CHICAGO (CBS) — Classes are about to begin for many college students, and the biggest lesson they may learn is that they could be the first in their families not to realize the American dream of owning a home.
That’s because of the hundreds of billions of dollars owed by students for school loans. The debt will have a huge impact on their lives — and on the economy.
CBS 2’s Dorothy Tucker asks: Are these loans just too easy to get?
LISTEN: WBBM Newsradio’s Lisa Fielding reports
From TV commercials to stacks of brochures, lenders are bombarding students with attractive offers to get fast loans. One young man was able to borrow $28,000 without a co-signer.
“I was overjoyed from what I remember,” he says.
Today, he’s a little embarrassed and would rather not be identified.
We’ll call him John. He was a 20-year-old college sophomore studying film. Now, at 22, he can’t afford to finish college and is forced to repay a 20-year loan, with a 9 percent interest rate, that will amount to $62,000.
“I just wanted to get in school,” he says.
At age 19, Caitlin LaCour was able to borrow $25,000.
“They don’t warn you (about) anything. They don’t say anything to you,” she says.
Another student, Sheila Uribe, graduated from Elmhurst College with $35,000, which quickly ballooned to $60,000 due to high variable interest rates.
“When you’re young, the future seems so far away. No one told me how much these private student loans would affect my future.” she said.
They are all part of the $150 billion college students owe to private lenders. The impact will be felt throughout the economy, Mesirow Financial’s Diane Swonk says.
“We are starting to see the multiplier effects of people coming out of school. They’re indebted, they’re not paying for other things, so it hurts consumption in the U.S. economy,” Swonk says.
Experts say two-thirds of students don’t know the difference between federal loans and risky, higher interest private loans.
U.S. Sen. Dick Durbin is proposing legislation that would force lenders to counsel students and detail how much they’ll eventually owe. Another measure would change federal law so that if a student files for bankruptcy he would not have to repay a private student loan.
“It’s going to mean they’ll be a lot more careful before they loan people private student loans,” Durbin says.
Durbin is calling on the passage of the Know Before You Owe Act of 2012 which would ensure students understand the loan options before borrowing.
John has a message for students who are thinking about borrowing: “Think about the rest of your life.”
A warning for parents or grandparents who may consider cosigning a loan: You could be responsible for repayment, and bill collectors could come after you, if your children don’t pay.
Advice for students: consider less costly four-year schools or even trade schools.
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