Posts Tagged ‘Student Loans’
Bankruptcy and the National Football League collide again. This time it is Warren Sapp, who reportedly owes over 6.7 million dollars to his creditors. Read more about the details here.
Even if you aren’t in as much debt as Mr. Sapp, dealing with aggressive creditors can be stressful and overwhelming. If you need advice about what to do, call Miller and Miller today. We have been helping people in Wisconsin get a fresh start since 1993 and with offices conveniently located in Kenosha, Milwaukee, and Germantown, we are a short trip away no matter where in Southeastern Wisconsin you are.
Student loans are something that people all over the Milwaukee area are struggling with. Here’s some interesting, non-bankruptcy advice from Farnoosh Torabi of RetireSmart.
WRITTEN BY BRIAN KOENIG
TUESDAY, 13 MARCH 2012 10:12
As more and more young people graduate from college with mounds of unresolved loan debt, financial experts and bankruptcy attorneys are calling the progressively worsening dilemma the “next debt bomb.” According to a new survey conducted by the National Association of Consumer Bankruptcy Attorneys (NACBA), 81 percent of bankruptcy lawyers report that the number of prospective clients with student loan debt has increased “significantly” or “somewhat” in the past few years.
The organization even compared the purported student loan debt “crisis” with the collapse of the housing industry:
With student loan debt now topping U.S. credit card debt and few or no options available for distressed borrowers (including unwary parents who co-signed loans and now face the loss of nest eggs, retirement homes and other assets), America faces the very real possibility of another major economic threat on a par with the devastating home mortgage crisis, according to a new survey and report published today [Feb. 7] by the National Association of Consumer Bankruptcy Attorneys (NACBA).
Moreover, the survey reported:
• Nearly two out of five bankruptcy attorneys (39 percent) have seen potential student loan client cases jump 25-50 percent in the last three to four years. About a quarter of bankruptcy attorneys (23 percent) have seen such cases jump by 50 percent to more than 100 percent.
• Most bankruptcy attorneys (95 percent) report that few student loan debtors are seen as having any chance of obtaining a discharge as a result of undue hardship.
• More than four out of five bankruptcy attorneys (82 percent) see the limited availability of student loan discharge in bankruptcy as “a big problem” barring a fresh start for clients.
• Nearly two out of three bankruptcy attorneys (65 percent) say that student loan provider debt collections have become “much more” or “somewhat more” aggressive in the last 18 months.
Most of those clients, the association affirmed, were unable to meet the federal hardship criteria required to exempt their student loans through bankruptcy proceedings. Consequently, many loan co-signers, who are often parents or guardians, are required to cover the payments. Head of the NACBA William Brewer asserted, “This could very well be the next debt bomb for the U.S. economy.”
“Obviously, in the short term, student loan defaults are not going to have the same ripple effect through the economy that mortgage defaults did,” Brewer added. “My concern is that the long-term effect may be even graver, because people who need student loans to try to get a higher education or retraining” will be reluctant to apply for them.
In a previous analysis, Moody’s Analytics conversely noted that student lending is not on a par with the housing crisis, as the student loan market is only one-tenth the size of the mortgage market. “Despite its rapid growth even as credit quality weakened during and after the recession, student lending is not likely to turn into the next subprime crisis,” Moody’s reported earlier this year.
Student loan debt has boosted in recent years to a sum of $867 billion in 2011, which surpasses the $704 billion in outstanding U.S. credit card debt. Throughout the 2010-11 school year, students racked up $104 billion in loan debt from the Education Department — a 50-percent spike in three years — while private education loans dipped by 65 percent in that same period, to $7.9 billion.
What many analysts and political leaders fail to acknowledge is the underlying culprit of the student loan debt debacle. Many observers blame rising tuition costs, which are undoubtedly a factor. But why are colleges and universities charging more for tuition? Similar to the U.S. healthcare system, the present quandary stems from a third-party-payment system. Government has become a chief player in subsidizing tuition costs, and as a result, students are amassing bulky government loans to finance their education.
Indeed, government meddling has manipulated the higher-education market, and has discouraged high-school graduates — who are often naïve in their educational pursuits — from attending the most competitively priced institutions. Consequently, many of these young individuals choose schools charging $30,000 per year in tuition over schools charging $10,000 per year, hoping they will land high-paying jobs come graduation. Such skewed incentives have granted colleges and universities the unbounded authority to inflate tuition rates to astronomical levels, and thanks to federally induced market distortion, these institutions get off scot-free.
Adding to the government’s intervention in the higher-education market is a Federal Reserve system that is generating an inflationary hailstorm. In October 2011, GOP presidential candidate Ron Paul explained in an article for USA Today how these two government measures have spurred an adverse evolution in this delicate sector of the U.S. economy:
Like housing and medicine, education costs went through the roof when government became involved. In the last three decades, the overall inflation rate has increased more than 100%, which means we basically pay double now for everything we buy. This price inflation is an inevitable consequence of printing money out of thin air and devaluing our dollar. But compare this inflation to the rise in the cost of college tuition, which has increased almost 500% in the same amount of time.
This is what happens when we print money out of thin air and couple it with government intervention in education.
USA Today recently published an article explaining that Americans’ student loan debt, which totals approximately $850 billion, now exceeds outstanding credit card debt in the U.S., which totals approximately $828 billion.
Perhaps a more interesting element of this story has to do with the monthly repayment numbers borrowers are expected to pay. The USA Today article suggests that $30,000 of student loans, payable at 6.8% interest over ten years would amount to $350 per month. At this level of debt, the average person would need to earn at least $42,000 per year. Unfortunately, as bankruptcy attorneys we commonly see student loan debt in excess of $100,000, with monthly payments over $1,000.
From a bankruptcy perspective, student loan debt is not dischargeable except in cases of “undue hardship.” In the Eastern District of Wisconsin, the court uses a very strict three part test to determine whether student loans may be discharged. As the law stands today, debtors in the Eastern District of Wisconsin have not been successful in arguing for hardship discharge on the grounds that they cannot find a job that pays enough to support their student loan obligations.
If you are planning to apply for a private student loan that requires a co-signer, or are considering co-signing such a loan, beware of the following: If the student passes away, the lender can still demand payment from any co-signer. This is different from Federal Student Loans, which are discharged if the student passes away.
In the Fall, the U.S. House of Representatives passed a bill that would require private lenders to disclose this policy to anyone co-signing a student loan, however, the bill has yet to gain any traction in the Senate.
It is recommended that anyone who has co-signed a private student loan take out a 20 year term life insurance policy on the student for the amount of the loan to ensure you will be fully protected if the student were to pass away.