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Student Loans: Do People Really Know What They’re Signing?

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Yesterday I read an article on NPR about the need for more education about student loans. Basically, the article’s premise is, “Oh my, there are college students borrowing thousands of dollars. Perhaps we should spend some time talking to them first so they know what they’re getting into!”

My first thought was, Is this really news? Of course students should receive information about their student loans prior to borrowing! But then I reached back into the depths of my brain to remember the process I went through in taking out my own student loans. Did I have any clue what I was doing?

My First Student Loan Experience

When I graduated from high school in June 2001, I had been 18 for a whopping 4 months. At that point in my life, I had a 2 year-old son (yeah, yeah, things happen) but had never held a paying job of any kind. The reason was simple – I had a child to raise, and my parents were much more concerned with me finishing high school and attending college than anything else.

My appointment with the student loan office was quick and easy. I checked boxes indicating my understanding that these were loans, I signed my name, and I was shuttled to the registrar’s office to sign up for classes. There was no explanation, no nothing. Just a lady with a calculator, making sure I borrowed enough to cover my remaining obligation to the university.

I remember reading an article later as part of my online “entrance counseling” that explained how my loans would work. The example showed something like $25,000 in student loans being repaid on a $45,000 salary. Well, I don’t have to worry about that, I thought. I’m only borrowing $4,500! It honestly never clicked in my brain that $4,500 x 8 semesters = $36,000. I was more worried about buying books and finding my way around campus than a bunch of money I had to pay back “someday.”

This Was My Mistake

My student loan situation isn’t anyone’s fault but my own. I don’t blame the school or the government for not explaining things more clearly; I blame myself for being too young and stupid to understand how the real world works. I fully understood that I would have to repay my loans, but I didn’t have a clue what that actually meant for my future.

Even if someone had told me I would end up borrowing nearly $50,000 to finance two degrees, I had no concept of what it would take to pay that back. When I researched college majors, it seemed that the average salary for anyone with a bachelor’s degree was around $50,000 a year. That seemed like so much money! Little did I know I’d end up with a bachelor’s and a master’s degree and still make far less than that, because those salary websites failed to mention that averages don’t apply to people in rural areas. I had no clue what people actually made because I’d never worked.

In my 18 year-old head, $50,000 a year meant over $4k a month. I seriously thought I’d have that much money in my pocket each month once I got out of school. Plus I was engaged and would soon have my husband’s salary as well! So when I looked at loan calculators that estimated hundreds of dollars a month to repay my loans, I wasn’t sweating it. That was nothing!

This is just a short list of the things I never considered when I took out my student loans:

  • What if I couldn’t find a job for six months after graduation? (That happened.)
  • What if I didn’t make $50,000 a year? (That also happened.)
  • What about taxes and insurance? (Yeah. Didn’t think about that.)
  • What if my husband had an affair and we ended up divorced someday? (That happened, too.)
  • What if I developed a huge spending problem in college and racked up a bunch of credit card debt? (Been there, done that.)

Even after I found a job, my “income-sensitive” loan repayment plan had me shelling out over 1/4 of my take-home pay each month. Which wasn’t that horrible until I got divorced and my income was all I had. If I’m very lucky/dedicated, I’ll have my loans paid off by the time I’m 40.

So Now What?

As I said before, I don’t blame anyone but myself for my student debt. I don’t resent the fact that I have to pay back the money I borrowed, even now that I’m not using my degrees. However, I do think colleges are missing a big opportunity to make life a little easier for their graduates.  I try to give people my advice and let them know that there are other options to avoid the extra expenses that come along with school costs. These incidentals include the cost of transportation, tuition fees, textbooks and supplies, plane tickets, food and hotels fees. For careers in government agencies like the FBI or the CIA, they may require earning a Bachelors in Economic Crime Investigation before getting the job, and in some cases may be hard to afford. However, attending an online college can save you money and the loan options are the same which makes it much easier to repay back any loans once you have graduated

When I think back to that first trip to the student loan office, I picture a world where the lady with the calculator had spent some time going over the reality of my situation. How much I could make with a social work degree in the area where I live. How much of that anticipated salary I’d actually receive after taxes. How much things like groceries, gas, and utilities would cost and how little I’d have left over.

