Archive for the ‘Student Loans’ Category
Tuesday, August 17th, 2010
If you think college costs are on a rapid ascent, recent statistics released by Sallie Mae and Gallup support your belief. According to reports, the average cost of college attendance rose a staggering 17 percent in 2010.
Just how much are costs rising? Sources indicate that the average costs of college attendance increased roughly 30 percent for families making between $100,000 and $150,000. In addition, those in the $35,000 to $100,000 income bracket experienced a 20 percent jump in college costs.
In order to pay college tuitions, parents and students are borrowing an increasing amount of money, as well as using more of their personal income.
How are Students Paying for College?
The survey revealed some interesting figures on how Americans are paying for
college:
- In order to pay for school, 73 percent of Americans say they have reduced other spending, 48 percent have increased their hours at work, and 43 percent of families say their student has lived at home in order to reduce housing costs.
- According to the report, which polled more than 1,600 parents and students, parents paid for 37 percent of the total cost of college attendance. Of this total, 10 percent was through loans, and the rest was given from current income.
- On the other side, loans secured by students covered 14 percent of the cost of college, and student income and savings accounted for 9 percent of spending.
- The second largest source of college payment came from grants and scholarships, which accounted for 23 percent of overall college funding.
These numbers show that most families have to dip into numerous sources to cover the cost of higher education.
Consequences for Personal Finances
The statistics above show how college costs are apportioned among various parties. What they don’t reveal is the impact rising costs have had on the personal finances of both parents and students.
- Last year, the average amount of money parents paid from their personal income and savings rose 26 percent to $8,752, up from the previous year’s total of $6,934.
- Further, while the average amount parents took out in college loans this year rose 27 percent to $2,261, up from $1,775 in 2009.
- The amount of income and savings students had to use for college costs jumped 16 percent to an average of $2,314.
- Student loan borrowing jumped 25 percent to an average figure of $3,396.
In order to secure financial aid, experts advise that all families should fill out a Free Application for Student Aid form each year. Surprisingly, 13 percent of families were not aware of this form, according to the survey.
If college costs have sunk your personal finances, filing bankruptcy may help you recover from collegiate sticker shock.
Posted in Bankruptcy and the Economy, Finances, Student Loans, college costs | Comments Off
Thursday, August 12th, 2010
College students and recent graduates are facing a particularly difficult financial landscape as they attempt to move from the classroom to the workplace: college tuition is more expensive than ever, meaning that most students rely at least in part on loans to cover their fees.
But, with the economy still sluggish, finding a job (and particularly a job that will allow them to cover their loans) is often a difficult feat.
And the scary truth is that student loans are very difficult to discharge in a bankruptcy filing. Here’s a look at what you can expect if you’re struggling to repay educational debt—and what your options might be.
Student Loans in Bankruptcy
In most bankruptcy cases, student loans constitute non-dischargeable debt, meaning that the bankruptcy court cannot legally forgive any money you owe. The exception to this rule is that if a filer can prove “undue hardship,” she might have her loans forgiven.
In order to demonstrate that paying back your student loans would cause you “undue hardship,” you must address the following:
- Standard of living: You need to show the bankruptcy court that, if you made payments on your student loans, you would be forced to live below a minimum standard of living. This may vary depending on where you live, so be sure to consult with a bankruptcy lawyer to determine whether you might meet this criterion.
- Duration of situation: You also need to prove that your current living circumstances (such as expenses and income) are likely to continue throughout the duration of your loans’ repayment period. In other words, you need to show that you’re not only poor now, but you’re likely to remain so for as long as you’d be making student loan payments.
- Effort of repayment: Finally, you have to demonstrate that you’ve honestly attempted to repay your loans but have found yourself unable to continue doing so while maintaining reasonable living standards.
Clearly, these criteria are not easy to meet—and it’s likely you might not even want to meet them. After all, none of us want to think we’ll be having the same difficulty finding work ten years from now that we’re currently having.
Dealing with Student Debt
If you don’t think you’re likely to have your student debts discharged by a bankruptcy court, you may want to consider these options for repayment.
