Debt Consolidation Blog

Archive for February, 2012

Federal student loans are by far the most cost effective way of borrowing the funds needed for school. Although there are a variety of different loan options for paying for a college education, federal student loans offer unique advantages, flexible repayments terms, and are the most cost effective loan options for students on an already tight budget.

Understanding the basics of federal student loans and how they work can assist student borrowers in their loan application process. Federal student loans are loans that are offered directly from the government with no intermediary financial institution. Federal student loans are also called Direct Loans and usually have much lower interest rates than private loans issued from a bank or other financial institutions. Since federal loans are government issued, their interest rates and terms are set by Congress and are issued at a fixed rate. When applying for federal aid, the prospective borrower must complete and submit a FAFSA (Federal Application for Student Aid) in order to be eligible to receive any student loans.

Once the student borrower has been approved for a federal loan, there are a variety of different loan options available to them. These loan options include Stafford loans, PLUS loans, and Perkins loans. Stafford loans are issued to undergraduate, professional, and graduate students who are enrolled at least half-time in a post-secondary educational institution. They may either be subsidized requiring financial need or unsubsidized and requiring no financial need on the part of the borrower. Stafford loans have annual loan limits that vary based on the criteria of the applying student. Dependent students, independent students, and graduate students all receive various loan amounts however the interest rate for all Stafford loans is fixed at 6.8% for unsubsidized loans.

PLUS loans are available to parents of students applying for aid and also to graduate students (Grad PLUS). These loans are available regardless of need but they do require a credit check for approval. The credit check must show that there have been no delinquencies in the past 90 days as well as no bankruptcies in the last five years. These credit requirements can also be met by a co-signer and all families are required to complete a FAFSA form. There are origination fees for all PLUS loans of up to 4% as well as a standard fixed interest rate of 7.9%. Loan forgiveness is available through the PLUS loan program.

Perkins loans are offered through the issuing educational establishment and are repaid to the school by the government. These low interest loans are available to families that have exhibited extreme financial need. Perkins loans are available to both graduate and undergraduate students alike. The current interest rate is fixed at 5% and there are no additional origination fees or charges.

Discussing federal loans with the school’s financial aid office is an effective way for students to determine what the best loan options are for their individual financial situations. All students interested in receiving federal funding for school should fill out a FAFSA form by the deadline for the school year in which they will need funding.

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Forgiveness student loans are available for students who have either chosen to go into the public service professions or have chosen to work in under served areas as a medical or legal professional. These loans are forgiven after a set amount of time and after a minimum amount of payments have been met. Forgiveness loans allow the borrower to have the entire balance of their loan erased with no amount owing. Certain professions are eligible to take advantage of this incentive loan program. Understanding the details and facts about student loan forgiveness can help student borrowers make considerations when deciding on a career path.

Only student borrowers who are receiving a direct loan are eligible for loan forgiveness; however it is possible to qualify by consolidating into the direct loan program. Qualifying for a forgiveness loan through the direct loan program requires that the borrower not default on their existing loan as well as make 120 monthly payments after October 1, 2007. In this way no loans are eligible for forgiveness until after October 2017. This forgiveness program created by Congress is called the Public Service Loan Forgiveness program. The exact loans which can be forgiven under this program include subsidized and unsubsidized Stafford loans, federal direct PLUS loans, and federal direct consolidation loans.

There are many public service professions that will qualify for loan forgiveness. Some of these professions include emergency management, public safety, public education, military service, law enforcement, school library services and several other sub categories. In addition, professionals who are employed by an organization that meets the PSLF program requirements will also qualify for loan forgiveness. These organizations include government organizations, non-profit, tax exempt organizations under section 501(c)(3) of the IRS code and private non-profit organization that is not a labor union or partisan political organization.

In addition to forgiveness loans offered through the direct loan program, other loan forgiveness opportunities exist through volunteer work. Some of the volunteer work that can qualify for loan forgiveness includes work with AmeriCorps where an individual can serve for 12 months and receive up to a total of $7400 in stipends as well as $4725 for use towards a student loan. Peace Corps volunteers can apply for deferment of their federal loans as well as partial cancellation of their Perkins loans. The Army National Guard is another organization which offers loan forgiveness in their loan repayment program which reimburses up to $10,000.

