What’s Safer - Student Loans or Short Sales in Ann Arbor?
Every parent hopes and prays their young prodigy grows up healthy, goes to University of Michigan and marries a nice partner. To help children achieve great things in life parents have been known to work endless hours, forego vacations and scrimp/save for decades. Later in life it’s not unusual to find parents co-signing for leases, student loans or setting aside retirement funds to help put kids through college. Of course, just one look at the price of tuition and it’s easy to understand why – tuition has continued to increase far in excess of the rate of inflation for years.
Very few people ever slow down enough to question common wisdom – what is wiser to invest your hard earned dollars…student loans or short sales? They both have the advantage of leverage, they are both considered “good debt” and both increase the long term earning potential of the borrower. Is this a question or semantics or is there any way to truly differentiate between the two? Let’s take a quick look to sort through the specifics of each.
Devil in the Details
Student loans have historically been considered “good” or “necessary” debt since they tend to increase the total annual earnings of the recipient but hidden in those details is a devil of a fact – when adjusting for delayed earnings and adding back the high debt burden, increased income tax and student loan repayments much (but of course not all) of the average annual income discrepancy is minimized.
On the other hand, short sales provide immediate profit potential, make use of tax incentives and are typically able to take advantage of favorable Capital Gains taxation rather than the higher income tax rates.
Low but Unlocked Interest Rates
Although student loan interest rates typically are low due to government subsidies, the ugly truth behind many of these loans is less than generous. Thanks to stringent repayment requirements, defaults are rarely eligible for bankruptcy protection and may actually impede the ability of the recipient to obtain employment or continue their education. Even worse, student loan defaults have resulted in wage, Social Security and even disability garnishment. Thanks to compounding interest and hefty capitalization, it’s not unusual for a small student loan to grow completely unmanageable while the student is in college. For example, by capitalizing payments and then calculating compound interest, an initial debt of $35,000 can nearly double to over $80,000 before a student finishes their degree program even with a “low” interest rate. On the other hand, short sales not only have the advantage of low interest rates but they can actually lock-in those rates over a 30 year duration if desired. No surprises.
Different Defaults
We’ve already mentioned the very high price individuals are forced to deal with in the event of a student loan default but what about co-signors or others? Sadly, not every student will finish University of Michigan. Rather than having a brilliant career ahead, parents are just as likely to encounter a grown child saddled with greater debt than ever – and no way out. When students default on student loans there isn’t anything to take back – no hard asset to sell in order to recoup part of your investment – nothing. Investing in short sales provide protection for all involved; not only can the property be sold to offset losses but it can also be kept in the event everything turns out well.
With the average cost of college tuition expected to hit six-figures within the relatively near future, savvy parents, grandparents and others would do well to consider purchasing a short sale property to protect their child’s future. Not only can the property pay for a college tuition but provides peace of mind for all involved well into the future.
We know your time is at a premium, and we’re very grateful to you for lending us your thoughtful attention. Even if you’re not planning to buy or sell right now, we hope you’ll keep us in mind. If you like, we’ll send you a refrigerator magnet and some other cool stuff, so you won’t forget us. And if you should happen to know someone, a relative, friend or neighbor who is contemplating a move, it could be you’ll be their hero and ours, too, when you bring us together. Currently condos close to campus: CND – Now Available. To search all condos, click Ann Arbor condos for sale.
Thanks to broker Chris McLaughlin, from Florida for his insights.
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