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8 Things You Should Know If Your Child’s Applying To Colleges

family with teenage daughterIf your child’s a high school senior we probably don’t have to tell you what an exciting but confusing time this can be. There are difficult decisions to be made, confusing applications to be completed and critical tests to be taken. There’s so much information that must be taken in and considered it could make both you and your child’s heads spin.

If you’re typical, you want your child to attend the best and most prestigious school possible. However, given the price of a college education today – especially at top-level schools – this could mean years and years or debt for your child. It’s important that you don’t get all excited and end up making a choice that costs your child dearly.

If you’re not aware of this, students are now graduating with an average of $33,000 in student debts, which can put a strain on a person’s life for many years to come. If you don’t want this to happen to your kid the best way to handle things is to approach choosing a college as a business decision. Given this, here are at eight things you need to know or do.

You need to have a budget

Determine the amount of money you could contribute to your child’s education and then be honest about this. He or she can then decide in advance how much they’re willing to borrow to get a degree. You might have them check out the starting salaries she or he could expect to earn after graduation and then compare this to the student loan payments they would probably be required to make monthly.

The school may not be as important as you imagine

Does how prestigious the school is play a big part in your child having a great career? Maybe not as much as you might think. If your child is applying for colleges in the top 10 or 20 of schools this might open the door to opportunities that wouldn’t be available otherwise. But there is actually not much of a disparity between the potential earnings of a student from one of these schools vs. other 4-year schools. The Department of Education did a study that found the prestige of a school made only a 2% to 3% difference in the earnings of men and 4% to 6% among women. Compare this with the difference in cost between, say, your state university and an Ivy League school. When you take this into consideration you might decide that a less expensive school that has a good reputation and offers a quality education would be a much better option.

Learn the actual cost

If you’ve ever bought a car you know there’s the sticker price and the real cost. The same is true for colleges and universities. The tuition price that you see listed for a school is hardly ever what it actually costs to attend it. In fact, most students at most schools pay a lot less than the “sticker price.” So when you’re checking out a school, don’t look just at the tuition price but also at its average package of financial assistance. You will then have a clearer idea of what it will actually cost your child to attend it. In some cases a school that looks awfully expensive might cost less than a school that appears to be cheap.

money and graduation cap in chainsThink carefully before borrowing money

We know you want to do everything you can for your child so you’re going to want to help with their college education as much as possible. The issue is that you may not be financially able to do this. If you don’t have the cash available to help out with your kid’s education there are loans available such as the federal PLUS loan for parents or a bank loan. However, it’s not a good idea to take out one of these loans. If you don’t have the cash to help your child it might be because you can’t afford to help. If you have to have a loan to finance your child’s schooling this could wreck your budget or even screw up your retirement. Your house could even be at risk.

Know that living at home is best

In 2013-2014 the cost of room and board at a public university averaged $9498 a year and for a private non-profit 4-year school the average was $10,823. Multiply this by four years of school and you’d be looking at around $38,000, which is a lot of money. If you live close to a good college or university you need to seriously consider having your child go there and live at home. If your child really wants to go away to school a good compromise might be for her or him to go to a local community college or university for two years and then go away for the last two.

Be aware that debt could have a considerable impact on your child’s life

As you have read students now graduate from college owing an average of $33,000. Of course, depending on your child’s school it could be much more than this. Studies have shown that a significant amount of debt is keeping many young people from taking critical steps in life such as attending graduate school, getting married, purchasing a home or even having kids. What this means is that it’s best to keep debt at the minimum by selecting a cheaper college and stressing to your child the importance of living frugally and finding part-time work if possible.

Scholarships and grants can make a considerable differenceOne of the most prevalent myths is that only top students get scholarships. Your child should be applying for scholarships even if he or she isn’t in the top 5% of their class. These can be a great source of extra money for your child’s schooling. Be sure to check out sites such as and search through their databases. Your employer, union or fraternal organization might even have scholarships for the children of their members or employees. There is actually a scholarship for golf caddies where we live.

Be sure to teach your child the important skills

You may have spent the last 17 or 18 years doing everything for your kid. In this case it’s time to begin teaching them some life skills. They’ll have a hard time adjusting to life on their own unless you teach them to do laundry, cook, change a flat tire, take a bus, grocery shop or bank for themselves. You also should have the “money talk.” This is where you discuss budgets and frugal living. You need to teach them about credit and debit cards, good money management, debt and why it’s important to have good credit. You might do what some parents have done and give your child a monthly allowance to cover the necessities so they can learn good money management. Almost everyone makes a few financial blunders before learning how to handle money responsibly. It’s much better that your child does this with an allowance than with their student loans that could amount to thousands of dollars.

The Elephant In The Room Of Student Debt

businessman with empty pocketsYou’ve undoubtedly heard the phrase “the elephant in the room.” As you probably know it refers to the idea that it would be impossible to overlook an elephant in a room. So if there are people pretending there is no elephant there, it’s because they’ve chosen to avoid dealing with a big issue.

The elephant

While most of our concern about student debt has focused on undergraduates that take out loans to pay for the increasing cost of college, there’s one type of student debt that’s been overlooked and has become the elephant in the room. It’s loans taken out by graduate students and it’s one of the principal reasons why student loan debt is ballooning.

40% of outstanding student debt

According to the New America Foundation graduate students now account for as much as 40% of the estimated $1.2 trillion in outstanding student debts. This is despite the fact that they consist of only 14% of all university enrollments. Check that out again. Fourteen percent of all university enrollments accounts for 40% of the outstanding student loan debt.

Why graduate student loan debt is so different

Most undergraduate students have mom and dad behind them either paying for their educations or paying at least part of the cost, which decreases the amount of money that students need to borrow.

However, this is not so true for graduate students. In most cases they will be totally responsible for paying for their schooling. And, unfortunately, many graduate programs are going up in price and we mean way up. This has also allowed lawmakers to raise the interest rates on professional and graduate students so they are now paying tuition rates that are almost 50% more than those charged undergraduate students. In addition, two years ago Congress stopped subsidizing the interest that accumulates on graduate student federal loans while students are still in school and for six months afterwards. This means that graduate students must pay the interest on their loans while they’re still in school or it will be added to their unpaid balances so they will be paying interest on interest.

It gets even worse

Making things even worse for graduate students is that they are forced to borrow an average of almost three times more per year that undergraduate students. The average debt of undergraduate students has more than doubled since 1989, but it has more than quadrupled during that same period of time for graduate students. This means that a semester’s tuition for a graduate course in business management that cost $600 in 1989 now probably costs more than $2400.

smartphone anxietyDo you really need a graduate degree?

One question to ask yourself before you sign up for graduate school is do you really need that degree given what it will cost you. As an example of this about 16% of master’s degrees are in education and these people end up with a median debt of $50,879. Since the yearly salary for a public school teacher averages just $57,830 it becomes clear why graduating owing $50,879 is going to create a real burden. People that pursue advanced degrees with the idea that they are going to be able to make enough to pay back their loans may find this is not necessarily true.