One of the main qualifications in most of the loan forgiveness programs is that the professional must be employed full time. This means that the individual must be employed full time in one or more jobs for a yearly average of 30 hours per week. The period of employment also does not have to be with the same employer and paid vacation days are not considered when considering the average hours worked.

Paying for college can create an extreme financial burden and loan cancellation and forgiveness programs provide some relief from this excessive debt. Many families are taking advantage of these incentive programs by making career changes into the public service fields. Having a comprehensive understanding of the loan forgiveness options available can assist students considering career paths to take these programs into consideration before selecting a major.  If you have student loans, see if you qualify.

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Student debt and the subject of bankruptcy have quite a bit of misinformation surrounding them. Many people faced with financial hardship assume that a bankruptcy filing will eradicate all of their debt including student loan debt however this is not always the case. In addition, many debtors are under the impression that they can never discharge any of their student loan debt in a bankruptcy when in fact there are instances where this is possible. Understanding the details involved regarding student loan debt can offer clarification around an otherwise confusing topic.

When considering a bankruptcy filing for overwhelming student loan debt, it is possible to discharge some or all of the debt depending on your financial situation. You must prove to the courts that you are experiencing ‘undue hardship’ and that repaying your student loan is a virtual impossibility because of your financial situation. Different courts may make different determinations based on the presiding judge however a common test to determine undue hardship is the Brunner test. This test requires that the borrower demonstrates that he or she cannot maintain a minimal standard of living based on their current income and expenses. In addition, the debtor must also demonstrate that their financial condition is likely to persist throughout the time of their loan repayment. Lastly, the debtor must demonstrate that they have made good faith efforts to repay their student loans.   (Brunner v. New York State Higher Educ. Servs. Corp., 831 F. 2d 395 (2d Cir. 1987)

Proving undue hardship in a court of law is not very straightforward as there are several determining factors that the court may use to make a ruling. Because there are so many variables involved, many bankruptcy lawyers suggest that their clients not include their student loan debts into their bankruptcy filing. This is why many people assume they cannot discharge student loan debts during a bankruptcy filing. However the truth is that it isn’t impossible just very difficult and the outcome is not guaranteed.

If a debtor has already completed a bankruptcy filing and chose not to include their student loan debts the first time, they can go back and reopen the case at no additional cost. For more information about this, Chapter 7 of NCLC’s Student Loan Law manual contains a vast amount of information about discharging student loan debt during a bankruptcy filing. Additionally, filing a Chapter 13 bankruptcy may offer some relief for the debtor due to its ability to reorganize and restructure their student loan debt.  Within a Chapter 13 bankruptcy plan, the borrower adheres to a specific repayment schedule that is established under the plan. This offers the advantage of a three to five year payment plan during which time your payments are not determined by your loan holder. After the repayment plan is over, you may request that the remainder of your loan be discharged if you continue to experience undue financial hardship.

Discharging student loan debt is difficult but it can be done under certain circumstances. Exploring these options with a bankruptcy attorney can help you decide if this is the best option for your particular financial situation.

Articles on www.debtplan.org have been acquired from a variety of sources.  No content on this site should be considered financial or legal advice

Many students are grappling with student loan debt without any concept of how to lessen their debt burdens. It can be easily overwhelming for a new graduate with multiple student loans to make their payments on time and maintain a positive credit rating. However it is not only students that are bearing the crux of this burden but parents as well. In fact the student loan debt burden is increasing and many analysts predict a meltdown similar to the real estate housing market crash of 2008.

Although the overall economy is showing positive signs of improvement, there has been an increase in bankruptcy filings. Bankruptcy lawyers are seeing an increase in clients who are trying to absolve themselves of mounting student loan debts. Many filers have debt well into the thousands and are simply looking for a way out. The increase in filings related to student loan debt has bankruptcy lawyers and financial analysts alike wondering if this will be the cause of the next financial implosion. William E. Brewer Jr., president of the National Association of Consumer Bankruptcy Attorneys stated “Take it from those of us on the frontlines of economic distress in America, this could very well be the next debt bomb for the U.S. economy.”

Many of the bankruptcy filings are from parents who have taken out loans for their children and find themselves simply overwhelmed with debt. This can be a troubling predicament as middle aged parents should be lowering their debt to income ratio as they seek to prepare for retirement. The amount of parent loans for student loan assistance has increased 75 percent since the school year of 2005-2006. On average parents owe $34,000 in student loan debt which increases to $50,000 over a ten year period. Students graduating from a four year university graduate with an average debt of $25,250 which will also increase over the standard ten year period.