- Filing for bankruptcy: No, that’s not a typo. If you’re stretched too thin by a variety of debts, filing for bankruptcy may allow you to discharge other debts (like those from credit cards) so you can funnel money to debts you have to repay.
- Applying for forbearance: Most student lenders offer graduates periods of forbearance, in which they’re not required to make payments on their loans. If you expect to be employed (or be earning more money) in the near future, this option may give you some breathing room.
- Negotiating: Finally, consider contacting your lender, explaining your situation and asking for altered loan terms that would allow you to make smaller monthly payments so you could stay on target.
Additional Resources
Repaying Your Student Loans
Posted in Filing Bankruptcy, Setting the Record Straight about Bankruptcy, Student Loans, forbearance, student loan debt | Comments Off
Monday, August 9th, 2010
Considering that a significant number of Americans who seek bankruptcy protection do so at least in part because of overwhelming medical bills, there's a little-known trick that could prove financially amazing for some individuals. A recent article from the New York Times suggests a very simple technique for saving money on doctor’s bills.
The Trick
Luckily, this “trick” for knocking as much as 25 percent off your medical bills isn’t complicated or difficult. Here’s what you have to do:
- Call the hospital or doctor you visited when you have a copy of your bill.
- Ask if you can have a 25 percent discount if you agree to pay in full over the phone (which usually means giving a credit or debit card number).
- Wait for results.
The caveat here is that you actually have to have 75 percent of the bill available in cash; otherwise, the strategy won’t work. But, if you’ve developed a savings account for emergencies or even for routine medical costs, you’re probably in a good position to give this a whirl.
Why It Works
So why would hospitals and doctors agree to accept less than the amount they charged you, often without any sort of negotiation? Because, according to sources, many are accustomed to patients who cannot pay, refuse to pay, have their debts discharged in bankruptcy or otherwise avoid payment in full.
After all, medical debts are dischargeable in bankruptcy and emergency procedures can cost a pretty penny, especially if you’re not insured or insured well.
Where Else You Can (And Can’t) Try It
The good news (if you’re willing to start saving some money to try this trick elsewhere) is that the medical world isn’t the only one that might accept an offer for immediate, partial payment.
Consider trying it for one of your credit cards: if you have a significant balance on one card but have saved up a portion of what you owe, try calling your company and asking to make a lump payment for that portion, in exchange for their excusing the rest.
It’s a good idea to get such an agreement in writing, so if your issuer consents, be sure to include your agreement in writing when you send payment. Like medical bills, credit card debt can be discharged in bankruptcy, and many issuers will be happy to accept a guaranteed portion rather than risk losing all of it if you file.
The trick probably won’t work, though, for student loans. Because these are not usually dischargeable in bankruptcy court, student lenders have little incentive to settle for less than what you owe.
Posted in Credit Card Debt, Credit and Bankruptcy, Medical Bills, Negotiating With Creditors, Student Loans | Comments Off
Wednesday, July 7th, 2010
For the millions of parents trying desperately to help their child pay for college—an institution that is becoming increasingly difficult to afford—some hope may be insight. A new law that went into effect last week relegating private lenders to a smaller role in educational loans may make affordable federal loans easier to get, according to a recent article in the Wall Street Journal.
The new student loan legislation, which was signed this spring as an amendment to the health-care overhaul bill, cuts out the private-sector middlemen from offering federal loans as of July 1st, while increasing the federal grant programs.
As a result, borrowers should have a clearer distinction between federal and private loans, especially because many banks previously offered both.
The short term result of this change is more competition among private lenders, which could lead to better terms for borrowers. Wells Fargo demonstrated this when it recently dropped rates on two of its private student loans, including a new loan for parents launched in May.
One long term result may be a much needed break for students. The average debt among college students in 2008 is up to $23,200, nearly $5000 more than students graduating in 2004.
Some key tips to keep in mind if you or your children are planning on applying for students loans in the fall.
Maximize the federal loans first. Federal loans have fixed rates that won’t rise with interest. The fixed rates vary from 4.5% for students with a demonstrated academic need, to 6.8% for those who aren’t need based.
