Boston Student Loan Lawyer

Law Office of Adam S. Minsky

Tip: Auto-Debit Can Save You From Delinquency and Default

| Articles

If you have many separate student loans, keeping track of your monthly payments can be daunting. This task is made even more burdensome if you have federal loans that are serviced by multiple loan servicing companies, Perkins loans that are serviced by your college or graduate school, and private student loans from multiple lenders. When you have rent or a mortgage, utilities, car payments, cell phone payments, and other bills to manage on top of everything else, it’s easy to miss a student loan payment.

The problem is that missing a payment on any of your student loans can place that loan into delinquency. Delinquency is a fancy term that simply means you are behind on your payments. The problems is that certain loan servicers and lenders report delinquencies rather quickly to credit reporting agencies, which could damage your credit score. If you are delinquent for too long, your loan may be placed into default, which is bad news. While federal loans generally provide for several months of delinquency before a loan goes into default, some private student loan lenders are not nearly so accommodating, and your loan may be in danger of default sooner than you think.

One solution for dealing with this threat is to consolidate your federal student loans, since this can simplify the repayment process. Another easy solution is to enroll in auto-debit programs. Most student loan servicers offer this both for federal and private loans. An auto-debit program allows you to permit the lender/servicer to automatically debit your bank account or debit card for your monthly student loan payments. That way, you don’t have to worry about keeping track of every single student loan payment every month. Your only responsibility is to manage your budget so that you have enough funds available to cover all of your payments. You usually can set the date of the auto-debit, so you can choose to have all of your payments made on one single day each month, or you can split your payments up during the month if that’s easier for you. As far as I know, you can cancel any auto-debit program at any time, although there might be a period before the cancellation takes effect.

I’m enrolled in auto-debit programs for all of my student loans, and I find that it has made managing my repayment obligations much easier. It might be a little unnerving to not physically write that check or click that “pay now” button every month, but at least I don’t have to worry about missing a payment. I’d check it out if you haven’t already.

Major Credit Rating Agency Signals That The “Student Loan Bubble” May Burst

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We saw it with housing just a few years ago. Young, first-time, would-be homeowners were told how easy it would be to get an affordable mortgage. With aggressive marketing campaigns by mortgage companies that ramped up expectations of home ownership (without any discussion of potential risk), young people were persuaded to buy that house and get that mortgage, even though down the road they may not be able to pay. These mortgage companies then sold the high-risk mortgages to other companies, so everyone profited… until, of course, the homeowners reach a point where they no longer could pay (whether it was because of an adjustable interest rate that spiked, rising unemployment, or unexpected maintenance and expenses), and the whole bubble collapsed.

I’ve been saying for years that student loans are next. I don’t want to be right (I’ve got my own student loans that I’m dealing with), but now Moody’s, one of the three major credit ratings agencies, is acknowledging that we might be headed in that direction.

For the past twenty years, the cost of American higher education (both private and public) has been skyrocketing. Federal financial aid has not been keeping pace with these astronomical costs, so increasingly students are turning to expensive and risky private student loans to finance their educations. High school students and parents are told that this is an “investment;” that taking out tens of thousands of dollars in student loans will lead to a high-paying job, and it can all be paid off. But with a stagnant, sluggish economy and high-paying entry-level positions drying up, students are finding themselves with a fancy degree, lots of student debt, and no viable way of paying it all off. Youth unemployment is at a jaw-dropping 15%, and with recent deficit reduction legislation passed by Congress and signed by the President, borrowing will be even more expensive for students due to the elimination of subsidized federal loan programs.

Are student loans going to be the next bubble to burst? Read more here: http://www.huffingtonpost.com/2011/08/09/moodys-student-loans-bubble-burst

Zero-Interest Student Loans Offered in Rhode Island

| Policy & Reform

I was scouring the internet for some piece of good student-loan-related news to balance out all the gloom and doom that’s been dominating the airwaves and 24-hour news cycles. I came across this, and it’s definitely worth sharing.

