Suze Orman on Student Loans....

Suze Orman is a bit of a personal finance and credit guru, depending on who you ask. Here is her opinion about student loan repayment plans. She's not a fan of IBR in most cases, save for those people who will qualify for PSLF. 

In order to combat your own personal student loans, it's best to consider the viewpoints of multiple people. However, always consider the source. Orman may have some good ideas about finance, but she also involved in murky institutions such as the University of Phoenix. Student debtor, beware.

I don't wanna go to rehab, no, no, no....but why not?

I don't want to pawn off Amy Winehouse, so I butchered her famous song in the title above. Rehab can be good for many things: getting people off nasty substances, building bone or muscle strength, and in the case of student loans gone bad. I've discussed in earlier posts how late student loan payments can mess with your credit terribly. It's good to know that in advance so you can keep this from happening.  That's all well and good, but what if student loans have already damaged your credit? 

If you have federal loans, you may be in luck. You can rehab your loans! Make sure to rehab your loans directly with your loan servicer! Here is official information from the government about loan rehab and rehab options. DO NOT sign up with a company that makes you pay a fee with the promise that they will undo the damage. There are many scams out there! The CFPB also has good info. Report any violation of your rights directly to the CFPB!

Student loans and credit implications.

Student loans impact your credit, but the status of your student loans determines the type and breadth of this impact. 

*Late payments will damage your credit for years to come....don't allow it to happen, no matter what. 

*However, it is not all doom and gloom. Having student loans does not necessarily lower your credit score. 

Visit the following sites for more specifics about student debt and credit. They are seriously valuable!

1. Creditboards

2. Myfico

Loan Modifications.....for student loans?????

Private loans have gotten a deservedly bad rap because of their  inflexible nature. Well, it appears that it is snowing in hell (and currently in Buffalo, NY). Wells Fargo and Discover are allowing people to modify their PRIVATE loans when they experience hardships. What the what? Apparently, they are also doing it of their own volition (or on the advice of a PR firm). This is potentially good news for those burdened by private loans.

Who knows how this will actually manifest, or how much help it will truly bring people. Still, it is a start. A start of something good, I hope.

Some Student Loan Documentaries/Reports on YouTube.

What is better than free? Not much! YouTube offers some great entertainment for no cost. Ever peruse cute kitten videos for stress relief? It works. 

Anyway, onto student loan topics. 

Here is a very informative (but scary!) documentary on student loan default. 

Here's another.

Don't read some of the comments, though :(

Living expenses and financial aid.

 The Chronicle of Higher Education has an informative article about the cost of living expenses when going to college. This was the main thorn in my side when working on my doctorate. Even with a roommate for most of my PhD, the cost of rent, car payments (for an old, but reliable, car), utilities, internet, food, gasoline, etc. really added up. Thankfully, the area in which I live has reasonable rental options compared to places such as New York City, Boston, or San Francisco. 

People in authority often give advice that students should commute from home, share a house with 7 people, find that magical living space that is safe and inexpensive, live off of Ramen noodles, and sell plasma for book costs in order to reduce living expenses. Some of that advice is spot on, but it won't work for all people. Sometimes a long commute does not actually save money. Grad school debt is also rising alarmingly, and the solution isn't simply reducing expenses. Most students live rather minimalist lives as it is.

So, what can be done? Perhaps better funding at state colleges for grad students engaged in long programs of study. Also, there are creative ways for students to earn extra money. Here's an article from Lifehacker about how to earn extra money (some active, some passive). I plan on trying some of them to help my broke self. I'll keep you posted on what works!

Retirement funds and student loans? Yeah, right! Or, maybe.....

How many students contribute to retirement funds? Not enough. How can those with student loan payments even think about putting money away for retirement? Kind of by necessity. If you earn enough for Standard Repayment, then good for you! I hope you are socking away as much as possible. For those on Income-Sensitive repayment plans, there is some good news:


Your monthly payments are calculated annually based upon your adjusted gross income (AGI). Your AGI is your gross income, less any deductions. Well, certain retirement contributions lower your AGI.  Check out this site for more details about how to reduce your AGI, and thus your monthly payment. Awesome news, and highly recommended since retirement is very important. No one wants to adjunct five classes instead of traveling with the grand kids.

