• Graduate school debt is playing a key and often overlooked role in the ballooning of overall student loan debt, new research suggests.

    Graduate school debt is playing a key and often overlooked role in the ballooning of overall student loan debt , new research suggests.

    By Jennifer Liberto @CNNMoney March 25, 2014: 11:02 AM ET

    Students who went to university for a graduate degree borrowed $57,600 in 2012, a 43% increase from $40,209 in 2004, according to new research released Tuesday by the New America Foundation.

    “The jump in graduate school borrowing is bigger than I thought it was going to be,” said the report’s author Jason Delisle, director of the Federal Education Budget Project.

    Overall student loan debt is a little more than $1 trillion, outpacing all other loans except mortgages.

    Though the research doesn’t say how much of it comes from graduate students, separate federal data showed that graduate loans were 41% of student loans issued in the fall of 2012. That’s despite the fact that graduate students were only 17% of all student loan borrowers, according to New America, a think tank.

    “Are graduate students thinking: I’ve got less money to get a graduate education, so I should borrow more? My employment prospects look worse, so should I borrow more? That’s problematic,” Delisle said.

    It certainly was the case with Robert Ridley, who will graduate this year from the University of Kentucky with a master’s degree in public policy and $60,000 in federal student loans.

    Ridley completed his undergraduate degree in 2002 with almost no debt. However, he went back to school to get a graduate degree after struggling for years to find a decent full-time job.

    Related: 3 simple steps to get out of debt

    Ridley is among 1.7 million graduate school students nationwide, many of whom are still borrowing more to get a leg up in this struggling economy. Some are unsure if a graduate degree will actually get them a job that will bring in extra money.

    “I’ll know for sure after I graduate in December whether graduate school was the right thing to do,” said Ridley, whose undergraduate degree in sociology from the University of Cincinnati was mostly paid by a National Merit Scholarship and Pell Grants.

    The New America study found that some students are getting graduate degrees that don’t necessarily lead to larger salary gains.

    2 million students missing out on college aid

    Those getting a Master of Business Administration took out $42,000 to finance their education in 2012, just $600 more than the same graduates borrowed in 2004.

    By contrast, borrowers financing Master of Arts degrees were $58,500 in debt in 2012, or $20,500 more than in 2004.

    “Those getting MBAs have decided I’m not going to borrow any more for that degree, but these other degrees that aren’t matched to careers are borrowing a lot more,” Delisle said.

    Ridley is hoping graduate school will help give him a jumpstart when he gets back in the work force.

    After his undergraduate degree he worked several jobs, including part-time stints doing accounting for municipal government and tutoring in accounting and math. But after he was let go from a part-time job at a university in 2004, he struggled to land an interview for any job.

    “I was forced to live with my mother much longer than I wanted or needed to. I tried everything,” Ridley said.

  • Report: Payday Loans Can Cost Borrowers Much

    WASHINGTON March 25, 2014 (AP)

    About half of all payday loans are made to people who extend the loans so many times they end up paying more in fees than the original amount they borrowed, a report by a federal watchdog has found.

    The report released Tuesday by the Consumer Financial Protection Bureau also shows that four of five payday loans are extended, or “rolled over,” within 14 days. Additional fees are charged when loans are rolled over.

    Payday loans, also known as cash advances or check loans, are short-term loans at high interest rates, usually for $500 or less. They often are made to borrowers with weak credit or low incomes, and the storefront businesses often are located near military bases. The equivalent annual interest rates run to three digits.

    The loans work this way: You need money today, but payday is a week or two away. You write a check dated for your payday and give it to the lender. You get your money, minus the interest fee. In two weeks, the lender cashes your check or charges you more interest to extend, or “roll over,” the loan for another two weeks.

    The CFPB report was based on data from about 12 million payday loans in 30 states in 2011 and 2012. It also found that four of five payday borrowers either default on or extend a payday loan over the course of a year. Only 15 percent of borrowers repay all their payday debts on time without re-borrowing within 14 days, and 64 percent renew at least one loan one or more times, according to the report.

