Posts Tagged ‘Student Loans’
Here’s more on student loans from Ron Lieber of the New York Times:
PLAIN CITY, Ohio — It isn’t easy to stand up in an open courtroom and bear witness to the abject wretchedness of your financial situation, but by the time Doug Wallace Jr. was 31 years old, he had little to lose by trying.
Diabetes had rendered him legally blind and unemployed just a few years after graduating from Eastern Kentucky University. He filed for bankruptcy protection and quickly got rid of thousands of dollars of medical and other debt.
But his $89,000 in student loans were another story. Federal bankruptcy law requires those who wish to erase that debt to prove that repaying it will cause an “undue hardship.” And one component of that test is often convincing a federal judge that there is a “certainty of hopelessness” to their financial lives for much of the repayment period.
“It’s like you’re not worth much in society,” Mr. Wallace said.
Nevertheless, Mr. Wallace made his case. And on Wednesday, nearly six years after he first filed for bankruptcy, he may finally get a signal as to whether his situation is sufficiently bleak to merit the cancellation of his loans.
The gantlet he has run so far is so forbidding that a large majority of bankrupt people do not attempt it. Yet for a small number of debtors like Mr. Wallace who persist, some academic research shows there may be a reasonable shot at shedding at least part of their debt. So they try.
Before the mid-1970s, debtors were able to get rid of student loans in bankruptcy court just as they could credit card debt or auto loans. But after scattered reports of new doctors and lawyers filing for bankruptcy and wiping away their student debt, resentful members of Congress changed the law in 1976.
In an effort to protect the taxpayer money that is on the line every time a student or parent signs for a new federal loan, Congress toughened the law again in 1990 and again in 1998. In 2005, for-profit companies that lend money to students persuaded Congress to extend the same rules to their private loans.
But with each change, lawmakers never defined what debtors had to do to prove that their financial hardship was “undue.” Instead, federal bankruptcy judges have spent years struggling to do it themselves.
Most have settled on something called the Brunner test, named after a case that laid out a three-pronged standard for judges to use when determining whether they should discharge someone’s student loan debt. It calls on judges to examine whether debtors have made a good-faith effort to repay their debt by trying to find a job, earning as much as they can and minimizing expenses. Then comes an examination of a debtor’s budget, with an allowance for a “minimal” standard of living that generally does not allow for much beyond basics like food, shelter and health insurance, and some inexpensive recreation.
The third prong, which looks at a debtor’s future prospects during the loan repayment period, has proved to be especially squirm-inducing for bankruptcy judges because it puts them in the prediction business. This has only been complicated by the fact that many federal judicial circuits have established the “certainty of hopelessness” test that Mr. Wallace must pass in Ohio.
Lawyers sometimes joke about the impossibility of getting over this high bar, even as they stand in front of judges. “What I say to the judge is that as long as we’ve got a lottery, there is no certainty of hopelessness,” said William Brewer Jr., a bankruptcy attorney in Raleigh, N.C. “They smile, and then they rule against you.”
Debtors themselves struggle with testifying in their undue hardship cases. Carol Kenner, who spent 18 years working as a federal bankruptcy judge in Massachusetts before becoming a lawyer for the National Consumer Law Center, said that one particular case stuck in her mind.
The debtor had a history of hospitalization for mental illness but testified that she did not suffer from depression at all. “She was so mortified about the desperation of her situation that she was committing perjury on the stand,” Ms. Kenner said. “It just blew me away. That’s the craziness that this system brings us to.”
Debtors also stretch the truth in other directions. In 2008, a federal bankruptcy judge in the Northern District of Georgia expressed barely disguised disgust in deciding a case involving a 32-year-old, Mercedes-driving federal public defender with degrees from Yale and Georgetown. With nearly $114,000 in total household income, the woman’s financial situation was far from hopeless, despite her $172,000 in student loan debt.