For-proft universities fight the government.

I was very happy to read that the government was attempting to regulate for-profit colleges. In many cases, these institutions take advantage of students. Shame on them. See the following stories for more details:

 1. For-Profits and Their Scams

 2. Corinthian Colleges are Scams

 3. For-Profits are Predatory Towards African American Students 

 4. Attempts to Regulate For-Profit Colleges


For a humorous breakdown on student debt and for-profit colleges by John Oliver, go here.

Now, for-profit colleges are suing the government for attempting to curb their abuses. There may be some for-profit colleges that are not scams, but their entitlement in general is sickening.

More than just high earners have staggering student loan debt....

The supposed good news for today? I came across this piece in Reuters and think it is a bit misleading. The gist of the article is that most people, such as doctors and lawyers, with high student loan debt also earn a high salary. Unfortunately, this is not always the case. Many low to mid salary earners also carry a burdensome amount of debt. That's not good news for anybody.

On a better note, there is some help for those with private student loans. I've mentioned this before, but the CFPB handles some private student loan issues. They are a great starting point for misbehaving loan servicers and companies.

Example A:

http://consumerist.com/2014/10/16/cfpb-private-student-loan-companies-provide-few-options-for-borrower-driving-them-to-default/

How PSLF may benefit more than just qualifying students....

Now I've read it all.....some on Wall Street are all for student debt forgiveness programs?

http://money.cnn.com/2014/10/31/news/economy/student-debt-forgiveness-wall-street/index.html

I'm not sure how realistic this is......but it is good that people are thinking about how student loans would influence the economy.

Now, for more meh news. As most of us know, student loan servicers deceived borrowers. I hope this plays out with major sanctions for them. Seriously.

On an unrelated note, Happy Halloween!

After a brief hiatus....

Student loan issues have been dragging me down a bit. As much as I'm optimistic about repayment and Public Service Loan Forgiveness, it is a long, hard road. It's normal to doubt oneself sometimes, I think. I find myself alternating between optimism and raging helplessness (usually after talking to my loan servicer). Students (current and former) are under a great deal of pressure from many sources. One has to find a job to pay the bills and cover student loan payments. If someone hopes to qualify for PSLF, then the employment must be qualifying employment. Ideally, the job should be enjoyable, or at least tolerable. Finding that sweet spot job may take awhile. The temptation to take any paid position is there. Is going to school for a dream career still worth it? I think so, most time.

Anyhow, sorry for the rant there. I came across this article about the psychological aspects of student loan debt. It's both common sense and mojo-killing.

To balance out the negativity of the last link, view this :)

I took a brief hiatus from this blog in order to do a couple of things. For one, I am helping found a non-profit corporation. One of the goals of this company is to provide employment, either directly or through networking, to people who need to reach 30 hours per week for PSLF purposes. Adjunct instructors and part-timers may find this useful. Some people work 28 hours per week (for example), and have a hard time finding that other two. I think this could be a good thing. We are currently getting together our 501c3 (tax exempt) paperwork for the IRS. I'll keep everyone posted on this!

On another note, here is your student loan news for the day :) More to come tomorrow.

http://www.reuters.com/article/2014/10/28/us-usa-financial-regulation-cfpb-idUSKBN0IH24E20141028

Student loans, mortgages, and the economy......

Student loans are killing the economy! Student loans are the next bubble that will burst!  The sky is falling! Headlines such as these seem to come out every day. Some are sensationalistic, while others have a kernel of truth. I think everyone knows that student loan indebtedness is hindering some aspects of the economy…..after all, when one has a huge student loan payment, he or she has less disposable cash to put back into the economy. If the majority of one’s income goes to Sallie Mae, FedLoan Servicing, Nelnet, or another servicer, then one is less likely to buy a new car or house.

