Bad Spending Habits All Around Me...

So I am back living in the house I grew up in; a big town just outside of New York City.

The house had been empty for years...Not because it's in a bad neighborhood.

Empty because the cost of maintaining this house is too high.

Old-world construction is very strong and sturdy, but the cost of heating + cooling this place is extreme.  It's the kind of house that OK during the cool months, but feels hotter than the outdoors during the summer, and colder than outside when the weather gets frosty.

And then there is the property tax.  Extremely onerous, and it never goes away.  And if the bill goes unpaid for a long time, as it has here, a lien can happen, then a tax sale...💰😭💸😭💸

Student-loan debt is pure evil.  Many years ago, when I was really struggling, I defaulted, and "they" were able to access my bank account and take every penny I had.  It was less than $1,000, and they just took it without warning.  I wasn't able to pay my rent.  It was hell.

Losing control with credit-card debt? MUCH worse.  Did that when I was young and stupid, but eventually get my act together and paid it all down to $0.

But credit-card debt is unsecured. A bank can't take your home away from you, no matter how much credit-card debt you have.  BIG difference.

So my cousin decided to move into this house and give living here a shot.  Made sense to her, because she landed a great nursing job in NYC.  Great pay, A+ benefits and all the overtime she wants. Only problem was that she lived in Massachusetts. This house solved that.

So now my cousin has two places that she calls home, in two different states.  She commutes back and forth a lot, but the 3-hour drive goes by fast, especially on weekends.

My mother (RIP) spent lots of money on repairs and renovation.  Other members of my extended family pitched-in too.  While empty, thieves and/or squatters did bad things.

There are young children here, but the house is big, and the walls are thick.  Noise is contained, and the kids have plenty of room play, without disturbing anyone. The situation here is cool and calm and drama-free, which is very, VERY important to me. After all I've been through over the past 22 years, I have no tolerance for ugly behavior of any kind. ZERO TOLERANCE!

There is, however, a nagging concern here: my cousin and her husband are both shopaholic-spendaholics.  There is more footwear dumped all around this house than I have EVER seen in any home.  There must be at least 300 pairs of shoes...In every corner, and every room.  Moreover, there are more daily deliveries from Amazon than I used to see in the retail outlet I managed years ago.  Stacks of boxes, all shapes and sizes, and from all over the world, waiting outside, every day. Crazy....😱📦🥴📦😱📦😵‍💫📦😱

The mother of my child was REALLY GOOD at wasting money, and doing so in the most despicable way. Tantamount to just flushing it down the toilet.  So yeah: these things bother me...😑😒😐🫤

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Income Sharing: An Excellent Alternative To Student Loans

As a person who suffered with extremely oppressive student loan debt for many years, I found this NBR segment out of Purdue University very cool:

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Student Loan Reform Rides On The Back of Healthcare Reform

No doubt, healthcare reform is a huge deal. Mr. Obama has succeeded where other great presidents failed, and he should be commended for getting healthcare reform passed. I, for one, am pleased about reform, as I've been without health insurance for almost 2 years now.

But healthcare reform wasn't the only "big deal" change enacted. Alongside -- or perhaps on the back of -- healthcare reform was passage of the Education Reconciliation Act, which essentially cuts banks out of the federal student loan picture. This change will remove predatory lending from the student loan industry, and will concurrently save taxpayers many billions of dollars.

When I was in trouble with my student loans, I consolidated with the government-run William D Ford consolidation program. They treated me very fairly. After a year of steady payments they removed all negative marks from my credit profile, and I was able to opt for an income contingent payment plan, which made my monthly payments affordable.

A great feature of the Education Reconciliation Act is student borrowers will be able to opt for something similar: an Income Based Repayment program.

Another huge benefit: loan forgiveness. Those who opt for the Income Based Repayment program will have their loan balance forgiven after twenty years. For nurses, teachers and military folk, forgiveness happens after just ten years.

Here's a clip from the White House blog:

"...Today, the President signed the Health Care and Education Reconciliation Act, which will end wasteful government subsidies to private student lenders and invest the savings in making college more affordable. Over the last few months, the Middle Class Task Force has traveled the country extolling the benefits of this policy, which is a cornerstone of the President’s domestic agenda.

Right now, the government spends billions of dollars a year subsidizing financial institutions that make guaranteed federal student loans. According to the Congressional Budget Office, the legislation signed by the President today will generate nearly $68 billion in savings over the next 11 years by finally putting an end to these subsidies.

We are pleased to report that part of the savings will be used to expand the Income Based Repayment program for federal student loans. This expansion was one of the key Middle Class Task Force policy recommendations in the FY 11 Budget and the President signed it into law just two months after we first proposed it. Borrowers who choose the Income Based Repayment program will have their monthly payments capped at 10 percent of the income they have left over after covering basic needs, and any remaining debt will be forgiven after 20 years. Public service workers – like teachers, nurses and members of our armed forces – will have their remaining debt forgiven after 10 years.

These changes will not be implemented immediately, but they still represent as major step forward for borrowers with unmanageable debt burdens. In the meantime, borrowers will continue to benefit from the existing structure of the Income Based Repayment program, which was launched last summer. You can learn more about the program here.

This expansion is just one of several critical investments provided for in the Health Care and Education Reconciliation Act. We will also invest more than $40 billion to ensure that all eligible students receive Pell Grants and that these awards keep up with college costs. The legislation provides new funding for community colleges to develop online courses, build partnerships with local employers, and take other steps to help students get the skills and credentials they need to succeed. And the legislation provides additional support to Historically Black Colleges and Universities and Minority Serving Institutions.

We will make all these investments while actually reducing the deficit. It’s a win for taxpayers and it is another important victory for America’s middle class families..."

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Heart + Sweat = Cutting Student Debt

For five years in my late twenties, I didn’t work what most people refer to as a “real job” (though the emotional and sweat equity I expended begs to differ). I was a volunteer in Arizona, and the work I did was as real as it gets! I lived and worked with pregnant women who were homeless or alone, serving as a staff member of a wonderful community called Maggie’s Place. Day after day, I had the extraordinary privilege of watching expectant mothers grow – and not just in their middles! Women came to us uncertain and scared, often having experienced violence, substance abuse, abandonment, or other forms of suffering. In the shelter of our welcoming home, made up of 20+ women and up to eight babies, mothers who lived at Maggie’s Place could learn about parenting, health, education, employment, housing, budgeting, communication, setting boundaries, and a myriad of other subjects in which skills are needed to make it as a single mom. These mothers were the strongest women I had ever met. How was I so blessed to get to share in their lives?

