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5 Biggest Warning Signs for Student Loan Debt

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5 Biggest Warning Signs for Student Loan DebtAs a nation, America’s student debt load is reaching crisis proportions. The New York Federal Reserve puts the total student loan debt at over $1.52 trillion, with the delinquency rate over 11 percent.

Is your personal student loan situation nearing a similar crisis? Consider these five warning signs to assess whether you are handling your student loans responsibly or are on the road to potential default.

1. Apathy or Denial

This may be the most dangerous sign of all – refusing to realize the consequences of defaulting on a student loan. Adam Carroll, Founder and Chief Education Officer of National Financial Educators, likens student loans to “the worst weed to have in your yard because if it goes unchecked, it will grow to massive proportions.”

You can’t just wave a magic wand and make your student loan debt go away, nor can you pretend there aren’t serious consequences for defaulting.

At best, your credit is ruined for years. The Federal Student Aid Website contains information on alternatives like income-based repayment options and deferment or forbearance – but you have to make the effort to seek them out. Note that you may also not qualify for certain options.

2. Missing Monthly Payments

You must make the minimum monthly payment on your student loan to avoid penalties and other detrimental side effects. If you find yourself missing a payment or making overdue payments for any reason, you may be in trouble – whether it’s from carelessness or lack of funds.

Set an alarm on your phone or computer to remind you that a payment is due. If you don’t have a budget, make a realistic one to control your spending. If you do have a budget, stick to it. Do whatever it takes to get those monthly payments in on time.

3. High Interest Rates

Generally, federal student loans provide reasonable interest rates compared to the open market – but if your student loan has abnormally high interest rates, consider your refinancing options through the Federal Student Aid website or through private lenders. Why pay any more in interest payments than you must? Find out quickly at what rate you can refinance your student loan.

4. Excessive Overall Debt

Did you rack up excessive credit card debt during the grace period? Does your job not bring in sufficient income to cover all your bills?

It’s easy to think you can make minimum payments and pay everything back in better times, but you run the risk of falling into a debt spiral – where interest payments on your balances become so large that you can never catch up.

Don’t consider bankruptcy as a viable option either. Student loans generally can’t be discharged in bankruptcy.

Again, budgeting and spending control is the answer. It may not be the answer that you want to hear, but it’s the correct one.

5. Poor Repayment Priorities

It’s wise to attack high-interest debt like credit card debt first – but you must make at least the minimum monthly payment on all outstanding debts, including your student loans.

If you devote all your funds to credit card debt and ignore other payments, the fees and penalties that you incur will negate your gains.

Warning Signs for Student Loan Debt

Of course, to have funds to pay down debt spending must be less than income. This requires sticking to a reasonable budget. Are you spotting a pattern? The answer to all these warning signs is responsibility – taking responsibility for your debt and managing your spending and income to meet all your obligations. Do any of the warning signs apply to you? If so, you know what to do.

This article was provided by our content partners at MoneyTips.com. Photo ©iStockphoto.com/Nastasic

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Your Unpaid Student Loan Could Cost You Your Tax Refund

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Your Unpaid Student Loan Could Cost You Your Tax Refund Defaulted Loans May lead to Garnished Refunds

You anticipated a large refund on your taxes to pay off some bills and put some money away in a rainy-day fund. Unfortunately, the money never showed up. What happened?

Your refund may have gone toward an unpaid bill selected by the government – your unpaid student loan.

Your federal student loan is considered to be in default if you haven’t made a payment in 270 days. When that happens, the federal government has the right to claim your tax refund as payment against the debt, in a process known as an administrative offset.

Government Takes Your Refund

In essence, the government isn’t giving any tax refunds back to you if you aren’t attempting to repay what you already owe the government.

If you’ve lost a tax refund to an offset, you aren’t alone. Student loan default rates are near 11 percent, giving the government plenty of offset targets.

In fiscal 2017, the Treasury Department executed $2.6 billion in tax refund offsets on approximately 1.3 million defaulted student loans.

Agencies Involved

The Department of Education will notify the Treasury Department once your loan goes into default.

The Internal Revenue Service (IRS) will follow up by sending you a written notification of the intent to garnish your tax refund. The notice will contain information regarding the debt and how to appeal the decision.

Refund garnishment can hit low-income student loan holders exceptionally hard. Lower-income Americans benefit from tax credits such as the earned income tax credit, and they can ill afford to lose them.

