From: Hunter Hogan [[email protected]]
Sent: Monday, February 21, 2011 5:41 PM
To: ‘Dan Hogan’
Subject: guilt, student loans, and interest-only payments
[N.B. This is the first draft of this letter, and I did not proofread it all. It almost certainly could be improved, but if I try to do that, then I might not ever get around to finishing it and sending it.]
I’m not doing any better, and in some ways I am worse. Furthermore, the more time I have been incapable of dealing with all of my responsibilities, the more problems (or risk of problems) it creates. A major component of my depression/anxiety is guilt. The more guilt I associate with a particular task, issue, or problem, then the less likely I am able to deal with. This leads to a vicious cycle, of course, as some problems get worse because I don’t/can’t deal with them, which leads to more guilt, which makes it less likely I will deal with it, which probably makes the problems worse.
I feel guilty about the loans that you have cosigned. I have not defaulted (that I know of), but the risk of default increases each day. I assume the loans also show on your credit report. If they do, then since my students loans are in deferment but still accruing interest, then your credit rating is slowly going down. And that makes me feel even more guilty.
I don’t have any solutions. I don’t even have all of the facts because my guilt/depression/anxiety has prevented me from fully addressing or researching this issue.
Nevertheless, it just occurred to me that you might have a way to reduce your potential liability. I have a vague recollection that the student loans you cosigned on have the option for interest-only payments. I also vaguely recall that those variable interest loans are currently around 3.75% APR. Even if that is not a typical option offered by the lender, given the current economic environment, they would probably entertain that option.
If you were to do something like this, it would not significantly help me, so don’t analyze this option as a way to help me dig out of my current hole. Interest-only payments, or even assuming payments on the cosigned loans, wouldn’t have a major impact on my financial situation or significantly alleviate my guilt. Therefore, if your only motivation for considering making payments on these loans is because you want to help me, then I don’t think you should consider it.
I am telling you about this idea because if I do start to default on my loans, or worse, if I end up in bankruptcy, then the balance of those loans will become a major part of your financial obligations and could have a significant impact on your credit rating. In addition to the above, I think at least one of the loans has an interest rate discount after 48-consecutive on-time payments. If I defaulted, then the clock on that discount would reset (or it might even be eliminated, I don’t recall). Therefore, default would not only shift the obligation to you, it would increase the interest rate (or at least delay/lose the possibility of an interest rate savings). Therefore, you might want to find ways to minimize your potential liability.
I have not tried to figure out the cost-benefit of your making payments or not making payments; I have not even tried to identify all of the factors you should attempt to measure. Since it is not certain that I will default, then making payments might not turn into a real benefit for you. Making payments, therefore, would be similar to purchasing insurance against car theft: you pay money but you might never receive the benefit of your payments because your cay may never be stolen. Still, many people do purchase theft insurance, so there are times when the potential value does exceed the actual cost. It might be beneficial to you to make insurance-like payments towards the cosigned loans so that you can reduce your potential liability.
Again, this is not a good or cost-effective way to help me directly with my problems, so please don’t consider doing this if that is your goal. I do think, however, that you should look into this option as a way to insure and protect yourself (financially) from my current problems.
I know my problems already have a big emotional impact on everyone, and I’m sorry my problems could also cost you tens of thousands of dollars. I wish my guilt about this situation motivated me to do something instead of inhibited me from doing something.