    Twenty-two percent of payday loans are extended by borrowers six times or more; 15 percent are extended at least 10 times, the report found.

    “We are concerned that too many borrowers slide into the debt traps that payday loans can become,” CFPB Director Richard Cordray said in a statement.

    Some states have imposed caps on interest rates charged by payday lenders.

    The industry says payday loans provide a useful service to help people manage unexpected and temporary financial difficulties.

  • Bankrupt? How to get student loan debt erased

    (In the penultimate paragraph, removes inadvertant word attached to end of law firm name.) ENLARGE (Globalpost/GlobalPost)Adve

    By Liz Weston

    LOS ANGELES (Reuters) – Getting student loan debt erased in bankruptcy court isn’t easy, but it’s possible. Unfortunately, most borrowers can’t afford the fight that might give them some relief.

    “You’d need to spend at least $5,000,” said Henry Sommer, supervising attorney at Consumer Bankruptcy Assistance Project in Philadelphia and a former president of the National Association of Consumer Bankruptcy Attorneys. The catch is that “if you had $5,000, you would not be eligible for a student loan discharge,” Sommer added.

    Several recent court decisions have challenged the notion that only the worst-off borrowers, typically those who are permanently disabled, can get education debt erased. The borrowers who won these discharges had low costs, either receiving free legal help or representing themselves.

    In most cases, borrowers in bankruptcy don’t even ask for help because they figure a discharge of debt is so rare. In one study of 170,000 student loan debtors who filed for bankruptcy protection in 2007, only 51 won full discharges of their debt and 30 received partial discharges.

    The author of the study, which was published in the American Bankruptcy Law Journal, found that only 213 of the student loan debtors studied even tried to have their education debt discharged by filing what’s known as an “adversary proceeding.” Since bankruptcy law doesn’t allow student loans to be erased in a regular filing, this extra step is necessary before education debt can be discharged.

    Of those who tried to get their student debt wiped out, in other words, two out of five got at least some relief. Based on the characteristics of those who were able to get discharges, researcher Jason Iuliano calculated that an additional 69,000 people who filed bankruptcy that year would have had a “good chance” of erasing their student loans had they filed adversary proceedings.

    Iuliano speculated that one reason so few student loan borrowers seek relief is that they’ve been convinced it’s hopeless. He cited academic journals and numerous popular press articles indicating such discharges are almost impossible. Debtors are sometimes told that absent a total and permanent disability, they can’t get their loans discharged.

    There may be another reason. People who file for bankruptcy are, not surprisingly, usually broke. Paying attorneys’ fees can be a stretch, and attorneys may be loathe to make the extra effort required knowing they might not be paid for it.

    “Most don’t attempt an undue hardship discharge because it requires an adversarial proceeding, which is a lot more work,” said Mark Kantrowitz, a student aid attorney and publisher of Edvisors Network Inc.

    Iuliano’s research showed that those who represented themselves were about as likely as those who had lawyers to win their cases. Bankruptcy attorney Sommer said few borrowers are prepared to argue their cases in court against skilled and often aggressive lawyers representing their creditors.

    “Most people are not capable of doing that,” Sommer said. “This is full-scale litigation.”

    The bar is certainly high. A borrower has to prove that repaying his or her student loans would be an “undue hardship.” Typically, that means meeting three tests: a current inability to pay the loans, because doing so wouldn’t allow you to maintain a minimal standard of living given your current income and expenses; a future inability to repay the money, because your financial situation is likely to continue; and a good-faith effort to repay what you owe.

    In two recent decisions, though, courts granted relief to borrowers who hadn’t made voluntary payments on their debt and who refused to enroll in income-based repayment plans. The appeals court judges in both cases said enrolling would have been pointless given the women’s tiny incomes.

    In a third case, the borrower was both employed and healthy, but wage garnishments by his student lenders left him unable to support his wife and two children.