For many of these Americans, college wasn’t the ticket to higher wages – just a ticket to higher debt without a suitable return on investment.

How to Respond

What should you do if you’re faced with a notice of intent to garnish your tax refund? Start by reviewing the IRS notice to verify that all the debt information is correct and that you really do owe the money via default.

If the debt is not yours or there is a legitimate reason your taxes should not be withheld – for example, you have already set up a loan repayment plan and are already making payments – you can appeal the decision with the Department of Education. Instructions for appeal will be included in the IRS notice.

To put a hold on the offset while you appeal, you have to file a written request for review at the address on your offset notice.

Timing Is Key

You have 65 days after the notice date to file. If you requested and received a copy of your loan file, your deadline will be the longer of 65 days after the notice to file or 15 days after the loan file was received.

Unfortunately, if the defaulted student loan debt really is yours, you don’t have many options.

You can apply for a hardship with the Department of Education, making the case that garnishment of your tax refund causes you excessive financial difficulties because of exceptional circumstances. However, the process can be very slow, and hardship is rarely granted.

Avoid Loan Defaults

The best way to protect your tax refund is to avoid default in the first place. The Department of Education offers many options for staving off default.

Income-based repayment plans allow you to scale your payments to your discretionary income. If you’re in a situation where you can’t pay at all, deferment and forbearance options are also available.

When it comes to paying off your student loans, the worst thing you can do is nothing.  Rest assured, the government will do something – like claiming your tax refunds until the situation is resolved.

This article was provided by our partners at moneytips.com. Photo ©iStockphoto.com/DjelicS

If you enjoy reading our blog posts and would like to try your hand at blogging, we have good news for you; you can do exactly that on Saving Advice. Just click here to get started.

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The Current State of Student Loan Debt

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The current state of student loan debt

America has reached a new economic milestone – or maybe a millstone – of $1.52 trillion. Which of the following does this number represent?

1. The latest contract for a professional athlete
2. Your current credit card balance
3. America’s collective student loan debt

While the first choice sounds strangely plausible, and some days you may feel like the second choice is correct, $1.52 trillion represents America’s total outstanding student loan debt as of March 2018 – according to the new consumer credit report from the New York Federal Reserve.

Rising Fast

For perspective on how fast student loan debt is rising, consider that in 2013, the total student loan debt was under $1.15 trillion. Over the past five years, total student loan debt has increased by almost 33 percent.

Roughly one in four Americans — 45 million people — owe money on student loans.

The average student loan debt per borrower is $26,700, according to ValuePenguin.

Delinquency rates of student loans are over 11 percent, which is higher than any other form of consumer debt, even credit cards.

Interest Rates

Average student loan interest rates are 4.45 percent for undergraduate students and 6 percent for graduate students for the 2017-2018 academic year.

That’s certainly lower than average credit card interest rates (16.71 percent), and in line with the average interest rate on a thirty-year fixed mortgage (4.78 percent as of this writing).

Even so, many Americans with student loans are in the worst position to pay them, starting out their careers with lower-paying entry level positions – if they can find work at all.

Average Debt

The average student loan debt for 2017 college graduates was $39,400. The average monthly student loan payment for a borrower between the ages of 20 and 30 is $351 – not unmanageable, but difficult if you are just starting out and dealing with other life expenses.

“For many borrowers, the promise of going to school for a well-paying job hasn’t panned out,” said Miranda Marquit, a money expert with financial education website Student Loan Hero.

She continued, “When you consider that the Federal Reserve reports that almost half of Americans can’t meet a $400 emergency, suddenly that $351 a month has a more ominous meaning.”

Struggling with Student Loans

Anyone struggling with student loan debt should check repayment options at the Federal Student Aid website run by the U.S. Department of Education.

The site provides links to repayment options, including income-based plans that scale payments to discretionary income. An online repayment estimator allows you to compare options.

“If you qualify for income-driven repayment, you might be able to get your payments down,” Marquit said. “However, the interest still accrues and you need to be careful about the long-term cost of debt, which can be increased when you put off paying on your loans.”

Deferment and Forebearance

If you simply can’t pay at all, deferment and forbearance options are also covered. However, be careful not to use these options as anything more than a temporary crutch.

Adam Carroll, the founder and chief education officer of National Financial Educators, notes that graduates can “kick the can down the road… by the time they start paying back it has capitalized on itself where the interest is now the principal… They may have borrowed $40,000 and it’s ballooned to $70,000.”

