student loans

Paying for College – Should You Go into Debt to Pay for Your Child's Education?

master — Thu, 25 Dec 2014 18:55:52 +0000

Paying for College – Should You Go into Debt to Pay for Your Child's Education? master Thu, 12/25/2014 - 13:55

College costs keep rising every year, sometimes drastically and for many parents, this is scary. How will you pay for your child's education? Will you need to borrow? How much can you afford? Should you cover it 100% or make your student foot the bill for their own education? This is a hot button issue because, naturally, you want the best for your child, but is it right to ask parents to sacrifice their own financial well-being to kick start the future of their offspring?

For parents who can't afford the out of pocket costs of college, one option is to take out PLUS loans – federal student loans owed by the parents, not the student. These come at higher interest rates than standard student loans and can haunt parents for generations to come. Today we'll talk about the rising costs of schooling and exactly how far parents may (or may not) want to push their finances to pay for their child's college.
How much does college in NC cost?
Colleges in our state vary widely by cost from a couple of thousand dollars per year up to tens of thousands of dollars. And that's just tuition. Room and board are very pricey and can cost from 50% up to 200% of what tuition runs. For most North Carolina parents, writing a check for these expenses is not doable. Some parents may have college accounts set up to pay for school, but more often than not, taking on debt may seem like the only solution.
Cost versus benefit of paying for your child's college
Of course you want your child to get off to a good start in the world and get a good job and a college education is often the best foundation. But that doesn't mean you need to go broke financing it. After all, college ultimately benefits your offspring, so it makes sense that they should foot the lion's share of paying for it. A college degree will increase their income, not yours. The key is to balance who pays for what so you're not left holding the bag and your kid a free degree.
Keep yourself out of debt by controlling costs strictly
First and foremost, cost should determine where your student goes to college. They may dream of a pricey out of state school, but this is often impractical. Instead, be realistic with them about your budget. If you can reasonably afford a state school as long as they live at home and work part time to help pay for it, then that's the reality of it. Think of it this way – you wouldn't go buy a Mercedes if you only have the budget for a Hyundai, knowing the debt will kill you.

Consider all routes to college
If your child has no clue what they want to major in, the most affordable way to get them into college and give them time to figure it out is by opting for a community college. This way, they can knock out core courses for a fraction of the cost while figuring out what they want to do. Once they know what they want to major in, you and your student can make a more-informed choice about which state school offers the best and most affordable degree for their area of interest.

When debt is unavoidable
In some cases, student loans may be the only way to get your child into college. If this is the case, stay within federal guidelines of what your student can borrow. Federal loan limits are currently $5,500 a year for an undergraduate and increase to $7,500 once you hit year three with an overall cap of $57,500 for an undergraduate degree. This is enough to pay tuition and books while your student lives at home or with another relative or in a communal apartment. Current interest rates are less than 4%. Minimizing loans by having your student work part time to pay as they go is advisable.

Why parents shouldn't borrow for college
Your student can borrow at a lower interest rate than you can from the Federal government and has many more options to deal with the debt after they graduate. They can get into a program like Income Based Repayment (IBR) which ties loan payments to income at a reasonable 10%-15% of taxable income. They can also qualify for Public Service Loan Forgiveness if they teach, work in law enforcement or other public service field. Finally, they can qualify for forgiveness of loan balances after 20-25 years of repayment under IBR. With a PLUS loan, you have none of these protections and this debt can wreck your finances.

Benefits of making your student pay their own way
We usually appreciate more the things we have to work hard to earn or accomplish. Things that are given to use are not usually as valued and this is true will college. Students who are handed their college experience on a silver platter financed by mom and dad are less likely to study seriously, more prone to party and more likely to suffer a poor GPA or drop out. Conversely, students that have to work at least part time to get through school party less and have better grades. Do your student a favor and make them work for it. Plus, if you're not paying for their college, you can be there as a backup if they run low on Ramen or need a new tire for their car.

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Beware Companies Promising Student Loan Relief

master — Mon, 08 Dec 2014 18:22:04 +0000

Beware Companies Promising Student Loan Relief master Mon, 12/08/2014 - 13:22

Student loan debt now averages nearly $30,000 per borrower. For some, their debt is less than this but, for many others, it's much more than this median amount. No matter how much you owe in college debt, if it's more than you can afford, you're likely looking for solutions. If your school loans are federal loans, there are a number of helpful solutions for those that legitimately can't afford their loans. But there are also a number of illegitimate solutions that you should avoid. Today we'll show you how to avoid these bad solutions that can actually get you into deeper debt and to look to those that can truly help.

Avoid student loan “help” from debt settlement firms
Many recent college graduates are either unemployed or underemployed in part time jobs or low-wage positions that do not require or utilize the degree they borrowed to obtain. This may be your situation or you may just be struggling because you had to borrow more than your salary can support given your other current financial obligations. No matter the reason, if your student loan debt is impressive, you may be desperate for help. Debt settlement firms promise help, but rarely deliver.
Have you heard ads on the TV or radio that promise to get you relief from high payments on your student loans? One company, Broadsword Student Advantage, boasts, “Your entire student loan can be forgiven.” That's an exciting and enticing statement, but it's not founded in any meaningful reality. Student loans are rarely just “forgiven” out of the blue. There are some student loan forgiveness programs, which we'll discuss below, but these take time and can be done without an agency charging you fees.
Both Broadsword and another debt settlement firm, First American Tax Defense, are being sued by states for tricking borrowers into paying hefty up-front fees and/or steep monthly fees for student loan debt relief that never manifested. And, what's worse, is that there are no solutions these companies offer that you cannot obtain for yourself, easily and directly from the Department of Education and your federal student loan servicer.