No one is exactly sure how much of an impact this will have on the housing market. According to USA today, "your student loan is killing the housing market."  This could be true…after all, who can afford a student loan AND a mortgage payment? Well, many people can...if their loans are small enough, if their income is high enough, or if they have an income-driven repayment and understanding loan officer.

Thankfully, buying a home is still an option for many people with student loans, provided the application process is done strategically. Student loans are becoming commonplace for young people…student loans are essentially the new tattoos (many people have them, they are no longer uncommon). For those under IBR or other income-driven repayment plans, some underwriters and loan officers understand IBR. See:

http://thecollegeinvestor.com/5742/reader-question-applying-mortgage-income-based-repayment/

http://ncfhaexpert.com/first-time-homebuyer/student-loan-ibr-mortgage-qualification-2014/

Here are some solutions that people are working on. I’m trying to include multiple points of view here, economically and politically speaking…..

*A potentially bi-partisan understanding:

 

  http://thehill.com/blogs/congress-blog/politics/220280-democrats-also-have-a-youth-problem

*Obama has proposed that higher education become more affordable, that borrowers have greater access to FHA loans for houses, etc. http://www.whitehouse.gov/the-press-office/2014/10/09/fact-sheet-president-obamas-agenda-creating-economic-opportunity-millenn

*Marc Cuban’s solution: http://www.inc.com/graham-winfrey/mark-cuban-on-his-plan-to-fix-the-economy.html

A very important article from lifehacker....

http://lifehacker.com/what-really-happens-if-you-default-on-your-student-loan-1641197706

Me, My Debt, and I.....

Student loans regulations can sometimes seem as complex, and as important, as the Magna Carta. What are a borrower's responsibilities? I came across this disturbing article a couple of weeks ago: http://nypost.com/2014/09/10/seniors-are-struggling-with-student-debt-too/.  In addition to recent graduates, senior citizens are also repaying student loans. It appears that some of this debt belongs comes from seniors’ own debt. In other cases, parents who took out PLUS loans for their children’s education hold the debt. This brings up an interesting question. Who is legally responsible for repaying federal student loan debt? The answer is, in most cases, the individual borrower himself/herself. Most cases, that is. Here is a breakdown of various circumstances.

*Death of borrower (Federal loans):  If the borrower dies, then 100% of the balance is canceled. This is true for federal loans, not necessarily private. If the borrower was the only one responsible for the loan, then the IRS will not treat this canceled balance as taxable income. On the other hand, if the loan is a Parent PLUS loan, the parent who signed the loan document will get a bill from the IRS. Ouch indeed. Here are some resources that address this issue:

http://blog.credit.com/2012/04/cancelled-student-loan-debt-creates-tax-nightmare-55658/?utm_source=ABC&utm_medium=content&utm_content=IB_6&utm_campaign=student_loans_die

http://www.huffingtonpost.com/2012/09/19/regina-friend-maryland-student-debt-irs-bill_n_1896759.html

http://thestudentloanlawyer.com/670/what-happens-to-a-student-loan-when-you-die/

*Marriage of borrower (states that are NOT community property states): If a borrower gets married, his or her spouse is NOT legally responsible for the other person's federal student loans. These loans will stay on the borrower’s credit report and will NOT make their way onto a spouse’s. A spouse also cannot be sued for the borrower’s student loans. Similarly, in the event of divorce, the borrower’s loans will remain his or her responsibility.

 https://www.mint.com/blog/credit/married-couples-and-student-loan-debt-10201/

*Marriage of borrower (community property states): Community property states are as follows: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. In these states, debts incurred before the marriage remain the responsibility of the borrower. Debts incurred after the marriage are usually considered to be the responsibility of both people in the marriage. A judge may assign liability to both parties in the event of divorce. However, federal student loans may not fit into this category. Each state has its own regulations on this issue. If you live in one of these states, it might be a good idea to consult an attorney to get the specifics.

http://www.brighthub.com/money/personal-finance/articles/103571.aspx

*Marriage and monthly payment amount: Although you may not be legally responsible for repaying your spouse’s student loans, your income could still be used to calculate his/her monthly payments. ICR, IBR, and PAYE are great options for people who need them. Under these repayment plans, your AGI (Adjusted Gross Income) is one factor that determines what your monthly payment will be. Your AGI can be based upon the borrower’s income alone if you file your taxes as “married filing separately.” This comes with some tax penalties, so you should consult a CPA before filing.