Would it have changed the outcome? Probably not, because I still had to borrow the money to go to college and I still had to repay it when I was finished. But maybe it would have helped me see things a little differently and think harder about my life choices. Instead, I made decisions based on the fictionalized adult world I’d imagined where I made tons of money and everything worked out for the best.

I firmly believe that very few 18 year-olds grasp the implications of their student loans. Some do, because they’re already on their own and/or they have jobs and bills, but others are leaving high school the same way I did – living off their parents with no clue how real life will be. Maybe all those 22 year-olds with liberal arts degrees (and I say this as someone with a liberal arts degree) would opt for a different career if they understood how difficult it will be to pay back all that money with a job that pays peanuts.

What was your student loan experience like? Did you understand exactly what you were getting into? Did anyone from your college explain how repayment would affect you? I’d love to know your thoughts on what type of pre-loan education should be provided to student borrowers.

About Andrea Whitmer

Andrea is a freelance web designer and single mom trying to maintain a sense of humor in an otherwise chaotic world. She blogs in hopes of helping others avoid the same mistakes she made in the past. Join in the discussion here on So Over This, or connect on Facebook, Twitter, Pinterest, Instagram, or Google Plus. You can also subscribe to new posts via RSS so you never miss out!

Comments

  1. Sorry to anyone who commented – Intense Debate is giving me fits today and it ate all the comments on this post! I promise it’s nothing personal!

    • Insurance Gal says:

      The first time I went to school was aged 18; the second time at 25. The first time I took out the loan I was still living at home, so theoretically, my parents could have helped with an explanation of interest, etc. The second time was the school finance woman saying, “Simply fill these out and we can get you in and out of school in less than a year because you are already in the work force.”

      Andrea, I am older than the age you mention in the article and I am still paying my student loans! How does that happen? Deferment, going back to school the second time, and our bankruptcy several years ago put the payments on hold. Now, on months that I am able (I am commission only), I pay more than the minimum due. I’d like to get these paid off before retirement, ha-ha…. ;)

      • I understand completely! I’ve deferred three times – once during bankruptcy, once when I got divorced, and again last year when I left my career to start my business. At this rate 40 is probably not realistic for me, though I’m hopeful. My car loan should be paid off this year and that will leave my student loans as my only remaining debt. Maybe we’ll both get them paid off someday!

  2. I was fortunate enough to escape college without any student loans, but there’s no way I would have been informed enough at 18 to make a reasonable decision. All I knew was that you had to go to college to make more money. I don’t really think education is the answer, either, because how many 18 year olds actually pay attention to stuff like that? I didn’t. We need an overhaul of the entire system so that large loans aren’t necessary to get a decent college education.

    • That’s true – I would have paid attention at 18, because I was one of those overachieving nerds who actually enjoyed that kind of thing, but most people wouldn’t have listened.

      I think it would be a good idea to strengthen the standards for college admission (lose the slackers and admit only the people who want to be there) and provide a 4-year degree to every US citizen. Especially since we all know that a BS/BA is the minimum you’re supposed to obtain to be able to get jobs. Then if someone wants to go on from there, they could pay for that on a reasonable installment plan instead of taking out thousands of dollars in loans. /end pipe dream

  3. Man have I heard my sister b!tch about this, haha! I never went to college, only got my GED. When I ask my sister about the college loan thing she goes off on a blue streak about what you say above, no one ever told her anything. She just didn’t know. All she knew was that most people had to get loans to go to school and so it’s what you have to do. So sign on the line and get your books. I kinda think that parents should school their kids in what loans mean. As my girls get older and we teach them more about money, I plan on letting them in on our mortgage loan and learning about interest and time and money and defaulting, and all that exciting stuff, haha. That way when they go to college they can have a better idea of what the heck their doing.

    • I agree with you 100%. Unfortunately since my mom didn’t go to college and my dad attended via the GI Bill, they didn’t really know what I was up against. Neither of them had experienced the weight of student loans; they just wanted me to get an education. I knew about loans in general but student loans seemed different because I’d always heard they were “good” debt.

  4. Thanks for sharing your story Andrea, it is very interesting. I was lucky enough to be able to get through school without any student loans, so I don’t have a lot of personal experience with this. I know plenty of people who have dealt with this though, so it is certainly a topic I am interested in. Clearly some form of education on student loans would be better than nothing, but I am of the opinion that the bulk of that education should come from the student’s parents. I know I will be educating my daughter from a very young age on the cost/benefit of college, including the costs of student loans. At the same time, I do think colleges should at least provide some education prior to signing everyone up.

