AuthorTopic: 🎓 Subprime Student Loans  (Read 13333 times)

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🎓 How student debt came to define people’s lives
« Reply #210 on: December 29, 2019, 03:09:53 AM »

How student debt came to define people’s lives
Published Sat, Dec 28 20199:58 AM ESTUpdated Sat, Dec 28 201912:52 PM EST
Annie Nova    @AnnieReporter
Monthly student loan payments can dictate when people have children and how much they’ll retire with.
Pat Greenhouse | Boston Globe | Getty Images

Key Points

    Student loans have become a defining feature of American life.
    Over the past decade, these loans have made it harder for people to purchase houses, start businesses and families, save or invest.
    The debt has also become a top-tier issue in the 2020 presidential election.

Trump Policy Halts Loan Relief For Thousands Of Students

Student loans have become a defining feature of American life.

It was 10 years ago that education debt eclipsed credit card debt. The next year, in 2011, it exceeded auto debt.

As we enter a new decade, outstanding student debt trails only mortgages and is expected to top $2 trillion in the next couple of years.

Around 43 million people in the U.S. are in debt for their education. Each year, 70% of college graduates start off their lives in the red. And their average balance is around $30,000, up from $10,000 in the early 1990s.

Wages haven’t kept up. Starting salaries for new college graduates have grown less than 1% over the past two years, remaining at around $50,000.

As a result, repayment has proved difficult for many people. Nearly 30% of borrowers are in delinquency or default.

Six-figure balances are becoming more common. Seattle-area resident Elisha Bokman has been out of school for eight years and still owes nearly $500,000 for her doctorate degree in naturopathic medicine and master’s in acupuncture from Bastyr University.

“It really effects the remainder of your life,” Bokman said.

Indeed, over the past decade, these loans have made it harder for people to purchase houses, start businesses and families, save or invest.

Changes might be coming. Two front runners for the Democratic presidential nomination – Sens. Bernie Sanders, I-Vt., and Elizabeth Warren, D-Mass – are proposing to forgive most or all student debt.

Former Trump Administration official A. Wayne Johnson, who used to oversee the country’s outstanding student debt, made headlines earlier this year when he proposed forgiving $50,000 for all borrowers, about $925 billion.

“It’s the first Republican support for widespread student loan forgiveness,” said Mark Kantrowitz, a higher education expert. “That makes it a bipartisan issue.”

It’s little surprise politicians have turned their attention to the topic: More than half of Americans say student debt is “a major problem” for the country, according to a Politico/Morning Consult poll.

Here are some of the ways the loans have come to shape our lives over the last decade.
Families postponed

The more student debt a person has, the more likely they are to say they’ve delayed getting married, according to an analysis by Kantrowitz.

His research found that roughly 1 in 5 people who owed $25,000 or less said they had postponed marriage. Among borrowers with balances over $100,000, that ratio jumped to 1 in 3.
Getty | Michael H.

Almost 40% of borrowers with balances over $100,000 said their debt had caused them to put off having children, Kantrowitz found. Other research backs up Kantrowitz’s findings.

Karen Teague, a 29-year-old from New Park, Pennsylvania, owes $25,000.

“Kids are expensive, and some weeks I can barely afford to feed myself,” Teague told Bustle last year.
Homeownership rates down among young people

Researchers at the Urban Institute found that if a person’s education debt went from $50,000 to $100,000, their chance of homeownership will decline by 15 percentage points.

“Student loan debt holders do want to own a home; that’s part of their American dream,” said Jessica Lautz, vice president of demographics and behavioral insights at the National Association of Realtors. “It’s just really hard to get there right now.”

Large balances can make it hard to qualify for a mortgage. Many others find their monthly bills prevent them from saving for a down payment.

Stephanie Pennycuff graduated from Indiana University-Purdue University Indianapolis with $43,000 in student debt.

She works at a nonprofit, helping formerly incarcerated people transition back into their communities. She earns around $30,000 a year; her monthly student loan payment is $450.

That math has made saving nearly impossible.