    Michael Hedlund was twice granted relief in bankruptcy court, but his lenders challenged the decisions both times, said Derek Foran, a partner with San Francisco-based Morrison & Foerster, who along with attorney Yonatan Braude represented Hedlund for free in those appeals. The court battles ultimately resulted in a decision by the U.S. 9th Circuit Court of Appeals that upheld Hedlund’s bankruptcy relief. That will make it harder for lenders to undermine bankruptcy court decisions in Western states in the future, Foran said.

    “The problem is that the creditors have vast resources they don’t see any downside to trying to get the decisions reversed on appeal,” Foran said. “We like to feel we made the system a little fairer for debtors in the 9th district.”

  • Bankruptcy protection extends to people from all walks of life

    February 25, 2014 /24-7PressRelease/ — The perceived social stigma attached to bankruptcy makes filing for financial protection unattractive to some. Many people worry how bankruptcy will affect their credit rating, future purchasing power and their ability to provide for their family. Bankruptcy can feel like “giving up” — there may be feelings of personal failure, or guilt and shame when contemplating bankruptcy. But bankruptcy is not waving a white flag of surrender; it is acknowledging a tricky problem and resolving it in the best way possible. Contrary to many popular notions, bankruptcy is a responsible, financially sound legal option when unmanageable debt arises.Fortunately, it has become a more accepted fact in today’s society that some people need bankruptcy protection . After the economic collapse in 2008, people from every socio-economic status realized that they may have become encumbered with too much debt, in large part because of circumstances that were hard to predict or out of their control.The Great Recession also sparked consumers to become more aware of predatory lending practices and other misbehavior by some financial institutions that can make it easy for the unwary to fall into a financial hole. Bankruptcy exists because it is a necessary and vital economic tool; one that can put a person back on sound financial footing and ease the stress of dealing with creditors on a daily basis.Bankruptcy eligibilityThere are two common types of consumer bankruptcy: Chapter 7 and Chapter 13 bankruptcies. In Chapter 7, people who are suffering from severe economic hardship may sell off a number of assets to pay off what creditors they can. Many bankruptcies are designated as “no asset” bankruptcies–in a “no asset” Chapter 7, no assets are sold. Chapter 7 often results in the discharge of some debt, and even the principal balance of some unsecured debt such as credit card balances and medical debt. Chapter 7 is useful to those who have experienced long-term unemployment, medical issues that prevent working, and individuals with few personal assets.Chapter 13 bankruptcy reorganizes debt into a manageable three-to-five year payment plan . Chapter 13 can also reduce interest rates and late fees. The primary benefits of Chapter 13 bankruptcy are that it is easier to qualify for and it allows the debtor to keep hard-earned assets such as a home and car.Anyone can find themselves in dire financial straightsPeople of all professions have sought bankruptcy protection. A recent article by a financial planner highlighted the author’s own personal experience with bankruptcy, even though he advised people on financial matters for a living. Bankers, business owners and professionals of all stripes have fallen on hard times and sought bankruptcy protection. People who are in debt and contemplating bankruptcy should contact an experienced bankruptcy attorney to discuss their financial situation and to see if filing for bankruptcy is right for them.Article provided by Sulaiman Law Group, LTD

    Read more: http://www.digitaljournal.com/pr/1755270#ixzz2x08TL44e

  • Allow Private Education Loan Debts to Be Erased in Bankruptcy

    Allow Private Education Loan Debts to Be Erased in Bankruptcy

    Struggling borrowers should be able to discharge their private student loan debts


    Steve Cohen is a Democratic representative from Tennessee.

    Millions of Americans pursue college educations and training for new careers, which is good for them and for our nation. Yet these efforts are costly. This year, total student loan debt exceeded $1 trillion, more than any other kind of consumer debt. Debt from student loans issued by private for-profit lenders is troublesome. Unfortunately, current law prevents struggling borrowers from discharging their private student loan debts in bankruptcy like they can with other kinds of debt. This situation must change.

