Suze Orman on Today Advises Against Income-Based Student Loan Repayment Plans

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Earlier this week I was watching the Today Show (no comments, please), which included a segment with Suze Orman, the personal finance guru. She was there to promote her financial literacy course, and took a question from a young woman in the crowd. The woman said she is 25, recently graduated from college with $40,000 in student loan debt, and has just signed up for the income-based repayment program. She asked Suze whether this was the right thing to do.

Without hesitation, Suze said unfortunately it was not the right thing to do. Her explanation was that the difference in what she should be paying (likely about $400/month) versus what she is probably now paying (likely about $150/month) gets shifted to the back end of the loan, and when the amount is forgiven years from now, she’s going to have a big tax bill.

I thought this was interesting, given how fervently the Department of Education has pushed this option. Was this the right advice? Do you agree? Click the image to watch the segment (the young woman’s question to Suze begins at 3:35).

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Posted in Debt Collection, Department of Education Collections, Featured Post, Opinion, Student Loan Collection News, Student Loan Collections .

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  • avatar nascar says:

    I’ve never been a fan of Suze Orman. I think her advice usually does more harm than good. That said, I think I have to agree with her this time.

    I couldn’t even find a loan calculator that would tell me how long it would take to pay off a $40 loan at, say 6.5%, at a monthly payment of $150.

    I found one at http://www.1728.org/calcloan.htm that told me that, at a monthly payment of $225, it would take more than 50 years.

    Another one seemed to suggest that a $40K loan, at 6.5%, with $150 payments, would take something like 80 years to pay off. I have no idea if that’s accurate, but based on the $225 taking 50 years, it might be. If so, that would mean your $40 loan costs $144000- only $45000 of which you will have paid at the end of 25 years. Somebody tell me I’m wrong! That leaves $100K balance on your loan at the end of 25 years?!? That would certainly amount to a pretty big tax hit at the end. Any accountant out there who can verify these numbers?

  • avatar Linda Almonte says:

    I was surprised to see this here on Inside Arm. I have never been a fan of Suze Orman’s either and also think often her advice can do more harm. Seems most that give financial advice on these items with no actual industry knowledge turns out the same. The above numbers are exactly right. Which is what prompted me about a year ago to sit for two days reading those 400 pages which after reading it was easy to tie together the student loan “relief” programs to the dol dream plan “scary” and the government based dol performance management “had to read that one a couple times I was questioning whether this tug of war with me and banks, arm, government and media finally made me snap”. After the first hundred pages of fluff started getting into the details which stood right out that was all written by Six Sigma Consultants because of the acronyms and being a foreign language to most can see how whoever read this and agreed probably didn’t have any clue as to what they were signing up for (well I would hope) I have four children one finishing grad school, two college age and one in high school. And all will be facing high student loan debt so I have studied this and the detailed versions of these programs at length. Meaning the 400 pages of terms and conditions and details. I would not let any of my own children enter into one of the income based programs. Or any of the upcoming programs which probably depend on the election whether or not they will happen (again another scary thought). They have crunched the numbers and there will be alternatives to pay in full earlier on none of which I would want my own children to be in. That should say a lot. This and some other items I would recommend the entire industry at all levels needs to get all of the details and rally around. And get the details not the pretty summaries.

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