“Pretty much one paycheck a month goes to loans,” Pennycuff, 28, said. “Every time I manage to save up a couple of thousand dollars, something happens and it’s immediately drained back to nothing.

“I can’t put down any sort of payment on a home.”
It’s harder to start a business

A person with $30,000 in student debt is more than 10% less likely to start a business than a person who graduated debt-free, according to calculations by Karthik Krishnan, an associate professor of finance at Northeastern University who researches student debt.

Businesses started by people with student debt also don’t grow as fast as those headed by people without it, Krishnan finds.

“It’s going to be a big problem as we get to the next decade,” Krishnan said. “We’re going to see a gradual deterioration in outcomes in economic mobility and start-up activity.”
Student debt could hold back economic growth, Fed chief says

Small businesses are especially at risk, according to a study by researchers at the Federal Reserve Bank of Philadelphia and Pennsylvania State.

As student debt has mushroomed, the number of businesses with one to four employees dropped by 14% between 2000 and 2010, the researchers found.
Smaller savings

Monthly student loan payments often force people to sacrifice saving for their retirement.

By the time college graduates turn 30, those without education debt are predicted to have double the amount saved for retirement as those with the debt, according to the Center for Retirement Research at Boston College.

The Consumer Financial Protection Bureau has come out with similar findings.
Some hit harder (and for longer) than others

Two-thirds of the country’s outstanding student debt is carried by women.

And while the average white student loan borrower owes around $30,000, the average black borrower owes closer to $34,000. White borrowers pay down their education debt at a rate of 10% a year, compared with 4% for black borrowers.

And it’s not just millennials struggling with college loans.

In 2018, Americans over the age of 50 owed more than $260 billion in student loans, up from $36 billion in 2004, according to the Federal Reserve.

Stephanie Galante still owes around $40,000 and soon she’ll be 80.
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🎓 Ways You Can Actually Get Your Student Loans Forgiven Today
« Reply #211 on: January 05, 2020, 04:41:49 AM »

Ways You Can Actually Get Your Student Loans Forgiven Today

Robert Farrington    Senior Contributor Personal Finance
I write about personal finance, college and student loan debt.

With individual student debt levels increasing year after year, it’s not surprising that many student borrowers are on the hunt for ways to have their loans forgiven. Fortunately, there are an array of loan programs that can lead to total or partial forgiveness of this debt, although you usually have to jump through a ton of hoops for them to work.

But, which programs will actually do the trick? According to the experts, all the main loan forgiveness programs are still available to debtors who apply, although you’ll need to read the fine print and understand them inside and out if you hope to get approved.

If you’re waiting for presidential candidates Warren or Sanders to get elected so they can erase your loans, it’s likely you’ll be waiting a long time — and maybe forever. You’re better off trying to make sure your student loans are cancelled through a specific program just in case. Here are the main options to consider, according to the experts.
Document with title student loan forgiveness.

Document with title student loan forgiveness.Getty

Public Service Loan Forgiveness (PSLF)

Financial attorney Leslie Tayne of Tayne Law says that Public Service Loan Forgiveness, or PSLF, is still a very real option for borrowers even though few people actually qualify. You have to be working in a qualifying public service profession and have made 120 on-time payments on your federal loans to qualify for this program, she says. Your payments must have also been under a qualifying repayment plan, including income-driven repayment plans like Income Based Repayment and Pay As You Earn (PAYE).
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On top of those requirements, you must keep track of those payments to ensure that all payments are made and that they are counted towards the program requirements.

“You will also need to be aware of tax filing statuses because that could impact your qualification in the program if you add income from a spouse,” says Tayne. “If you do qualify, then you're in a good spot because all of your federal student loans will be completely forgiven.”


Borrower Defense To Repayment

Borrower defense to repayment is another way to get your loans completely forgiven, but it only applies in very specific instances of for-profit organizations, says Tayne. You must be able to prove that your school broke state laws in order to qualify. You will also need to provide supporting documentation to make your case.

According to the U.S. Department of Education, borrower defense to repayment wasn’t very common until 2015.

