One of my greatest concerns about the way most students make their college financing decisions -- and one of the key reasons I wrote Debt-Free U: How I Paid For An Outstanding College Education Without Loans, Scholarships, Or Mooching Off My Parents -- is this: Very, very few borrowers fully understand the potential ramifications of the loans that they are taking out.
No effort is made to educate borrowers and while all borrowers do have to sign promissory notes; the disclosures are hopelessly inadequate.
To help, I have put together my own disclosure document that I believe every single prospective college student should be required to read and sign before borrowing a dime to pay for college. I'm highly confident that Sallie Mae and financial aid offices around the country will adopt this disclosure statement immediately:
I, ___________________, hereby certify that I am borrowing $____ ,___.__ at the interest rate described in Exhibit A (see attached). I certify that I am entering into this loan obligation freely and willingly of my own volition, that I am in full possession of my mental faculties, and that i have read this agreement in its entirety and that I understand every part of it.
In taking out this student loan, I testify that:
* The return on investment of a college degree is not guaranteed. While I may believe that college is a good investment that will lead to a high-paying job, I understand that it not a guarantee of a job at all. In fact, less than half of college graduates under age 25 are working at jobs that require a college degree. I understand that even if my college degree does not lead to a job, I will still be required to pay my loans.
* I understand that student loan debt is, in spite of any verbal and/or written representations made to me by representatives of the college industry, not a safe form of debt. Of federal student loans that entered repayment in 1995, 1 (one) in 5 (five) have since entered default. This represents a rate of default that is higher than subprime mortgages, car loans, credit cards, and payday loans. Private student loans default at even higher rates.
* I understand that if I do default on my student loans, they are generally not eligible for discharge in bankruptcy. I recognize that, for this reason, it is easier to discharge $50,000 in debt used to finance gambling, vacation or drug abuse than it is to discharge debt accumulated in the pursuit of higher education. There is no statute of limitations on the collection of student loans, and I may have my wages, tax refunds, and Social Security garnished to meet my obligations.
* I understand that, if I realize that I have borrowed excessively to finance my education, I will not have any asset I can sell to eliminate the debt, unlike debts accrued to finance home and car purchases. I also understand that, unlike with credit card debt, I generally will not be able to settle this debt for less than the total amount borrowed plus interest and any penalties that may accrue.
* In the event that i am borrowing loans that require a cosigner such as a parent, I recognize that my inability to make payments for any reason may jeopardize the financial well-being of the cosigner. It also may jeopardize my relationship with said cosigner.
I further recognize and acknowledge that my decision to finance my education with this loan may impact, in a material way, certain non-financial aspects of my life, including but not limited to:
* Debt accumulated in the pursuit of an undergraduate degree may impact the feasibility of further education. For instance, a 1998 Nellie Mae study found that 38 percent of student loan borrowers reported that their debt had prevented them from pursuing grad school.
* The same Nellie Mae survey found that 40% of borrowers reported delaying or forgoing the purchase of a home because of student loan debt. 22% reported that debt had delayed their ability to start a family.
* A 2007 study published by the National Bureau of Economic Research found that "debt causes graduates to choose substantially higher-salary jobs and reduces the probability that students choose low-paid "public interest" jobs."
* Significant debt increases risk of depression and other psychological problems, including but not limited to suicide.
I further recognize that my student loan obligations may inhibit my ability to save for college for my own children, putting them at risk for the same risk factors outlined in this document.
Borrower: _________________________________________ Date __________