best value in a college.
But you probably already know that.
I showed your letter to Jim Heafner of Heafner Financial Solutions. Here is what he had to say:
“Your letter objecting to the high cost and high interest rate that you owe for your son’s education certainly draws my sympathy. I agree,” says Heafner. “It is not fair to charge such high interest rates for student loans. [And] it is also unfair that a traditional higher education is so expensive and growing faster than the rate of inflation.”
But that’s the way it is — at least for now.
Heafner thinks that in 10 or 20 years people will be able to get a quality college education online for 5 percent to 10 percent of today’s price. “If, however, you want to live on campus and meet with professors face to face at Duke University, I’m afraid that will never be inexpensive,” he explains.
That’s the end of the lecture.
So what are your options as far as the $200,000 goes?
“You can speak to your lender and explore deferring payments due to hardship, or you can attempt to negotiate a reduced payment or amount,” says Heafner. “Many lenders will negotiate if they believe what you are offering is better than getting nothing.”
You could also cash out a life insurance policy or borrow against it. Or you could refinance your home mortgage to a lower rate. “That might leave you with extra cash to pay the loan payments,” says Heafner. “Refinancing to increase your loan balance may provide you substantial cash to pay down your son’s student loan.”
He also says you may want to borrow through a home-equity loan, which may give you cash to pay down the loan.
But remember: If you use your house as a bank account and pay down the loan, there is always the chance (should you hit a bad patch) that you could lose your home. That’ll only make a bad situation worse.
The goal in all these transactions, obviously, is to borrow money at less than 8 percent. That’s not hard to do these days, but low rates won’t last forever.
As a last resort, of course, you could stop paying the student loan.
But, says Heafner, “the consequences of defaulting are severe. You will be turned over to collections, at which point your loan balance may increase due to legal and court fees.” Washington could even garnishee your wages.
In other words, don’t do it.
“I wish I had better news, but the government does not take its loans lightly. Best of luck!” says Heafner.
You have my best wishes also.
Send your questions to Dear John, The NY Post, 1211 Ave. of the Americas, NY, NY 10036, or john.crudele@nypost.com.