“However, there were several school closures, including Corinthian Colleges, Inc., that led to the Department’s review of this practice and announcement of new steps pertaining to debt relief in June 2015,” they note.

Your federal loans will go into forbearance when you file for borrower defense, says Tayne. This means you won’t have to make payments while your case is under investigation. Unfortunately, there are risks involved with this debt forgiveness strategy — including the risk you’ll have to pay back interest if your application isn’t approved.

For that reason, borrower defense to repayment is only a good option if you’re sure you have a strong case against your school. Plus, with current lawsuits, it appears that this program might be making progress again for those that qualify.


Tayne also notes that student loan debt may be discharged during bankruptcy in very rare cases. This will only happen if the borrower can prove “undue hardship,” which is a very subjective determination, notes the financial attorney.

You shouldn’t count on having your student loan debt canceled in bankruptcy court, but this could be an option of you’re enduring insurmountable hardship and paying your student loans affects your ability to support yourself and keep a roof over your head.

Career-Based Student Loan Forgiveness

Financial advisor Eric Sajdak of Safeguard Income Strategies says that, in his practice, the best loan forgiveness programs he’s seen used effectively are the “niche, career-based programs.” This includes forgiveness programs available for educators, healthcare professionals, military, and lawyers.

With career-based programs, you can find both federal and state-based programs to apply for, he says. Forgiveness can be obtained by nearly anyone regardless of income or loan amount with these programs, although you may be required to work in a low-income or “high-need” area.

Career-based forgiveness programs can also be quite substantial in terms of the financial benefit they offer. “They vary by profession, but lawyers, doctors, and the military can earn from $50,000-$100,000+ depending on the state, employer, and profession,” says Sadjak.

Another example is teacher loan forgiveness, which is offered on the federal level. Teachers who qualify can receive up to $17,500 in forgiveness on Direct Subsidized Loans and Unsubsidized Loans, along with Subsidized and Unsubsidized Stafford Loans.

Here’s a list of all the state-based student loan forgiveness program options.

Income-Driven Repayment Plans

Also remember income-driven repayment plans, which offer loan cancellation on a very extended timeline. Programs that fall in this category include Income-Contingent Repayment (ICR), Income-Based Repayment (IBR), Pay As You Earn (PAYE), and Revised Pay As You Earn (REPAYE). All of these programs offer loan forgiveness after 20 to 25 years, during which you’ll pay a percentage of your “discretionary income” each month.

While income-driven plans sound tempting, financial advisor Jake Northrup of Experience Your Wealth says it’s crucial for debtors to consider the tax implications of these plans before they go this route.

“Unlike PSLF which is tax-free, this loan forgiveness results in taxable income in the year the loan balance is forgiven – referred to as the student loan tax bomb,” he says.

This strategy is still one to consider if a borrower’s student loan debt exceeds their income, but only if they’re prepared to deal with the tax consequences later on.

The Bottom Line

If you are hoping and praying your student loans will disappear, you may end up disappointed. At the end of the day, it’s unlikely student loan debt will ever be erased on a national level, and that’s true no matter what any politician says. Your best bet is researching forgiveness options to see which ones you might qualify for, then taking the time to learn the rules so you’re likely to be approved when you apply.

Waiting to have your loans forgiven for 10 or even 25 years may seem like a lifetime, and it is, but it could be a lot better than nothing. And if crushing student loan debt levels are ruining your life, these programs could be the best chance you have.
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Robert Farrington
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🎓 The Student Loan Forgiveness Tax Bomb
« Reply #212 on: January 08, 2020, 07:20:08 AM »

Editor's Pick131,560 viewsJan 6, 2020, 08:20am
The Student Loan Forgiveness Tax Bomb

Robert Farrington
Senior Contributor  Personal Finance
I write about personal finance, college and student loan debt.

Drowning in student loan debt isn’t fun, and that’s especially true when you realize there are so few ways to dig yourself out. You can pay off your loans the hard way, forking over a significant portion of your income over ten years with a standard repayment plan. You can also opt for a loan forgiveness program like Public Service Loan Forgiveness (PSLF) and be required to work in a handful of specific public service positions that may not be ideal, then maybe have your loans forgiven after ten years. While PSLF is a good idea in theory, it’s hard to be excited about it when only a small percentage of applicants are actually approved.