If you’ll be starting college soon, remember that the best way to deal with student loan debt is to avoid it as much as possible. Look into grants instead of financial aid tied to loans.

Review scholarship options at your preferred schools. Look over the long list of specialized scholarships that target individual interests.

Choose Wisely

Try not to let finances dictate your choice of college but get value from your choice. Will your desired degree from your favorite school produce enough income to pay off student loans with relative ease?

Compare graduation rates and average incomes at schools for the same degree to help you assess value.

“These days, it’s less about getting the piece of paper and more about your return on education investment,” said Marquit. “Be realistic about your degree, the school you choose, and your prospects when you finish.”

Maybe you’ll be lucky: Perhaps you’ll get an athletic scholarship to cover college costs and be the first athlete to sign a $1.52 trillion contract. If you do, we still suggest using your money wisely. It may cost that much to send your children to college by then.

This article was provided by our partners at moneytips.com. Photo ©iStockphoto.com/Milkos

If you enjoy reading our blog posts and would like to try your hand at blogging, we have good news for you; you can do exactly that on Saving Advice. Just click here to get started.

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Credit Card Delinquencies Soar

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Credit card delinquencies soar
America’s economy is improving by most standards – but is it improving on the backs of excessive debt?

According to the New York Federal Reserve, total household debt reached a new high of $13.15 trillion in the fourth quarter of 2017.

While the majority of household debt is mortgage debt, consumer credit rose by the largest amount in sixteen years, and revolving debt (primarily credit cards) increased by a substantial $26 billion from the third quarter of 2017.

Debt Isn’t Necessarily Bad

Debt is not necessarily bad, even high-interest credit card debt, as long as it’s managed well. Unfortunately, Federal Reserve data also shows a general increase in credit card delinquencies.

Credit card delinquency rates had decreased steadily from the 2009 recessionary peak of 6.7% down to 2.12% in early 2015, but since then delinquency rates have trended upward.

Delinquencies dropped slightly in the fourth quarter of 2017 – from 2.52% in the third quarter to 2.48% – but the overall upward trend spells trouble.

Credit Card Delinquencies Are Soaring

Within smaller banks, credit card delinquencies topped 5%, reaching the highest levels since the Great Recession.

Credit card delinquency may be a sign of trouble for America as a whole, but in an individual situation, credit card delinquency is a screaming red flag. Missed payments are reported by creditors to the credit bureaus and included in your credit report.

According to the credit bureau Equifax, a single missed payment can result in as much as a 90-110-point decrease on a FICO credit score of 780 when the cardholder has never had a delinquent payment in the past.

A lower credit score shows greater risk in the eyes of lenders. As a result, your interest rates may increase and you may find it difficult to get new credit.

Missed payments can be especially harsh since creditors are more concerned about on-time payment than they are the amount of payment (as long as you make the minimum payment).

Cleaning up Credit Reports

It takes time to remove a delinquency from your credit report. According to Rod Griffin, director of public education for the credit bureau Experian, delinquencies “stay on that report for 7 years from the original delinquency date, which is the most important date in a credit report.” Griffin adds, “If you make a payment on an account in collections, it doesn’t reset the clock because [creditors] have to report that original delinquency date.”

Even so, Griffin suggests that it’s important to make payments on the delinquent accounts.

“It’s still going to help scores in the long term,” Griffin states. “It’s going to be beneficial to catch up on those payments and bring the account current if you can.” Otherwise, you run the risk of snowballing delinquencies, making it increasingly difficult to dig out of debt.

Limit the Damage

If you are struggling to make your credit card payments, now is the time to take action to avoid delinquency and to limit the damage if you’re already delinquent.

Always make at least the minimum payment on time – and remember that if you’ve already missed one payment, you’ll likely need to make the equivalent of two monthly payments to fully restore your good standing on the account.

The root of most delinquency is simple – your expenses have seriously surpassed your income. If necessary, adjust your budget to keep spending under control (and if you don’t have a budget, there’s the problem).

With a sound budget, you can create a buffer that allows you to build an emergency fund, while allowing you to make your credit card payments in full every month. Do what it takes to avoid adding to America’s credit card delinquency problem.

This article was provided by our partners at moneytips.com. Photo: ©iStockphoto.com/valentinrussanov

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