If you file joint tax returns, then your spouse’s income will be factored into your monthly payment. This is not all bad news….you can usually take more deductions to reduce your combined AGI if filing jointly. The good news is that you don’t have to commit to a single filing status for the life of the loan…you can change your status yearly to best fit your circumstances. Still, seek a CPA.

http://www.nolo.com/legal-encyclopedia/tax-filing-status-student-loan-payments.html

http://www.learnvest.com/knowledge-center/when-should-a-married-couple-file-alone/

http://www.gladvisor.com/commonmistakeswhenrepayingstudentdebt.aspx

I personally want to keep others from being responsible for my student loans. I know this may seem a bit ironic since I’m enrolled in Public Service Loan Forgiveness, but it is what it is. Since my loans are federal, no one else will ever bear their burden. Me, my loans, and I. There are some things you can do to protect yourself and others…..

1.     Don’t cosign for another person. This is perhaps the easiest way to protect yourself. Even if your intentions are good, cosigning a loan is rarely a good idea! This may not be a popular opinion. Cosigning might be the best available option for some people….I am just unaware of such circumstances. Obviously you must make your own decision, but check out the links below for some horror stories. Federal loans don’t require cosigners, so this is more of a private loan issue.

http://www.usatoday.com/story/money/columnist/tompor/2014/08/24/susan-tompor-cosigning-a-student-loan-risky-for-parents/14501901/

http://credit.about.com/u/ua/toughcreditissues/Co-Sign-Horror-Stories.htm

http://almostdebtfree1.blogspot.com/2010/08/cosigner-nightmare-and-plan-c.html

http://wgntv.com/2014/07/29/parents-face-200k-in-student-loans-after-daughters-death/

http://consumerist.com/2014/07/07/am-i-completely-screwed-when-my-student-loan-co-signer-dies/

2.     Consider getting a prenup. Even if one party has only federal loans, a prenup can make things easier from the get-go. This is especially important if you live in a community property state. I’m not endorsing prenups in all cases….you know best what works for you.

http://www.bankrate.com/finance/debt/will-prenup-protect-fiancee-from-debt.aspx

http://blog.nolo.com/bankruptcy/2013/08/21/student-loans-and-marriage-go-together-like-a-horse-and-carriage/

http://www.legalzoom.com/prenuptial-guide/prenuptial-separate-property.html

PSLF + (IBR, ICR, or PAYE)=Awesome!

In my previous post, I presented the general requirements of PSLF (type of repayment plans that qualify, qualifying employment, etc.).  In this post, I will illustrate how awesome PSLF can be for those under IBR, ICR, or PAYE. Payments made under the Standard Repayment plan also count towards PSLF for one reason: some people on IBR or PAYE might one day make lots of money (yea for them!). With a high income, they might no longer have a “partial financial hardship” as defined by the government. If they no longer have a “partial financial hardship,” they will be put back on the Standard Plan. PSLF allows Standard payments to qualify so these people don’t miss out on the forgiveness after 120 qualifying payments.

Here’s an example. Let’s say that I spend the next seven years earning a salary that leaves me with a partial financial hardship in relation to my loan balance. During those seven years, I’ve made payments under IBR and worked at a job that qualifies for PSLF. Then, in my eighth year, I get a wonderful new job (still one that qualifies for PSLF) with a high salary. This new salary no longer leaves me with a partial financial hardship, so I’d get placed on Standard Repayment. After three more years of payments, I’d qualify for loan forgiveness under PSLF. Nice! Now, if I were on the Standard Repayment plan for all 120 qualifying payments, technically there would be no balance left to forgive.