Of course, a master’s degree will pay off in many areas. In fact, people with a master’s degree will earn on the average about 20% more than a person that has just a bachelor’s degree. And if you were to get a professional degree, you should be able to earn around 55% more.

Easing the burden

This past June Pres. Obama issued an executive order that expanded a program called Pay As You Earn so that about 3.1 million more borrowers are now eligible. The good news of this program is that it would limit your monthly federal loan payments to 10% of your discretionary income and any any remaining debt would be forgiven after 20 years.

Depending on the type of federal loans you have you might not be eligible for Pay As You Earn. Fortunately, there are two other types of income-driven repayment. They are Income-based and Income-contingent Repayment. Like Pay As You Earn these two programs are tied to your income and family size. Also like Pay As You Earn you must submit documentation every year regarding your income and family size so that your payments could go up or down accordingly.

If you were to choose Income-based Repayment you would see your payments capped at 15% of your discretionary income. With Income-contingent Repayment your payments would also be capped at 15% of your discretionary income. The major difference between these two programs is their eligibility requirements. Income-based Repayment works with only certain types of federal loans while you could have virtually any kind of federal student loan and still qualify for Income -contingent Repayment.

Note: Discretionary income is the difference between your adjusted gross income and 150% of the poverty guideline for your family size and your state of residence.

The dark side

The dark side of income-based repayment is that theoretically speaking you could borrow $500,000 to pay for a law degree or medical school and it wouldn’t make any difference because you would never have to repay the entire amount. Just make your monthly payments for 20 years and whoosh! You’d see thousands of dollars of debt vanish into thin air. The other downside of this is that it could encourage graduate students to borrow even more than they currently are borrowing because, what the heck! They’ll never have to pay back all that money anyway.

Paying off those student loans

Do you know the difference between a student loan and a personal loan? It’s simple. You can get rid of a personal loan by filing for bankruptcy. But not student loans. Like alimony, child support and spousal support they cannot be dismissed through a chapter 7 bankruptcy. Regardless of how much you owe on your student loans the best thing you can do is pay them off. Our federal government can get very ugly if you default on a student loan. It could be turned over to a debt collector that could garnish your wages without even taking it to court. You could see a percentage of your income tax refund seized and you could even be prohibited from getting a professional license. You could also see your debt grow because of additional interest, late fees, collection fees, court fees, attorney’s fees and any other costs associated with collecting your debt.

The options

One good thing about student loan debts is that there are a variety of repayment options available. If you’re in Standard 10-Year Repayment and are having a problem meeting your payments you could switch to, say, Graduated Repayment or Extended Repayment. Plus, as noted above, there are three “income-driven” programs where your payments would be tied to your discretionary income. Or you could get a Direct Federal Consolidation loan where you’d then have to make just one payment a month and it should be considerably less than the sum of the payments you are currently making. The interest on one of these loans should also be less than some of your current loans. The way it’s calculated is by taking the mean average of the interest payments you’re currently making and then rounding it up to the nearest 1/8th of a percent. This would be a fixed rate loan as the interest rate would never charge and you could have as many as 30 years to repay it.

Wiping Out Student Loan Debt Through Bankruptcy – The Pros And Cons

hands chained while holding coinsStudent loan debt recently surpassed credit card debt as it now stands at over $1.3 trillion dollars.

Does this represent a crisis or not?

Unfortunately, the answer to this depends on which financial experts you ask.

Some say that student loan debt is like the mortgage bubble and will soon burst. But others say it will never cause our economy to crash.

Millions of people trapped

Student loans do bear a resemblance to the housing crisis in that they have millions of people struggling to pay them back just as the mortgage crisis left millions of people
underwater – or owing more on their houses than they were worth. However, many experts say that student debt might be a problem for individual borrowers but won’t affect our economy, as there’s no bubble that could burst. One senior economist noted that the way that student loans have grown is important but this is its only similarity to the mortgage crisis. He went on to say that student loan debt and mortgage debt were growing at about the same rate per year but that’s where the resemblance ended.

A crisis for individuals

Student loan debt can certainly represent a crisis for some individuals. There are people stuck with $50,000 or more in student loan debt, people in their 50s that still owe on their student loans and people that have been forced to default on them. One example of what this can mean is that a person owing $30,000 in student loan debts at 6% would have a monthly payment of approximately $333 and for 10 long years. These debts have caused many young adults to forgo buying a house, having children or even getting married.

How did this happen?

There is no one simple reason why there is all this student loan debt. Part of the reason is clearly the increased cost of going to college. Just in the decade from 2002-03 to 2012-13 alone the tuition and fees at public four-year institutions rose at an average rate of 5.2% per year above the rate of inflation. And the cost of room and board increased by 2.6%. This means there was an average annual growth rate of 3.8% in total charges.

A second reason why student loan debt has grown so enormously is because how easy it is to get federal student loans. For example, just about anyone can get a Stafford loan, as they don’t require any kind of credit check. These loans have low interest rates and borrowers are not required to start repaying them until after graduation. Some Stafford loans are even subsidized meaning that the government pays the interest on them so long as the student is in school.

“Everyone needs to go to college”

A third reason why we have more than $1 trillion in student loan debts is because of the pervasive advice that everyone should go to college. The unanticipated consequence of this idea is that many kids go to college, find out it’s not for them and drop out owing thousands of dollars.

Why there’s no way out

Student loan debts are unsecured debts. This means borrowers are not required to put up an asset in order to get them. This makes them the same in many respects as credit card debt. The big difference between the two is due to the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA). What it changed is that bankruptcy could no longer be used to wipe out either federal or private student loan debts. The one exception to this is if the borrower can prove to a bankruptcy judge that he or she has what’s called an undue financial hardship, which is almost impossible to do. In other words once you take out a student loan you’re pretty much stuck with it – until you repay the money or get a job that offers federal student loan forgiveness such as teaching in a low income area or working in the public sector.

The pros of BAPCPA

The proponents of this act argued that it was necessary in order to prevent bankruptcy abuse – that people would borrow thousands of dollars, wait a couple of years after college, declare bankruptcy and walk away with a “free” education. The losers under this scheme would, of course, be US taxpayers as they would be footing the bill for these deadbeats.

Supporters of this bill also said that this would lead to cheaper loans so that more people could go to college. Part of this turned out to be true. It encouraged more people to go college but the loans didn’t get decidedly cheaper.

The cons of BAPCPA

Of course, the biggest con of this act is that it leaves people mired in debt defenseless with no ability to get it eliminated. It can be argued that these people got their student loans with their eyes wide open. They knew going in that they would have to repay them someday. However, 18- and 19-year-olds are not know for their maturity and are capable of making bad decisions – one of which could be borrowing thousands of dollars. To make matters worse, many of these students choose majors that will never pay off financially– leaving them not only deeply in debt but in careers that will cause them to be low earners practically forever.