In 2004, I was three years out of college, and growing restless at my job in Pennsylvania. I knew I was fortunate to have grown up in a stable home, and I wanted to do something to help others who hadn’t. I had considered volunteering somewhere full time after high school or college, but didn’t know how it would be financially possible; I had about $13,000 in student loans. I also wasn’t sure where my skills could best be used. However, after several years of feeling unfulfilled in my work, I decided to finally give volunteering a shot.

Though not sure where to start, I discovered a web site for Catholic Network of Volunteer Service (http://www.cnvs.org/), an organization that matches volunteer hopefuls with places that need volunteers. Shortly after I submitted a profile about my background and the type of work I sought, a staff member from Maggie’s Place contacted me. I couldn’t believe it - the community sounded perfect for me! It was in the southwest (I needed a break from the northeastern winters), and seemed to offer most of what I was looking for. The application process began, and I was invited to fly out to Phoenix for an interview in April 2004. The five days in Arizona solidified my desire to volunteer at Maggie’s Place, and upon my return to Pennsylvania, I arranged for a year-long leave of absence from my job. I was sure that I would get the volunteer bug out of my system within that year. Little did I know that I would stay with the Maggie’s Place community for five years!

After a busy summer of tying up loose ends, I loaded down my ’93 Saturn for the long-dreamt-of drive across the country with my best friend. Our week on the road was everything such adventures should be, and I arrived in Phoenix refreshed and excited for this new chapter in my life.

The work of Maggie’s Place was right in line with my values, and my gifts were a good match for the young and growing organization. I loved working with the moms and babies, and I knew I was truly making a difference. Mothers and their babies could stay in our homes for up to six months after the babies were born, so there was time for the moms to really get on their feet. I had thought I was the one who had something to teach, but I learned so much from the moms of Maggie’s Place! Our community was rich and diverse, with each member bringing a unique flavor to the mix. The other volunteers came from around the country, each wanting to use her abilities for the good of others. I was surrounded by a supportive community of people who shared my goals and ideals, and each day brought new joys. The work was hard – don’t get me wrong – but it was meaningful, and I went to bed each night knowing that I had given all I could to whatever challenges the day had presented.

Occasionally I was able to fly back east for family gatherings. Each holiday I was home, relatives would ask how on earth I could afford to be a volunteer. After all, I didn’t earn a salary, I had no 401K, and I had student loans to pay off. What was I thinking? How did I buy stuff? Wasn’t I wasting my hard-earned degree in English education? How could I live without a job? When was I going to rejoin society?

Despite my best attempts to explain, I don’t know if my extended family ever completely got my situation. While volunteering is not possible for everyone, it is often a more viable option than most people think. Here’s how it can work:

The country is full of non-profit organizations that provide services to various populations – families, youth, children, elderly, women, and men; people who are homeless, abused, hungry, disadvantaged, or in crisis due to any number of circumstances. There are projects in education, health and medicine, disaster relief, environmental protection, and community and economic development. There is more than enough work to go around.

Many of these non-profits are run primarily by volunteers, individuals from various backgrounds who commit to work for the organization for a certain amount of time – typically ten to twelve months. If both the volunteer and the placement site desire, these commitments often can be extended. In exchange for their work, volunteers do not earn a salary, but rather receive living stipends. These stipends can range widely, depending on the other benefits the organization offers - I have heard of monthly stipends from $50 - $800 - but basic needs are provided for, one way or the other. If an organization provides housing and transportation for its volunteers, the stipends might be lower. If volunteers are expected to pool their money for a shared apartment and utilities, their stipends will be higher.

For example, during my volunteer time at Maggie’s Place, my monthly stipend was $350. In addition to that, I received room and board, health insurance, access to community vehicles, and auto insurance while driving those vehicles. My only monthly bills were for my cell phone, personal car insurance (since I had chosen to bring my car), and asthma medication. Granted, there weren’t wads of cash left over, but I was still able to afford a few plane tickets home and the occasional meal out. The community was committed to living simply, so it didn’t matter that I couldn’t buy the latest trends or newest gadgets. I was living with formerly homeless women who might have given birth on the street if not for Maggie’s Place; how could I complain about what I didn’t have? Besides, with so many housemates, we could always borrow from someone!

Clearly, I did not choose to volunteer for the financial perks. However, volunteering offered one huge bonus that I wasn’t initially aware of – AmeriCorps Education Awards. AmeriCorps is a federal program in which non-profits can participate, allowing a year or two of full-time volunteering to be possible for many people. At the end of a ten to twelve month term of service, AmeriCorps members are eligible to receive an Education Award of up to $4,725. This money is a voucher that can be used to repay federal and state student loans (Stafford and Perkins loans are common ones), and you may receive two awards in your lifetime - a total of $9,450! This amount is for full-time service; smaller awards are available for part-time service.

You may ask “How do I pay my student loans while I volunteer?” Most federal and state loans qualify for forbearances, which means the borrower doesn’t make payments while volunteering. And while interest accrues while you volunteer, the government will pay that interest when your loan comes out of forbearance. So with two AmeriCorps Awards, plus over $600 of interest that was paid, I was able to knock over $10,000 off my student loans! After applying that money, my loans were paid up for the next seven years, and my remaining balance was quite manageable. Additionally, my husband Jim, whom I married after my first two years of volunteering, served as an AmeriCorps member in the Maggie’s Place office after our wedding. The combined $20,000 off our student loans made it possible for me to continue serving with the community long after I thought I could.

If you have gotten by without student loans, or if you haven’t been able to afford higher education, AmeriCorps Education Awards can also be used to pay for schooling after you have completed your volunteer time. And some schools will even match your award! Not a bad deal, eh?

