Student Loan Blues
There are several organizations that will reduce and/or forgive student loan debt in exchange for performing various public service jobs. But unless you really want a save-the-world job, you might not find the trade-offs very attractive. Also, resist the temptation to purchase securities when a broker calls you. Once you say "I do," there's no changing your mind.
By Barbara Eisner Bayer (TMF Venus) and Ann Coleman (TMF AnnC)
December 5, 2000
["Ask a Fool" is a new format we are trying out here in the Foolish Four area. It's a fun way to address the general investing questions our Foolish Four readers have always come to this area for. We'd love for you to submit questions for the column (click the bylines for email), but if you want an actual answer anytime soon, we suggest you pop over to the Ask a Foolish Question discussion board and post there as well. Although we are soliciting questions of general interest to answer here, we can't answer them via email. That's private investing advice, a big no-no. This way, if we screw up, someone will notice, tell us off, and we can print an abject, groveling apology, hopefully before you take our advice and start buying over-the-counter stocks from telemarketers.]
Q. I am paying $175 a month on a $20,000 student loan and am barely covering the interest. Are there any organizations that will reduce/forgive student loan debt if I were to work in a specific career/locale or start a woman-owned business?
A. I don't think the woman-owned business part will fly. There are plenty of women starting their own businesses without any such encouragement. But there are quite a few programs that will forgive all or part of your student loans in exchange for certain kinds of public service work. Here's a list.
Consider this step carefully, though. These are not plum jobs. They are jobs like working in medical clinics in the inner city or teaching in places that can't recruit enough teachers. The ones that don't require professional degrees are usually volunteer jobs for Peace Corps or VISTA or the like.
These are all wonderful things to do and can pay off in ways you never dreamed of. But I'm not sure that, by itself, reducing a student loan would sufficiently motivate to get you through two years of building sewage treatment facilities in tropical countries for the Peace Corps or stacking sandbags for flood control in the Army National Guard.
What exactly are you after? If you are looking for a way to "give back," wonderful. I salute you. Problem is, I didn't get any altruistic vibes from your email. If your motivations are strictly economic, canceling your student loan by working for much less money than you are making now doesn't make much sense. So unless you really want to teach math in a war zone for peanuts, I don't think the job idea is a winner.
What are your alternatives? $175 is pretty low for student loan repayment. I played around with our loan calculator, and, assuming an interest rate of 8%, it's going to take you 18 years to pay off a $20,000 balance. Gulp.�But here's an interesting alternative: Double your payments and you'll cut your payback time by two-thirds -- that's $350 a month for six years. At $500 a month, you can pay it off in four years. Just like a car.
$500 a month! I can hear the screaming now. You were probably looking to get rid of that payment so you could buy a car. The cold fact is that you can't "reduce the principal" other than by paying it off, either with cash or through public service. Student loans aren't loans studying to become loans.�They're real loans. You can't expect them to become retroactive scholarships.
Q. I made a verbal commitment to buy over-the-counter (OTC) stocks based on a telephone solicitation (stupid, I know!). The next day I sent an email canceling the order. The firm says the shares are booked in my name and I must pay or I face legal action. Is this true? Can their lawyers "get" me?
A. Their lawyers have already got you. A verbal contract is binding for securities orders. Some customers may try to "DK" the broker, meaning they claim they "don't know" anything about the order. In your case, however, the fact that you sent the follow-up email is proof that you agreed to the order in the first place. There goes the DK defense. According to the Securities and Exchange Commission, "when a trade is executed by a client, the client is obligated to honor the order and the firm can proceed with legal actions against the client."
Quite aside from buying OTC stocks on a cold call, in any phone conversation with a broker, as soon as the words "buy it" leave your mouth, you own the stock. It takes just seconds to complete the transaction. Sure, maybe you could scream "NO" a second later and stop the click that buys the stock, but I wouldn't count on it. It's the same with online transactions. If the market is open when you trade, you are very unlikely to be able to cancel an order before it executes.
Think about it. The agreement works both ways. Suppose your OTC stock had gone up, and the guy that agreed to sell it to you changed his mind the next day because he could get a higher price. How would you like that? Like it or not, an orderly market requires absolute commitment.
If you want to buy a stock over the phone, call a broker. Don't wait for one to interrupt your dinner. For penance, rent Boiler Room and watch it three times. Take notes.