No one keeps track of how many people bring undue hardship cases each year, but it appears to be under 1,000, far less than the number of people failing to make their student loan payments. In its most recent snapshot of student loan defaults, the Department of Education reported that among the more than 3.6 million borrowers who entered repayment from Oct. 1, 2008, to Sept. 30, 2009, more than 320,000 had fallen behind in their payments by 360 days or more by the end of September 2010. About 10.3 million students and their parents borrowed money under the federal student loan program during the 2010-11 school year.
One reason so few people try to discharge their debt may be that such cases require an entirely separate legal process from the normal bankruptcy proceeding. In addition, those who may qualify generally lack the money to hire a lawyer or the pluck to file a suit without one.
Nor is the process quick, since the lender or the federal government often appeals when it loses. And even if clients can pay for legal assistance, some lawyers want nothing to do with undue hardship cases. That’s the approach Steven Stanton, a bankruptcy lawyer in Granite City, Ill., settled on after trying to help David Whitener, a visually impaired man who was receiving Social Security disability checks. The judge was not ready to declare him hopeless and gave him a two-year “window of opportunity” to recover from his financial situation, saying he believed that Mr. Whitener had the potential to obtain “meaningful” employment.
Mr. Stanton did not see it that way. “It’s the last one I’ve ever done, because I was just so horrified,” he said. “I didn’t even have the client pay me. In all of the cases in 30 years of bankruptcy work, I came away with about the worst taste in my mouth that I’ve ever had.”
Those who do go to court face the daunting task of arguing against opponents who specialize in beating back the bankrupt.
They will often square off against Educational Credit Management Corporation, a so-called guaranty agency sanctioned by the government to handle a variety of loan-related legal tasks, from certifying students who are eligible for loans to fighting them when they try to discharge the loans in bankruptcy court.
On its Web site, the agency paints a picture of how much of a long shot an undue hardship claim is, noting that people “rarely” succeed in discharging student loan debt.
Some academic researchers have come to a different conclusion, however. Rafael Pardo, a professor at the Emory University School of Law, and Michelle Lacey, a math professor at Tulane University, examined 115 legal filings from the western half of Washington State. They found that 57 percent of bankrupt debtors who initiated an undue hardship adversary proceeding were able to get some or all of their loans discharged.
Jason Iuliano, a Harvard Law School graduate who is now in a Ph.D. program in politics at Princeton, examined 207 proceedings that unfolded across the country. He found that 39 percent received full or partial discharges.
His assessment of E.C.M.C.’s view of the rarity of success? “I think that’s wrong,” he said. While his sample size was small and he agrees that it’s not easy to prove undue hardship and personal hopelessness, his assessment of bankruptcy data suggests that as many as 69,000 more people each year ought to try to make a case. And they don’t necessarily need to pay lawyers to argue for them, as he found no statistical difference between the outcomes of people who hired lawyers and those who represented themselves.
Dan Fisher, E.C.M.C.’s general counsel, said it had no opinion on whether more borrowers should try to make undue hardship claims. As for the “rarely” language on its Web site, he said the company stood by its assertion that it was uncommon for an undue hardship lawsuit to end in a judgment discharging the loans in its portfolio.
Sometimes, getting any judgment is a challenge, as judges may delay a decision if the case seems too close to call or there is a possibility that the facts may change reasonably soon.
Radoje Vujovic, a North Carolina consumer bankruptcy lawyer, for instance, had more than $280,000 in student loan debt and just $23,000 in annual income.
When Judge A. Thomas Small, a federal bankruptcy judge in the eastern district of North Carolina, examined the case in 2008, he decided to wait two years before rendering final judgment, given that Mr. Vujovic thought his law practice might grow. “Must the cost of hope be permanent denial of discharge of debt?” Judge Small asked in his written opinion. “The answer to that question cannot be an unequivocal ‘yes.’ Hope is not enough to end the inquiry and, ironically, permanently tip the scales against a struggling debtor.”