Before you quit your job, ignore that student loan bill, and commit to your favorite cause, you’ll need to do your homework. Know that:

• Not all non-profits have volunteer programs or offer AmeriCorps Education Awards, so investigate.


• There are requirements on the number of hours of work volunteers must log, and regulations on the types of work that can count as AmeriCorps hours; these should be explained to you by the organization you go through to volunteer. I was required to log at least 1700 hours between 9-12 months of service; getting those hours was not a problem.


• AmeriCorps Awards typically cannot be used to repay private loans, so know who your lenders are.


• Education Awards are considered taxable income in the year you use them, so be prepared to part with a bit of the money.


• Awards must be used within seven years of earning them.


• You don’t have to use the award all at once, and you can split the money between different lenders and/or schools. Full information about AmeriCorps programs can be found at http://www.americorps.gov/.

As a volunteer, my days were full, often with tasks I never thought I could do. I managed a fleet of used, donated vehicles; sorted hundreds of maternity and baby donations; became equally comfortable with the wealthy and the impoverished; assembled and disassembled all kinds of furniture; grew in public speaking, problem solving, and time management; learned all about the social services in the greater Phoenix area; pulled off great celebration parties with little money and donated items that always arrived at the right time; witnessed the births of three babies (and even gave birth to my own!); and saw some of the best and worst characteristics of humanity. Though we did not grow rich monetarily, Jim and I grew rich in so many other ways.

Don’t know where to start searching for a service site that matches your interests? In addition to the AmeriCorps web site, I recommend visiting http://www.cnvs.org/ and http://www.pallotticenter.org/. If you choose the hard but rewarding road of service, you won’t regret it. Happy hunting! All the best.

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No Reward for Prodigal Sons and Daughters

Under Water With Student Loan Debt

When I defaulted on my student loans back in the mid-90's, I was given the opportunity to make things right. William D. Ford agreed to purchase my student loan debt, and promised that if I didn't miss a payment for a year, they would remove all related derogatory items from my credit reports. I paid on time for a year, and they kept their promise. Having those negative items expunged from my reports was a huge deal for me, because my defaulted debt was holding me back financially.

Today, students who made similar mistakes with their student loan debt and who are now looking to rehabilitate their loans are hitting a brick wall. These students aren't able to get the negative marks on their credit reports removed because the current credit crisis has caused the market for student loan debt to dry up. Details of this issue can be found in this NextStudent.com press release. Here's a clip:

"...Before a defaulted borrower's student loan can be considered fully rehabilitated and the borrower's credit and loan status returned to good standing, the guarantor must resell the borrower's college loan to a new lender. But in the current credit freeze, no lenders are buying.

In November, the sole commercial bank still buying rehabilitated student loans announced it would no longer do so. Although a few non-bank entities may still purchase some of these college loans, 19 of the nation's 35 guarantors currently have no buyers for their student loans.

Each month, the Chronicle reports, $150 million in student loan debt is being added to the growing backlog of student loans awaiting rehabilitation.

Consumer advocates and guarantors are concerned that if something isn't done soon to help move these student loans out of default and restore borrower credit, borrowers may get tired of remaining in default and stop making payments on their student loans altogether -- which would lead to even more, snowballing defaults..."

But help is on the way. The Federal Reserve's Term Asset-Backed Securities Loan Facility (TALF) program is now greasing the wheels of the credit markets by providing the funds necessary to revive the market for all kinds of debt, including student loan debt.

My prayer for the TALF: Godspeed.

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Can You Get Student Loans Discharged When You File for Bankruptcy?

Can You Get Student Loans Discharged
When You File for Bankruptcy?

It makes sense that many individuals who find themselves filing for bankruptcy also have defaulted student loans. In our current economic climate, you may be hard pressed to find a college educated twenty or thirty-something who isn't experiencing woes with student loan debt. Government statistics released in September of 2008 report only to FY 2006, when default rates were low, at 5.2 percent. However, when recession hits, student loan default rates go up. Right before the U.S. recession of the early 1990s (which had been looming since Black Monday of 1987) student loan default rates reached a historic high of 22.4% in 1989.

I think it's safe to say that default rates are on the rise again.

So, many borrowers who are considering filing for bankruptcy have defaulted student loans as well. The problem, however, is that generally student loans aren't dischargeable via bankruptcy. In fact, there is very little consumer protection involved with student loan debt in any respect. Such borrower vulnerability is the inspiration for a gripping new film, Default: the Student Loan Documentary. The trailer for this documentary sheds a lot of light on how student loans are some of the most dangerous financial products of our time:



The current recession is sure to cause many other borrowers to default on their student loans, and this may come as they are already considering filing for bankruptcy. The lack of basic consumer protections like the right to refinance, Fair Debt and Collection practices, adherence to usury laws, Truth in Lending requirements, and statutes of limitations build a financial trap that many college graduates cannot escape in a poor job market. Because so many borrowers are uninformed about their financial rights and responsibilities when they acquire these loans, the lack of bankruptcy protection can come as a shocker when it comes time to file. Most people filing for bankruptcy cannot get their student loans discharged.

However, there is a small group who can...technically. If you find yourself experiencing such a great hardship, as in the case of a crippling disability, that you feel you cannot pay back your student loans you can indeed file a separate motion for the discharge of that debt.

But how often does that happen?

How Hard Is It To Get Your Student Loans
Discharged Because of a Disability?

Unfortunately, it is extremely difficult, even in an exceptional case, to get your student loans discharged.



The truth is that most borrowers will never actually be so financially burdened that they can prove that they would never be able to pay back their student loans. AllExperts.com adds,

"...Court decisions that find undue hardship for the debtor have been extremely rare in the reported case decisions. A review of the reported court decisions in this area will disclose that most undue hardship discharges that have been granted typically go to individuals that suffer from some type of very severe permanent and total disability or some sort of permanent disability that drastically restricts the ability of the debtor to more than a subsistence level of income. The courts require a finding that the debtor has proven each of the following three elements:

1. That the debtor cannot maintain, based upon current income and expenses, a “minimal” standard of living for himself and his dependents if compelled to repay the student loans; and
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 student loans..."