    • I agree to a point, but then again, many parents haven’t attended college or don’t have enough financial sense to teach their kids. Which is a larger problem but still something that would have to be addressed before I could absolve the universities and lenders of any responsibility. Neither of my parents ever dealt with student loans, so they weren’t exactly in a position to advise me.

  5. I totally agree with you! I am a student who uses extra loans for living expenses and such. I max out my loans, not realizing how much this is going to bite me in my butt when school is over and it’s payback time.

  6. neither of my parents had gone to college, so I was pretty much on my own understanding how loans worked. i didn’t think much about it and sure enough graduated with about $30,000 to my name. Seven years out of school, and I’m down to about $16,000, but I only got serious about paying them off two years ago. Otherwise I’d be paying til I was 50!

    I think I still would have taken out the loans anyway, but I probably would have tried to start repaying them while I was in school. I went to an excellent school and got a great (liberal arts) education. ANd I know that I wouldn’t be where I am today if it weren’t for that degree.

    • Agreed. Even though I’m not technically using my degree, I use the skills I developed every single day. I don’t regret going to college at all, and I definitely don’t regret choosing a liberal arts college. I just wish I’d been smarter about my options for paying for my education.

  7. I still see student loans as “good debt”, but only when they’re carefully considered. I earned a liberal arts undergraduate degree (Theatre, with a minor in Vocal Performance) because it was a credential I knew — had been told all of my life — I would need. Even if I wasn’t working in the performing arts. I remember having to schedule an exit counseling session for financial aid before I could graduate, but the numbers weren’t real to me. I was lucky in that my parents both saved for my education and took on the bulk of the financial aid loans, while I had an additional smaller amount in my own name. If I had been mature enough to consider it at the time, I would have made changes in my college lifestyle to save money. My father worked his way through school (in the 70s), and I remember hearing that he wanted me to have that experience, too, but my mother pointed out that school tuition had risen so much in relation to the minimum wage since then that it wasn’t practical. My parents felt that my job was to study, so I didn’t have to work for my living costs (only was allowed to get an outside job in the summers and during my senior year). Consequently, I didn’t think about those costs much if at all. That was a huge mistake, because I didn’t know how much things cost or what wages I could expect (even though I’d been pulling in a part-time paycheck since I was 16). Transitioning to a full-time workforce was a real adjustment (not a pleasant one) and I went into forbearance on my student loans. That was actually surprisingly easy once I got up the nerve to call and explain that I was unemployed and couldn’t meet the minimum payments. I’d thought they were going to yell at me or something… but the person on the other end of the phone isn’t personally invested in your finances! They’ve heard it all, many times.

    After a while, though, things shaped up, and I paid off my undergraduate loans in 4 years (so 5.5 years after graduation), then started saving for grad school. I have been much more frugal — and working full-time — during this education program, and have saved nearly enough now (over 3 years) to pay off my grad school loans (again from the federal government). I hope to have saved enough extra — including a to pay them off in full 6 months after graduation. I’ll be 29 in a week, and I am looking forward to not having student debt hanging over my head as I save for other milestones, like adoption and buying a house of our own.

  8. Did I, “know” what I was signing? Yes. Did I understand how long it would take to pay off, or what would happen when I didn’t get a job? No, definitely not. Conceptually I understood what I was doing, but when you’re 18, you (well, I can only speak for me), when I was 18, I was very naive. I also didn’t anticipate a recession and the crash of the economy. When I was signing up for the debt people were getting great jobs and sign-on bonuses. When I finished nobody could get a job.

  9. I’m honestly not sure who pounded this idea (don’t take out a bunch of student loans) into my head, but someone must have. I say this because I don’t remember a specific conversation about student loans, but when I got an acceptance letter from a “better” private school, it went into the trash as soon as I realized how much I’d have to take out in loans to go there. It’s also possible that I’ve always been really debt averse.