But, what about income-driven repayment plans? These plans, which include Income-Contingent Repayment (ICR), Income-Based Repayment (IBR), Pay As You Earn (PAYE), and Revised Pay As You Earn (RePAYE), let you pay a percentage of your discretionary income for 20 to 25 years before forgiving your remaining loan balances. Beyond the lower payment you can enjoy for most of your adult working life if you qualify, you don’t have to work in a specific job or for the public interest with these plans.

The main problem with income-driven repayment plans is the potential for severe tax consequences down the road. That’s because, unlike PSLF, income-driven repayment plans require you to pay income taxes on the amount of debt that’s forgiven.
Tax bomb

Tax bombGetty

How Much Will The “Tax Bomb” Cost You?
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Today’s version of yourself may think paying a small percentage of your discretionary income for the next 20 to 25 years sounds wonderful, but what about your future self? By the time actual loan forgiveness rolls around with these programs, you could regret your choice in a major way. That’s because, during the year your debt is forgiven, the forgiven debt is treated as taxable income (as of today’s tax law).

Unfortunately, it’s hard to know how much you might have to fork over. How much you owe in taxes the year your debt is forgiven will depend on a variety of factors including how much you earned that year and your current tax rate.


Depending on your situation, you could wind up owing more than you think. According to the Institute for College Access and Success (TICAS), a small business owner with $50,000 in student debt who is married with two small children might have to pay $13,050 in additional income taxes in the year their debt is forgiven. In another example, a divorced social worker with two children and $55,000 in debt might pay as much as $19,000 in additional federal taxes during the year their loans are forgiven.

There are a few reasons this could be considered unfair. First, having your student loans forgiven isn’t exactly a windfall. You don’t actually have your hands on the forgiven cash, so this means having to dip into savings and investments in order to pay an inflated tax bill.

Also remember that income-driven plans don’t necessarily save you money on your student loans to begin with — they simply spread out smaller payments over an enormous timeline of 20 to 25 years.

Plus, if your payments are exceptionally low, it also means your income is low - and you likely didn’t have much of an opportunity to save over the years of repayment to have the extra cash to cover the tax bill.

In several examples TICAS shares in their recent study, income-driven repayment plans cost student debtors significantly more money in the long run. The married small business owner with two children we mentioned is one of them. As TICAs lays out, this mythical person with $50,000 in student loan debt would:

    Repay the entire loan balance plus $21,650 in interest with IBR or REPAYE, only to owe $13,050 in additional federal income tax when their loans are forgiven
    Repay the entire loan balance plus $55,400 in interest with REPAYE, only to owe an additional $3,700 in federal taxes when their loans are forgiven

With a standard, ten-year repayment plan, on the other hand, they would likely pay the entire loan balance plus $19,050 in interest over 120 months, which would leave them debt-free at least ten years sooner. Standard repayment would also save them from having to face the student loan forgiveness tax bomb. Of course, their monthly payments would obviously be higher along the way, which may not be tenable for everyone.

Insolvency Could Help

If you have significant student loan debt and you’re worried about having to pay a huge tax bill later in life, it’s possible that being insolvent could help you avoid it.

Insolvency is a tax term used to describe situations where your liabilities (amount of money you owe) exceed your assets. If you’re able to prove you are insolvent at the time your student loans are forgiven, it’s possible you can avoid the tax bomb altogether.

Here’s a good example of how insolvency might look considering an average person’s assets and liabilities:


    Checking Account: $3,200
    401(k) Balance: $27,000
    Automobile: $16,000
    Personal Possessions: $7,000
    Total Assets: $53,200


    Federal Student Loan Debt: $60,000
    Private Student Loans: $47,000
    Credit Card Debt: $8,700
    Total Liabilities: $115,700

In this case, the debtor is considered entirely insolvent with total assets of $53,200, total liabilities of $115,700, and an “insolvency number” of $62,500 (liabilities minus assets). They are totally insolvent in this case because their insolvency number is higher than their federal student loan debt amount, which is $60,000.

