student loan debt

Can Senator Warren Really Really Wipe Out $640 Billion in Student Loan Debt?

May 9, 2019 By Tamila McDonald Leave a Comment

As April 2019 drew to a close, Senator Elizabeth Warren revealed an ambitious plan to help American families overcome student loan debt. If the plan was implemented, about 75 percent of Americans with student loans would see their debt vanish. For another 20 percent, at least some of their student loan obligation would disappear. But can Senator Warren really pull it off?

Senator Warren’s Student Debt Cancellation Plan

Senator Warren – who is also campaigning to be the next president of the United States – has a bold plan for tackling the student debt crisis in the United States. She wants to cancel up to $50,000 in student loan debt for any American household earning up to $100,000 a year. For approximately 75 percent of student loans holders in the U.S., that would mean cancellation of all of their remaining student loan debt.

However, 95 percent would at least get some degree of relief. If a household earning less than $100,000 had over $50,000 in debt, the plan would dismiss at least $50,000. For example, if a qualifying family had $65,000 in student debt, only $15,000 would remain after $50,000 worth was canceled through Senator Warren’s plan.

Additionally, partial debt cancellation for households that earn between $100,000 and $250,000 a year would also be available. The value of the cancellation would decrease by $1 for every $3 earned over $100,000. For example, households with incomes of $160,000 would get $30,000 of their student debt canceled. At the $190,000 annual income mark, the family would see $20,000 of their student loan debt wiped away.

Households with federal student loans wouldn’t even have to take action. Since the government has access to their loan and income data, it could be handled without the family having to take any steps. Private student loan debt would also be eligible in the plan, but the government would need to work with borrowers to get the loan details and coordinate the debt elimination with the lenders.

Many lower- and middle-class families struggling with student debt would get some relief, especially since the debt elimination wouldn’t be taxed as income. Senator Warren equated the plan to “an enormous middle-class stimulus that will boost economic growth.” And she didn’t stop there. If her plan was implemented, about 42 million Americans would at least get partial relief from their student loan debt.

Senator Warren’s Free College Plan

Another part of Senator Warren’s policy that could have a massive impact on American families is her plan for universal free college. She wants to make two- and four-year public colleges available without any tuition or fees, significantly limiting how much a person would have to spend while pursuing higher education.

While that plan might not bring the cost of college to zero – as it does not address other expenses like room and board or supplies – to say it would make a substantial difference would likely be considered an understatement.

The Drive for College Degrees

Many Americans believe that a college education is critical for their future success. One 2012 Pew study showed that 94 percent of parents with children under the age of 17 expected their kid to go to college.

Additionally, it is widely known that individuals with college degrees generally earn more than those who stop going to school after receiving their high school diploma. Those who have a four-year degree earn about 26 percent more than those with two-year degrees and college graduates bring in 56 percent more than high school graduates.

Employers are also increasingly seeking out workers with college degrees. One study by Georgetown indicated that 65 percent of jobs in the US would require at least some level of higher education by 2020.

Paying for Senator Warren’s Plan

Most who oppose Senator Warren’s plan first point to the price tag, which is estimated at $1.25 trillion over 10 years for both the debt elimination ($640 billion) and universal free college components. To put it simply, eliminating that much student loan debt and making college free wouldn’t be cheap. However, Senator Warren says she has a plan for that too.

She would like to fund her plan through an “Ultra-Millionaire Tax.” Families with $50 million or more in wealth – a total of about 75,000 households – would be subject to a 2 percent annual tax, which Senator Warren says would cover universal free college and the debt cancellation.

However, many legislators believe that Senator Warren’s plan is just too expensive. Additionally, some think it would be unfair to erase student loan debt when so many others have already paid off their hefty loans.

Concerns about ensuring schools would control their costs have also been expressed. Since 2001, tuition at four-year institutions has risen over 100 percent (including after being adjusted for inflation).

Can Senator Warren Wipe Out Billions in Student Loan Debt?

In her position as Senator, she does not have the power to move ahead with this plan alone. She would need significant backing from Congress and the President to turn this vision into reality, as it would have a massive impact on the budget.

If Senator Warren was elected in 2020 to become the next President, she could also then try to push this plan forward. However, since it would involve updates to the tax code (to implement her Ultra-Millionaire Tax), changes in the US educational system and funding dedicated through the federal budget, putting it into motion without the support of Congress would incredibly unlikely.

Now, if Senator Warren did garner enough support – either while in Congress or if she becomes President – then wiping out that student loan debt isn’t impossible. Similarly, making public college tuition and fee free is technically something that could happen. It’s just important to understand that there is a long road ahead if that is a plan she wants to implement and, without the proper support from other key government officials and legislators, it probably won’t become a reality.

Are you struggling with student loan debt? Do you think Senator Warren’s plan is a good idea? Tell us about your experience an share your thoughts in the comments below.

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.