Furthermore, if they indeed did meet such qualifications, retaining legal counsel would probably be just as burdensome, preventing them from taking legal action at all. Therefore, in all practicality, it is nearly impossible to get your student loans discharged when you file for bankruptcy. If you do file for bankruptcy, you will still have to find a way to pay your student loan debt. It will only continue to compound if you ignore it; you simply have to pay it back.

So, I guess that there are three guarantees in life - death, taxes, and student loan debt.

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EDITORIAL: Just Because College Is Expensive, It Doesn’t Mean That You Shouldn’t Have To Pay For It.

Editorial

As I was listening to The Rush Limbaugh Show yesterday, I heard a sound byte of Senator Obama and a young college student who was a little disgruntled about the cost of her education. Obama agreed that what she was experiencing wasn’t fair, and of course, went on to give his typical encouragement blurb about change, hope, or what have you. Limbaugh came back to rant about how Obama doesn’t think that people should have to pay for higher education because he is a socialist. Thoughts of my own mountain of student loan debt soon drowned out the radio, and I found myself sincerely contemplating the issue.

Was Obama right? How much should I have to pay for higher education?

Just to be sure Rush’s argument wasn’t unfairly slanted, I checked Obama’s position on his website, www.barackobama.com. His official stance on higher education costs read as follows:

...Obama and Biden will make college affordable for all Americans by creating a new American Opportunity Tax Credit. This universal and fully refundable credit will ensure that the first $4,000 of a college education is completely free for most Americans, and will cover two-thirds the cost of tuition at the average public college or university and make community college tuition completely free for most students. Recipients of the credit will be required to conduct 100 hours of community service...

Low to middle income families would surely welcome such policies, and for good reason. According to the U.S. Census bureau, the cost of postsecondary education has more than doubled since 1990. Faced with today’s gloomy economic climate and grim future, parents and students are crying for relief. Obama promises to educate high school graduates for 1/3 of the cost of tuition.

But is that his job?

While the tax credit sounds great to those who qualify for it, it should worry Americans who do not, because they will be the ones paying the bill. With Obama appeasing the American middle class by promising to increase the tax burdens only on Americans making more than $250,000 a year, this wealth redistribution system essentially boils down to the “rich” and the government taking care of the “poor”.

Is that really fair?

Others argue that the cost of a student’s college education should only be negotiated by two parties - the college and the student. This could be viewed as a free-market approach to education. While some insist that private institutions not backed by the government only serve the rich, the opposite is true. Harvard University has plans to increase student aid this year in a grand effort to subsidize tuition so that more deserving students can afford to attend. This is a good example of a private institution compromising with students to accommodate the changing economic climate.

Whether you like Obama’s plan or not, the truth is that the U.S. government already offers generous student loan programs that empower millions of Americans to pursue higher education while contributing to the American economy. While we hate to pay back the student loans that seem to multiply exponentially as soon as you sign on the dotted line, we enjoy the professional positions that we are able to pursue as a result of our advanced education. Furthermore, the interest goes to help fund the government that provided the initial loan. This allows students to pay their own way through college without having to offer collateral or pay out-of-pocket. Is that not more than fair?

Just because college is expensive, it doesn’t mean that you shouldn’t have to pay for it.

My parents knew that they would not be able to afford to pay all of our college tuition, so they told us to study hard and apply for as many scholarships as we could. They took out loans to cover some of the difference, and so did we. That’s life. Otherwise, we would have either had to put off going to college until we could acquire the necessary savings and credit or pursue other options. This approach to funding higher education wasn’t pleasant, but it was most certainly fair. It’s fair because the return on the investment has the potential to be exponentially higher than the investment itself. If I owe $100,000 in student loans but I make $150,000 per year, the investment pays off substantially. Unfortunately, since great jobs are not guaranteed, college education is a risky investment. That doesn’t mean, however, that if you come up short that it wasn’t fair because the cost of the education was too high. You might then be able to requisition the government to bail you out because you lost money pursuing gain that did not pan out for you.

Wow; that sounds eerily familiar…

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Losing Track Of Student Loans Can Wreak Havoc On Your Personal Finances

While having a big family is a wonderful blessing in and of itself, it’s especially rewarding during tax season. Don’t get me wrong; I value my family infinitely more than a tax refund, but it feels good to know that my commitment to my marriage and children is recognized by our government when tax time rolls around. We had twins last year, so when my husband and I realized that we would get a Child Tax Credit for both of them, we thought that was pretty nice. After deductions, we expected a return in the thousands, so we were happy campers.

During that same time, however, we were dealing with a frustrating issue that did not put smiles on our faces at all. Somehow, when I consolidated my federal student loans, one of them was not included. I didn’t understand how it could have happened, considering how informed the consolidation company was. Loan consolidators do all of the hard work for you - they call you out of the blue, offering to make your life easier by combining your student loans with a great interest rate and anything else you need, including forbearances. As they are explaining everything to you at the speed of light, they list all of your outstanding loans and help you to understand why making one easy monthly payment would ease your anxieties about student loan debt. They’re right; it does. So, I agreed with them and consolidated my loans. They reviewed the information with me again, reading back the information on each smaller loan that would be merged together into the big loan. So, I thought everything was taken care of.

And then we found the one that got away.

Actually, the one that got away found us; once the creditor discovered I had moved and gotten married, they politely called to let me know that I owed them money for a small student loan. It took a while to figure out what happened, but when we did, my heart sank. I was so young and I took out so many small loans while I was in school that I hadn’t been keeping track of them properly. So, when the consolidators did not have their facts and figures right, I should have been able to correct them, but I wasn‘t. I ended up with a defaulted loan because it went unpaid and unnoticed for quite some time. As many young Americans know, having a student loan in default is guaranteed to bring a lot of unwanted phone calls, anxiety, and grief that we did not want. One artist was so encumbered by Sallie Mae that he wrote a song about it:



So, we did everything we had to do to bring that loan back to current status, although it didn't happen until around the time we filed our taxes for the year. Thinking that everything was settled, we filed and waited, only to learn that the creditor had not reported the updated status of the loan, so our entire federal refund would be garnished to settle the debt.

Needless to say, that knocked the wind out of my sail.

