One thing bankruptcy won’t fix is college debt, which – in contrast to credit cards – can’t usually be discharged by the courts.
One in three low-income people who have filed for bankruptcy protection from their creditors have student loans and face this predicament, according to LendEdu, a financial website.
The debt relief they can get from the courts is very limited, because the aggregate value of their non-dischargeable college loans is almost equal in value to all of their other debts combined, including credit cards, medical bills, and car loans.
Under these circumstances, a bankruptcy filing “does not sound like a financial restart,” said Mike Brown, a LendEdu blogger.
Although LendEdu analyzed data for low-income bankruptcy filers, the court’s inflexibility around student loans affects a wider swath of college-educated bankruptcy filers.
In the past, individuals were permitted to use bankruptcy to reduce their college loans. But in 1998, Congress eliminated that option unless borrowers could show they were under “undue hardship,” a legal standard that is notoriously difficult to satisfy.
While the legal requirement hasn’t changed since 1998, paying for college has become far more onerous. Americans today owe nearly $1.6 trillion in student debt, which ranks second only to outstanding mortgages. …Learn More
The first and arguably most important decision a new graduate will make is how much to pay for rent.
If it’s too high, the rent – on top of those annoying student loans – will push out other priorities necessary to prevent financial trouble down the road.
Rick Epple, a certified financial planner in Minnesota’s Twin Cities area, counsels his daughter’s friends and clients’ children entering the labor force to keep their rent at around 20 percent of their income.
“Nobody ever talks about what they should spend,” he said. He worries about young adults who pay a third of their income – the standard recommendation – for an apartment. If the rent blows a hole in the budget, paying student loans every month and on time becomes a much bigger challenge.
A paycheck, Epple said, “just goes quick.”
A manageable rental payment also leaves room to prepare for the inevitable unexpected expense – and, yes, retirement. …Learn More
Young adults have a tough time finding the money for both. Unless they work for Abbott Laboratories.
Employees who put at least 2 percent of their income toward student loan payments will qualify for Abbott’s
5 percent contribution to their 401(k) account – without the worker having to put his own money into the 401(k).
From the company’s point of view, it’s an innovative recruitment tool – and it worked for Harvir Humpal, a 2018 biomedical engineering graduate of the California Polytechnic State University in San Luis Obispo. He joined Abbott’s northern California office in February.
Humpal said his student loans weighed on him after graduation. “It’s very empowering that Abbott is willing to tackle an issue that’s near to my heart,” said the 24-year-old, who works on medical devices used in heart transplants.
He estimates he will pay off his $60,000 student loans about four years early and save $7,000 in interest – without completely sacrificing his retirement savings.
As the cost of college continues to rise and U.S. student loan balances hit $1.5 trillion, an increase in the number of private and even government employers offering student loan assistance is a response to the growing financial burden. An Abbott survey found that 87 percent of college students and 2019 graduates want to find an employer offering student loan relief.
The magnitude of the problem “forces us to focus on our employees’ greatest needs and how we, as an employer, can help them,” said Mary Moreland, an Abbott vice president of compensation and benefits. …Learn More
Decisions about which college to attend or degree to pursue are increasingly driven at least in part by this consideration: will I be able to pay back my student loans?
Countless things determine how much someone earns – smarts, rich or poor parents, high school or graduate degree, being in the right place at the right time. But LendEdu’s new ranking of starting salaries for graduates with bachelor’s degrees from some 1,650 U.S. colleges is essential information, especially when debt is the only option to finance college.
A degree is almost always worth the investment. Georgetown University estimates workers with a bachelor’s degree earn $1 million more over their lifetime than high school graduates. Post-secondary degrees have even bigger payoffs.
The salary rankings turned up some useful and quirky findings. LendEdu, a personal finance website for consumers that sells advertising to financial firms, compiled the salary data for the first five years of employment from payscale.com surveys.
Ever hear of Harvey Mudd College? The typical recent graduate of this engineering school 40 miles west of Los Angeles earns a bit more ($85,600) than an MIT graduate ($83,600). Harvey Mudd is Silicon Valley’s No. 2 feeder school.