Also keep in mind that you can qualify for partial insolvency if you have significant debt and few assets but you aren’t entirely insolvent. In this case, you would only pay income taxes on the portion of your debt that exceeds your assets. This means you won’t escape the tax consequences of forgiveness completely, but it can certainly help decrease your burden and make it more bearable.

Time May Be On Your Side

At the end of the day, all of this is hypothetical. If you’re planning to pay your loans off with an income-driven repayment plan over the next 20 to 25 years, you can only speculate on what your financial situation will be by the time your tax bomb hits. You may be doing so well financially that you couldn’t care less about the tax bill, or you might be entirely insolvent and never have to pay a dime. It’s hard to plan for something so far away when you don’t have an inkling of where you’ll be by that point in your life.

Also remember that a few decades is a long time. If you believe Democratic Presidential candidates, then complete student loan forgiveness could be a reality long before your income-driven repayment plan ends.

Some states, including California, have even passed legislation to address this tax penalty at the state level. It’s possible that, over the next few decades, more legislation will be passed by states and even the federal government that could potentially lessen the tax burden for individuals who have made a faithful effort to repay their loans.

Should you worry about the student loan forgiveness tax bomb? It’s okay to keep this potential issue in mind, but I don’t think you should avoid income-driven repayment plans based on tax implications that may or may not play out in 20 to 25 years. Income-driven repayment plans can make paying your student loans off considerably more affordable for decades to come, and that could mean a much higher quality of life for the foreseeable future.

I suggest doing what’s best for your finances and your life while you’re young. If the tax bomb seems inevitable a few decades from now, you can deal with it then. The worst thing you can ever do is avoid making student loan payments altogether.

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Robert Farrington

I'm a personal finance expert that focuses on helping millennials get out of student loan debt and start investing for their future. I also help parents make smart cho...
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🎓 8 million student loan borrowers must do this in 2020
« Reply #213 on: January 10, 2020, 08:06:09 AM »

8 million student loan borrowers must do this in 2020
Income-driven repayment plans help more than 8 million federal student loan borrowers afford their monthly payments
By  RYAN LANE of NerdWallet
January 9, 2020, 6:58 AM

Student loan debt forgiveness in 2020 race

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Student loan debt forgiveness in 2020 raceRep. Alexandria Ocasio-Cortez gave her colleagues a first-hand look at what many people her age are facing when she made a student loan payment during a congressional hearing on student debt.Peter Dazeley/Getty Images

More than 8 million federal student loan borrowers use income-driven repayment plans. These plans can drop payments to $0 based on a borrower’s income and family size. And after 20 or 25 years — 10 if you work in public service — any remaining balance is forgiven.

But to stay on these plans, you must recertify your personal information annually. Failing to do so can lead to consequences like increased payments, a bigger loan balance and, eventually, default.

Yet more than half of borrowers miss their deadlines, according to data from the Department of Education.

A new law addresses this issue by letting borrowers opt in to automatic recertification. James Kvaal, president of the nonprofit Institute for College Access & Success, expects this change to take months, not years, to implement.

“Borrowers should continue to watch for recertification requirements,” Kvaal says, “and when the opportunity comes to opt in, they should.”

You will still likely have to recertify income-driven plans manually in 2020. Here’s how to hit your deadline.


Your servicer, the company you make payments to, must inform you of your recertification deadline. It may do this via email, letter or phone call.

A federal loan servicer spokesperson said borrowers must be notified at least twice, 90 and 60 days before their deadline, but some servicers use more touchpoints.

Ignoring these messages tripped up Jeffrey Dohm, 36, of Salina, Kansas.

“I was pretty much just paying with automatic withdrawals,” Dohm says. “I didn’t really log in to my account all that often, and so I missed notifications.”

He realized something was wrong after a $500 loan payment was withdrawn from his bank account — roughly four times his regular amount. Dohm says he had enough of a cushion to avoid overdrafting but had to temporarily pause repayment due to the lost savings.