Lots of people depend on their federal tax returns each year to cover large expenses or to revive their personal finances. However, outstanding student loans, if they are not current or at least in forbearance, can cause your federal income tax refund to be garnished. Although what we lost was actually enough to pay off the debt and would release us from it, we couldn‘t help but feel blindsided. Our tax preparer told us that we could have appealed the situation, considering that the return was garnished unnecessarily. We decided to just let it go. Although we mourned the loss of our beloved tax return, debt freedom, much like family, is simply too great a commitment to take lightly.

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Losing Track of Student Loans Can Wreak Havoc On Your Personal Finances

While having a big family is a wonderful blessing in and of itself, it’s especially rewarding during tax season. Don’t get me wrong; I value my family infinitely more than a tax refund, but it feels good to know that my commitment to my marriage and children is recognized by our government when tax time rolls around. We had twins last year, so when my husband and I realized that we would get a Child Tax Credit for both of them, we thought that was pretty nice. After deductions, we expected a return in the thousands, so we were happy campers.

During that same time, however, we were dealing with a frustrating issue that did not put smiles on our faces at all. Somehow, when I consolidated my federal student loans, one of them was not included. I didn’t understand how it could have happened, considering how informed the consolidation company was. Loan consolidators do all of the hard work for you - they call you out of the blue, offering to make your life easier by combining your student loans with a great interest rate and anything else you need, including forbearances. As they are explaining everything to you at the speed of light, they list all of your outstanding loans and help you to understand why making one easy monthly payment would ease your anxieties about student loan debt. They’re right; it does. So, I agreed with them and consolidated my loans. They reviewed the information with me again, reading back the information on each smaller loan that would be merged together into the big loan. So, I thought everything was taken care of.

And then we found the one that got away.

Actually, the one that got away found us; once the creditor discovered I had moved and gotten married, they politely called to let me know that I owed them money for a small student loan. It took a while to figure out what happened, but when we did, my heart sank. I was so young and I took out so many small loans while I was in school that I hadn’t been keeping track of them properly. So, when the consolidators did not have their facts and figures right, I should have been able to correct them, but I wasn‘t. I ended up with a defaulted loan because it went unpaid and unnoticed for quite some time. As many young Americans know, having a student loan in default is guaranteed to bring a lot of unwanted phone calls, anxiety, and grief that we did not want. One artist was so encumbered by Sallie Mae that he wrote a song about it:



So, we did everything we had to do to bring that loan back to current status, although it didn't happen until around the time we filed our taxes for the year. Thinking that everything was settled, we filed and waited, only to learn that the creditor had not reported the updated status of the loan, so our entire federal refund would be garnished to settle the debt.

Needless to say, that knocked the wind out of my sail.

Lots of people depend on their federal tax returns each year to cover large expenses or to revive their personal finances. However, outstanding student loans, if they are not current or at least in forbearance, can cause your federal income tax refund to be garnished. Although what we lost was actually enough to pay off the debt and would release us from it, we couldn‘t help but feel blindsided. Our tax preparer told us that we could have appealed the situation, considering that the return was garnished unnecessarily. We decided to just let it go. Although we mourned the loss of our beloved tax return, debt freedom, much like family, is simply too great a commitment to take lightly.

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StudentLoanJustice.org

Student Loan Debt

Was reading the New York Times on Sunday and came across an article about the StudentLoanJustice.org website. It's a web space you must visit at least once if you or a member of your family has student loans. Site is chock full of content that's both shocking and engaging. This site is not just a place to read up on the injustice that exists in the American student loan industry, it's also the official website of the StudentLoanJustice.org Political Action Committee (PAC).

Here's a clip from the site's "about" page:

"StudentLoanJustice.Org is a grassroots organization started in March, 2005. The purpose of StudentLoanJustice.Org is to give borrowers who's lives have been adversely affected by the predatory, uncompetitive laws that have been passed by Congress since the 1990's a place to tell their stories, to conduct research about higher education legislation, higher education lenders, the effect these have had on the lives of citizens, and to cause a solution to be legislated. Without advertising, revenue, or staff, StudentLoanJustice.Org has grown to thousands of members across the country comprising every state in the Union..."

When I defaulted on my student loans, it was because I didn't want to make the payments. I was trying to get ahead in life. I didn't think the government could or would take every penny I had in my bank account. But that's exactly what happened; I learned a hard lesson.

The U.S. economy is languishing right now, and I'm certain that a consequence of the economic downturn will be lots of Americans defaulting on their student loans in the months ahead. Many will have legitimate reasons for defaulting, like an unexpected illness or unemployment. And here is a very ugly truth I learn at the StudentLoanJustice.Org site: Sallie Mae CEO Albert Lord made more than $230 million in compensation since the late 90's, and a significant portion of that money came from the fees associated with borrowers defaulting on their student loans. Lord got so fat from student loans that he put in a bid to purchase the Washington Nationals baseball team.

Now, if a CEO grows a company's profits during his tenure at the top then, yes, he should get a generous bonus. If a company goes from grossing $3 billion per year to grossing $35 billion, then a bonus of $500 million is OK with me.

But banks that are in the business of making student loans are not like banks that make business loans, originate mortgages or issue credit cards.

If a borrower suddenly finds himself in financial dire straits and can't make payments on his/her student loans, that person can't get the debt discharged via bankruptcy, thanks to the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 [1][3]. Default on your loans, and the fees will pile up (don't forget about the interest.) Those fees go to student loan specialists like Sallie Mae, and make CEO's like Mr. Lord very rich. To me, it's obscene that a CEO can get rich in this way.

There are some interesting articles and OpEd's here.  You can share your student loan horror story here.

Many Americans have shared their student loan horror story with StudentLoanJustice.org here. It's truly amazing how many defaulted due to hardship only to find that their student loan debt has doubled, tripled and even quadrupled due to interest and fees. No, it's not amazing, it's disgusting.

In a recent blog entry, I was second guessing my decision to use a significant chunk of my savings to payoff my student loans. After reading unnumbered horror stories at the StudentLoanJustice.org site, all my doubts have disappeared. Yep.