The hardest hit

However, these are not the people that are hardest hit by their student loans debts and by the BAPCPA. These are people that bought into the idea that everyone should have a college education, went to school for a couple of years and then decided higher education wasn’t for them. This left them stuck in debt and without a degree to show for the money. Others that have been hard-hit are those that fell for the advertisements of predatory for-profit schools, borrowed money to finance their schooling and then discovered that their degrees were basically worthless leaving them both unemployed and buried in debt.

There are options

If you’re stuck under a pile of debt there is one good bit of news. You should be able to find a federal loan repayment program that would at least ease your burden. If you’re typical you didn’t pay much attention to your loans after you graduated so you’re probably in what’s called Standard 10-Year repayment. If so and if you find your payments too burdensome you could switch to one of the other five repayment programs available. One of the most popular of these is called Graduated Repayment. Choose this program and your payments would start out low and then gradually increase every two years. A second option is Extended Repayment, which would give you up to 25 years to repay your loans. You would have a much lower monthly payment but, of course, would pay more in interest because of the loan’s longer term. Plus, you would still be paying on your student loans in your late 40s.

There are also three income-driven repayment programs. One of these, Pay As You Earn, would cap your monthly payments at 10% of your “disposable” income. If you find you’re not eligible for this program, you could choose Income-Based or Income-Contingent repayment, which would cap your monthly payments at 10% or 15% respectively of your disposable income.

For more information about federal loan repayment options and about effectively managing you student loans debts, be sure to watch this short video courtesy of National Debt Relief …

In summary

Whether you borrowed all that student loan money for good reasons or it was a big mistake, the same holds true. You can’t get rid of it by filing for a chapter 7 bankruptcy but there are other options that could at least reduce some of your pain.

Hey, Recent Graduate. The Grace Period On Your Student Loans Is Over And It’s Time To Pay Up

frustrated womanIf you graduated or quit school this past May or June, your six-month grace period is about to expire and Uncle Sam wants to start getting his money back.

Have you actually sat down to determine how much you owe on your student loans? Given the fact that they’re parceled out one semester at a time and that you might have gotten several different types of loans, it wouldn’t be surprising if you didn’t know exactly how much you owe. Fortunately, there is an easy way to figure this out and that’s the National Student Loan Data System (NSLDS). Go to its website, log in with your student ID and you’ll be able to see all of the information about your federally backed student loans. This will include the date the funds were disbursed, the amount you borrowed on each loan, the amount you owe and the type of loan. You can save all this information to your student loan portfolio, which is a good idea, as this will make it much easier to access the data in the future.

Look into deferment

If you don’t yet have a job or are a member of the “underemployed,” you could think about applying for a deferment or forbearance. A deferment would give you a temporary 12-month “timeout” before you would have to start repaying your loans. If you have a Direct Subsidized Loan, a Federal Perkins Loan, and/or a Subsidized Stafford Loan, the government will pay the interest on it during that 12-month period.
If you don’t qualify for a deferment, you could try for forbearance. This would also give you 12 months where you would not have to make your payments or it could mean a reduction in your interest rate. However, the interest charges will continue to accrue on both your subsidized and unsubsidized loans as well as any PLUS loans.

How do you get a deferment or a forbearance?

If you want to apply for a deferment and have a Direct Loan or FFEL Program loan you will need to call your loan servicing company. For Perkins loans contact the school you were attending when you got the loan. Forbearance is a bit different in that there are two types – discretionary and mandatory. You will need to discuss this with the company that services your loan as it will decide whether to give you a discretionary forbearance. On the other hand mandatory forbearance is just that. Your loan servicer must give you forbearance if you are serving a dental or medical internship, employed in a national service position, or teaching in a program that qualifies under teacher loan forgiveness.

Note: There are some other circumstances where you would be eligible for a mandatory forbearance and you can learn about them by clicking here.

Understand your repayment options

Assuming you did not choose another repayment plan you were automatically put into Standard 10-Year repayment. Under this plan you will have a fixed monthly payment and 10 years to repay the loan. If you believe you would have a hard time making those payments, there are alternatives. One of the most popular of these is Graduated Repayment. Choose this program and your payments would start low then increase gradually every two years. This can be a good option if you are just starting out in your career and are a low earner. The idea here is that your salary will also grow over the years so that it will be easier for you to make those payments as they get bigger.

A second way to reduce your payments is through Extended Repayment. Under this program you are given up to 25 years to repay your loans instead of the standard 10. While this would lower your monthly payments dramatically, you would end up paying more interest over the life of the loan because of its longer term.

There are also three income driven repayment programs – Pay As You Earn, Income Based and Income Contingent. As you might guess from their names all three of these programs base your monthly payment on your income. Pay As You Earn was in the news recently when Pres. Obama issued an executive order that made about 3 million more people eligible for the program. If you are one of them you could see your monthly payments capped at 10% of your disposable income. Income Based repayment also has eligibility requirements and caps your monthly payment at 15% of your disposable income. Income Contingent repayment basically has no eligibility requirements and also caps your monthly payment at 15% of your disposable income.

One of the biggest benefits

One of the biggest benefits of federally backed loans is that you can always change repayment programs. As an example of what this means, you could start with Graduated Repayment, wait six years until your payments have grown larger and then change to Income-based Repayment.

Look for ways to save

The best way to save on your monthly payments is to switch to a repayment program with lower payments. However, there are some other ways to save money on those payments. For example, you could save a bit if you sign up for auto pay where your payments are automatically taken out of your checking account each month. Also, you can deduct as much as $2500 of the interest you paid on your federal and private student loans on your federal income taxes.

Consider consolidation

Finally, you could consider consolidating your loans. There are several reasons to do this. First, you would then have just one monthly payment to make in place of the multiple ones you’re making now. Second, you would likely have a lower interest rate and you would definitely have more years to repay the loan, which translates into lower monthly payments. While there is a lengthy explanation of how the interest rate is calculated if you get one of these loans, the simplest way to put it is that your new interest rate will be higher than the lowest interest rate you’re currently paying but lower than the highest.

How To Make Debt Consolidation Loan EffectiveGet a private consolidation loan?

You could also opt for a private consolidation loan. The interest rates on these loans are very low right now so you might be better off with one of them. However, as with many things in life, it’s important to shop around so that whether you get a federal loan or a private loan, you get the best deal and a payment you can live with –as you will need to live with it for as many as 25 years.

Think before you consolidate.

Don’t rush out to get either a Federal Direct Consolidation loan or a private loan until you understand the downside, which is that you would lose the perks that come with other types of federal loans. For example, you would no longer be able to change repayment plans. You wouldn’t be eligible for deferment, forbearance, forgiveness or loan cancellation. And you won’t be able to take advantage of any of the income-based repayment plans.