Graduates overestimate what a degree is worth. The typical college student expects to earn $60,000 but earns only $48,400 in the work world. …
A dramatic increase in 1993 in how much parents are permitted to borrow from the federal government for their children’s college is coming home to roost.
Since then, average debt through the parent PLUS loans has more than tripled, adjusted for inflation, according to a Brookings Institution report. About one in 10 parents owe more than $100,000. And as loan balances have ballooned, the rate of repayment has slowed.
Now that the college applications have been submitted, Allan Katz, a financial adviser in Staten Island, New York, has this advice for parents contemplating their next move:
PLUS loans should be avoided “at all cost,” he said. “A big part of my practice is avoiding PLUS loans.”
His dire warning stems from the 1993 change in the law, which made it easier for parents to get into trouble. The reform increased how much parents can borrow from $4,000 per year to whatever the teenager needs to cover his or her school expenses – regardless of the institution’s cost. Total borrowing per child used to be capped at $20,000 – there is no limit today. …Learn More
As the outlines of the student loan crisis were coming into focus, this blog featured a video of new college graduates dazed and bewildered by the size of their monthly loan payments and the intrusion on their lifestyles.
Beth Kobliner, a personal finance speaker and journalist, has a surefire antidote: talk to your teenager early and often so they know what they’ll be getting into if they borrow money for college.
She explains how to do this successfully in a new series of helpful, breezy videos.
She recommends that parents make the early conversations light and easygoing. Have the modest goal of encouraging your freshman in high school to start thinking about college broadly. Ask about his or her aspirations, interests, and the choice of Ivy League or state university.
Your teenager should know, Kobliner says, that they will “make about the same salary either way – turns out it’s more about the kid than the name of the college.”
As high school graduation gets closer, talk in more depth about paying for college. “The most important question often gets overlooked at first: Can we afford it?” she said. I would add that the question often comes too late – after the college applicant has already received their acceptance letters and expectations are set.
In addition to the how-to videos, another set of videos feature four conversations about college between real parents and their children. In one of them (above), a mother doesn’t tell her child not to go into debt for college. But she does explain the bad choices she herself made and that she regrets she is still paying off her student loans.
Many teenagers don’t want to talk about anything with their parents – period – but the videos provide tips for overcoming teen resistance and starting the critical conversation about the cost of college. …Learn More
Despite numerous state efforts to crack down on fly-by-night firms falsely claiming to reduce or eliminate young adults’ student loans, new firms keep popping up.
Their social media pitches and websites promise borrowers things the companies can’t possibly deliver on. They appeal to potential customers struggling to pay student loans with slogans like “Get Rid of Your Student Loans Today!” or “$17,500 in Up Front Forgiveness” – “100 percent guaranteed!”
In a high-stakes game of Whac-a-Mole, attorneys general in numerous states have repeatedly brought legal actions against these so-called “debt relief” companies in cases going back at least four years. Massachusetts resolved one case this past summer, and Pennsylvania filed a lawsuit last fall. Florida has aggressively pursued several debt relief companies recently. The Federal Trade Commission and the Consumer Financial Protection Bureau have also gotten involved.
Student loan borrowers “are desperate for help, which is how these companies are able to grab them,” said Betsy Mayotte, founder of the Institute of Student Loan Advisors, a Boston-area non-profit she founded to provide free help to people wrestling with college loan payments.
Mayotte described egregious fraud against a client who came to her organization and had been paying her student loans for years, whittling down the amount she owed to $5,000 – but it ballooned to $12,000 after she got involved with a debt-relief firm that took over her loan payments. The company put the loan into the federal government’s forbearance program, where it went unpaid while accruing interest for two years. After the forbearance period expired, the debt relief company neglected to resume the loan payments, despite continuing to collect its monthly fee. The customer defaulted on her debt unwittingly – but never got a notice because her contact information on the loans had been changed. … Learn More