Also, federal loans offer a very flexible repayment plan, which can be important if you or your recent graduate are struggling to find a job that can pay the bills.
There are other kinds of federal student loans that can help save money, when compared with private loans, that you can look into to see if you qualify for.
The other key point to think about is finding the deals on private loans.
Credit unions are increasing their business in the field, with around 150 credit unions joining the Credit Union Student Choice program, a group that helps credit unions offer non-federal student loans with an average rate on existing loans of 6.25% with zero origination fees.
There are also more regulations on the radar for Congress. There is a financial-regulation bill in Congress that calls for the formation of a Consumer Financial Protection Bureau that would have oversight over private student loans and other financial products to give borrowers more protection.
Hopefully these trends continue and allow all the emerging college students to have some freedom and flexibility to merge into careers that they want to, instead of selling their soul to the first job that will pay off their debt and get them out of the house—assuming there are any jobs when they graduate.
Posted in Bankruptcy News and Events, Banks, Student Loans, financial laws, lending | Comments Off
Thursday, June 10th, 2010
Student loans provide people chances for their education, dreams and future career opportunities. But what happens when it’s time face the hefty debt waiting after graduation?
Who is to blame if the recent grad gets overwhelmed with debt and can't afford to pay their loans back?
A recent New York Times article profiled one indebted grad and tried to address all the parties involved.
For students like Courtney Munna, blame is no longer her concern. Now she regrets taking out $100,000 in student loans to attend N.Y.U. and wishes she made better financial decisions regarding the loans.
Since graduation in 2005, Munna has deferred her loans as a short term solution to scrape by and pay the rest of her bills.
But the question still remains, who’s to blame for students like Munna getting in over their heads.
The article said that both the students and their families have personal responsibilities to know their finances and take out loans they can afford to pay back.
The article also placed some responsibility on the universities since they have access to student’s finances after they fill out the financial aid forms, and are in a familiar situation helping students find aid. Students, on the other hand, are often overly trusting of universities to look out for their best interest.
The Times suggests that these schools should advise prospective students they cannot afford their school, an idea that Vice President of Enrollment at N.Y.U. Randall Deike said “would be completely inappropriate.” Besides discrimination issues, it’s not the schools decision to make whether or not a student can afford their school.
Their business is to enlist students, not turn them away. Deike agreed that prospective students should not take on too much debt, but he said that’s their decision.
There are other reasons universities do not want to tell students to search for a cheaper education. They said it might reflect poorly on their school and suggest that their education might not provide opportunities after graduation.
The lenders themselves have continued to take the blame for loaning too much money with too lax of standards. In Munna’s case she was approved for $40,000 in loans by Citibank, even after she was already deep in debt.
As of now, Munna makes $22 an hour and barely makes the bills. She knows she’s responsible for taking out to much money in loans. But said she doesn’t “want to spend the rest of her life slaving away to pay for an education…[she] would happily give back.”
Student loans typically take decades to repay, even if the student is fortunate to find a well-paying job after graduating. Many students see a series of forbearance and deferrals while they wait to land the right job, as interest and fees pile onto their original loans.
And there is typically no way to eliminate student loans other than to pay them in full. Currently, student loans are one of the rare types of debt that cannot be discharged in bankruptcy.
Posted in Bankruptcy, Bankruptcy and Predatory Lending, Student Loans, predatory lending | Comments Off
Monday, April 26th, 2010
Student loans have become infamous for rarely being discharged in bankruptcy. However, before 2005, only government-backed student loans were protected—private student loans could be forgiven in bankruptcy.
The Chicago Defender reported that several U.S. lawmakers have proposed a piece of legislation that would allow bankruptcy courts to once again discharge student loans issued by private lenders.
The legislation, which is still in its earliest stages, would address what its sponsors (including Rep. Danny K. Davis, Sen. Sheldon Whitehouse, Sen. Dick Durbin, Rep. Steve Cohen and Sen. Al Franken) see as an unrealistic burden of debt many students have upon graduation.
Indeed, the statistics cited by the Defender and a press release from Senator Durbin’s office are eye opening:
- Until the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) took effect in 2005, private student loans were treated like other loans in bankruptcy; now, they can only be discharged if a filer can show "undue hardship."