The student loan crisis has definitely escalated in recent years and bankruptcy offers little reprieve. Due to new laws enacted by Congress, it is virtually impossible to be absolved from student loan debt regardless of a person’s financial situation. A common solution many students resort to is the deferment option. However deferring ones student loans is not an indefinite possibility and does not offer a long term solution. Debt management companies may be able to assist student loan debtors who are seeking some type of debt relief. An established debt management company can negotiate directly with creditors on a client’s behalf.

Student loan debt is rapidly escalating and may become a new financial crisis for many Americans who are unable to repay their debts. Parents are at a distinct disadvantage as their time for repayment is even less due to age and other financial responsibilities such as a home mortgage and car payment. The best option for students and parents alike struggling with debt is to seek the services of a competent credit counseling agency or debt management company. This option may allow debtors to come up with creative solutions such as debt consolidations and refinancing.

Articles on www.debtplan.org have been acquired from a variety of sources.  No content on this site should be considered financial or legal advice

For student loan borrowers who have defaulted on their loans due to non-payment, it can be a very harrowing experience. Student loan collectors employ the same debt collection practices as other creditors and debtors can receive constant collection calls as creditors seek to collect on the monies owed. In addition, debtors may find that their tax refunds and wages are garnished due to non-payment of their student loan debt. A solution to a student loan default is a loan consolidation or rehabilitation. Finding out the pros and cons of student loan consolidation and rehabilitation can help borrowers decide whether or not this option is suitable for them.

There are two main options for borrowers who have defaulted on a federal student loan and these are rehabilitation and consolidation. These two options can help the borrower to get back on track with payments and bring their loan current. Once this has taken place, they can then proceed to resume all payments or defer the loan if needed. Both consolidation and rehabilitation allow the borrower to avoid having their wages garnished as well as allowing them to keep any tax refunds owed to them during their repayment period.

Loan rehabilitation is an excellent option for student loan borrowers who have defaulted on their loans. In order to qualify for this repayment program, the borrower must make nine monthly payments within twenty days of the due date during a set period of ten consecutive months. This means that as long as the debtor makes nine payments in a ten month period, they will be eligible for loan rehabilitation. During the rehabilitation process, the guarantor must find a buyer for the loan while it is being rehabilitated. Once the process is complete, and you have made at least nine payments, your loan will be turned over to a traditional lender. Rehabilitation allows you to qualify for Federal Student Aid after six months of payments; however nine payments are needed to bring the loan out of default.

Consolidating a student loan is another option for defaulters seeking to bring their loans current. Consolidating your defaulted student loan allows you to avoid wage garnishments, collection calls and letters and other disruptive collection practices. After consolidation, the borrower will then be eligible for new loans and grants and even deferments. They will also be able to have the default removed from their credit report in most cases.

A borrower seeking to consolidate their student loan should do so using a government consolidation program also known as Direct loans. Attempting to use a private lender to consolidate student loans can become complicated as the borrower will lose their rights under the federal loans programs. These rights include forbearance, deferment, cancellation, and affordable repayment. A Direct Consolidation program allows the borrower to make three consecutive monthly payments or select a plan under The Income Based Repayment plan (IBR) or the Income Contingent Repayment Plan (ICRP).  Selecting either of these options can help to bring the loan out of default so the borrower can resume payments or apply for forbearance or deferment.

Understanding the advantages of student loan consolidation and rehabilitation can assist student loan borrowers who have experienced default find a workable solution towards repayment.

Articles on www.debtplan.org have been acquired from a variety of sources.  No content on this site should be considered financial or legal advice

Will Baby Boomers Have Enough to Retire?
The Dollar Stretcher
by Gary Foreman
gary @stretcher.com

It’s no secret that the housing bubble and recession of the last four years has caused financial heartache for many of us. One group that has been especially hard hit is the baby boomer generation.

For years boomers have believed that they would retire in their mid-sixties and enjoy their golden years playing golf and traveling. They planned to fund retirement with a paid-off home that kept increasing in value, private savings via 401k and IRAs, and Social Security for which they had been contributing since their teens.