The Department of Education, unhappy with the two-year delay, appealed before the period was up and persuaded a higher court to overturn the ruling. “I would stand by my decision,” Judge Small, who is now retired, said in an interview. “If you’re forced to make that decision, all you have is speculation, and speculation is really not good enough to overcome the burden of proof.”
Getting judges out of the speculation business, however, would require a new law or an entirely new standard, possibly from the United States Supreme Court. Neither appears likely anytime soon.
In the meantime, Doug Wallace, the blind man in Ohio, is nearing the end of his long wait for a ruling.
In December 2010, C. Kathryn Preston, a federal bankruptcy judge in the southern district of Ohio, tried to assess Mr. Wallace’s hopelessness by pointing to expert testimony that blindness does not necessarily lead to an inability to ever work again. But she also noted that because he lived in a rural area, he faced significant transportation obstacles. So she set a new court date for Sept. 5, to give him “additional time to adjust to his situation.”
The question for Mr. Wallace then became what sort of adjustments he was supposed to make aside from a court-ordered $20 monthly loan payment. His routine has not changed much. Aside from hernia surgery a few months ago, his days consist of sitting close to the television (he can just make it out through one eye that still has a bit of vision) and regular trips to the gym with his father. His college diploma hangs on the living room wall, and at night he sleeps underneath it on the couch of the rental house he shares with his father and sister.
Mr. Wallace’s sister, a community college student, is sometimes around during the day while his father works at a Honda factory. There are few visitors. “I’ve got friends around here, I’m sure, but they’ve got lives for themselves,” he said. “So I don’t really bother them.”
The judge did not explicitly order him to move closer to a training center, and his lawyer, Matt Thompson, said that doing so would set him up for certain failure. “I don’t think there is anyplace he could go in central Ohio and live on $840 a month,” he said.
Logistics aside, Mr. Wallace said that it was hard to imagine his overall situation ever improving and wondered who would hire a blind man in this economic environment.
“Do I think I’m hopeless?” he said. “Well, yeah, I mean, by looking at it you would think I am hopeless. Like it won’t get better for me.”
Here’s a great article from the Bankruptcy Law Network that discusses an issue that many of our clients in the Milwaukee-metro area are struggling with: Student Loans.
Discharge of student loans in bankruptcy is an uphill battle according to a New York Times article. News papers these days abound with descriptions of truly desperate families saddled with massive student debt. The story of Ohio student loan debtor Doug Wallace, age 31, unemployed and legally blind is hardly unusual. In fact, it is so commonplace that bankruptcy lawyers hardly pay attention to such cases and their compelling facts.
While bankruptcy discharge of student loan debt is theoretically possible, and does occur in a few cases, it is a difficult proposition at best. A debtor seeking relief from student loan debt must convince the court their financial situation is not only hopeless; they must prove it will not likely change for the better in the future. Without dramatic facts, discharge of student loan debt is denied in most bankruptcy courts.
How did this awful situation come about? Why is it so hard to get rid of student loans? Why hasn’t Congress done something about the problem? The reasons are as many as the number of dollar bills flooding the halls of power in Washington, DC. Poor students have no money to hire lobbyists but giant banking interests have plenty to spend on the best Congress money can buy.
In the 1970s, the bankruptcy code contained two options for the discharge of student loans. First, if the loan had been in a payment status for at least five years, the debt could be discharged just like any other debt. The second option, in the event the student loan did not qualify due to its payout status, allowed discharge in the event payment of the loans would cause an “undue hardship” for the debtor or the debtor’s family. Only government guaranteed student loans were accorded this special protection.
The current legal standard for bankruptcy discharge of student loan debt was first formulated by the Second Circuit Court of Appeals in a 1987 case called Brunner v. New York State Higher Education Services Corp., 831 F2d 395. The so called “Brunner Test” has been adopted by most federal courts throughout the country and is the bane of student loan debtors everywhere. All this came about due to word “undue”, included by Congress, in the statute governing the dischargeability of student loans in bankruptcy cases.
