Friday’s need-to-know money news

Today’s top story: Fear of bankruptcy holds too many people back. Also in the news: Saving for a down payment is only the start for homeowners, pressing pause on private student loans, and it’s time to revise your pandemic budget.

Fear of Bankruptcy Holds Too Many People Back
Many people could benefit from bankruptcy relief but don’t file because of fear, myths or misplaced optimism.

For Homeowners, Saving a Down Payment Is Only the Start
The down payment is just one cost to save for.

Should You Press Pause on Private Student Loans?
Forbearance isn’t the only way to get a more manageable private student loan payment.

It’s Time to Revise Your Pandemic Budget
Budgeting is more important than ever.

Tuesday’s need-to-know money news

Today’s top story: Mortgage outlook for August. Also in the news: Why graduate students need to mind their mental health this fall, your best shot at lowering the cost of private student loans, and how to get help with missing coronavirus relief payments.

Mortgage Outlook: Recession Presses Down on August Rates
Likely record lows for the third consecutive month.

Graduate Students: Mind Your Mental Health This Fall
Recognizing stressors and using university resources may help during this time of uncertainty.

Refinancing now is your best shot at lowering the cost of private student loans
Take advantage of record low interest rates.

Get Help With Missing Coronavirus Relief Payments
What to do if you still haven’t received your check.

Friday’s need-to-know money news

Today’s top story: How to tell if that ‘contact tracer’ is really a scammer. Also in the news: Don’t wait to refinance these student loans, why you should aim for 1% credit utilization, and the $600 unemployment boost is likely ending. Here’s how you can access cash now.

Is That ‘Contact Tracer’ Really a Scammer? How to Tell
How to keep yourself.

Don’t Wait to Refinance These Student Loans
You could save money on your private loans.

Why You Should Aim for 1% Credit Utilization
The lower the better.

The $600 unemployment boost is likely ending. Here’s how you can access cash now
Barring an extension from Congress, the boost will end this week.

Thursday’s need-to-know money news

61Io5+dfZZL._SL1500_Today’s top story: How to tackle private student loans. Also in the news: Re-evaluating your life insurance needs, a potentially embarrassing new way to pay with a credit card, and ten retirement saving strategies you should know about.

3 Ways to Tackle Private Student Loans
A whole different set of rules.

Re-Evaluating Your Life Insurance Needs
Determining how much insurance you need at different stages of your life.

MasterCard Wants You To Pay For Stuff With Selfies
What could possibly go wrong?

10 Retirement Saving Strategies You Should Know About
How to grow your savings faster.

In debt and need cash? Payday loans are not your only option. RSVP for the NerdWallet & NAACP webinar on March 1 at 5pm to learn about alternatives.

Don’t pay for student loan help

Customer Support liarI just got another recorded call from a woman who cheerfully told me that my student loans had been “flagged” to qualify for a new federal program, just approved by Congress, to help me pay my debt. The fact that I’ve never had a student loan is, surely, just a minor detail.

People fall for these scams all the time, paying good money to get help they could have found for free. Right now, there’s a free student loan hotline you can call to get your questions answered and find out about your options. It’s available today, tomorrow and Thursday from 9 a.m. until 10 p.m. Eastern. Check it out at The Borrowers Hotline.

If you miss the hotline window, you can find answers to your questions at the U.S. Department of Education and at Student Loan Borrower Assistance, a site run by the National Consumer Law Center.

 

Regulators sue for-profit college chain

DrowningCorinthian Colleges–which includes the Everest, Heald and WyoTech schools–has just been sued by the Consumer Financial Protection Bureau for what regulators call its “predatory lending scheme.”

The CFPB alleges that the for-profit college chain exaggerated students’ job prospects to get them to take out private loans to cover its schools’ high tuition costs. The bureau says Corinthian then used illegal debt collection tactics “to strong-arm students into paying back those loans while still in school.”

The Bureaus wants the courts to halt these practices and grant relief to people who have taken out more than $500 million in private student loans.

As I wrote in my Reuters column “What to do when your college shuts down,” Corinthian is in the process of closing or selling its schools as part of an agreement with the U.S. Department of Education. People who have federal student loans have a shot at getting their debt discharged when a school closes, but those with private student loans are often stuck with the debt, even if they get no value from the education.

If you or anyone you know attended a Corinthian school, getting educated about your options is key. (The CFPB posted information for current and former students here.) So is alerting the CFPB if you feel you were deceived about the value of your education or your career prospects. You can file a complaint here.

 

How not to drown in student loan debt

DrowningI recently talked to yet another recent grad who owes six figures for an undergraduate degree. The ease with which young people can drown themselves in debt makes me furious.