He now checks his student loan account “every couple of months” for notifications and advises others to do the same.


Deadlines stay the same if you recertify on time each year, so set your own reminder in case you miss your servicer’s.

Robert Lowen, 47, of Sarasota, Florida, uses a calendar program and creates alerts to remember his date.

“Although (recertification is) not a difficult process,” he says, “too many things can and do fall through the cracks.”

Lowen says aligning the process with another annual task, completing his taxes, also helps him remember. He’s missed recertification only once in nine years.

Borrowers who don’t know their deadline can find it in the National Student Loan Data System. Your servicer can also confirm the date.


Recertifications take about two weeks to process but can be longer depending on your financial situation. For example, someone with irregular income may need to provide additional documentation — like pay stubs or a letter from an employer — to finish.

A federal loan servicer spokesperson said borrowers should submit everything within the 90-day window before their deadline to avoid delays.

You can recertify via a paper form or at Online renewal is preferred, as it streamlines processing and lets you import income information directly from the IRS.

Don’t pay a third-party debt relief company for help.

“Borrowers should avoid paying for services the federal loan servicers provide for free,” Education Department press secretary Angela Morabito told NerdWallet.


Borrowers who miss their recertification deadline should take immediate action.

“Get that paperwork in as soon as possible,” says Persis Yu, director of the nonprofit National Consumer Law Center’s Student Loan Borrower Assistance Project.

Consequences start 10 days after the missed deadline:

— Payments become based on what you owe, rather than your income, and typically increase. Lowen says his bill rose from $160 to around $900.

— For most income-driven plans, all unpaid interest capitalizes — that is, it's added to your balance, increasing the amount you pay interest on.

— Loan forgiveness can be delayed. Dohm, a therapist at the nonprofit Central Kansas Mental Health Center, says missing deadlines has cost him four payments toward Public Service Loan Forgiveness.

During that 10-day grace period, you can ask your servicer to pause payments via an administrative forbearance while you sort out your paperwork. Forbearance is also available after that point, but the unpaid interest will have capitalized.

“It’s a process that requires perfection,” Yu says, “and nobody is perfect.”

That includes her — even Yu says she’s missed her recertification date before.

This article was provided by the personal finance website NerdWallet. Ryan Lane is a writer at NerdWallet. Email: Twitter: @ryanhlane.
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Re: 🎓 Subprime Student Loans
« Reply #214 on: January 10, 2020, 05:12:40 PM »
Student loans just suck. But for some of us, they were the only way we could get that last $$$ to get the degree. For some of us who aren't young, this was back when a high school diploma was an accomplishment, and a college degree even more so.

Nowadays, I don't know how some of the kids do it for that first Bachelor's without a parents help.

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Elizabeth Warren says her plan to eliminate student loan debt can bypass Congress

Democratic presidential candidate Sen. Elizabeth Warren (D-MA) speaks to guests during a campaign stop at Fisher Elementary School on January 12, 2020 in Marshalltown, Iowa.
Scott Olson | Getty Images
Published Tue, Jan 14 20209:02 AM ESTUpdated Tue, Jan 14 20205:06 PM EST
Tucker Higgins   @tuckerhiggins
Annie Nova    @AnnieReporter

Key Points

    Presidential contender Sen. Elizabeth Warren said Tuesday that she would begin to eliminate student loan debt on the first day of her administration, using legal tools that would allow her to bypass Congress.

    The plan, which comes weeks before voting begins in the first primary and caucus states, adds urgency to legislation she introduced over the summer to cancel the bulk of the nation’s outstanding student debt.

    Warren said she will direct her secretary of Education to begin to “compromise and modify” federal student loans up to $50,000 for 95% of those with outstanding student debt, or 42 million people.

Democratic presidential contender Sen. Elizabeth Warren said Tuesday that she would begin to forgive student loan debt on the first day of her administration, using legal tools that would allow her to bypass Congress.

The announcement, which comes just weeks before voting begins in the first primary and caucus states, adds urgency to legislation she introduced over the summer to cancel the bulk of the nation’s outstanding student loan debt.