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The Student Loan Dilemma

When I decided to go to college I knew that no matter where I went I was going to take out student loans. My parents didn’t have much money to pay for college and I had little to no savings for the occasion. Instead of thinking about money and how much the bill would add up, however, the school advisor was limited to helping me choose a school. After all, I was going to have a college degree in four years so what’s the difference how much my student loans added up to? While there are some kids that have a strong and dedicated desire to be something great like a doctor, lawyer, or dentist, most kids planning for college simply go to get a degree in whatever interests them by their junior year. If you plan on going to graduate school at a hard-to-get-into college then the undergraduate school may matter. If you are going to graduate with your bachelor’s and get a job, I’ve learned the institution really means nothing.

I chose to go away to school in upstate New York where most of my friends were going. I had no clue what I wanted to do but knew that I qualified to have just about everything paid for by my student loan. The majority of the loan was through a private bank while just a minute amount was funded through the government. An even smaller amount was given as a grant that I wouldn’t have to pay back. At 18 years old, I didn’t think twice. I packed up my belongings and headed off to what would become the best four years of my life.

After I graduated college, my loans totaled over $20,000. I slowly paid off the government loan which was around $3,000 and deferred payments on my private loan. Although the rate was pretty good at 4.41% I found it impossible to pay the $390.00 monthly payment with my newly acquired job. I applied for consolidations and was denied multiple times. Since the rate was good everyone I spoke to acted as though the $17,000 should be easy to get rid of. But I didn’t go to school to be a lawyer or doctor, I graduated with a degree in Psychology that I settled on after 3 years of trying to figure out what it was I wanted to do. In fact it seemed as though my college degree was more of a high school diploma and all the places I applied to could care less what I studied, only that I had the degree. Completing 4 years of college showed dedication and an aptitude for learning and that was all anyone seemed to worry about. My job was in sales and I had no idea how I was going to pay back the money I owed.

That was 8 years ago. Today my loan now totals over $19,000. The interest keeps building up and the payment remains at $390 a month, a nearly impossible amount for a person that makes $30,000 a year to afford. Now that I own a home I’m going to try the consolidation process again to see if that will help. After all, isn’t better for me to pay something rather than nothing? It would seem from the $2,000 in interest they’ve made that the answer to that is no.

While going away to college was a great experience, was it really worth the price of a new car? I could have easily got the same degree at a local community college for less than half the price and to be honest most employers could care less where the degree came from.

My answer to this dilemma is a big fat resounding yes.

While many kids may seem like they are just going to college for the sake of it, who are we to make that choice for them? I am happy I was given the chance to decide for myself and will do the same for my children someday. Limiting a child to a local community college when they have aspirations is like telling someone who wants to be a police office they can only be a security guard. Yes, many of them will fail and end up protecting the local mall anyway, but isn’t it worth it to give them a chance?

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Was Paying Off My Student Loan Debt A Bad Idea?

Student Loan Debt

Back in January 2008, I decided to payoff my student loan balance and be done with it. At the time, I wasn't too worried about draining my savings account, since business was good, and I felt that my business was more or less recession proof. I was paying 8% interest, and there was no way for me to consolidate to get a lower interest rate, because I had already consolidated with William D. Ford. (FYI: you can only consolidate student loan debt once, unless you go back to school and get more student loans.)

Here's what prompted me to payoff my student loan debt:

The above is a clip from the 2007 tax statement sent to me by the folks at William D. Ford. As you can see, since I consolidated, the amount I paid toward the principal was about the same as the amount I paid in interest. That just boiled my blood, and made me a little bit sick to my stomach. I'd been paying interest my whole life, and I was tired of it. This student loan debt was the only debt on which I was paying interest. I had an opportunity to rid my life of interest payments, so I took it.

Now, I'm beginning to wonder if paying off my student loan debt was a good idea. Yes, I know, you're asking yourself, "how the heck can paying off a huge debt be a bad idea?" It can be, if, like me, you are now working with a depleted savings account. I have learned -- the hard way -- that my business is not recession proof. In fact, I have learned that it is in fact very sensitive to economic conditions. This is the first time the economy has taken a hard spill since I began expanding my business back in 2003.

I had paid off my car note a few months previous to paying off William D. Ford, which did not help at all. At the time, I was very confident in my ability to maintain a steady and strong income. I got cocky, and now I'm paying the price.

Here's are the other directions I considered:

• Keep paying ~$110 per month with 8% interest. Balance would be reduced to $0 in about 500 years.
• Increase my monthly payment to reduce the time it will take to bring the balance to $0, and reduce the total amount I would have to repay. Of course, with this option, I still would have been burdened with an 8% interest rate.
• Transfer the debt to a 0% credit card. A decent option, but with 2 significant negatives 1) Once the interest-free period ends, there is no way to guarantee that I'd be able to find another favorable 0% credit card deal to which I could transfer my balance. 2) Balance transfer fees. 18 months ago, finding a 0% credit card that doesn't charge a balance transfer fee was easy. With the onset of the economic slowdown and the global credit crunch, feeless deals have all but disappeared.

So, yeah, I'm hurtin' right now, but I'm still very glad that the debt is gone. I cannot put into words how satisfying it was to call William D. Ford to check my balance, and hear this.

So, how am I going to manage?

First, I'm going to petition the family court to have my child support payments reduced. My monthly payment is nearly $700 for one child, which is way too high considering my current income. The mother of my child and I recently canceled plans to send our daughter to an expensive, private school. The fees were just too high (~$8,500 per year.) That's too much for a child going into Kindergarten. Even if my current income was the same as it was one year ago, when I was making almost as much as a U.S. Senator, I'm 90% certain that I would have decided against sending her to that expensive school. Fact is, she's doing great in the subsidized private school she's attending now. She also goes to Kumon twice per week, which I can recommend to any parent who can afford the $200 per month (she is way ahead of her peers in math and reading, thanks in no small part to Kumon.)

Second, I'm going to cash out my whole life insurance policy and get a term life policy. Suze Orman has finally convinced me that whole life insurance is not the best way to go.

Third, I'm going to cutback on my food shopping. Thankfully, I stocked up on meat during the good times. I now have a deep freezer full of high quality meat that could last a year or so -- literally!

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If you can payoff your student loans, I say do it. Just don't payoff your car note within the same time frame! Comments welcome.