The Brunner court in 1987, confronted with the undue hardship language, reasoned that the word “undue” must mean something more than just a regular hardship. So, in order to help define the law, it created a three prong test. The debtor was required to prove that (1) That the debtor cannot maintain, based on current income and expenses, a minimal standard of living for the debtor and dependents if forced to pay off student loans; (2) that additional circumstances exist indicating that this state of affairs is likely to persist for a significant portion of the repayment period of the student loans; and (3) that the debtor has made good faith efforts to repay the loans. Marie Brunner, debtor in that famous case, did not fully meet those standards and was denied discharge. She could not prove any additional circumstances that indicated things would not change in the future.
In 1990, the law was changed to require seven years in payment status before a student loan could be discharged. , In 1998, the payment status discharge option was deleted entirely from the statute by Congress. This left only the “undue hardship” standard for discharge. In 2005, for no particular reason disclosed in legislative history, Congress accorded private student lenders the discharge protection once only allowed to government guaranteed or government funded student loans.
Now, it is time for another change in the law. This time Congress should help relieve student loan borrowers from a lifetime of debt slavery. Full bankruptcy discharge should be permitted for all student loans.
Need help with your debt? Call Miller and Miller today! With office in Kenosha, Milwaukee, and Germantown, we are only a short car ride away.
We’ve all heard of the mortgage crisis, which has effected Milwaukee and the surrounding area along with the rest of the country. Experts now predict the next wave of financial calamity may come from the tremendous amount of student loans held by Americans who can’t find jobs that will pay enough to pay them off. No one wants to be in that situation, and Farnoosh Torabi has some advice below that may help you avoid the student loan bubble.
Recent graduate Greg Serrao saved nearly $150,000 earning his college degree by attending one of the country’s tuition-free universities.
The 23-year-old just finished his degree at Cooper Union in New York City, where tuition is technically listed as $37,500 per year. But for the approximate 8% of applicants who get accepted each year, that cost disappears, thanks to a four-year scholarship.
“I still had to pay for room and board, which can be expensive living in New York City, but tuition was covered fully by the scholarship. Other students…went completely for free either by working as a resident assistant in exchange for free housing, qualifying for scholarships or by living at home,” says Serrao.
On the country’s shortlist of colleges and universities offering free tuition, there’s Alice Lloyd College in Kentucky, Curtis Institute of Music in Pennsylvania, Deep Springs College in California and St. Louis Christian College in Missouri.
Staying on top of the news may also help you come across free tuition opportunities. For example, a quick news search of ‘free college tuition’ leads to an announcement called ‘Michigan 2020,’ a new plan in 2012 that gives the state’s resident high school seniors a $9,500 grant each year – roughly the cost of attending a local state school or community college.
Watch For Full Scholarships at New Schools
Keep an eye out for brand new institutions offering inaugural classes where they lure in students with free tuition deals. For example, after going out of business in 2008, Antioch College in Ohio re-launched its curriculum last year and now promises a 4-year tuition scholarship to the fall classes in 2012, 2013 and 2014, a savings of more than $100,000.
Cast a Wide Scholarship Net
If your dream school doesn’t offer a full scholarship like Antioch, remember there are millions of dollars worth of other academic scholarships awarded each year. To win as much as possible, you need to act fast and cast a wide net.
“People should start searching for scholarships as soon as possible. Don’t wait until the spring of your senior year in high school because by then you’ll have missed half the deadlines during the senior year alone,” says Mark Kantrowitz, founder of FinAid.org and author of the book, Secrets to Winning a Scholarship (CreateSpace, $9.95).
One myth many have about scholarships, says Kantrowitz, is that you need to be a top student or have years of community service to qualify. Not true. The AXA Achievement Scholarship, for example, doesn’t require straight A’s, and winners receive up to $25,000. Other generous scholarships include the Intel Science Talent Search, where the top award is $100,000, and the Coca-Cola Scholars Program, which gives $20,000 to the top 50 finalists.