That bill, introduced with Rep. James Clyburn, D-S.C., would forgive up to $50,000 in student debt for individuals with household incomes under $100,000. But Warren wrote in her plan on Tuesday that the U.S. Education Department already has authority to cancel student debt, “and we can’t afford to wait for Congress to act.”

Read more: Elizabeth Warren calls for investigation into whether Trump Mar-a-Lago guests traded on advance knowledge of Soleimani killing

“I will start to use existing laws on day one of my presidency to implement my student loan debt cancellation plan that offers relief to 42 million Americans — in addition to using all available tools to address racial disparities in higher education, crack down on for-profit institutions, and eliminate predatory lending,” she wrote in the plan.

Warren is fighting to make a splash in the Iowa and New Hampshire contests early next month. The Massachusetts progressive has slipped in state polls in recent weeks, and is now behind former Vice President Joe Biden and Sen. Bernie Sanders, I-Vt., in both states. She also trails Pete Buttigieg, former mayor of South Bend, Indiana, in Iowa.

Americans hold more than $1.5 trillion in student debt, and the problem is particularly acute in Iowa and New Hampshire. More than 60% of new graduates in Iowa and 76% of those in New Hampshire have outstanding student debt, according to The Institute for College Access & Success. And recent graduates in those states also carry higher balances than the national average of around $30,000.

Warren’s plan to eliminate student debt goes further than the proposals put forth by Biden or Buttigieg but stops short of Sanders’ call to erase student debt entirely.

Alongside the new plan, Warren released a letter written to her by three legal experts who vouched for the legality of a president canceling student debt through executive action. The experts, based at the Project on Predatory Student Lending at Harvard Law School, described such a move as “lawful and permissible.”
Cramer: The best way to avoid crushing student loan debt

The experts, Eileen Connor, Deanne Loonin and Toby Merrill, cited a provision of a sweeping higher education bill passed in 1965 under President Lyndon Johnson. The provision grants the Education secretary the authority to “modify” existing loans, they wrote, adding that the secretary “has the authority to modify a loan to zero.”

However, higher education expert Mark Kantrowitz said that authority did not extend to all student loans.

“The U.S. Department of Education does not have the discretionary authority to cancel student loan debt except in limited circumstances specified by the statute, such as death, disability or closed schools,” Kantrowitz said. “Likewise, the authority to compromise debt is limited to situations in which the borrower demonstrates severe financial distress.”

Meanwhile, a rush to forgive student loan debt could destabilize the entire higher education system, said Wayne Johnson, former chief operating officer of the Office of Federal Student Aid. Johnson resigned last year to launch a Senate campaign in Georgia.

“What do you do to the loans you make tomorrow or next week?” Johnson said. “Is everyone who takes out new loans going to think, ‘I don’t have to do anything, they’re just going to be forgiven anyway?’”

Yet many people struggling with student debt are in need of quick relief, said Luke Herrine, a Ph.D. student at Yale Law School. Previously, Herrine was legal director of the Debt Collective, which successfully lobbied for the debt forgiveness of thousands of for-profit college students.

Student loans, he said, present “a real emergency for a lot of people.” Around 30% of borrowers are in delinquency or default.

Herrine, who published a white paper in 2019 making the case for student debt cancellation via executive action, said he expects the argument to gain traction. Until Warren proposed the debt jubilee last year, he said, “the question of forgiving student debt on a mass basis wasn’t even considered a serious policy to think about among the people who pay attention to these laws.”

Warren wrote that the new plan does not mean she will avoid Congress on student debt entirely.

She said she would still fight to enact the rest of her college affordability plan, as well as the wealth tax that she has said would offset its cost.