The one thing not to do

As you have read there are a number of different ways to handle your student loans but there is one thing you should definitely not do and that is miss a payment or be late making a payment. With federal loans you are considered to be in default the day after you miss a payment. This won’t be reported to the credit bureaus for 90 days but when it is reported it will have a serious effect on your credit score. Plus, the government can get very ugly when it comes to collecting arm defaulted student loans. It can garnish your wages without having to go to court, seize part of your income tax refunds or even prevent you from getting a professional license.

Are You Over 50 And Still Struggling With Student Debt?

tired looking womanOf the $1.2 trillion in student loan debts that are outstanding, more than 16% of it is that of people over the age of 50 – according to the New York Federal Reserve Bank.

It has been known for some time that student debt can be a real problem for the young. It can cause them to delay buying a home, working multiple jobs or even defaulting on their loans. But it can also impact older Americans, too.

People over the age of 50 are getting near retirement age. This means that having to struggle with student loan debts can really be more of a problem compared to young people that graduated recently. We know of one 62-year-old woman that would like to retire soon. Unfortunately she still owes more than $70,000 on her student debts from loans she got 40 years ago. This couple does not own their home and has minimal savings. The fact that when you factor in her student loan debt their debt worth is less than zero.

The problems just compound

If you are facing retirement, you’ll have to make a change in your financial planning. You will be transitioning from earning money and working to being on an income that’s fixed and consists of your retirement accounts and payments from Social Security. This can be tough. If you add student loan payments to this, it becomes even tougher.

It’s the Roach Motel of debt

You might have seen or heard commercials for a product called the Roach Motel. Its slogan is, “roaches check in but they never check out.” Unfortunately, student loan debt is like that. If you or your spouse has debts from the 1970s or 1980s, you just can’t “check out.” These debts will come back to haunt you. In the event you just forgot about your loans or didn’t make your payments, you could see your tax refunds and Social Security checks and garnished to repay your debts. The US government can get really ugly when it comes to student loan debts and garnish as much as 15% of your benefits to repay your debt. If you’re living on a fixed income, this can be a large amount. When you add these reduced benefits to the increased cost of medical expenses, the cost of living and even more, this could leave you in a serious financial condition.

Don’t borrow to finance your kids’ education

You could have paid off your student loans and think that all this doesn’t apply to you. But you could be in your 40s or early 50s and thinking about getting some parent PLUS loans to help finance your kids’ college educations. So even if you repaid your own student loan debt, you need to be careful or you could be getting yourself right back into debt and just before retirement.

As you might guess, this just isn’t good common sense. As you become closer to retirement you need to be paying off any remaining debts and saving as much money as you can. What you shouldn’t be doing is taking on new loans to pay for you childrens’ educations. It will just make it that much tougher to make ends meet when you’re living on a fixed income.

There is no just solution

If you’re in your 50s and still owe on your student loans, there is no real solution to this. There have been laws passed recently or updated that can help people better understand the consequences of the student loans they got back in the 70s or 80s. However, many of them weren’t in existence when you were taking out your student loans. This means that you, like many others, may not have known exactly what it meant to get student loans, how your would repay them or the fact that they can never be discharged – even through bankruptcy. This is the reason why many seniors are seeing a lot of debt rearing its ugly head as they reach Social Security age.

Work till you’re 75?

Unfortunately, if you’re over 50 and in this condition the only real solution is work as many years as possible so you can pay off your debts. This could actually mean working until you’re 70 or older. Of course, the longer you avoid taking Social Security the more time it will be before it could be garnished by the federal government. Plus, it provides additional time where you could be earning and paying off your student debts.

Video thumbnail for youtube video 6 Tips For Simplifying Your Financial LifeIf you’re still in your 20s or 30s

If you’re in your 20s or 30s and facing a load of student debt, one of the best moves you can make is to increase your student loan payments. As an example of this, if you’re on 10-Standard Year Repayment and owe $25,000 at 5% your payment would be roughly $265 a month. However, if you were to up that payment to $300, you would have your loan paid off in eight years and seven months. And if you were to boost it to $350 a month, it would be paid off in about seven years.

What to do before you boost those payments

However, experts say that there are three financial things that you need to do before you increase your student loan payments.

The first of these is to make sure you’re saving for retirement. If you’re working for a company that offers a 401(k) with an employer match, take advantage of it. While it’s great to get that student loan debt paid off, you’re doing it at the cost of leaving “free” money on the table. And if your employer does match your contributions, make sure you contribute up to that match as no amount of extra repayment on that student loan will make up for the money you’re leaving behind.

Get rid of high interest credit card debt

Second, before you boost your student loan debt payments make sure you pay off any other high interest debt, which is typically credit card debt. However, it could be a car loan or even a private student loan. But don’t make more than the minimum required payments on your lower interest loans until you’ve gotten rid of the higher interest ones that are costing you more money. For example, if you have a credit card with an interest rate of 9.9% it just makes good sense to pay that off first with any extra cash you have rather than your student loans which are typically at 6.8% or less.

Have an emergency fund

Another thing you need to do before you start boosting the monthly payments on your student debts is to create an emergency fund. This is to cover unanticipated events like unexpected medical costs, an automobile accident or the loss of your job. If you don’t have an emergency fund and suffer one of these calamities, you would most likely have to finance it through credit card debt or a personal loan, which means laying on more debt. In a worst-case scenario if you were to lose your job would you be able to support yourself and make the minimum payments on your student loan debts until you find another job? In most cases the answer to this will be “no.” So, don’t start making those extra payments on your student debts. Instead, take the cash and put it into an emergency savings account until you have the equivalent of six months’ living expenses.

Once you’ve done all this, you can start boosting your student loan payments and get out from under that load of debt.

Study Shows: Student Loan Is Not The Main Reason For Delayed Homeownership

hand with keys and a house made of moneyThere are many reasons why you would want to demolish student loan debt. People believe that it is one of the reasons why a lot of young adults are struggling today. It is blamed for a lot of financial difficulties – not just for the new graduates but also for their families too.

We hear stories of parents sacrificing their retirement money just to help their children get a higher education. We hear of graduates who are forced into careers they do not want to pursue but has to because it has the salary that can help them afford their payments. There are also young adults who are forced to delay a lot of milestones in their lives like marriage and parenthood.

Despite everything that we read on the news, things seem to be getting worse. According to an article published on, the class of 2014 has the highest student loan debt compared to previous years. The average debt now stands at $33,000 per student. This report was taken from the government data about this particular loan. This is actually double the amount of what graduate from 20 years ago had to deal with.

College debt is a devastating situation for a lot of students and new graduates but you have to hold back on blaming it for a lot of financial difficulties today. For instance, student loans are blamed for the lack of young homeowners today. Well a recent study have proven that it is inaccurate to blame everything on student loans. While it is a contributor, it is not the whole reason why a lot of Americans are still struggling to regain what they lost after the Great Recession.

Study reveals that there is more to delayed homeownership than college debt

The study that we just mentioned is titled “Is Student Loan Debt Discouraging Home Buying Among Young Adult?” This study was conducted by Jason Houle of Dartmouth College and Lawrence Berger of the University of Wisconsin-Madison.