“You also want to apply for every scholarship for which you’re eligible. It’s a bit of a numbers game,” adds Kantrowitz. “Even among the most talented students, winning involves a bit of luck, not just skill.”
Check out free scholarship databases online at Fastweb.com and Scholarships.com.
Join the Army
One final strategy for those seeking free tuition is to join the army. It’s not for everyone, but there are various armed forces colleges that charge no tuition in exchange for active service after graduation, including: The U.S. Military Academy, the U.S. Naval Academy and the U.S. Merchant Marine Academy.
If you are struggling with student loans contact Miller and Miller today. While we can’t eliminate through bankruptcy there are options which can provide you the relief you need. With offices in Milwaukee, Germantown, and Kenosha, Miller and Miller is only a short drive away.
Like so many of our Milwaukee, Wisconsin area clients, when you hire us you’ll eliminate or reorganize your debt and be a a position to start building again. Miller and Miller has assisted millions of families in rebuilding their financial lives and our services don’t end with eliminating debt. Call us today and meet us in Germantown, Kenosha, or Milwaukee to discuss how to repair or rebuild your credit after enduring tough times. This can help you save in other ways and to begin thinking about things like investing and on that note, here’s a great bit of advice from Matthew Burton of Mint.com:
Even as interest rates approach lows last seen in, oh, 50,000 BC, U.S. savings bonds are still a great deal.
I’m an obsessive fan of savings bonds, particularly Series I, or I-bonds, for short. Since I wrote about them last year, a few aspects of buying and giving them have changed, but the basic message hasn’t: if you aren’t buying savings bonds, you’re missing out on a safe, simple, and relatively high-yielding investment available to anyone with a social security number.
Let’s recap briefly what is so great about I-bonds:
- They pay an interest rate tied to the rate of inflation. You won’t lose purchasing power, and if you’re concerned about high inflation in the future, I-bonds will protect your savings. Most savings accounts, CDs, and other Treasury bonds pay less than the prevailing inflation rate. Right now, for example, I-bonds are paying 2.2% APY, which is more than almost any 5-year CD.
- Each person can buy up to $10,000 per year.
- You can set up an account in minutes and start buying I-bonds online at TreasuryDirect.gov.
- You can cash them in after one year or hold them for up to 30 years. (There’s a small penalty for redeeming I-bonds before 5 years.)
- I-bonds are tax-deferred and can be used for a child’s college education tax-free.
The way I always sum it up is: nobody regrets buying I-bonds.
The gift of aaaargh
The big change in bonds since last year: they got rid of paper savings bonds. If you’re buying bonds for yourself, no big deal. Buying online is easy — all you miss out on is the cool pictures of Einstein and Chief Joseph and Helen Keller.
If you want to give a savings bond as a gift, however, the process is about to get a little awkward, because the recipient of the gift has to have their own Treasury Direct (TD) account. For example, say I want to give my niece a $25 I-bond. I can buy the bond right away and keep it in the “Gift Box” section of my TD account. To transfer it to my niece, however, I have to:
- Call or email my brother and tell him to open a TD account for himself, then a subaccount for his daughter (oh, and another subaccount for his son, if I want to give him a bond, too).
- Have him give me the kid’s TD account number. Yes, it is safe to share your TD account number. No, this is not intuitive.
The Treasury has produced a YouTube video, complete with that reassuring “Welcome to your first day at work”-style voiceover, to explain how to give electronic savings bonds as gifts. Honestly, I would rather call my grandmother and ask her if she has any tech support questions for me.
Instead, I called James Kelly, director of the Treasury’s Ready.Save.Grow campaign. His response, in short: Believe me, we know. ”There are a lot of things we’re looking at to simplify the process,” said Kelly. “One of the things we keep in mind for simplicity is PayPal, or, for example, or iTunes. We want to get there eventually. It’s going to take us time.”
I asked Kelly whether anyone is using the gifting feature. “It’s certainly not as robust as paper was, and we knew that that would happen,” he replied.