    I did end up taking out student loans for one semester- my last semester – but it was an informed, calculated decision. I had enough/would earn enough to make it through the semester, but I knew I was getting married right after graduation and, assuming I got into grad school, I’d be moving out of state…and money would be tight. A student loan seemed like a much “better” loan than any sort of private loan I could get to cover moving expenses, and I still think this was the right choice. No one talked to me about repayment, though, I just filled out the form and submitted it. It was a choice made around my 22nd birthday, and I think I was much more aware/mature at 22 than at 18.

    Even though my student loan experience has been “good”, I’m not sure it’s a good thing that I could just fill out a form and get all that money (I took $7,500)…

  10. How about a radical idea. How about state schools – you know the ones funded by the taxpayers – stop accepting student loans? There could still be need-based aid and scholarships to bribe the best and the brightest to stay in state, but no student loans at all?

    Sure, they might need to close the lavish fitness center. They might not have unlimited high speed internet and require bandwidth be used for classwork instead of YouTube. They might even need to pay their president something like $150,000 per year instead of $500,000 per year, and they might need to sell the private jet.

    But the students leaving there would leave without crushing debt. And if they dropped out early from Doctor School, they wouldn’t have $150,000 in debt with no degree. Tuition would be lower because the students couldn’t afford $10,000 per year. There would be fewer five year degrees and fewer people taking 9 hours per semester because, once again, students couldn’t afford it.

    What do you think? Too radical?

  11. My husband and I were both very fortunate and graduated without student loans. But I know several of my friends accumulated quite a bit of student debt that they’ll be paying off for years. A close friend finished a law degree in 2010. She was told that law was a growing field. She’s unemployed now, picking up occasional contract work. I don’t think there was any way for her to anticipate what would happen to the job market for lawyers. But I imagine that she has $100,000+ of school debt, even though she attended a state law school.

    After college, my husband briefly considered going to culinary school. Tuition would have been $50,000, most of which we would have needed to borrow. I think the starting salary for a chef is around $25,000…and we would have been forced to live in NYC, because of commuting reasons (ie, trains to the suburbs stop running at 1 am, but chefs usually work past 1 am). Ultimately, we decided there was just no way we could make that work. But it’s amazing how easy it would have been to take out that loan. It would be great if there was some literature available on how student loans will impact your future (ie, how much you’ll need to pay back, and for how long, at various income brackets).

    Yes, I think that parents should teach their children about financial literacy and debt, especially. But, I also think that the job market and the cost of education has changed so much that many of our parents were completely unequipped to offer any helpful advice. I mean, when my parents went to college, you were almost guaranteed a well-paying job if you had a bachelors degree. In that scenario, student loans seem fine. But they aren’t fine when so many graduates are unemployed or underemployed.

  12. I had to take out loans for the community college (single, no dependants so the government gives me nothing for finacial aid). My own fault, I chose to go back to school while trying to pay down debt. I’m finally at a point where I can afford to pay for the classes myself (6 hours). At least I was smart enough to take subsidized loans, so no interest is accruing. As well, whenever possible, I have been making payments on my loan, so the principle has been going down. My plan is to continue to pay for school while making payments on my loan, and hopefully pay it off before I graduate. I have already accepted it will probably take years to get a Bachelors since I will just pay as I go. I am an older, non traditional student however, had I gone at 18 I probably would have just signed on the dotted line not thinking abou the impact.

  13. I am the first in family to actually attend and graduate from college – and then went on to graduate school. I think us girls were all expected to be barefoot, pregnant, tend to the livestock, teach sunday school, and make our farmer husbands happy. (no offense to anyone who is happily living that life!!) My parents had no idea what college truly meant. I knew that I just had to go so managed to save up my hourly and tip money in high school working two part-time jobs but also applied for any scholarship I would even remotely qualify for. All of that effort paid for the first two and half years of school and then took out loans for the remainder after scholarships. No, I had no idea how this was all going to work and I don’t think any amount of explaining would have helped because you need maturity and experience to truly understand. I then went on to graduate schools completely on student loans since my BA was pretty much completely useless and I just married and our daughter was born. I realized earlier this year that the month and year I pay off my student loans, is the exact same month and year our daughter starts college!!!! With them being refinanced at 2%, I try not to sweat it but it hurts to write that check every month for a degree that is essentially useless due to the bottomed-out job market upon graduation.