So, here are some numbers! If I have $100,000.00 in student loans (with a 6.8% interest rate), file my taxes singly, have a family size of 1, and a starting AGI of $45,000.00, here is the breakdown:

*Standard Repayment: $1,151.00 per month for 120 months, ending balance of zero (no forgiveness)

*Income-Based Repayment: $334.00 per month to start. Let’s say, for the purposes of easy math, that my income and monthly payments stay the same for 10 years. I’d pay a total of $40,080.00 over the course of 10 years. The remaining balance (plus any accrued interest) would be forgiven tax-free if I had worked at a qualifying public service job for the entire 10 years.

Damn, that is some good stuff. People who qualify for PAYE would save even more money than under IBR. Currently, there is no cap on the amount that is forgiven under PSLF. Some legislators want to change this for future borrowers. Bah.

If you feel depressed about your student loan balance, I suggest going to the repayment calculator here and pretending you qualify for PSLF immediately. It’s better than drinking a bottle of wine, in my opinion.

An introduction to Public Service Loan Forgiveness (PSLF)

PSLF is music to my ears. It is my savior, my comforter, and my redeemer. I didn’t mean to be sacrilegious there, but this program is a way to rid oneself of student loan debt after 10 years (120 payments). I’m giving it lots of props and hopes. Still, it is not a panacea. This program has many requirements that must be followed exactly. Currently, it’s also an “all or nothing” deal; there is no partial forgiveness. Forgiveness is a sweet thing, though, since it is (currently) NOT considered to be taxable income :) Note my image of a zero above...that is my goal in ten year.....owing exactly zero dollars.

PSLF has been in the news a great deal lately. Still, some people have never heard of it, and others confuse it with a repayment plan such as IBR, PAYE, ICR, etc. It is confusing….very confusing. PSLF is a program rather than a plan. Here are the basics…

*What is it? From studentaid.ed.gov:

“The PSLF Program is intended to encourage individuals to enter and continue to work full-time in public service jobs. Under this program, you may qualify for forgiveness of the remaining balance due on your William D. Ford Federal Direct Loan Program (Direct Loan Program) loans after you have made 120 qualifying payments on those loans while employed full-time by certain public service employers. Since you must make 120 qualifying payments on your eligible federal student loans after October 1, 2007 before you qualify for the loan forgiveness, the first forgiveness will not be granted until October 2017.”

*What loans are eligible?

            -William D. Ford Federal Direct Loan (Direct Loans). This includes Direct Subsidized and Unsubsidized Loans, Direct Consolidation Loans, Direct PLUS loans made to graduate and professional students.

What types of payment plans qualify for PSLF?

*Income-Based Repayment (IBR)

*Income-Contingent Repayment (ICR)

*Pay-As-You-Earn (PAYE)

*Standard Repayment Plan

*Any other repayment plan where your monthly payment amount equals or exceeds what you would pay under a 10-Year Standard Repayment Plan 

What type of job counts as  “qualifying employment?”

*A federal, state, local, or tribal government organization, entity, or agency 

*A public child or family service agency

*A tribal college

*A university

*A non-profit, tax-exempt organization with 501(c) (3) IRS designation

*A private non-profit (not a labor union or partisan political organization) that provides at least one of the following public services:

           -Emergency management

           -Military service         

           -Law enforcement

           -Public interest law services

-Early childhood education (licensed and regulated health care, Head Start, and state-funded pre-kindergarten)  

-Public services for individuals with disabilities and public services for the elderly

-Public health (nurses, nurse practitioners, nurses in a clinical setting, and full-time professionals engaged in health care practitioner occupations and healthcare support occupations) 

-Public education

-Public library services

-School library or other school-based services

The specific job you do for one of these organizations does not matter. For example, teachers, teacher aids, cafeteria workers, and administrators who work for a public school could all qualify for PSLF.