    Private for-profit student loans often lack consumer protections. They typically have variable interest rates with no caps, exorbitant fees, and hidden charges. Also, many lenders use aggressive, high-pressure tactics to target vulnerable individuals, including young people without much financial experience. Private lenders are not required to—and often do not—provide the deferments, income-based repayment plans, cancellation rights, or loan forgiveness that are available to federal loan borrowers.

    [Read John Hupalo: Discharging Private Student Loans Is Counterproductive]

    Currently, educational debts survive bankruptcy unless the borrower can prove that repayment would impose an “undue hardship.” To demonstrate this hardship, however, the borrower must pursue expensive legal action, entailing a full-blown trial. This presents a Catch-22 because it forces a borrower, already in financial distress, to spend thousands of dollars on attorney fees and expenses to prove “undue hardship.” Meanwhile, private lenders have almost unlimited resources to litigate and little incentive to settle such disputes. Worse still, the “undue hardship” standard is vague and, as a result, courts have applied it inconsistently. Cumulatively, these factors effectively preclude borrowers from discharging private student loan debts.

    Finally, there is no principled reason that for-profit lenders should enjoy special protection not given to other creditors. Under bankruptcy law, only certain debts cannot be discharged, such as spousal and child support, certain taxes, and debts incurred based on the debtor’s fraud or other bad actions. These exemptions exist for principled policy reasons that don’t apply to private student loans.

    Also, private lenders do not deserve protection under the Bankruptcy Code because the “undue hardship” provision, first enacted in 1976, was intended to protect the taxpayer dollars that fund federal student loan programs. Yet Congress, in 2005, extended this protection to for-profit educational lenders, even though no taxpayer money was at stake.

    [Check out U.S. News Weekly, an insider’s guide to politics.]

    To address this problem, I introduced the Private Student Loan Bankruptcy Fairness Act, which would allow private education loan debts to once again be erased in bankruptcy just like other types of debts. This will help ensure that people can improve their lives through education without fear of financial ruin.

    Opponents of my legislation claim that making private student loans dischargeable will result in higher interest rates. No evidence supports this claim, and it is telling that private loan interest rates have not decreased since 2005. If anything, private lenders have an incentive to make risky loans, knowing that they will not be discharged. By restoring bankruptcy dischargeability, my legislation will ensure that lenders only make prudent loans and will encourage private lenders to work with financially distressed borrowers to modify loan terms.

    Current law unjustly punishes those who sought to improve their lives by getting an education but became victims of predatory lenders. My legislation corrects this injustice.

  • Costly Debt Settlement Schemes Prey on the Most Debt-Burdened Consumers Struggling to Recover from Economic Downturn


    What a Half Million Unwary Consumers Don’t Know: Schemes Only Work for 1 in 10 Who Pay for Them; Consumer Alert: Debt Settlement Programs Seen as “#1 Threat to America’s Most Indebted Consumers.”

    WASHINGTON, D.C. – October 17, 2012 – As few as one in 10 unwary consumers who are lured into so-called “debt settlement” schemes actually end up debt free in the promised period of time, making the risky schemes the No. 1 threat facing America’s most deeply indebted Americans, according to a major new consumer alert issued today by the nonprofit National Association of Consumer Bankruptcy Attorneys (NACBA).

    Available online at http://www.nacba.org, the NACBA consumer alert notes: “Already struggling with home foreclosures, harsh bank and credit card fees, and other major financial challenges, America’s most deeply indebted consumers are now falling victim to a major new threat: so-called ‘debt settlement’ schemes that promise to make clients ’debt free’ in a relatively short period of time. Unfortunately, most consumers who pursue debt settlement services find themselves facing not relief but even steeper financial losses. Even the industry acknowledges – though not in its ever-present radio and online advertising – that debt settlement schemes fail to work for about two thirds of clients. Federal and state officials put the debt-settlement success rate even lower – at about one in 10 cases – meaning that the vast majority of unwary and uninformed consumers end up with more red ink, not the promised debt-free outcome.”