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No News Is Good News: Fico® Score Holds At 803

My FICO® credit score was updated recently:





For the fourth month in a row, my score has moved sideways, which is just fine with me since I'm happy with my score. I'm expecting a small increase soon, since I recently paid off my student loan debt. I doubt I'll get more than a 5 point bump, but that's OK. I paid off my education loans because of the 8% interest I was being charged and not for any credit score benefit that may result.

For those of you who are paying down student loans, I've recorded one of the sweetest things you will ever hear over the phone. Click here to listen to the MP3.

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Hey, Student Loan: Bye-Bye, and Thanks for The Memories

My student loan statement for 2007 arrived from the U.S. Department of Education (ED) earlier today. As I reviewed the numbers, I reached a section of the document that actually made me somewhat sick to my stomach. Here it is:




The sickening part, you ask? Since I began repaying this loan, I've paid nearly as much money in interest as I have on the principal. That's enough to make anyone queasy. This truth didn't bother me too much in the past, but it does now. A lot. I'm just too old to be paying this kinda' interest. For 2007, I paid close to $650 in interest on my student loan debt.

This situation is my fault really. When I started repaying this loan, I wasn't making that much money, so I wanted the installment amount to be a low as possible. Thankfully, the good folks at William D. Ford have an "income contingent" repayment option which allows the borrower to set their monthly payment amount to a figure that's commensurate with their salary. My payment was set to $109.11 per month, which has been very manageable over the years, especially with the added tax deduction. Income contingent is great for your budget in the short term, but devastating for your finances in the long. Paying such a small amount each month is a great way to get nowhere fast. I should have gotten off income contingent a while ago.

I thought about contacting ED to get myself off the income contingent plan and onto a plan more compatible with my current financial status. I thought about this for a while and eventually came to the conclusion that this option wouldn't give me any real satisfaction. I realized that the only way I was going to feel like I've improved my financial life would be to get rid of my student loan debt as fast as possible.


My next idea was to take advantage of one of the 0% balance transfer checks that I often receive via snail mail, offers from credit card companies with which I already have an account. In fact, today I got one from Bank of America, and it fit the bill nicely. The balance on my student loan debt is a little over $11,500 (I called for a payoff quote), and this particular Bank of America account has a credit limit that's close to $13,000. All I would have had to do was sign the check, mail it to ED, and the debt would have been transferred to my card. I would have paid no interest on the debt until January 2009. I wouldn't have waited that long to pay it down to zero, however; I would have paid the card off within 4 to 5 months.

This idea soured real fast when I realized that my credit score would have taken a pretty big hit as a result of this debt transfer maneuver, especially because this card would have been close to "maxed out" for a while.

I then decided to just payoff the debt with good old fashioned cash, a decision I'm going to stick with. In a few minutes, I'm going to make arrangements with my bank to transfer the cash, and, in about 12 days or so, the cancer that is my student loan debt will be expunged from my life forever.

The decision to pay cash wasn't an easy one. Very recently, I dipped into my puny savings account to payoff my car note, so another incursion into my savings account is going to leave me with a very wimpy emergency fund. The prospect of being 100% free from paying interest, however, is just too tantalizing for me to resist, so I'm doing it. I'll have to tighten my belt for some months, but that's OK, for I've learned to love the idea of making small sacrifices in order to realize "big picture" goals.

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No More Car Payments

For some months now, I had been thinking of dumping some cash into a certificate of deposit (CD) because the Fed is currently in a cycle of cutting interest rates. The Fed has been cutting since mid-September of last year, and when the Fed cuts the benchmark Fed Funds Target Rate, yields on CD's and money market accounts drop as well. About 3 months ago, when I first got the urge to invest in a CD, the annual percentage yield (APY) on a 12 month CD at my credit union was 4.16%. Today, the yield is 3.6%, and since the Fed will be lowering rates some more, the yield will only head south in the coming months.

But then I thought about my car loan, on which I'm paying an even 6.00% annual percentage rate (APR). Does it make sense to invest in a CD paying less than 4% APY, when I'm paying 6% APR on my car loan? No, not really, especially because a car is a depreciating asset. The resale value of my car holds up very, very well, which I was able to verify by checking out prices on eBay Motors, and looking up estimates on Kelly Blue Book and NADA for the same make and model. But a car that's accumulating miles in the Northeast USA, where there's plenty of car-corroding salt and sand, will always depreciate over time, so my baby is still losing value, though at a relatively slow pace. So, despite the pleasant fact that the realistic value of my ride was higher than the balance on my car note, it became very clear to me (don't you just love clarity?) that the right thing to do was use my spare cash to payoff the loan, and invest in a CD later.

So, last Wednesday, I logged onto the Capital One website to get a payoff quote for my auto loan. On Thursday morning, I visited my local post office and mailed, via overnight express, a check for a tad over $9,000. Today, I was able to login to the Capital One site and confirm that the payment was received. Yahoo. Feels pretty good: I own a great car, and I no longer have car payments (I was paying around $349 per month.)

Actually, if the interest-rate environment isn't looking good in a few months, I may opt to payoff my student loan instead of getting a CD. I would need another $10,000 or so to pull that off, so it won't be an easy decision. The only positive thing about student loan debt: the interest is tax deductible (at least it has been; it may not be anymore since my balance is relatively low now.) I think the urge to payoff my student loan will increase as the months pass, because it's now the only debt I have where I am paying interest, and I'm really tired of paying interest!

Will my car loan payoff boost my credit score? Maybe a little. I'll report back as soon as my FICO score is updated.

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Supreme Court Decision: Social Security Benefits Are Fair Game

Years ago, when the government emptied my bank account in order to satisfy a portion of the student loan debt that I wasn’t repaying, I was floored. I could not believe that the government had the power to take away all my money in such a manner. It was a wakeup call that I won’t ever forget, and it was, quite frankly, one that I really needed.

From this day forward, many retired and disabled folks who receive Social Security (SS) benefits, and who’ve made the mistake of disregarding their student loan debts, may experience the same shock and horror that I went through when they get their next SS check.

