What do 18-year-old college student need to know to qualify for tens of thousands of dollars in student loans, which may take them several decades to pay off? For example, do they need to know 1+1 = 2?

Not really. They just need to be able to sign their names. Actually, most colleges do require student loan counseling – but only when the student exits, after huge non-dischargeable debts have been rung up.

These facts are shameful and no secret, but at times they become more visible. Recently, the Consumer Financial Protection Bureau sued Corinthian Colleges Inc., a for-profit institution of lower learning. Among many colleges that have engaged in questionable loan tactics, Corinthian is the low-hanging fruit for the CFPB. The CFPB complaint claims: “Corinthian referred internally to its students as having ‘minimal to non-existent understanding of basic financial concepts,’ as well as poor or no credit history.” The company’s marketing plan preyed on the financial ignorance of gullible young people, according to the CFPB.

Corinthian highlights how vulnerable today’s young people are to debt temptation. Yet, if a student really wants to party for four years, is taking $40,000 in federal Direct Loans to attend State U. any smarter than Corinthian’s package?

Financial advisors can help to fill a knowledge gap by offering a 30-minute counseling session to clients’ college-bound children, before they sign loan commitments. Here are key points to cover:

You are personally responsible for repaying all amounts borrowed, with interest. This will be an important part of your credit record.
My estimate of the amount you may need to borrow to finance four years of college is $X. The interest rate at which you are borrowing is Y%. Note: For federal Direct Loans to undergraduates, the interest rate on loans taken from July 1, 2014, to June 30, 2015, is 4.66%. See: http://www.benefitspro.com/2014/06/02/how-to-explain-student-loan-interest-rates-to-clie
You must begin paying back the loan, with interest, six months after you leave college, whether or not you earn a degree. These loans generally may not be discharged if you declare bankruptcy. If you don’t pay them back, the U.S. government may take action against you, such as taking you to court and withholding tax refunds, and your credit will be damaged.

Instant Insights /

Counsel client&rsquo;s children before they take student loans

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Counsel client’s children before they take student loans