The study published on mentioned two important trends that lead most people to blame college debt for the lack of interest in owning homes among young adults.

The growth of student loans in the past few years.

The first reason is the rise in student loans in the past few years. Not only has it grown, but it is noted to have grown substantially. The study revealed that both the proportion of young adults that have debt and the average debt per debtor is also increasing. According to the data gathered, it is revealed that student loans is the only consumer debt that grew during the Great Recession. This is attributed to the fact that the other type of debts can be discharged by bankruptcy. It also surpassed credit card debt – which consumers consciously did not use to keep their debts to a minimum. Now, college debt is already in second place when it comes to the most amount of debts – mortgage being the first on the list.

Decrease of home buyers among young adults.

The next reason why student loans are being blamed for delayed homeownership is the fact that young adults are not as aggressive in buying their first house. At least, they are not as aggressive as they used to. This decline happened just as the student loan debt increased. Since this is the main debt of young adults, a lot of people are assuming that the rise in this credit obligation keeps them from making investments – including buying a home.

The study revealed that these two reasons, while they may seem logical is not accurate. They pointed out that the downward spiral of homebuying among young adults came first – before the rise of the student loan debt.

The study also revealed that the New York Federal Reserve tried to analyze the link between the college debt and mortgage loans. The report used data from Equifax and was authored by Brown and Caldwell. This particular study reported three findings:

  1. Young adults with student loans are historically, more prone to own a home. It is assumed that this is the case because these are the people who got a college education – thus have the financial capabilities to get a home loan. A lot of those who do not have student loans are those who did not attend college.
  2. After the Great Recession, the reverse happened. More non-student loan debtors owned homes compared to those who owed college debts.
  3. Those with student loans during the post-recession period had lower credit scores – which contributed to their inability to qualify for a home loan.

Again, these findings sought to put the blame on student loan debt for the inability of young adults to own a home.

However, the study done by Houle and Berger mentioned that this conclusion is not as accurate as it should be – thus giving student loans the benefit of the doubt. First of all, it is pointed out that it is unclear if the difference between debtors and non-debtors only lies with their student loans. We think that Houle and Berger would like to point out that there are other factors differentiating these two – like lifestyle, employment, etc. These factors could also cause young adults to forego home ownership. They also noticed that the difference is mostly focused on characteristics – not the debt itself. The authors said that to make a more accurate comparison, all college graduates should be compared – those who got student loans vs those who did not. This apples to apples comparison could make for a more accurate connection between college debt and homeownership.

The latter, is what the authors of this study did. Although they acknowledge that their scope is limited, they did conclude that blaming student loans for the delayed homeownership of young adults is unjustly inaccurate. The authors did admit that there is a modest association but there are also other factors affecting the lack of homebuyers among young adults. For instance, a high percentage of Whites own homes while Blacks have a higher percentage of not owning homes. Not only that, the background of the respondents in their survey seem to have influences in their decision to own a home or not. Certainly, the economy also plays a role in hindering young adults in buying their own home.

So what does this study mean? Does it imply that student loans can still be considered as a good debt?

The student debt scenario is still a major concern

If you consider the fact that student loans can help young adults get a better earning opportunities, then yes, it is still a good debt. However, that does not mean student loan debt cannot jeopardize the future.

It is still a form of debt so it will have the power to ruin your financial future if you are not careful with it. Paying off your student loan debt is very important because it can destroy your future in ways that other debts cannot. Watch the video below to understand the costs of not paying this credit obligation.

If you need help in paying off your student loans, National Debt Relief can help you out. They offer a consultation service that will allow you to choose the right debt relief program that will help you pay off this debt. This service includes analyzing your type of student debt, employment history, etc. You will only be required to pay a one-time service fee – no maintenance fee or upfront costs will be charged to you. This fee will be placed in a secure escrow account and will only be released if you are satisfied with the paperwork done for you.

Borrowing Money For College Is A Bad Idea For A Reason You’ll Never Guess

Three tough decisionswoman thinking

If you or your son or daughter is nearing college-age, you have some difficult and confusing decisions ahead of you. Three of the most important are choosing a school, determining how to finance its cost and deciding on a field of study. These are difficult decisions to make because making the wrong ones could have a very negative affect on you or your child’s entire life.

Should you or your child even go to college?

We have heard it drummed into our heads over and over that every child should have a college education. Unfortunately, this is simply not true. We are all different, we all have different skill sets and we all have different abilities. So the first question you need to ask yourself or your child is whether she or he really needs to go to a four-year college. He or she might be better off in a two-year community college or in a trade school. You need to have a frank discussion with your child regarding his or her interest in college and whether or not they are committed enough to make it worth investing in what today’s four-year college education costs.

STEM or something softer

When choosing a college or helping your child choose a college you need to think about whether he or she would be best choosing a major in one of the STEM (science, technology, engineering, math) curriculums or in something softer. Study after study has shown that a STEM major will lead to a higher paying career than most other majors. However, again it’s important to factor in your interests, skills and abilities. Not everyone is cut out to be a math or engineering major regardless of potential earnings. On the other hand, if your child’s or your interest lies in areas such as photography and television arts, fine arts psychology or pre-K education you need to understand that he or she likely won’t be able to earn more than $25,000-$30,000 right out of school, which will make paying back any student loans very troublesome.

Food for thought

While this may not apply to psychology or social studies majors, a study of people in engineering and science and their earnings revealed some very interesting findings. What this research found is that the biggest single thing that has the most affect on salaries is variations in GPA or grade point average, And that students borrowing money for college generally end up with lower grades than those that didn’t have to borrow money and that this is the most important reason why they end up earning less. What this translates into is that borrowers don’t end up earning less due to financial restrictions or demographics that require them to go to inferior schools. In fact, students that are required to borrow money to finance their educations are 50% more likely to choose a more expensive program or a private school. This means they are betting more on the advantages they will benefit from these programs in their futures.

What are the results of this? It’s that non-borrowers that are disadvantaged and that attended lower-ranked schools leave schools with salaries that are more than 10% higher than those that were required to borrow money to finance their educations.

The reason for this

It all really boiled down to grade point average. Those that borrowed money had dramatically poorer grades than non-borrowers and this completely eliminated the positive advantages of attending a better school.

Why do the students that borrow money have lower grades?

The answer to this has been hotly debated. It could be due to the fact that there is the stress of debt that often requires them to get a job to help finance their educations. It’s also very possible that those who borrow money to finance their schooling are overestimating how important school quality is on their prospects for employment. Or it could be that borrowers faced more anxiety when they were trying to get a job and ended up taking one that paid less or was more secure instead of waiting for a better one.