  14. I have 6 figures in student loans, and it’s not 100,000 either, it’s around $149,000. I’m doing the 10 year Public Service Student Loan Forgiveness program. I pay 15% of my income and make $92,000 but the rate on this Federal loan is 6.875%. My parents made lots of money and didn’t help me, but I got hit with the highest interest rate on my undergrad loans at 8.25% and my graduate loans brought the rate to just under 7%. A lot of my balance is interest capitalization over 7 years of school. I’ll end up paying about $90,000 of it back, which is probably close to what the principal would have been without the interest. I can’t really complain though because I made a decent income doing public service and would NEVER make this kind of money without my degrees. In 8 more years, I’ll have no debt and will probably make 6 figures. It was worth it to me. I will say however that though I worked full time through school, some of this debt is due to maintaining a lifestyle, and I do regret that part.

  15. I’m currently still completing university but have about $10,000 in student debt despite having co-op work terms throughout my 5 year program. I am hoping to pay it off quickly to avoid paying hefty interest charges. My loans are through the Ontario and Canadian governments and have not been incurring and interest, but will begin to do so as soon as I graduate in April 2014. The ideal situation would require me to live at home for a few years, land a job and then pay off my student loans all while hoping to do a bit of travelling and attend a summer Sports Marketing course at UCLA next summer.

    I’ve heard stories from friends who weren’t even away that Government loans had to be paid back…yup it’s crazy right. But I completely agree that there isn’t much in the way of education when it comes to loans, and requires people to really read into it, and a little bit of parental support and know-how as well. But I guess if the fine print was made much more simple to understand and clear then banks wouldn’t make as much money off those who borrow, which in the end is how they make money. As awful as it sounds..

  16. I’m not sure how much of an impact it would have. Probably marginal, but it couldn’t hurt.

    I was lucky to go to college at the same time my sister was starving through med school/grad school – DPT school, whatever that gets classified as. I remember sitting down with her and my mother and talking her through the realities of paying for things while doing clinicals, etc., and it was a huge reality check.

    Truthfully, if you just show someone the numbers, they’re not going to get it. If you show them someone visibly shaking as they see a monthly payment, you might get a response out of an 18 year old. Alas, no university would ever want its “liberal arts” (just an example from the article, don’t kill me) graduates telling new incoming students about the cold and painful reality of living paycheck to paycheck with loans that stay with you for the rest of your life.

    At the end of the day, college kids are invincible. We can drink beer and eat ramen for every meal and never gain a pound, stay up all night and feel fine the next day, or go on a wild spring break because…well, who cares? That kind of mindset won’t be changed with cold hard logic, no matter how good of a case someone makes.

    FWIW, I know many students who wished they had gone a less expensive route; some even had the option of going for free, but now have $30,000+ or more in loans. It’s a painful lesson, but in the grand scheme of things, having to pay for four years of schooling is a first world problem. College is a blast – and like all fun things, it’s expensive.

  17. My student loan experience can be summed up with one word: Clueless!

    When I applied, I just had this confusing 10 page application which I dutifully filled out and sent in to the government. The Great Student Loan Gods would decide and then send me some forms with the amounts they figured I should have. I had no idea what the combined totals for six years of school would be!

    I had a child and funded a diploma and a degree with a blurry idea in my mind that I would “Make Enough Money”. I didn’t know what “Make Enough Money” would be, I just thought it would magically happen.

    Anyway, it didn’t work out like that and a graduation/marriage/career change/and divorce later, I still owe about $30,000. I was pretty dumb.

  18. Instead of educating students about student loans, we need to stop pushing high schoolers so hard to go to college. College is not for everyone, and there are many students who drop out after a couple of years who never should have been there in the first place. This costs so much, both to the students and their parents. And yet when high school students say they aren’t sure what they want to do after high school, the answer is always, “Go to college, get your generals done, and figure it out later.” Instead, I think students should be encouraged to go out to the real world, work at whatever job they can get for a year and learn how much a degree is really worth, and then go to college if they think it is worth it. Some would probably never go back to school, but they would probably be the students who would have dropped out eventually anyway. The students who did decide to go back to school would probably be much more motivated to work hard in school and to be careful with their money. They also might be more likely to go to a community college or less expensive state college, rather than to an expensive university.