“If we want to achieve the kind of big, structural changes that will make our education system, our economy, and our society work for everyone, we’re going to need to use every tool, every scrap of opportunity that comes our way, to help working families,” she wrote.
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Student debt is over $1.6 trillion and hardly anyone is paying down their loans
Published Thu, Jan 16 20201:17 PM ESTUpdated 4 hours ago
Jeff Cox  @jeff.cox.7528  @JeffCoxCNBCcom
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Key Points

    Student loan debt totals more than $1.6 trillion and is not shrinking as few borrowers have reduced their balances, according to Moody’s.
    The issue has been a cornerstone of some presidential candidates’ campaigns.
    High student loan balances are having multiple negative economic effects, such as restricting household formation, Moody’s said.

The rapid increase of student loan debt has slowed over the past few years, but individual borrower balances aren’t going down mostly because hardly anybody is paying down their loans.

Total indebtedness over the past year or so has stopped its meteoric rise, according to a study that Moody’s Investors Service released Thursday. Nevertheless, the study showed a number of factors are constraining borrowers from lightening their loads. Outstanding loans total more than $1.6 trillion, more than doubling over the last decade and tripling since 2006.
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Since the explosion of student debt following the Great Recession, annual repayment rates, or the amount of existing balances lowered, have been just 3%, Moody’s said. Just 51% of borrowers who took out loans from 2010-12 have made any progress at all in paying down their debt.

“While in the past, higher enrollment and rising tuition were the main drivers of growing student loan balances, more recently, slow repayments have become the primary driver,” Jody Shenn, senior analyst at Moody’s, and others said in the report. “Over the next few years, the combination of slow repayments and elevated, if no longer growing, levels of new borrowing will likely fuel further increases in outstanding debt.”
High default rate

There are multiple reasons why the debt levels are not going down.

One is that many borrowers are taking advantage of repayment plans based on borrowers’ incomes, along with some opting for longer repayment options.

Presidential candidates, particularly on the Democratic side, have made reducing or eliminating student debt cornerstones of their campaigns. Moody’s said those kinds of proposals “would stimulate the US economy but have negative effects for some financial institutions.”

In the meantime, the burden of student loans continues to be felt with an 11% default rate that is the highest of any debt category. Education also is now second only to mortgages as the highest form of debt for all Americans.
Cramer’s plan to avoid crushing student loan debt

“Increased reliance on student debt crowds out an individual’s access to other forms of household credit, which likely delays business formation and homeownership, important drivers of economic growth and wealth creation,” Shenn wrote.

One indication that the pressure may alleviate if only a bit is that the annual growth rate decelerated to 5% in the third quarter of 2019, down from the peak of 14.7% at the end of 2008, according to the Federal Reserve.

A paper released earlier this week from the St. Louis Fed also looked at the student debt issue. The research noted that debt has grown more rapidly for students in four-year and graduate schools as opposed to community colleges, hinting that repayment rates could accelerate in the future.
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🎓 House Overturns Student Loan Forgiveness Rule
« Reply #217 on: January 17, 2020, 01:00:49 AM »

Jan 16, 2020, 07:59pm
House Overturns Student Loan Forgiveness Rule

Zack Friedman  Senior Contributor  Personal Finance
Bestselling Author, The Lemonade Life. I write and speak about leadership and greatness.

U.S. Secretary of Education Betsy DeVosGetty Images

The U.S. House of Representatives voted Thursday to overturn a key student loan forgiveness rule.

Here’s what you need to know.

Student Loan Forgiveness: What Happened

The House voted 231-180 to overturn new regulations introduced by U.S. Secretary of Education Betsy DeVos that critics argue limit student loan forgiveness when a college closes due to fraud.

The Obama-era rules, known as borrower defense to repayment, allow students to have their federal student loans forgiven if a school employed illegal or deceptive practices to encourage the students to borrow debt to attend the school. Without these rules, students are potentially on the hook to repay federal student loans even if they didn’t find gainful employment or finish their degree before their school closed.

Betsy DeVos: I’m Saving Taxpayers $11 Billion

DeVos has argued that the Obama rules made it too easy to receive student loan forgiveness, which unfairly burdened taxpayers. Specifically, DeVos said borrowers impacted by school closure would need to apply for student loan forgiveness, rather than receive it automatically. Effectively, DeVos has argued, this would create a higher bar for student loan forgiveness and save taxpayers $11 billion.
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