Another possible explanation is that going into a very competitive program may not be in you or your child’s best interest. There is research showing that in the more competitive math, technology and science programs there is a higher dropout rate than those fields that are less competitive. The ugly truth is that the smarter are your peers, the dumber you may feel. And the dumber you feel the more likely you are to drop out.

man carrying dollar signThe moral: Reconsider borrowing money to finance your schooling

The net/net of all this is that when it comes to your future your grades are more important than where you went to school. For whatever reason, it’s clear that students that borrow money will end up with worse grades. So the best bet for you or your child is to avoid student loans like the plague and just do the very best you can do in your studies.

Student debt is like the Roach Motel

You’ve probably seen that advertisement for the Roach Motel where roaches check in but they never check out. Unfortunately, the same thing is true of borrowing money for college. It’s very easy to get into but virtually impossible to get out of. Our federal government in coordination with our colleges and universities has made taking out student loans so easy it’s very difficult to avoid taking them. But our government isn’t so nice when it comes to repaying those loans. Six months after you graduate from college you will be required to start paying them back no matter how painful it might be. You were automatically put into what’s called 10-Year Standard Repayment unless you were smart enough chose another program. If you are in 10-Year Repayment you will have a fixed monthly payment for 10 long years. And, of course, the more you borrowed the higher your monthly payments will be. For example if you borrowed $10,000 at 6% interest, your monthly payment would be $111.10. And if you were in debt to the tune of $20,000, your monthly payment would be $222.04 for those 10 long years. That could be enough to keep you from buying a car or putting together a down payment on a house.

Not even bankruptcy can save you

In 2005 our Congress in its infinite wisdom changed the bankruptcy code to make both federally backed and private student loans non-dischargeable in a bankruptcy. This means that student loans can’t be written off or forgiven unlike other private debts. This puts them on the same level as alimony and child support payments – totally non-negotiable so that they stick with you forever. For whatever it’s worth there is one exception to this, which is if you were able to prove to your bankruptcy judge that you had a severe financial hardship. You would need to be able to show and prove you can’t maintain even a minimal standard of living if you are forced to repay your student loans and that this problem is likely to continue for most of the repayment period of your student loans. You would also need to show the bankruptcy judge that you had made really good faith efforts to repay your loans. Barring this, you’re stuck and you will need to repay those loans whether it’s for 10 years or even longer.

Read What Dick Blumenthal Wants To Do To Public Service Loan Forgiveness

female doctorSo whom you might ask is Dick Blumenthal? He’s Sen. Richard Blumenthal from Connecticut. Why might you love him? It’s because if you’re a government worker and have a load of student debt, he wants to help you. The way he’s done this is by introducing legislation that could make it easier for you to get those debts forgiven.

How it works now

If you’re not aware of this there is a program called Public Service Loan Forgiveness or PSLF. You would qualify if you work for the federal, state or local government or a not-for-profit organization that has been designated tax-exempt by the Internal Revenue Service (IRS). You must also have loans that you received under the William D. Ford Federal Direct Loan Program. If you got loans under the Federal Family Education Loan (FFEL) Program, a Perkins Loan or any other type of student loan program you would not be eligible.

10 years

In the event you qualify for PSLF you would be required to make 120 scheduled, on time, full monthly payments for 120 months or 10 years. These must be payments that you made after October 1, 2007 and you must have made them under what’s called a “qualifying” repayment plan. Finally, you must be working full time at a qualifying public service organization when you make these payments.

A “qualifying” repayment plan is where you repay your loans under one of the income-driven repayment programs, which includes Pay As You Earn, Income-Based Repayment or Income-Contingent repayment. You would likely also qualify if you were on 10-year Standard Repayment or any other program where your monthly payment would equal or exceed what you would pay under 10-Year Standard Repayment.

Loan forgiveness

Assuming you meet these criteria you would then have any remaining balance on your student loans forgiven after those 10 years or 120 payments. But, and here’s the big but, you can’t wait too long to get started on PSLF as the more payments you make, the lower your remaining balance will be, which means less money will be forgiven. In fact, if you were to make all 120 payments under this program, you would have a remaining balance of zero and there would be nothing left to be forgiven.

A word of warning

It’s important to also understand that under Income-Based Repayment, your monthly payments will likely be less than under any of the other PSLF-qualifying repayment plans and your repayment period or terms will be longer. This means that additional interest will accrue on your loan and with a smaller monthly payment; you will end up with a higher loan balance to be forgiven. What happens if you do not meet the eligibility requirements for PSLF? Then you would be responsible for repaying the entire balance of your loan, including all interest that had accrued. Of course, this would not be true if you qualify for forgiveness under the terms of Pay As You Earn, Income-Contingent Repayment or Income-Based Repayment.

What Sen. Blumenthal’s legislation would do

What Sen. Blumenthal has proposed is a plan that would make it easier for you, as a government worker, to get your student loans forgiven. His bill would alter the Public Service Loan Forgiveness program so that 15% of a government worker’s student loan would be forgiven after two years. Two years after this, another 15% would be canceled. If you work for six years in the public sector, you would see another 30% of your debts forgiven. Then, after 10 years on the job you would see the remaining 30% forgiven.

What the senator believes is that the way PSLF is currently structured is that it’s an all-or-nothing deal. You don’t get forgiveness unless you complete 10 years of public service. If you were to quit or lose your job after nine years and 11 months, you’d lose forgiveness. Since PSLF loans continue to accrue interest over those years, if you were to lose your public service job, you might feel as if you are being forced to start all over from scratch.

The downside of his proposed legislation

The biggest negative of Sen. Blumenthal’s legislation is that no one knows how much this would cost the US government – or, to put it bluntly, US taxpayers.

Also, while federal government workers might have been underpaid in the past, this is no longer true. The average US federal government employee now earns $14,632 more in direct income than his or her counterpart in the private sector. In fact, the average US federal government employee now earns$74,436 versus the average private sector worker at $59,804. In addition US federal government workers earn the equivalent of $26,632 in benefits so that their total compensation is $114,436 versus the private sector employee at $87,804. So while Sen. Blumenthal may be well intentioned, it would seem that at least federal government workers already have a major reason to sign up for PSLF and work for the 10 years – although this may not be quite so true for people who work for state or municipal governments.

What types of jobs qualify?

A public sector job is defined as any kind of job where you are paid directly by the government. This even includes civil service jobs such as working for the US Postal Service, the Federal Bureau of Investigation, the Internal Revenue Service or even holding public office. Beyond this, here is a list of the jobs that would definitely qualify for Public Service Loan Forgiveness:

  • Law enforcement
  • Military service
  • Public safety
  • Emergency management
  • Early childhood education (including licensed or regulated health care, Head Start, and state-funded pre-kindergarten)
  • Public interest law services
  • Public education
  • Public service for individuals with disabilities and the elderly
  • Public health (including nurses, nurse practitioners, nurses in a clinical setting, and full-time professionals engaged in health care practitioner occupations and health care support occupations)
  • Public library services
  • School library or other school-based services

TeacherTeacher Loan Forgiveness

While most teachers would qualify for Public Service Loan Forgiveness under “Public education” (as listed above), there is another program specific to teachers called Teacher Loan Forgiveness.