    The private debt-settlement industry remains robust. More than 500,000 Americans with approximately $15 billion of debt are currently enrolled in debt settlement programs, according to industry estimates. And there is room for further growth: One in 8 U.S. households has more than $10,000 in credit card debt.

    Durham, NC bankruptcy attorney Ed Boltz, NACBA Board member and incoming NACBA president, said: “Based on what bankruptcy attorneys are seeing across the nation, we believe that debt settlement schemes are the number one problem facing America’s most deeply indebted consumers today. Bombarded with slick radio and Web advertising falsely promising a smooth road to being debt free in a short period of time, these companies prey on the most desperate victims of the economic downturn. These particularly vulnerable consumers usually end up getting sued, stuck with outrageous fees, more deeply in debt, and far worse off in terms of their credit score.”

    Earlier this year, NACBA focused national attention on the “student debt bomb,” which then was identified as the fastest growing consumer debt problem being handled by consumer bankruptcy attorneys.

    Richard Thompson, a Rialto, California, retiree and victim of a debt settlement scheme, said: “I was told they could settle my $89,000 in debts for a total of $39,000 if I made payments of $1,800 for 22 months. I was contacted about a chance to settle $15,000 debt for $6,000 but my debt-settlement company ignored the offer. In fact, I paid them a total of $25,200 as they kept on ignoring settlement offers from creditors. I thought they were taking care of me by bringing my debt down, but all they were doing was taking my money. I ended up with $25,000 more in debt than I started out with. Before I retired I worked 25 years as a manager, now I have had to go back to work as a part-time security guard to help make ends meet.”

    Bankruptcy attorney Trisha Connors, a NACBA member from Glen Rock, New Jersey who has testified before the New Jersey Law Revision Commission on debt settlement abuses, said: “Over the last three years, I have worked with 12 different for-profit debt settlement companies and over 25 clients who came to me after their debt settlement program failed to serve them. The results with each client were the same: exorbitant fees being paid, settlement (at best) of one small credit card debt, and mounting late fees and penalty interest charges on the unsettled debts. When clients informed the debt settlement companies of their desire to exit the program, the firms kept all or most of the accumulated savings for debt reduction as ‘fees.’ Every person I dealt with who had been current on their debts prior to contacting a debt settlement program told me that the sales representative told him the only way to be successful in the program is to stop paying credit card bills.”

    Ellen Harnick, senior policy counsel, Center for Responsible Lending, said: “Debt settlement companies require clients to default on their debts before they will negotiate. This adds late fees and penalty interest to their debt and frequently results in the client being sued by creditors. Since only a tiny proportion of debts are actually settled by these companies, clients are typically left worse off than they were when they started.”

    In addition to highlighting the stories of three victims of debt settlement schemes, the NACBA consumer alert notes the following:

    There is now across-the-board agreement on the danger that debt settlement schemes pose to consumers. The Better Business Bureau has designated debt settlement as an “inherently problematic business.” Similarly, the New York City Department of Consumer Affairs called debt settlement “the single greatest consumer fraud of the year.” Across the country, the U.S. Government Accountability Office (GAO), the Federal Trade Commission, 41 state attorneys general, consumer and legal services entities, and consumer bankruptcy attorneys have all uncovered substantial evidence of abuses by a wide range of debt settlement companies.

    Debt settlement schemes encourage consumers to default on their debts. Because creditors frequently will not negotiate reduced balances with consumers who are still current on their bills, debt settlement companies often instruct their clients to stop making monthly payments, explaining that they will negotiate a settlement with funds the client has paid in lieu of their monthly debt repayments. Once the client defaults, he or she faces fines, penalties, higher interest rates, and are subjected to increasingly aggressive debt-collection efforts including litigation and wage garnishment. Consequently, consumers often find themselves worse off than when the process of debt settlement began: They are deeper in debt, with their credit scores severely harmed.