- Congress recently ended a $6 billion subsidy to private student lenders, thus eliminating one advantage they had over other lenders. This student lending reform was signed into law as part of the health care reform legislation. The sponsoring legislators argue that the restoration of dischargeability will further level the playing fields.
- Private student loans have increased in both popularity and cost in recent years, some coming with interest rates at and above 15 percent.
If the new bill becomes law, its sponsors contend, it will give students wishing to pursue higher education a certain peace of mind, as they will have the option of discharging the associated debts should they encounter unexpected financial hardship.
The Current Law
As it stands now, BAPCPA permits individuals who file for Chapter 7 bankruptcy protection to receive a full discharge of many unsecured debts (that is, filers are excused from paying these debts); however, some debts cannot be discharged in a Chapter 7 filing. These include:
- Spousal support (alimony)
- Child support
- Student loans
- Most tax debt
Supporters of the new bill apparently believe that student loans don't fall under the same category as the other non-dischargeable debts, as they do not contribute directly to someone's wellbeing.
But the bill will likely have obstacles to overcome in Congress. Opponents are likely to point out that making private student loans dischargeable in bankruptcy decreases lenders' security when issuing these loans and could lead to increased interest rates and fees to compensate for potential lost income.
Additional Resources
Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) (PDF)
Posted in Bankruptcy Laws, Bankruptcy News and Events, Student Loans, student loan bankruptcy | Comments Off
Wednesday, March 3rd, 2010
As a recent article from the Wall Street Journal highlights, student loan debt is a huge burden for many Americans. But, unlike credit card debts, student loans cannot typically be discharged in a bankruptcy filing.
And now, as layoffs and salary reductions become more and more common around the country, many once-comfortable graduates are finding themselves unable to meet the terms of their loans. Here are some ways you can handle your student debt.
Know Your Numbers
If you need to rework the terms of your student loans, consider contacting your lender. But before you do so, take these preparatory steps:
- Outline your budget: Crunch the numbers and figure out what you can realistically afford to pay each month.
- Read the fine print: Make sure you understand the terms of your loans as they now stand so that you’ll be ready to ask for specific modifications when you speak with your lender.
Once you’ve determined what kinds of payments you can make, familiarize yourself with your options for repayment. Depending on your circumstances, these may include the following:
- Modify your repayment plan: Some lenders offer graduated repayment schedules, meaning you pay more per month as you go along (which can be useful if you expect to make more money in the future). If your loans are through the Federal Government, visit the Federal Direct Loan web site to see your choices.
- Consider a deferment: Many lenders offer you a chance to defer payments for a variety of reasons (such as going back to school, working in certain fields, being unemployed, etc.). Check with your lender to see how to apply, but keep in mind that interest will likely still accrue during the deferral period.
- Apply for forbearance: You may also be able to make reduced payments or suspend payments altogether for reasons of financial hardship but, as with deferments, interest will likely still build up.
- Look at consolidation: Consolidation offers often prove helpful because they allow you to make a single payment each month and can even help lower interest rates. But be sure you understand the complete terms—some come with prepayment penalties.
If you’re just beginning school and considering loan options, remember that they may not seem like a big burden at this stage, but can add up quickly and should be considered carefully.
Additional Resources
Federal Student Loans: Learn the Basics and Manage Your Debt (PDF)
Posted in Setting the Record Straight about Bankruptcy, Student Loans, student aide, student loan bankruptcy | Comments Off
Friday, December 11th, 2009
Earlier this month the U.S. Supreme Court heard arguments in a case involving the question of discharge of student loans in a Chapter 13 case. The case arose from a Chapter 13 petition filed in 1992 by Francisco Espinoza, an American Airlines baggage handler.
Mr. Espinoza's story began in 1988. Sensing that airline baggage handling was not a great long term career, Mr. Espinoza enrolled in a technical school to learn computer drafting and design, and he financined his education with a student loan. Unfortunately, he was not able to find a job using his new education and he found himself in a financial bind when American Airlines froze wages and reduced his hours.