In order to have “qualifying employment” for PSLF, you must also meet the government’s definition of “full-time.” Per studentloans.ed.gov, “for PSLF purposes, that definition must be at least an annual average of 30 hours per week. For purposes of the full-time requirement, your qualifying employment at a not-for-profit organization does not include time spent participating in religious instruction, worship services, or any form of proselytizing. 
If you are a teacher, or other employee of a public service organization, under contract for at least eight out of 12 months, you meet the full-time standard if you work an average of at least 30 hours per week during the contractual period and receive credit by your employer for a full year's worth of employment. 
If you are employed in more than one qualifying part-time job simultaneously, you may meet the full-time employment requirement if you work a combined average of at least 30 hours per week with your employers.”

This is a pretty sweet deal. I'll include more on the specifics later!

Next on the docket is PAYE (Pay-As-You-Earn)!

Pay-As-You-Earn is great for new borrowers who qualify: you pay 10% of your discretionary for up to 20 years, and then your remaining balances is forgiven. As of now, the forgiven amount is considered to be taxable income. However, people on this payment plan may also qualify for Public Service Loan Forgiveness if they work in a public service job. In order to qualify for PAYE, you must meet the following requirements per studentaid.ed.gov:

“For Pay As You Earn, you also must be a new borrower as of Oct. 1, 2007,

and must have received a disbursement of a Direct Loan on or after Oct. 1, 2011. You are a new borrower if you had no outstanding balance on a Direct

Loan or FFEL Program loan when you received a Direct Loan or FFEL Program loan on or after Oct. 1, 2007.”

The following loans are eligible for PAYE:

*Direct Subsidized Loans

*Direct Unsubsidized Loans

*Direct Plus Loans made to graduate or professional students

*Direct Consolidation Loans that did not repay any PLUS loans made to parents

The following loans are eligible for PAYE only if they are consolidated into a Direct Consolidation Loan:

*Subsidized and Unsubsidized Federal Stafford Loans (from FFEL program)

*FFEL Consolidation Loans that did not repay any PLUS loans made to parents

*Federal Perkins Loans

The following loans are NOT eligible for PAYE:

*Direct Consolidation Loans that repaid PLUS loans made to parents

*FFEL PLUS loans made to parents

*FFEL Consolidation Loans that repaid PLUS loans made to parents

As with IBR, PAYE has the following benefits:

1.     Have your own income alone count towards PAYE, or include your spouse’s income. If you file your taxes married filing separately, only your income will be used to calculate your monthly payment. You will likely lose out on some tax benefits if you file separately instead of married filing jointly.

2.     You can always pay more than your monthly payment if you want to pay the loan down more quickly.

3.     The government will pay the interest on your subsidized loans for up to three consecutive years if your payments do not cover interest.

4.     You may also qualify for Public Service Loan Forgiveness while under PAYE.

5.     If you are unemployed or have a very low income, your PAYE monthly payment may be calculated at $0.00. These “payments” still count towards the 20 years of payments until forgiveness.

Let’s use the repayment calculator at https://studentloans.gov/myDirectLoan/mobile/repayment/repaymentEstimator.action

See how this payment plan can work. With a Direct Unsubsidized loan balance of $100,000.00 and an interest rate of 6.8%, a single person with an AGI of $45,000.00 would have a Standard payment of $1,151.00 per month.

*Under IBR, payments would start at $344.00 per month, and the estimated total paid is $218, 372.00. The forgiveness is $37, 066.00. If we figure a 20% tax on the forgiveness amount ($7,413.20), the total amount one would pay is $225,785.20.

*Under PAYE, payments would start at $229.00 per month, and the estimated total paid is $100, 298.00. The projected forgiveness is $135, 702.00. If we estimate a 30% tax on this forgiveness amount ($30,089.40), the total amount one would pay is $130,387.40.

Assuming that one is not also doing PSLF, one could save almost $100,000.00 by going on PAYE rather than IBR. Does this sound strange? It is…because interest. The monthly payments that many people on IBR and PAYE have don’t begin to cover interest.

Not everyone qualifies for PAYE, but the Obama Administration wants to expand this program to include more people. See: http://askheatherjarvis.com/blog/expanding-pay-as-you-earn-by-negotiated-rulemaking