Give Me A Bit Of Credit....

 There's big ta-dos with the government "forgiving" $10K worth of federal loans beginning in December of this year. The right says it's too much; the left says it's not enough.  When in reality it just stirred the pot on an already bubbling over problem of the higher education debacle. Perhaps they should have eliminated federal interest payments or offered the 10K to middle income families as a retroactive grant.  Either way, the politicians have found another way to divide the masses over it. 

College, the pursuit as well as the concept of it, has exponential flaws. Most of which I'm not going to get into. The cost of college is out of control, but so is gasoline, food, and everyday living. That's never going to change, too many hands in it and all. Most of the people yelling the loudest have never used federal aid of taken a loan for college costs. It's a trillion-dollar industry that's not going away until the little people stop playing the game.

But that's not what this post is about.

I have three that will benefit from this forgiveness.  One son has faithfully paid for 8 years.  In opting in, he will have the last few thousand removed from his dept load, and pay state taxes on what he's forgiven. When you consider that he paid off his principal balance 5 years ago, and all that's left for the remaining 12 years of his loan is interest payments, it doesn't really seem like too much of a free-be now does it?  But nonetheless, he will participate in the program. 

Oldest will take the money as well, because it's 10K off his six-figure debt load that will commence for payments in August of 2023. Even with paying the state taxes on 10K extra in "income" this year, it's still cheaper in the long run for him. 

Youngest is where it gets tricky.  He's stopped going to school, so his federal debt is relatively low. He had planned to begin payments last year and use the remainder of the loan as a low interest (albeit compounded interest) way of building his non-existent credit. Of course, now if he opts in, he won't be able to do that, as well as have to pay taxes on it this year.  If he opts out of the forgiveness plan, he'll pay around 3K and can claim it as a tax credit. Credit cards are not a great idea for him at this point in his life. Almost no banks offer simple interest loans anymore, and because he has no credit, if he could find one, would likely need a co-signer. If by some miraculous chance he was approved on his own, he'd be paying upwards of 18% interest. On a 5K minimum loan that would be $900 just to build his credit. This equates out to around $21 per credit point, which is crazy.

Thing is in our house, each son must have/had a plan on how to be self-sufficient by 25. 

Bonus son moved from his apartment to our basement, paid us a "mortgage" each month, that became his down payment for his condo. He signed on the dotted line at age 25 and four months, and since he'd already been paying us, his financial budget was already set to accommodate his mortgage payment. He just turned 28 and actually has money in savings after his bills are paid.

Unless some massive opportunity comes his way, Oldest already has a job offer with a company close to home after graduation.  His plan is to move home for 2 years and pay off all his debt, so he can then be free to find a place of his own without the noose of school debt around his neck.  He too will pay a "rent" in line with rents here, he and I will consult of the best ways to funnel that into the fastest payoffs for his loans, and when the time comes his budget will already be set to afford to live independently. He knows it will suck for those two years, but he also knows it's what he needs to do to be able to live the life he wants later.

Youngest, who is flying by the seat of his pants, still needs a plan. Despite his having a Roth IRA that's maxed out, substantial long- and short-term stock investments, and a hefty savings account, twenty-five will come faster than he thinks. We've begun working on his credit so that when the time comes, he can buy a car (with payments), condo, or really good tent because he can't live here. We went to the bank yesterday to discuss the credit building options. The banker, with ten years in the industry, had few options for him that weren't credit cards. All of her information, I piggy backed with my own, and catered it to his bottom line.  At one point in the conversation, when Youngest started asking about national average investment returns to offset his compounding interest rates, she blank faced looked at him and told him he was "way over her head". 

*sigh*

This is what happens when you bring a legit mathematical genius to the local bank. When we left, he looked at me and said, "She gave me a lot of good things to think about", as if I hadn't just been there when she said to him "I think your mom knows more about this than I do" and offered me a job.

So yeah, now we're looking into credit builder loans.  They offer a savings type of structured payments, so the interest is actually earned, but the payments are reported to your credit bureaus. I also added him onto the back end of my credit card as an authorized user.  Mind you the card will be cut up as soon as it arrives, but he can piggyback on my credit for a bit until he gets established.

And all this has left me kind of discouraged honestly.  The whole system is rigged against any independence for the regular 18-year-old. Their options, unless they have a VERY savvy parent, is to build credit with a credit card which has long been proven to be a bad idea, take out a compounded interest student loan with the parent as a co-singer, or succumb to the highest of interest rates for a car loan. It's crazy cakes. I spoke to my sister about it, as my nephew has no plans to go to school and thought maybe it would be something she could talk with him about. She said, no, he'd have to learn it on his own. As if she's not helping his older sister by cosigning her life away on student loans already. This, my friends, is why I make sure my nephew knows he can come to me. My sister loves my nephew but, she, like so many parents, just doesn't understand.

I think the best take away though was when I was sitting aside him at the bank, discussing credit card interest rates compounding daily, and what that actually means, and he sarcastically replied....

So glad they taught me this in school.