This isn’t good enough for Mel Lindauer, a Forbes columnist, coauthor of The Bogleheads’ Guide to Investing, and a man even more into savings bonds than I am. “The answer is simple,” said Lindauer by email. “Bring back paper I-Bonds and give investors an option. Prior to the elimination of paper I-Bonds, investors overwhelmingly chose paper I-Bonds over TD.”
Stay safe out there
Lindauer ticked off a variety of objections to Treasury Direct, most damningly the fact that, unlike your bank’s website, TD doesn’t promise you’re off the hook in the event someone fraudulently cleans out your account.
“There is an element of truth to that,” said Kelly, but in over ten years and hundred of thousands of TD accounts, no customer has lost a dime to fraud. “We have had people who’ve had problems, but we have not held them accountable for it, because we haven’t deemed them to be negligent with their access information.” He mentioned the guy who put his Social Security number on the side of his truck. If someone did that with their TD password, “we probably would not have a whole lot of sympathy for them.”
And a TD account is not like a checking account: it’s designed to be easier to put money in than take it out. In order to steal my I-bonds, you’d not only need access to my password and my email account (TD sends a one-time passcode via email when you log in on a new computer), you’d then have to link my account to new bank account, which would leave an obvious trail.
In short, it would be even more work than convincing my brother to open a TD account for my niece. Please do not take this as a challenge.
To sum it up
- I-bonds are still an awesome, flexible, safe investment.
- The process for gifting them is too complicated, and no one blames you if you wait until they fix it.
- Buying them for yourself is a snap.
- I’m probably about to get a call from my grandmother asking if she can treat computer viruses with ibuprofen.
Matthew Amster-Burton is a personal finance columnist at Mint.com.
Call Miller and Miller today 414-277-7742!
Here’s a great article by Adrian Nazari. In the metro Milwaukee and Waukesha area many people are looking for options to help them with their student loan debt as the rise of college costs and the lack of jobs offering wages that can cover the expense becomes the norm. If you are in Wisconsin and are lookign for ways to help you manage your debt, call Miller and Miller today: 414-277-7742.
Economists have long used the term “bubble” to describe a dangerous financial trend that threatens the health of a particular industry or economy, often ending with disastrous effects if the bubble collapses or “pops.”
Bubbles date back centuries, with the first on record occurring in 1634 in Holland, where the tulip market collapsed, leading to major losses from hundreds of speculators. Over the course of history, bubbles have popped and swallowed major economies, just as the real estate collapse of the mid-2000s did to the U.S. economy.
Student Loan Debt Bubble
Today, according to the front-page of every major national news outlet, and every political pundit and presidential candidate, the next bubble threatening millions of Americans is the overwhelming financial burden of student loan debt. And, if true, this financial crisis is impacting not only college students, but also their parents and grandparents who co-signed on the loans for them.
So, just how serious is the looming student loan bubble?
Student Loans: What the Numbers Say
The Federal Reserve Bank of New York (FRBNY) recently released a study on student loan debt by researchers Meta Brown, Andrew Haughwout, Donghoon Lee, and Wilbert van der Klaauw. In it, the FRBNY emphasizes the growing problem looming on the student loan front with these startling results:
- Of the 241 million people in the United States who have a credit report with Equifax, approximately 15.4%—or 37 million—hold outstanding student loan debt.
- The average outstanding student loan balance per borrower is $23,300. About one-quarter of borrowers owe more than $28,000; about 10% of borrowers owe more than $54,000. The proportion of borrowers who owe more than $100,000 is 3.1%, and 0.45% of borrowers, or 167,000 people, owe more than $200,000.
- Borrowers between the ages of thirty and thirty-nine have the highest average outstanding student loan balances, at $28,500, followed by borrowers between the ages of forty and forty-nine, whose average outstanding balance is $26,000.
- About 27% of the borrowers have past due balances, while the adjusted proportion of outstanding student loan balances that are delinquent equals 21%.
