Don't Sign what you Don't Understand
Saw a “sponsored story” on Facebook the other day. (First Red Flag) It was this patchquilt sob story about how a student was just “signing papers” so they could start classes. No specifics were mentioned about how much they were borrowing a year. (Second Red Flag). Oh, and momma was co-signing, too. (Third Red Flag) Once again, we have a starry-eyed student signing paperwork, and an unsuspecting parent who wants to do anything to get their kid into college doing the same. What could go wrong?
As my parents said- Don’t Sign what you Don’t Understand.
Let me add two other things. First, a loan is a legal document. Second, it is important to make the time to understand that piece of paper. Do it before, not after.
LOANS OF ANY KIND INVOLVE A CONTRACT
We don’t understand the basics of a contract. A contract is a legal agreement between two parties. A lease of a house or an apartment is a contract. A car loan is a contract. A college loan is a contract. A mortgage is a contract. Our lives are filled with contracts and we don’t know what we are signing.
A contract is an agreement, an exchange of values. I agree to pay rent and you agree to let me live there. I agree to make my car payments, and you let me drive & maintain the car. I borrow money to go to college, I agree to pay it back with interest.
ALL CONTRACTS SPELL OUT DUTIES AND RESPONSIBILITIES
All contracts have details. That is almost always where lives get ruined. We don’t understand interest, penalties, and how a deferred loan really works. Shame on all of us. No one should graduate from any high school in the United States without a full year’s study covering personal finances, loans, credit cards, savings, emergency funds, etc. It has been clear for decades families do not discuss the basics of money in the household. Sometimes it just slips under the radar. But a lot of the time it is because we, the parents and guardians, don’t understand it either.
We can’t teach what we don’t know. But, we can start learning and asking questions.
CONTRACTS ARE ENFORCEABLE IN A COURT OF LAW
All contracts have duties and responsibilities on both sides of the agreement. If you lease a car, for example, there is a lengthy list of requirements for what condition it must be in when it is surrendered. One common condition is the expected number of miles driven per year. For example, your lease contract may say only 12,000 miles per year. If you turn it in in 3 years, your mileage must be under 36,000 miles or there will be stiff financial penalties. It says so in the contract, yet, people are “surprised” when it is applied to them.
If you violate your contract, say, you DON’T pay your student loans, you can be taken to court. Yes, that is a lot of expense for the government to go to, but they have and they will and they can. The judge can order your paycheck garnished (money taken from it and sent to the government). They can seize things you own, put them up for sale, and use the proceeds to pay towards the debt.
Sadly, this is ALSO true for anyone who co-signs for a loan. All you kind-hearted parents, grandparents, uncles, aunts? IF you co-sign sweet pea’s college loans, you could be in trouble. If your student fails to pay on the loan for any reason, YOU are on the hook for the whole enchilada. That is what co-signing ANYTHING means.
Once again, my plea to everyone is look for alternative paths towards your higher education. In my book, ENOUGH! The College Cost Crisis, I offer an array of options and quality paths towards free or significantly lower-cost education. Today, with some research, almost anyone can do college at a lower cost than the sticker prices you see. Avoid loans if at all possible. But if you must get one, be sure you understand how it works. Take. The. Time.
Don’t Sign what you Don’t Understand. It could ruin your future.
Next week, let’s talk about Unintended Consequences. Should be fun!
Until next time,
All my Best,
Bonnie