  19. I am glad I did not have to go through the student loan route to finish college and graduate school. I did everything I can to get a scholarship and part-time jobs to be able to finish my degrees. I am also grateful to my parents and aunties who sent us money (not personal loans!) should we need them. I guess I should thank the elders in our family who kept reminding us to resist the urge of student loan as much as we can because it will definitely affect our financial status later on in life. And I promise that I will also teach my children the same thing. Besides, it is one of the reasons why we are saving up for their college as early as now — so that they will not have to apply for a student loan when they get in college.

  20. Thanks so much for sharing your story Andrea! I am actually writing a post off of the same exact NPR article, Lol! My student loan experience was similar to yours. I was told to sign some form saying that I understood they would have to be repaid and that was that. I did not think at all about how that was just for one semester and those certainly add up. I own that I took out the loans and no one else should really be blamed, but I do agree that some sort of education on it would be helpful. But, then again, I also think we need to teach more about basic finances in schools so as to avoid things like massive student loan debt.

  21. At 18 years old, I understood that I was borrowing the money and it must be re-paid. But I just did not have a grasp of how much money it was. We were talking thousands of dollars and the most I’ve ever made per paycheck was just hundreds. And that it meant I would be making payments for 5, 10, 15 years after graduation.

    I knew you have an older son, but putting it into perceptive that you were 18 with a 2 year old just hits home. I’m 29 and have a 2 year old. Way to go girl!

  22. Ugh..I cringe thinking back to this time–I just signed the papers blindly and had no clue what was what. At least I was smart enough to consolidate way back when and now have every dime locked at 1.625% for life. Only a bit more to payoff and I’m done which I could easily do out of savings but at that rate, my $$ works better elsewhere!

  23. Yeah, I remember being raised to look at loans as the very last case resort, but most of the kids in college with me thought that was weird. I actually explained interest and the payments to a few of my close college friends and they ended up taking as few loans as possible to finish – I hope that helped. But a couple of my close friends now didn’t have anybody explaining anything to them back then and are 30 year olds that still have $50k to pay off. That just sucks.

  24. I had to borrow student loans in order to complete the degree I had my heart set on and I was fully aware that they had to be paid back and what I thought the amount was. I sat in the office with my two sureties and the officer explain the loan. For some reason I swore it was a no interest loan (I’m sure that is what they say) and the amount I borrowed would be the exact amount I had to pay back. I knew all loans had some kind of interest attached to them, so when I got that first statement sure enough interest was on and an insurance amount which is really small but it adds up over time. They did give us a year to pay back this loan and I fully intend to pay it back. (This is a Non -US Government Loan, I don’t know how your federal loans work). I just hate starting my working life with debt but I borrowed the money and it must be paid back

  25. Great post! For my undergrad degree, I had no idea the ramifications of what I was signing. It was all legal jargon and didn’t really make much sense. Once, I graduated and I started to realize what I got myself into, it sucked. I also had trouble finding a job and paying it back….I could have paid it all back, but then I went to graduate school and got into more debt! This time I knew what I was doing, but it was way more debt. D’oh!

  26. My son is starting college in the Fall and it really concerns me what kind of debt he will eventually end up with, not to mention if his degree will land him a job! He is starting at a community college and will transfer to a 4 year University to complete his degree, a path I would recommend for families that have limited funds!

  27. I think its almost impossible for an 18 year old to fully understand what they are signing. Its impossible to truly understand the implications of your decision until the bill start coming. I think its why the system needs to be modified to protect these kids.

  28. I fell for the same mistake as well. I signed up for online college at the last moment and found myself being told to fill this out and send it back as fast as I can. (cutting it close to the deadline for signing up) A week into my classes, I receive a $4,100 check. I was confused. I was wonder why I had gotten this. I call my school and they told me it was for me to do whatever I need to do with it. (pay for classes, books, etc.) I was lucky enough by my second semester to realize that I was digging myself a hole. At this moment, I find myself getting rushed into signing up without reading the fine print. Lucky for me I had to sign a form called the VA Bill of Rights. (given to GI Bill benefit users before they enroll *Which I didn’t get until my second semester*) Which says “Your are entitled to a clear explanation, without coercion, of all financial aid option, before you sign up for any student loans.” Just like the author said I have no one to blame but myself. I advice you to get a clear understanding about how much it will all cost on paper and have it explain to you.

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