And a lot of young people are having trouble paying this debt. The exact number of struggling borrowers is a bit of a mystery, as I wrote in this week’s Reuters’ column, “Confusing data flummoxes fixing of student loan defaults.” But it’s safe to say a sizable portion of borrowers is having trouble paying down their education debt.

A college education, or at least some post-graduate education, will be a virtual necessity if you want to remain in the middle class in the 21st century. But believing that any investment in any education will pay off is naïve. The thing is, the colleges know better, or at least their financial aid staffs should. But their vested interest in selling educations typically means they don’t step in or even offer warnings as their teenage and twenty-something students pile on ridiculous amounts of debt.

Here’s what I wish every college student and every parent knew:

1. You should stick to federal student loans. These loans have fixed rates, tons of consumer protections and most importantly, limits on how much you can borrow. You typically can only borrow $5,500 for your freshmen year. You typically can’t borrow more than $31,000 for an undergraduate education. That makes it virtually impossible to take on too much debt as long as you get the degree. Can’t afford the education you want with just federal loans? Then you need to look for cheaper schools.

2. Steer clear of private student loans. Honestly, these loans should have warning stickers plastered all over them, like cigarette packs. The rates are typically variable, there are few options if you can’t afford the payments and you can borrow far more than you could ever repay. They should only be considered if the total amount you’ll borrow in both federal and private loans is no more than you expect to make your first year out of school.

3. Mom and Dad should not risk their retirement. Federal parent PLUS loans have some of the advantages of federal student loans. The rates are fixed and there are some repayment options (parents can choose extended, graduated or income-contingent payments, but not income-based or “Pay as You Earn,” the most helpful payment plans for overburdened debtors). But unlike federal student loans, there aren’t reasonable limits on what you can borrow. Parents’ ability to repay isn’t taken into account, and they can borrow up to the full amount of their child’s education. That’s a recipe for disaster. Parents should consider borrowing for college only if they’re able to comfortably repay the debt AND continue saving adequately for their own retirements.

4. You should get through school as fast as possible. If Mom and Dad are paying the bill in cash, then you can afford to party, pack your schedule with electives and switch majors 10 times. If your future self is paying the bill via loans, then you need to get your act together. Get help—find a mentor or advisor who cares about you enough to set you on the right path. The place to look is among your school’s best teachers. Ask around, because these teachers get talked about; take their classes; ask for their help.

 

Retiree burdened with unpayable student loan debt

Dear Liz: In a recent column, you fielded a query from parents whose son took out student loans in the mother’s name. You wrote, “If your only income is from Social Security and you don’t have any other property a creditor can legally take, you may be ‘judgment proof,'” which means “a creditor wouldn’t be able to collect on a judgment against you.”

I understand this advice was meant for the mom. But could it equally apply to the borrower who benefited from the loan?

In my case, I will be 70 next year and my only income is Social Security. I owe about $80,000 in private student loans and about $80,000 in federal student loans. I can’t afford to pay either loan. Is there hope for me to get out from under this burden by being judgment-proof? Right now, I can’t afford to see a bankruptcy attorney. It is a struggle just to pay the rent and put some food on my table.

Answer: You can’t afford not to see a bankruptcy attorney. Federal student loan collectors have enormous powers to collect, including taking a portion of your Social Security check.

The concept of being “judgment proof” applies to collections of private student loans. Collectors for those loans may be held at bay if you are, indeed, judgment proof. But you really want an experienced bankruptcy attorney to review your situation to make sure that’s the case. Fortunately, many bankruptcy attorneys offer free or discounted initial sessions. You can get referrals from the National Assn. of Consumer Bankruptcy Attorneys at http://www.nacba.org.

Son signed them up for overwhelming student loan debt

Dear Liz: Our son went to an expensive private school and ended up with more than $100,000 in federal and private loans by the time he graduated. My wife cosigned a private loan for $25,000 for the first year, and that was the last we heard of any loans until he graduated with a degree in social services. After he was out of school for six months, we started getting phone calls asking for payment. Turns out he electronically signed my wife’s name to the next three years of his student loans.

Just to keep the creditors from harassing us daily, we pay the interest, which is about $1,100 a month and equals two-thirds of my wife’s take-home pay. (I’m disabled and can’t work; she’s 64 and planning to retire soon.) Our son hasn’t paid a dime on any of the debt and seems to think it will disappear if you don’t talk about it. He makes only $15 an hour. He still takes college classes and he thinks that because he is in school, he doesn’t need to pay anything. But the interest is still accruing monthly.