By 1992, Mr. Espinoza found himself living paycheck to paycheck and unable to pay down his $13,000 student loan. At that point, he contacted a lawyer and filed a Chapter 13 bankruptcy. The Chapter 13 plan prepared by Mr. Espinoza's lawyer provided for full payment of the balance due on the student loan over the term of the plan but it did not provide for payment of $4,000 in accrued interest or for future interest.
The student loan lender was given notice of this plan provision and did not object. The bankruptcy judge to whom Mr. Espinoza's case was assigned issued an order of "confirmation" that formally approved the plan. Mr. Espinoza dutifully sent in his trustee payments and approximately 5 years later, after payments were made per the confirmed plan, the judge issued a "discharge order" declaring debtor Espinoza free and clear of all debt.
In 2003 and 2004, Mr. Espinoza's student loan creditor renewed its efforts to collect the student loan debt interest. The creditor contends that the Bankruptcy Code does not permit the discharge of any part of student loan debt unless the debtor files a special lawsuit in his bankruptcy case to ask for a finding of "undue hardship." The creditor contends that a bankruptcy judge cannot discharge student loan debt or interest on a student loan debt through a confirmation order in the absence of a hardship discharge finding.
The United States government, 24 states and the student loan lending industry are supporting the student loan creditor in this case. You can read the court documents and more information about the Espinoza case by clicking on the link. The Supreme Court's decision in this case is expected within the next few months.
I will be very surprised if the Court rules in favor of the Espinoza position. The Bankruptcy Code seems fairly clear in placing the burden of showing undue hardship on the debtor – to make a non-dischargeable debt dischargeable because the lender did not object to a provision buried in a Chapter 13 plan seems contrary to the plain language of the code. It will be interesting to see what happens.
Posted in Chapter 13 issues, Discharge issues, Student Loans, United Student Aid Funds v. Espinoza, discharge of student loans, undue hardship | Comments Off
Tuesday, December 1st, 2009
The U.S. Supreme Court began hearing today the case involving a debtor whose student loans were discharged in a Chapter 13 bankruptcy—though possibly against the U.S. Bankruptcy Code.
Student loans are notorious for being difficult to discharge in bankruptcy, even in a Chapter 13 bankruptcy. In order to have student loan debt eliminated, a debtor must prove undue hardship.
In the case before the Supreme Court, the debtor, Francisco Espinosa, was allowed to enter a Chapter 13 plan without ever proving undue hardship to the bankruptcy court, according to a story on National Public Radio.
The Bankruptcy Case
In 1988, Espinosa was a baggage handler for America West Airlines when he began taking computer drafting classes at a technical school. Espinosa took out four student loans totaling over $13,000 from United Student Aid Funds.
After earning his degree, Espinosa was unable to find work in the computers field, and continued working at America West. However, that company was facing its own financial strain, and began cutting salaries. In 1992, Espinosa, a college graduate earning $6 an hour, filed bankruptcy.
According to the NPR story, Espinosa agreed to repay the full amount of the student loan debt through a three-to-five year Chapter 13 plan—but not the $4,000 of interest accrued on the loan. USAF was notified several times of the terms of the plan, and never objected to the case.
In 1997, the bankruptcy court declared Espinosa's debt repaid, and issued him a debt discharge.
However, two years later, USAF issued a lien on Espinosa's tax return for the unpaid interest. USAF claimed that the bankruptcy plan was illegal—11 years after the court confirmed it—because of the undue hardship requirement.
Undue Hardship Hearing Never Held
The student loan company argues that the bankruptcy court should have held a special hearing to determine whether Espinosa's situation qualified as an undue hardship, and should have summonsed USAF to appear in court. Because the hearing was never held, undue hardship was never established, and the loan should not have been dischargeable, USAF argued.
Espinosa's attorney has argued that USAF was properly notified and did not raise any objections at the time. A federal appeals court agreed.
Now it's up to the Supreme Court to decide just when a creditor can raise objection to a Chapter 13 bankruptcy plan—and when the can still collect on debts.
Posted in Bankruptcy, Bankruptcy News and Events, Chapter 13 Bankruptcy, Student Loans, Supreme Court | Comments Off