Republican-turned-Independent Lincoln Chafee, Governor of Rhode Island, has introduced a zero-interest student loan program for nursing students who agree to work in the state after they graduate. The state expects to require 6,500 nurses by 2020, and the program is being used as an incentive to keep nurses working in Rhode Island after they graduate.

My sense is that this is an example of how student loan programs really can be used to further people’s education in a positive, productive, and fair way, and get them employed in stable, well-paying careers after they graduate. Students get to finance their program up-front with little-to-no borrowing costs and nearly-guaranteed employment, while the state gets to keep young talent within its borders. Sounds like a great deal to me. The program is being offered by the Rhode Island Student Loan Authority. Read more here, and also check out their loan forgiveness program for primary care providers.

Defective Loan Consolidation

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So you might know at this point that direct loan consolidation is a great option for federal student loan borrowers. It can simplify the repayment process if you have many federal loans, can lead to lower interest rates and lower payments, and may be a tool for getting out of default and repairing your credit. Loan consolidation is great…

…In theory, at least. The problem is that the U.S. Department of Education is a massive bureaucracy. The loan consolidation application is a confusing mess. There are many different types of federal student loans; some can be consolidated, some cannot be consolidated, and some can only be consolidated under certain circumstances. Customer service representatives have been known to be unhelpful and rude, and in some situations, they have been providing misinformation. Department employees also make frequent mistakes. For example, they sometimes leave certain loans out of the consolidation that should have been included (this actually happened to me), which means you have to be vigilant about tracking which loans are included and which loans, if any, were accidentally left out; you’ll then have to fill out another application to get those forgotten loans added back to the consolidation loan later. Mistakes like these can cost you, since you still have to make your payments while the loans are being consolidated– even if the Department messes up.

The loan consolidation process is tedious and confusing at best, and at its worst it can be so defective that it actually impacts you financially. This is why it can be very beneficial to seek out a professional who is familiar with the consolidation process and the Department’s bureaucracy. To read more about defective loan consolidation (and some rather nightmarish stories), click here: http://www.huffingtonpost.com/.

Heather Jarvis: Student Loan Expert

| Articles

Heather Jarvis is an excellent advocate for student loan borrowers and is doing some great work. For years, she has dedicated herself to helping students and graduates make informed decisions about their student loans. As Senior Program Manager for Advocacy and Outreach at Equal Justice Works, Heather played a role in the passage of the College Cost Reduction and Access Act, which made IBR and Public Service Loan Forgivenessa reality.

Heather maintains a very informative website. She provides very popular free webinars, and offers free tools and information for student loan borrowers. Check out her site here: www.askheatherjarvis.com

Debt Ceiling Deal Avoids Default, But Shoves Student Borrowers Under the Bus

| Current Events Default

So our federal government has come up with a plan that avoids a national default on its financial obligations. Some people are cheering. If you’re a student loan borrower, though, not so much. In the name of deficit reduction, Congress has decided to eliminate subsidized federal loans for graduate students. While in school, the federal government has traditionally paid the interest for federal loans, providing an incentive to stay in school while keeping the actual cost of these student loans relatively low while you’re earning your degree. With interest subsidies eliminated, student borrowers will either have to pay the interest while they are full-time students, or have the interest added back to the loan principle. Either way, this drastically increases the cost of borrowing. Congress also eliminated a special credit for student borrowers who pay their bills on time.

All in all, the changes that are being rushed through Congress to the President’s desk will shift over $18 billion in borrowing costs to students over the next decade. Read more here: http://money.cnn.com/

3 Ways a National Default May Impact Your Student Loans

| Default

If you’ve been following the news over the past few weeks, you know that Congress and the President have been locked in a bitter debate about the nation’s debt ceiling. The debate boils down to this: the U.S. government spends more money that it receives in revenue, and has been doing so since the country had a surplus in the late 1990’s (government spending particularly skyrocketed following the beginning of the wars in Afghanistan and Iraq in the early 2000’s). We’re about to hit the upper limit of what the U.S. government can borrow under Congressional authorization; in other words, we’re about to “max out” the country’s credit card. If the debt limit isn’t raised by August 2, 2011, and we max out this national credit card, the government will not be able to meet all of its financial obligations. Economists warn this could have a serious impact on the national and global economy. A divided Congress and the President have been negotiating for weeks, trying to reach a deal to avoid a national default. Both sides propose massive spending cuts, but there has been impasse over how high to raise the debt limit, and whether there should also be a corresponding revenue increase by raising taxes on the wealthy. As of today, there are few signs that a deal is near.