Today, the Supreme Court ruled against Mr. James Lockhart, the 67-year-old retired postal worker who’s SS check had been cut by 15% in order to make payments towards his 20-year-old student loan debt.

Lockhart’s case was controversial in 3 dimensions:

1. Lockhart defaulted on his student loan debt 20 years ago, which means that his SS benefits should have been protected by the Debt Collection Act of 1982.
   
2. The Social Security Act stipulates that SS benefits should not be "subject to execution, levy, attachment, garnishment, or other legal process."
   
3. Lockhart claimed that he needed every penny of his monthly social security check ($874) to pay for food and the medicines he needs to treat his diabetes and heart disease. James Lockhart lives in public housing.

Today’s Supreme Court ruling sorts out 2 conflicting rulings made by 2 lower courts regarding Lockhart’s case and another similar case.

The 9^th US Circuit Court of Appeals had ruled against Mr. Lockhart because The Court felt that the Higher Education Act gives the government every right to take a cut of Lockhart's SS benefits.

However, the 8^th Circuit Court made a contradictory ruling in a case that was separate from, yet very similar to, the Lockhart case. The case involved Ms. Dee Ella, a Kansas City, Missouri woman who defaulted on her student loan debt 20 years ago; the 8^th Circuit Court decided that the Social Security Act and the Debt Collection Act should protect Ms. Ella from having her SS benefits offset by the government.

So, basically, the job of the Supreme Court was to decide which Act of Congress should trump the other: The Higher Education Act (or, to be more precise, the Higher Education Technical Amendments) won out.

So now it doesn’t matter how poor or disabled your are, it doesn’t matter if you need every penny of your SS check to pay for life-preserving medicines and food, and it doesn’t matter if you defaulted on your student loan debt 30 or even 50 years ago: the government can--and most likely will--offset your SS benefits if you default on your federally subsidized student loans.

Your comments are welcome and appreciated.

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Student Loan Default: Pay Back Those Student Loans or Else The Government Will Come After Your Social Security Benefits!

If you ever needed a good reason to start making payments on those student loans you've been neglecting, here it is:

James Lockhart has been told that he must repay the over $80,000 he owes in student loans, even though Lockhart is now past retirement age and his student loan debt is over 10 years old.

Student loan deadbeats: get out your checkbooks, fast!

Looks like Lockhart should have consolidated his student loans a long time ago. Now he has to contend with the most powerful government on the planet coming after his social security benefits. Yikes!

I sympathize with Lockhart but the bottom line is he should have made at least some effort to make payments on his student loans, just like the rest of us. If you want a free graduate school education, you'll have to move to England (and become a British citizen!)

I really wasn't surprised about this story. After the whole bankruptcy bill nonsense, I think the federal government is on a "get all the deadbeats" run this year. And the banks, credit card companies and other major lending institutions are all smiles about it.

Don't get me wrong: I'm not trying to come off as self-righteous here. In fact, I was the quintessential student loan deadbeat about decade ago. But I cleaned up my act, and I think Mr. Lockhart should as well. A part-time job for Lockhart? Maybe. He's old, has a heart condition and diabetes. But he was unemployed after 1981 and didn't work much after that. Hmmmm...All that education and not working for decades? Not a strong case, Mr. Lockhart!

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My Student Loan Debt Horror Story

I have a very personal story to share with all you people out there with student loan debt. I am sharing this story in the hope that as many people as possible can learn from my mistakes. This is a true story that happened to me back in 1999.

I had been out of school for quite a while. I was working at a big law firm in New York City making a decent living, paying my bills and some of my debt. I had (foolishly) incurred a lot of credit card debt in my youth and I was really paying for it. I also had about $11,000 in student loan debt from a Federal Subsidized Stafford Loan I had taken out when I was in school. I wasn't paying my student loan debt. In fact, I completely ignored my student loan debt, throwing all the threatening letters I received into the trash! My thinking was, "what could they do to me? If I ignore the debt the government will step in a pay it off. Besides, those monthly payments are way too high!" There was a moderate amount of guilt associated with my actions, but it's hard to feel sorry for the richest government that has ever existed on the earth.

So I was moving along with my life, happy to be slowly improving my credit rating by paying of my old credit card debt. I got a raise at work and started investing a large chunk of my paycheck into my employer's 401K plan. Yeah, things were OK and getting better. It was at this point in my life that I opened a business checking account because I had big plans of quitting my job and starting my own business. I started making small deposits to this account every week or so and soon I had over $1000 in that business account. And that's when it happened.

One day, I was performing a routine balance check on my business bank account and found that my bank account was completely empty! Shock? Horror? No, it was more than that. I nearly fainted! I immediately got on the phone with the bank to get an explanation. They informed me that my money was legally withdrawn from my account by a law firm representing the government in student loan default matters. I got the phone number for that law firm and called. They told me that they had obtained a "judgment" against me in court 3 or 4 years prior, and that they had every legal right to seize any and all money in my bank accounts. Wow. That's some serious power, eh?

So, all those threatening letters I was throwing away: I really shouldn't have done that! If I had responded to those letters, I would have been able to avoid the nightmare that I have just described. If I had contributed a little less to my 401K and made payments on my student loan, I would have avoided having my bank account emptied. And to add insult to injury, because my business bank account was empty, the bank assessed some very large and nasty fees due to lack of funds.

Hey! Learn from my mistakes! Consolidate your student loan debt and do it now while interest rates are still low. If I had consolidated my student loans years ago, I would have been able to secure a fantastic interest rate, which would have made my monthly payments far more manageable and I would have been much more inclined to keep up with my student loan payments.

The market for money for the average consumer is the best it's been for many years. Take advantage and get a great consolidation interest rate for all your student loans. The economy will be strong again soon, and that means higher interest rates. If you don't consolidate your student loan debt now you'll probably regret it. I am not saying to go for the first student loan consolidation offer that comes your way. You should shop around for the best consolidation deal, just as you would shop around for the best mortgage or credit card deal. Nowadays, there are a plethora of organizations out there that specialize in buying student loan debt (it's obviously a very profitable thing to do these days.) All that competition is great for you, the consumer, so let the consolidation companies fight for your business. Don't settle for anything but the very best deal.

Thanks for reading. Comments are always welcome.

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