If your five years of teaching service began before October 30 of 2004 you could have up to $17,500 of your student debts forgiven if you teach for five consecutive years in specified elementary and secondary schools and educational service agencies that serve families with low-incomes, and that meet other qualifications. The loans eligible for this program include Direct Subsidized and Unsubsidized Loans and Subsidized and Unsubsidized Federal Stafford loans. Unfortunately PLUS loans are not be eligible for this program.

However, you could earn up to $5000 in loan forgiveness if the chief administrative officer of the school where you taught certifies that you are a full-time elementary school teacher that showed teaching skills and knowledge in reading, writing, reading, mathematics and other parts of the elementary school curriculum; or where you were a teacher full time for five years in a secondary school where you taught in a subject area related to your academic major.

After Oct. 30, 2004

If your five consecutive years of teaching began after October 30, 2004, you could qualify for that $5000 in loan forgiveness if you were a highly qualified elementary or secondary school teacher. To earn the $17,500 in forgiveness you must be certified by your chief administrative officer that you are a highly qualified full-time teacher of mathematics or science in an eligible secondary school; or are highly qualified as a special ed teacher where your main job was to teach children that had disabilities and taught them in an area that corresponded to your training in special education. In addition, you must have shown that you have knowledge and teaching skills in the content area of the curriculum in which you taught.

There are some other requirements to be classified as a highly qualified teacher and you can learn more about them by clicking on this link.

Should You Refinance Your Federal Student Loans Into A Private Loan?

Video thumbnail for youtube video Surprising Fact – Secured Credit Cards Are Not Just For The Credit TarnishedWe read recently that another bank is offering to refinance federal student loans into private loans. It’s currently offering these loans starting as low as 4.75% for borrowers that have a good credit score, long-term employment and that have a checking account at the bank. It is also offering variable rate loans as low as 2.31%,

How this compares with federal PLUS loans

These rates are dramatically lower than rates that parents got when they took out federal PLUS loans as they have interest rates ranging from 6.41% and 8.5%. Other federal loans generally have high rates and don’t offer many alternatives for getting them reduced.

Federal Direct Consolidation Loans

One option available to people with multiple student loans is to consolidate them into a federal Direct Consolidation Loan. However, the interest rates on these loans are the weighted average of the loans being consolidated rounded up to the nearest 1/8th of one percent. What this means is that if you were to opt for one of these loans your new interest rate would be higher than the loan with the lowest interest rate you’re currently paying but lower than the one with the highest interest rate. In other words, you might see a reduction in your interest rate but it probably wouldn’t be very dramatic vs. that loan at 4.75%.

Other options

Other banks are beginning to offer similar refinancing loans. For example, Discover Financial Services, Social Finance (SoFi) and Commonbond all offer to refinance federal loans. Social Finance is an especially interesting alternative. It’s currently offering fixed rate loans starting at 3.63% and variable rate loans as low as 2.66% APR (with AutoPay).

However, to qualify for one of these loans you must have graduated from one of SoFi’s 500+ colleges and universities and your loan would come not from SoFi but from the school’s alumni. In addition, you must be currently employed, a US citizen or permanent resident, have graduated from one of SoFi’s member schools and have a good credit and employment history.

Should you stay or should you go?

Should you refinance those student loans by converting them into a private loan or stay with what you’ve got?

Unfortunately, this is not an easy question to answer, as there are pros and cons to both of these options. Of course, the biggest pro to refinancing those student loans is if you could get a dramatically lower interest rate. As an example of what this could mean let’s suppose you owe $30,000 for 10 years at 8%. In this case your monthly payment would be about $363. If you were to refinance that federal debt to a loan at 4.75% your monthly payment would fall to about $314 — a savings of $49 a month or $588 a year. In addition, you would have a fixed interest rate for a fixed term, a fixed monthly payment and just one payment a month.

Would this be enough to tempt you to refinance?

The reasons to stay

As you have seen in the example given above, you probably need to have a lot of student debt at a very high interest rate to make refinancing an attractive option. But even if you do, it’s important to understand what you would be giving up – or those benefits that come with federal student loans.

Repayment options

Once you refinance federal student loans into a private loan you will have just one repayment program, which is to make the same payment every month for 10 years or whatever is the term of your loan. If you were to run into a serious financial problem you wouldn’t be able to change your repayment program to fit your new circumstances. In comparison, federal student loans have six repayment programs not counting the federal Direct Consolidation Loans mentioned above. While none of these will get your interest rates cut they could get your monthly payments reduced.

Graduated Repayment

One of the most popular repayment options available with federal student loans is Graduated Repayment. This can be especially helpful if you are just starting out in your career as your payments would start low and then gradually increase every two years. By the time you hit year six (or two increases), you’d most likely be earning more so your payments would still be affordable.

Income-driven repayment

In addition to Graduated Repayment, the US Department of Education (ED) offers three “income-driven” repayment programs where your monthly payments are tied to your income and family size. The programs are Pay As You Earn, Income-Based, and Income-Contingent.

Pay As You Earn

You may have read about this program last summer when Pres. Obama signed an executive order making about 5 million more people eligible. Prior to this order, only those who were newer borrowers were eligible for Pay As You Earn. However, starting next year borrowers who took out loans before October 2007 or stopped borrowing by October 2011 are also now eligible.

What’s the big deal about Pay As You Earn? It’s that this program would cap your monthly payments at 10% of your household income that exceeds 150% of the federal poverty guideline based on the size of your family. An example of how this works is if your monthly adjusted gross income were $4280, you would subtract 150% of the poverty line ($1480) yielding discretionary income of $2800. Multiply this by 10% and your monthly payment would be $280.

Income-Based Repayment

A second income-driven repayment program is Income-Based. If you don’t qualify for Pay As You Earn, you might qualify for this program, which would cap your monthly payment at 15% of your discretionary income. Take the example given above and multiply that $2800 by 15% and the monthly payment would be $420.

Income-Contingent Repayment

If you don’t qualify for either Pay As Your Earn or Income-Based Repayment, there is Income-Contingent Repayment. The biggest plus of this plan is there are no initial income eligibility requirements. If you have any eligible federal student loan, you could switch to this plan. Like Pay As you Earn and Income-Based, your payments would be based on your family size and income but will likely be higher than those under Pay As You Earn or Income-Based repayment. What would your monthly payment be under Income-Contingent Repayment? It gets a bit complicated so the easiest answer is to click on this link to calculate what it might be.

Note: Click on this link to see which types of federal student loans are eligible for any of these Income-Driven Repayment programs.