The burst of the housing bubble buried the first assumption. In many areas home values have dropped by 30 to 40% since 2008.Since the 3rd quarter of 2007, prices have continued to fallFor boomers, that’s been a huge hit on their net worth.

Many retirement plans have also taken a hit. Depending on where the funds were invested many have seen their account balances drop to levels not seen since the 90′s. Those who have studied the issue say that these accounts won’t be able to provide enough retirement income.

“The median household headed by a person aged 60 to 62 with a 401(k) account has less than one-quarter of what is needed in that account to maintain its standard of living in retirement, according to data compiled by the Federal Reserve and analyzed by the Center for Retirement Research at Boston College for The Wall Street Journal. Even counting Social Security and any pensions or other savings, most 401(k) participants appear to have insufficient savings. Data from other sources also show big gaps between savings and what people need, and the financial crisis has made things worse.”

“The median 401(k) plan held $149,400, including plans from previous jobs, according to the Center for Retirement Research. To figure the annual income from that, analysts typically look at what the family would get from a fixed annuity. That $149,400 would generate just $9,073 a year for a couple, according to New York Life Insurance Co., the leading provider of such annuities- less than one-quarter of the $39,465 needed. Just 8% of households approaching retirement have the $636,673 or more in their 401(k)s that would be needed to generate $39,465 a year.”

The final source of retirement income for boomers was to be Social Security. But as of 2010 the trust fund was actually paying out more than it was taking in. And the trustees expect the fund to be exhausted in 25 years. “In the 2011 Annual Report to Congress, the Trustees announced: The projected point at which the combined Trust Funds will be exhausted comes in 2036 — one year sooner than projected last year. At that time, there will be sufficient non-interest income coming in to pay about 77 percent of scheduled benefits.”

So what’s a baby boomer to do? Now is the time to take a good hard look at your retirement plans and how realistic they are. For most boomers, those golden years are quickly approaching. You can’t pretend that they’re somewhere in the distant future.

You should see a professional to work through all the math and different options. Much will depend on some of the estimates that you make regarding how much income you’ll need, how your investments will perform and what inflation will be.

You can get a rough estimate on your own. Begin by estimating how much income you’ll need. Traditionally workers were told that they’d need about 80% of their preretirement income after retirement. But your retirement lifestyle may mean you need much more or much less income. One way to estimate you needs is to start with your current expenses. Then subtract expenses that will disappear if you retire (2nd car, work clothes, continuing education, etc.). Then add any new expenses that would begin at retirement (extra travel to visit the grandkids, a hobby that you’ll finally have time for, etc).

Adjust your estimate for inflation. Suppose you felt you’d need $50k per year in today’s dollars, but you won’t be retiring for 12 years. If inflation were 6% prices would double in 12 years, so you’d really need $100k. If inflation were 3% you’d need $75k.

Next you’ll need to estimate how much savings you’d need to create your target income. For illustration let’s pick a nice round number and assume that you’ll want $100k per year. Next, you’ll need to assume how much your investments will each each year. For our illustration let’s say 8% per year. Then divide your desired income by the investment earning percent. In this case that would be $100k divided by 8% or $1,250k (one million, two hundred fifty thousand dollars).

Again, this is just a very rough calculation and depends in large part upon the assumptions you made. But, the point is simple. Unless you’ve saved more than most of your peers, you’re probably short of what you need for retirement.

That means that you need to adjust your plans. Either as to how much income you’ll have available, when you can retire or whether you’ll even need to work part-time through your retirement years.

The calculation here wasn’t meant to give you a definitive answer. That’s not possible in a short article. Rather it was to demonstrate how important this information is and to encourage you to meet with a professional.

Unless you have already gotten professional help, you’d be wise to consult someone who can help them work through the various scenerios and assumptions. This is not the kind of thing that you want to get wrong. A mistake could mean that you run out of money sometime in your 70′s or 80′s.

Boomers are running out of time to get this done. We’re quickly heading into a different stage of life. It’s the wise person who anticipates that change and plans to make the most of it.

Keep on Stretching those Retirement Dollars!
Gary

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Gary Foreman is a former purchasing manager who currently edits The
Dollar Stretcher website . You can follow Gary on Twitter . For more on how much retirement income you’ll need.

Articles on www.debtplan.org have been acquired from a variety of sources. No content on this site should be considered financial or legal advice