Real student loan forgiveness
The primary way to get student loan forgiveness is through either completing 20-25 years of Income Based Repayment or Pay As You Earn programs. These are reduced payments based on your income (see more on this in the section below) and after 25 years under IBR or 20 with PAYE, your remaining balances are forgiven, although that amount will be taxable. In other words, if you still owe $15,000 on your student loans at the time of forgiveness, that amount will be taxed. If your federal income tax rate is 20%, this will result in $3,000 more of taxes, but that's still better than paying off the $15k.
The other avenue to forgiveness is through a service-related plan. Public Service Loan Forgiveness is the most common. This allows teachers, nurses, firefighters, police, soldiers and others that work in public fields the opportunity to have their loans wiped out under certain circumstances. The program requires you to work 10 years or longer in a public service field and, while working in that field, to make 10 years of student loan payments. After that, remaining balances are written off – and the forgiven amount isn't taxed. If you work in a public service field, you may also be able to combine this with IBR or PAYE to get lower payments. Read more here.

Real help with student loan payments
The most immediate way to get help is to apply to your student loan servicer for a more affordable payment plan, a deferral or a forbearance. Deferral and forbearance both temporarily stop your student loan payments, but allow interest to keep accruing. The better option is to apply for Income Based Repayment or Pay As You Earn. These programs reduce your student loan payments down to 10%-15% of your disposable income, no matter how much you owe in student loans. You do not need an agency or debt settlement firm to help you get into these programs. Applying for them is very straight forward and something anyone can do. Click for more info on Income Based Repayment, Pay As You Earn, forbearance and deferral.

Real student loan discharge
There is one last option to ditch your student loans – discharge through bankruptcy. To get a bankruptcy discharge of student loans, you have to demonstrate that paying them would cause you undue financial hardship. This is granted most often for those that are chronically unemployed, are permanently disabled, are older and outside of their peak earning years or are in a very low income situation with little to no chance for recovery.

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Older Americans Plagued by Student Loans – Is Your Social Security Being Garnished?

master — Mon, 03 Nov 2014 16:20:52 +0000

Older Americans Plagued by Student Loans – Is Your Social Security Being Garnished? master Mon, 11/03/2014 - 11:20

Federal student loans are a great way for many to get a college education and greatly improve their lot in life. But for some, student loans are a trap that can ruin their lives. Student loans from the government have no statute of limitations and are tricky to discharge in bankruptcy. For those that can't afford them, student loans can become a lifelong nightmare. Increasingly, many older Americans are being hard hit by educational debt that is pushing them to the brink of poverty.

Defaulted student loans can trigger social security garnishment
Although wage garnishment in North Carolina is not a remedy available to most creditors, it is for federal student loans. Loan servicers can garnish up to 15% of your wages or Social Security without taking you to court first in order to collect past due balances. For those living on fixed incomes, this can quickly become a financial nightmare. If you've defaulted on your student loans, this could happen.

Defaulted student loans can cause tax refund seizure
Federal student loan servicers have collection methods open to them that no other creditor can access. In addition to garnishment, if you have defaulted on your loans (i.e. gone nine months or more without making a payment), loan servicers can take your tax refund each and every year and won't hesitate to do so. If you rely on this money, this can be disastrous, yet inevitable.

Many seniors are facing college debts for kids and grandkids
In addition to student loans taken out for their own behalf, seniors may take out PLUS loans to help their kids and then these adult children can't afford to pay back the loans. This can happen when they are still juggling college debts of their own, compounding their dire financial situation. And when retirement comes with a fixed income, these debts may simply be insurmountable.

Other financial problems can compound the debt crisis of older Americans
One of our attorneys, Ed Boltz, is president of the National Association of Consumer Bankruptcy Attorneys and was recently interviewed by the Associated Press about this critical issue. Boltz said, “Many seniors we see in our offices struggling with student loan debt are also dealing with challenges such as medical problems, job loss or divorce.”
He added, “Some went back to school when there were older to try and make a higher salary and it didn't work out or their children they helped through college aren't able to help pay back those loans. Because of their age, they are stuck with these debts and they can't try again. There's no second act for them.” This is unfortunate and can leave those on a limited income struggling unfairly.

Hope for those dealing with student loan garnishment
A new option has just been made available to try and bring defaulted student loans back to current that may help some seniors to get out of this predicament. The process of getting loans back in good shape is called rehabilitation, but prior to this July, it was nearly impossible to accomplish for those with limited means that most needed help. However, recent changes have made rehabilitation possible for many borrowers.
You can apply to make income-sensitive payments to rehabilitate your loans. If you are subsisting just on social security, this would mean payments of just $5 a month could rehab your loans. After five of these modest payments, you can apply to end your garnishment. After 10 of these small payments, your loans will be considered rehabilitated and you can apply for Income Based Repayment, which offers payments as low as $0 per month.

Contact us for a free consultation about your debt
If student loans aren't your only financial problems, the North Carolina bankruptcy experts at the law offices of John T Orcutt can help. For seniors, a Chapter 7 bankruptcy can wipe out lingering unsecured debts like credit cards and medical bills to free up your finances. Plus filing bankruptcy will temporarily stop your student loan garnishment and give you a chance to take advantage of the new student loan rehabilitation plan so you can have the financial fresh start you deserve. Contact us now for a free consultation.

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student loans