Changing repayment programs

Another important reason why you might want to stay with your federal student loans is that you always have the option to change your repayment plan. If you are on 10-Year Standard Repayment and are having a tough time making your payments, you could switch to either Graduated Repayment or one of the Income-driven repayment programs. Or maybe you’re on Graduated Repayment but have found that you are now eligible for Pay As You Earn. You could easily make the switch and see your monthly payments cut substantially. The

Man holding piggy bank and books. Cost, value of educationBefore you make your final decision

There are several things you should do before you decide whether or not to refinance your federal student loans. First, be sure to go to the Department of Education website and familiarize yourself with all the various repayment options available. Second, call your loan servicing company to discuss this with it. When you do this you will be assigned a counselor that will discuss all of the options with you and help you determine if there is a program that would be better than the one you currently have. Be sure to understand all of their options including interest rates and terms. Then with this information in hand it should be much easier to decide whether to stay or go – to a private debt consolidation loan.

Could Rolling Jubilee “Disappear” Your Student Debt?

young magician performing with wandYou might remember that about three years ago there was a whole bunch of people in New York City protesting income disparity. The movement came to be known as Occupy Wall Street. What, you might ask, ever happened to that movement? Well, it’s morphed into an organization called Strike Debt that has a program titled Rolling Jubilee that might be able to erase your student loan debt.

One lucky debtor in Kalamazoo Michigan woke up one day and found an odd letter in the mail. What it basically said is that, “we have good news. We got rid of some of your Everest College debt.” It went on to say that her private student loan in the amount of $790.05 had been forgiven outright by an organization called Rolling Jubilee.

About $15 million erased

Since November 2012, Rolling Jubilee has purchased and eliminated around $15 million of debt in the form of unpaid medical bills. It recently announced that it had also eradicated $3.8 million in private student loans for almost 3000 students.

How this works

While Rolling Jubilee can’t do much about federal student debt, it is able to help with private loans due to a quirk in the way debt works these days. When people stop paying on a debt it becomes delinquent. The lender usually writes off the debt after about six months and sells it off at a cheap price to a third-party debt collector. What Rolling Jubilee is now doing is buying some of this debt using donations it raises online. In most cases it’ s able to buy student loan debt for three cents on the dollar or less. Then, instead of trying to collect on the debt, Rolling Jubilee just makes it disappear.

Just a drop in the bucket

Student loan debt is now estimated to be about $1.2 trillion and more than 40 million Americans have some form of it. Rolling Jubilee understands that the number of people it has been able to help is only a drop in the bucket and doesn’t solve the actual problem. The group’s goal is to draw attention to the predicament of those millions of people that have unpaid student loans – especially loans with high interest from expensive for-profit colleges. It’s next step is to get a large number of people organized to push for policy changes that would allow debtors to get release from obligations such as student debt that they are unable to meet.

For-profit colleges have come under fire recently due to their disproportionate contribution to the $1.2 trillion in student loan debt. They’ve enrolled about 13% of all students but have been responsible for 50% of the students that defaulted on their loans. Strike Debt has deliberately targeted one of the largest, Corinthian Colleges, the company that owns Everest College and several other for-profit school chains. It was already having serious financial problems when the Department of Education put a hold on financial aid payments to the company – due to its failure to satisfy requests for information made by the Department. In fact, Corinthian Colleges currently has some 200 lawsuits pending for fraudulent practices. The Consumer Finance Protection Bureau announced recently yet another lawsuit against the company for alleged predatory lending. The Bureau’s goal in this lawsuit is obtain relief for borrowers because it believes the company misled students about job prospects, pressured them to take out private high-interest loans and then used high-pressure debt collection tactics.

Not even bankruptcy can help

One of the main reasons that Rolling Jubilee turned its attention to helping people with student debt is because these loans usually can’t be dismissed by a chapter 7 bankruptcy – whether it’s a private or federal student loan. Before 2005 it was possible to get private student loans dismissed through a chapter 7 bankruptcy just like any other kind of unsecured debt (think credit card debt). However, our Congress passed a law that year that changed the status of private student loans in a bankruptcy to be the same as that of federal loans. What this means is that if you want to have any kind of student loan discharged you must show that repaying it would cause you to experience an undue hardship.

What is undue hardship?

Most bankruptcy courts throughout the US use what’s called the Bruner test to determine undue hardship. This consists of three conditions you would need to meet in order to get your student loans discharged.

Poverty – The first is that you must able to show you cannot maintain a minimal standard of living for yourself and your dependents based on your current income while repaying your loans. In this case, minimal standard of living is not the same as a middle-class standard of living and is a much lower standard.

Persistence – Second, you must be able to show that your financial situation is likely to continue for most or all of your repayment period

Good faith – – And third, you must show you’ve made a good-faith effort to pay off your student loans.

Whatever you do, don’t default

As of 2012, 9.1% of student loan borrowers had defaulted on their loans within two years of graduating. This is up from 8.8% the previous year. And while 9.1% doesn’t seem like a significant number that translates into 375,000 borrowers. Even worse, 13.4% of borrowers defaulted within three years after they made their first payments.

Trust us when we say these people made a big mistake – especially in the case of federally backed loans.

Power that regular collection agencies would kill for

It’s not a good idea to default on any loan. But it’s especially bad to default on a federally backed student loan. Technically, you are in default on a student loan the day after you miss a payment. In reality, your debt won’t be reported to the three credit bureaus until you have missed your payments for 90 days or three months. If you have still failed to make a payment after nine months, the odds are that your debt will be turned over to a student debt collection agency. These collectors have powers that regular collection agencies would kill for. They can garnish your wages as well as your Social Security benefits without going to court. They can take part of your income tax refunds and even block the renewal of any professional licenses you hold.

What you can do if you’re in defaultwoman thinking

There are ways to get a student debt out of default. The first of these is probably the simplest answer and that’s to just repay the loan. There are several different ways to repay defaulted loans depending on the type of loan you have. You can learn more about repaying your loans by clicking on this link.

A second way to get a federally backed student loan out of default is called loan rehabilitation. To do this, you must first agree to a reasonable and affordable payment plan and then make at least three voluntary payments. A lender must then purchase your loan. The best thing about loan rehabilitation is that if you can do it, you will get back some of the benefits that came with your original loan such as income-driven and Extended Repayment. In addition, once you get your loan rehabilitated …

  • The default status on your defaulted loan will be removed
  • This default status that was reported to the credit bureaus will be erased
  • If your wages are being garnisheed, this will stop and …
  • If the Internal Revenue Service is withholding any of your income tax refund, this will also stop.

Issues to be aware of if you are able to rehabilitate your loan successfully include the fact that your new payment may be more than what you are paying when you were rehabilitating the loan. Second, the total amount you owe may increase because collection costs may have been added to your principal balance. And finally, if your late payments (delinquencies) were reported to the credit bureaus before your loan defaulted, they will not be removed from your credit report.

Loan consolidation

The third alternative for getting student loans out of default is to get a Direct Consolidation Loan. This would allow you to pay off the balances on multiple student loans and end up with just one loan and one monthly payment. You will have a new interest rate that will be fixed for the life of the loan. And you will be eligible to choose a new repayment program such as Pay As You Earn, which would cap your monthly payment at 10% of your disposable income.

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