So what happens if our government cannot come up with a solution by August 2? Everyone is talking about dire economic consequences, but few are talking about specifics. Here are some potential consequences for student loan borrowers:
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U.S. Dept. of Justice Joins 11 States in Lawsuit Against For-Profit College Chain

| Current Events

I recently posted an article about investigations into the practices of for-profit schools. The U.S. Dept. of Education recently passed new regulations designed to protect students from some of the abusive practices of these schools. While all of this has been going on, the U.S. Department of Justice has joined 11 states in a lawsuit against Educational Management Corp., one of the largest for-profit college chains in the country.

The lawsuit alleges that the company, which receives up to 90% of its revenues from student loans, illegally paid school recruiters based on the number of students that they enrolled. The suit further claims that the company operates almost entirely to recruit students, often rewarding recruiters with lavish gifts and trips to exotic places, without devoting adequate resources to provide students with academic and vocational skills to help them find a career. Not surprisingly, student loan default rates at these types of schools are astonishingly high.

Read more about the suit here…

Why A Low-Paying Public-Interest Job Can Really Pay Off

| Income-Based Repayment Loan Forgiveness

For some people, money buys happiness. I don’t mean that in a judgmental way. I mean truly, for some people, the accumulation of wealth is the key to their satisfaction in life. These particular individuals will try to attain the highest-paying jobs in business, law, or medicine to pay down their student loans (if they have any) as quickly as possible so that they can buy that nice house, get that nice car, and live the dream. If that’s you, and that model works for you, that’s great. Go for it.

For many others, however, life is a little more complicated. We all want to be financially secure, but many of us want to be doing work that not only brings us some level of challenge and excitement and happiness, but also makes some sort of positive difference in the world. Unfortunately, this occupational idealism can be at odds with the realities of market forces and the American higher education system. In other words, a good education here is astronomically expensive, and many jobs that serve the public interest just don’t pay well.

The traditional ways of dealing with this reality was either sacrificing your ideals and “selling out” in order to get that high-paying job that you hate so you can pay down those loans and switch careers later, or alternatively, being the idealistic martyr by obtaining your dream job in government or at a non-profit, but living in a cardboard box with Ramen for dinner every night so you can pay your monthly student loan bills. Well, it really doesn’t have to be that way.

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U.S. Senators Dick Durban, Sheldon Whitehouse, and Al Franken Introduce Legislation to Make Private Student Loans Dischargeable in Bankruptcy

| Policy & Reform

If you’ve read my previous posts about bankruptcy and private student loans, you’ll remember that one of the most significant problems with private student loans is that with rare exception, they cannot be discharged in bankruptcy. While many other types of debt (such as credit card debt) can be eliminated through bankruptcy if you are ultimately unable to pay, you will probably still be obligated to pay back your private student loans even if you successfully declare bankruptcy. These loans can thus haunt student borrowers for their entire lives (or even beyond, but that’s another story).

This wasn’t always the case. Before 2005, it was easier for student loan borrowers to include private student loans in bankruptcy discharges. Bankruptcy reform legislation, however, passed by Congress in 2005 and signed by President George W. Bush, drastically changed bankruptcy law’s treatment of private student loans. Suddenly, student loans became one of the most secure forms of debt for commercial lenders. U.S. Senators Dick Durban (D-IL), Sheldon Whitehouse (D-RI) and Al Franken (D-MN) have recently introduced legislation to restore bankruptcy protections for private student loan borrowers.

The bill is supported by other members of Congress as well as over 35 groups and organizations including the American Council on Education and the National Consumer Law Center. But given today’s political climate and our divided government, does this bill have any chance of passing? Read more here:http://durbin.senate.gov/public/index.cfm/pressreleases?ID=f7c84e6c-f2ac-4ee5-b466-f461b0f0de8a