New options for 50-year mortgages, 10-year car loans and 30-year student-loan payments

Tuesday, August 08, 2006 at 04:58 PM

Just can't get enough of debt?  Feel unwanted without harassing calls from unpaid creditors?  You're definitely living in the right country.

Try this report on for size:

How old will grads be when the payoff date finally arrives?

By ANYA SOSTEK, Pittsburgh Post-Gazette
August 8, 2006

Will I still be paying off my student loans when I'm 64?
It's a question that certainly never occurred to Paul McCartney, but it is becoming a possibility for some students and recent graduates. Spurred by recent waves of student-loan consolidations and lengthened loan terms, student borrowers are pushing scheduled payoff dates into their 40s, 50s and even 60s.

 Over the last two years, millions of current students and graduates consolidated their federal student loans to lock in record-low interest rates. As they did so, virtually all borrowers took their lenders up on an option to extend the payment period of their loan - from a 10-year payoff term to one of 20 or 25 years, or even longer. The result was much smaller monthly payments, but for a much longer time.

"Everyone pretty much goes for the maximum, which can be 30 years," said Tom Lustig, vice president of PNC's Education Loan Center. "One-hundred percent, really, are taking the maximum term."

Extended payment periods are attractive because borrowers' monthly payments drop substantially. On a federal loan of $20,000 - just above the national average loan amount for a four-year undergraduate degree - a borrower with a 4.75 percent interest rate would pay $210 per month on a 10-year loan, versus $129 per month for a 20-year loan.
Of course, those smaller monthly payments come at a cost of higher total interest payments. The $20,000 borrower would pay more than $5,800 more in interest for the extra 10 years, and the $60,000 borrower would pay nearly $37,200 more for the extra 20 years.
What concerns financial experts is that student-loan payments that are "like a mortgage" might come at the expense of an actual mortgage or other financial steps such as saving for retirement or a child's college fund.
Indeed, twenty-somethings today often have a different view on debt than their parents. New options for 50-year mortgages, 10-year car loans and 30-year student-loan payments can turn debt into a life sentence.