1T Day: Student Loan Debt Hits $1 Trillion
To make matters worse, financial pundits dubbed April 25, 2012 as “1T Day,” meaning the total amount of student loan debt hit the $1 trillion mark. Back in 2010, the amount of U.S. student loan debt surpassed the total amount of credit card debt, and it continues to grow.
The media spotlight on student loan debt has grown more pervasive amidst the ongoing Occupy Wall Street social advocacy movement, even triggering an offshoot called Occupy Student Debt.
Federal Student Loan Rates to Double
More recently, that spotlight has focused on legislation in Congress to keep federally backed student loan interest rates at the current level of 3.4%.
Under federal law, the interest rates on federal student loans are set to double from 3.4% to 6.8% in July. This sounds shocking until you realize the rate increase would only affect new loans. If Congress doesn’t stop the increase, the rate hike will end up costing the average federal student loan borrower an additional $6 a month. Granted, $6 a month can add up over the life of the loan, but is it so extreme that it warrants the “crisis” label? In reality, the hype around student loan debt may have more to do with politics than alleviating the student loan debt burden.
If Congress can’t agree on how to pay for the continued rate cut on federal student loans — a dollar cost that Congress pegs at about $6 billion — the rates will double to 6.8% come July. Republicans want to pay for the 3.4% rate by taking the money out the government’s health care insurance fund. Democrats want to pay the $6 billion offset by hiking taxes on wealthier Americans.
Avoiding the Student Loan Debt Trap
While Congress tangles over the offset funding issue, what can consumers do to alleviate their exposure to any student loan bubble? The good news: there are options that proactive consumers can take to avoid falling into the student loan debt trap.
If you start early and plan ahead, while your children are still young, you may be able to leverage college savings programs that offer tax-free savings along with solid asset growth potential:
- 529 College Savings Plans – Similar to a 401k plan for retirement, 529 plans allow families to save money (tax free) for college.
- 529 Tuition Savings Plans – Similar to the 529 plan, but much more limiting, these plans are also administered by the states and allow a family to invest for a fixed tuition rate. This option only covers tuition and will limit the student to specific schools, so make sure you research or consult with an adviser to make sure you make the right choice.
- Coverdell Education Savings Account – Similar to a Roth IRA, this option allows families to deposit funds into a tax-deferred account. As long as the money is used to pay for college, there are no tax liabilities for withdrawals. However, the plan is subject to income limits but it allows more flexibility in paying for practically any education related costs.
If time is short, and you have a child nearing, or already in college, you may be able to curb costs by examining financing options that go beyond student loans, including:
- Free Money. Via public and private resources, there are millions of dollars available to students in the form of scholarships and grants that, unlike loans, do not have to be paid back. While there are qualifications that have to be met, most are highly doable. The key is to apply early, and often —and don’t limit yourself to just one option. Visit www.fafsa.ed.gov to apply for federal and state grants through FAFSA, and check out Fastweb’s scholarship database, a great place to start your scholarship search.
- Less Expensive Schools. Ivy League schools don’t have a monopoly on a great education. To keep costs down, start at a state or junior college, earn superior grades, keep saving money, and after two years, consider transferring to the college you had your heart set on.
- Leverage Government Help. Students steering a course toward public service can, after legislation passed in Congress in 2010, cap total student loan payments at 10 years. As long as public service graduates have a steady repayment record, they are eligible to have the rest of their loan forgiven. Graduates of all types can also apply to have the government cap monthly payments at 15% of discretionary income, considerably easing the monthly student loan payment burden.
If you’ve exhausted all options and student loans are the only option left, aim to minimize the total cost by choosing a more affordable, low fixed-rate federal student loan. Private student loans often come with variable interest rates, and don’t carry the additional perks like income-based repayment and public service loan forgiveness options that are included under federal student loans.
If you analyze your options and are smart about the financial choices you make, you won’t fall victim to the growing student loan debt problem.
As the old adage goes, an ounce of prevention is worth a pound of cure, and nowhere is that adage more appropriate than it is right now in the student loan financing market.