    “Self help” may be the best answer for smaller debt burdens. If you have just a single debt that you are having trouble paying (such as a single credit card debt) and you have cash on hand that can be used to settle the debt, you may be able to negotiate favorable settlement terms with the creditor yourself. Creditors typically require anywhere from 25 to 70 percent on the dollar to settle a debt so you will need that much cash for a successful offer. Be sure to get an explicit written document from the creditor spelling out the terms of the debt settlement and relieving you of any future liability. Also be prepared to pay income taxes on any of the forgiven debt.

    Nonprofit credit counseling agencies can help, but must be vetted carefully. If, like most people, you owe multiple creditors and do not have the cash on hand to settle those debts, you may want to consult a non-profit credit counseling agency to see if there is a way for you to get out of debt. But make sure to check it out first: Just because an organization says it’s a “nonprofit” there is no guarantee that its services are free, affordable or even legitimate. Some credit counseling organizations charge high fees (which may not be obvious initially) or urge consumers to make “voluntary” contributions that may lead to more debt. The federal government maintains a list of government-approved credit counseling organizations, by state, at www.usdoj.gov/ust. If a credit counseling organization says it is “government approved,” check them out first.

    Bankruptcy will be an option for some consumers. Bankruptcy is a legal proceeding that offers a fresh start for people who face financial difficulty and can’t repay their debts. If you are facing foreclosure, repossession of your car, wage garnishment, utility shut-off or other debt collection activity, bankruptcy may be the only option available for stopping those actions. There are two primary types of personal bankruptcy: Chapter 7 and Chapter 13. Chapter 13 allows people with a stable income to keep property, such as a house or car, which they may otherwise lose through foreclosure or repossession. In a Chapter 13 proceeding, the bankruptcy court approves a repayment plan that allows you to pay your debts during a three to five year period. After you have made all the payments under the plan, you receive a discharge of all or most remaining debts. For tax purposes, a person filing for bankruptcy is considered insolvent and the forgiven debt is not considered income. Chapter 7 also eliminates most debts without tax consequences, and without any loss of property in over 90 percent of cases. To learn more about bankruptcy and whether it makes sense for you, go to http://www.nacba.org/Home/AttorneyFinderV2/.

    NACBA urges consumers to steer clear of any companies that:

    Make promises that unsecured debts can be paid off for pennies on the dollar. There is no guarantee that any creditor will accept partial payment of a legitimate debt. Your best bet is to contact the creditor directly as soon as you have problems making payments.

    Require substantial monthly service fees and demand payment of a percentage of what they’ve supposedly saved you. Most debt settlement companies charge hefty fees for their services, including a fee to establish the account with the debt negotiator, a monthly service fee, and a final fee– a percentage of the money you’ve allegedly saved.

    Tell you to stop making payments or to stop communicating with your creditors. If you stop making payments on a credit card or other debts, expect late fees and interest to be added to the amount you owe each month. If you exceed your credit limit, expect additional fees and charges to be added. Your credit score will also suffer as a result of not making payments.

    Suggest that there is only a small likelihood that you will be sued by creditors. In fact, this is a likely outcome. Signing up with a debt settlement company makes it more likely that creditors will accelerate collection efforts against you. Creditors have the right to sue you to recover the money you owe. And sometimes when creditors win a lawsuit, they have the right to garnish your wages or put a lien on your home.

    State that they can remove accurate negative information from your credit report. No company or person can remove negative information from your credit report that is accurate and timely.

    Boltz emphasized: “Many different kinds of services claim to help people with debt problems. The truth is that no single solution works in all cases. Bankruptcy is an option that makes sense for some consumers, but it’s not for everyone. For example, the National Association of Consumer Bankruptcy Attorneys and its individual consumer bankruptcy attorney members do not encourage every person who looks at bankruptcy to enter into it. What makes sense for each consumer will depend on their individual circumstances. We encourage everyone to get the facts and do what makes the most sense in their situation.”