After my wife retires, how much of our Social Security checks can they come after? Can they come after our house? We will be living on Social Security only as we were never fortunate enough to have employers who offered pension plans. I sometimes feel that we will have no real retirement because of this situation. Any suggestions and advice would be appreciated.

Answer: What a mess. If nothing else, your situation can serve as a warning to other families tempted to buy educations they can’t afford. Taking on six-figure debt for an undergraduate degree, let alone one in social services, is nuts. Generally, students shouldn’t borrow more in total than they expect to earn the first year out of school. Also, most people should stick to federal student loans. Using private loans to pay for college is a lot like using credit cards, although unlike credit card debt, these variable-rate loans typically can’t be discharged in bankruptcy.

It’s not clear whether your son committed identity theft in signing your wife up for additional debt. Some private loans include a clause permitting the origination of subsequent years’ loans in addition to the original loan, said Mark Kantrowitz, publisher of Edvisors Network. You’d have to review the promissory note to see if that’s the case. If not and if your son forged your wife’s signature, she potentially could get released from the obligation — but most lenders will require the son to be convicted of identity theft first, Kantrowitz said.

“When given that choice,” he said, “most families choose to handle it internally rather than see the student convicted of fraud.”

The only good news here is that private student lenders have fewer powers to collect, compared with the federal government. There is a time limit on how long collectors can pursue you because private student loans are subject to each state’s statute of limitations on debt. (There is no statute of limitations on federal student loan debt, which means collectors can pursue borrowers indefinitely.) Private student lenders can file lawsuits against you, but they don’t have the power that federal student loan collectors have to withhold tax refunds and take a portion of Social Security checks.

If your only income in retirement is from Social Security and you don’t have any other property a creditor can legally take, you may be “judgment proof.” That doesn’t mean you can’t be sued, but a creditor wouldn’t be able to collect on a judgment against you. To find out whether that’s the case, talk to an experienced bankruptcy attorney familiar with the laws in your state.

None of this reduces your son’s responsibility for his debt. If collectors can’t come after you, they will start to pursue him in earnest for payment and he’ll learn just how wrong he is about student loan debt. But that’s his problem, and he at least has a working lifetime ahead of him to pay back what he borrowed.

Student loan rates: facts amid the fictions

Paid education. Graduate cap on bank notesStudent loan rates aren’t about to double, despite the headlines.

Only rates for newly-issued, subsidized federal student loans are set to rise July 1 from 3.4% to 6.8% because Congress couldn’t get its act together to prevent the increase.

Loans that have already been made won’t be affected. Neither will there be an impact on unsubsidized federal student loans, since those already carried a 6.8% rate, or on PLUS loans for graduate students and parents, which have a 7.9% rate.

Subsidized loans traditionally got lower rates because the borrowers have demonstrated financial need. But subsidized loans also charge no interest:

  • while the student is still in school at least half time
  • for the first six months after the student leaves school and
  • during an approved postponement of loan payments.

Those are powerful advantages not available on unsubsidized loans, which is what you get when you can’t demonstrate financial need.

College expert Lynn O’Shaughnessy points out in her MoneyWatch column that the doubling of subsidized loan rates actually won’t have an outsized impact:

The hike will mean that a borrower will spend less than $7 a month repaying that extra interest, according to Mark Kantrowitz, the publisher of Edvisors Network and a national financial-aid expert. Keeping the subsidized rate at 3.4 percent would cost the government $41 billion over 10 years, which is a high price to pay to save borrowers a few dollars a month.

Kantrowitz has said it’s unlikely that higher interest rates would dissuade many from attending college, and he would rather see the money go toward increasing Pell grants for the neediest students, which would do a lot more to encourage them to get a degree. Here’s what he had to say in a New York Times op-ed piece co-authored with O’Shaughnessy:

But the partisan posturing is a distraction from far more pressing issues that face students and parents who must borrow to cover their college costs. What’s lost is how Congress, in numerous ways, has been hurting the most vulnerable college students and dithering on the crisis of college affordability….Congress has starved the Pell grant program, an educational lifeline for low-income families.

He goes on to question why most student loan rates are so much higher than the government’s cost, something that’s turned education debt into a profit center for Uncle Sam. Congress also hasn’t done anything about the suffocating student loan debt many graduates have already taken on or the continuing (if somewhat moderated) increase in education costs. Private student loans remain especially problematic, since they lack the consumer protections of federal student loans and many lenders have been unwilling to work with borrowers to create affordable repayment plans. I’ve argued that we should give bankruptcy judges the power to modify private student loan terms as a way of forcing lenders to play ball.

Nobody wants to pay more interest, but there are bigger problems with the way we pay for higher education than a hike in the subsidized student loan rate.