The Grace Period For Student Loans Is Coming To An End

November 18, 2018 By Amanda Blankenship 1 Comment

For those who graduated in May, the grace period for student loans is ending. Many graduates will find their first payment date approaching in late December to early January. With nearly 40 percent of student loan borrowers expected to default on their loans by 2023, it is important to know when your payment is due as well as the different options you may have.

What is the Grace Period For Student Loans?

Many students have a grace period of six months after graduation to make their first payment on their student loans. Folks who graduated in the spring will begin receiving statement letters in the mail this month.

That is, unless you received a Perkins loan (a specific type of federal student loan). If you received a Perkins loan you generally have a nine month grace period.

What Now?

If you’ve received that first bill in the mail, don’t panic. Now is the time to take stock of your loans and create a plan. Know how much you owe and who your servicer is. The servicer company typically will handle sending out statements, collecting payment, and managing your account. Borrowers with multiple loans may have more than one servicer. Check the student loan website to see a full list of loans and servicers.

During this time you should also be sure your student loan servicers have all of your current contact information. This includes a valid email address, home address, and telephone number. Giving them your current information will prevent you from missing a payment.

Private Loans

It is important to note that the federal student loan website will not have any information about your private loans if you took any out for school. If you don’t have the original loan documents, you can reach out to your alma mater to get copies. However, you’ll likely want to begin payments on private loans as well because their grace period is also likely approaching.

Payment Options

If you’re already feeling overwhelmed, remember you have options. Generally, borrowers are automatically enrolled in a 10-year repayment plan. You can get as much as 30 years to repay your student loans.

Some borrowers may find that a 10-year repayment plan is too high of a monthly payment than they can afford. If that’s the case you can request a temporary postponement of payments.

You can also apply for an alternative plan with overall lower monthly payments or income-based payments. This can bring your monthly payment down drastically and, sometimes, lead you to making no monthly payment. It is important to note that this can extend the amount of time you’re paying on loans though.

Each payment plan has different criteria to be deemed eligible. However, having an open line of communication between you and the lender is never a bad idea.

Repayment options can be a bit confusing and, for the most part, many students are required to find everything out for themselves. Even though it may feel awkward to talk about your debt situation with someone over the phone, it is better to explain it than risk going into default.

This Man Escaped His Student Loan Debt By Moving to the Jungle

October 28, 2018 By Amanda Blankenship 6 Comments

Just months ago student loan debt reached a high, ugly milestone of $1.52 trillion. Unsurprisingly, many people find their student debt to be overwhelming, leading to depression and suicidal thoughts in some individuals. In fact, people who are undergoing serious financial stress are eight times more likely to have suicidal thoughts – and some engage in extreme behavior to avoid paying.

Growing Student Loan Debt

Student loan debt has seen a 145% increase in the past decade with no signs of slowing down any time soon. In many cases, individuals carry more student debt than they do in auto loans or credit card debt. For some individuals, the weight of their personal student debt is too heavy for them to carry. Chad Haag was one of those people.

Chad Haag Delt With His Debt by Fleeing the Country.

Haag considered living in a cave in the United States to escape his student debt. According to Yahoo Finance, he already knew a friend doing it. However, for Haag, this wasn’t leaving his problems far enough behind. He wanted to get as far away from his debt as possible.

After majoring in philosophy in college, he held a student loan balance of about $20,000. While that is pennies compared to many other borrowers in the U.S., Haag pointed out that not being able to a land a college-level job made his $300 monthly loan payment devastating to his finances. He was only making $1,700 per month, living with his mother, and rarely going out with friends. “I couldn’t make the math work in America,” Haag said.

Running to the Jungle to Get Away From Debt

He relocated to a jungle in India to escape his student loan debt. In an interview, he said, “I’ve put America behind me.” Now, thousands of miles away from where he once lived in constant anxiety from his debt, Haag says his loans don’t even feel real to him anymore.

His student loans are on their way to being in default and they only thing Haag has to say is, “It’s kind of like, if a tree falls in the woods and no one hears it, does it really exist?” Of course, this kind of care-free attitude has not come without its trade-offs.

Where Haag is living is far from his Colorado home. He is living in a concrete house in a village in India. The house only costs about $50 per month and Haag says he sees elephants outside his home regularly. Haag also referenced the poor living conditions in some areas of India, stating, “Some toilets here are holes in the ground you squat over.”

Food quality can be a problem as well. He recently ate spoiled goat meat that landed him in the emergency room. However, dreams that would have escaped him in the U.S. because of his debt are now becoming realities for him in the jungle of India.

He has gotten married and he and his wife have plans to own a home soon. Currently, he has a five-year spousal visa and has plans to renew it when it comes time. Haag has absolutely no plans to return to the U.S. or repay his student loan debt.

Is This Responsible?

There is no doubt that many Americans find this type of behavior abhorrent. Student loan debt is only expected to continue to rise in the years to come with estimates projecting students will owe $2 trillion by 2022.

Half of the student loan borrowers haven’t paid a single dollar towards what they owe five years into repayment. Another 40% of those loans are expected in be in default by 2023.

However, moving away from the problem doesn’t make it go away. If anyone is moving away, like Haag, to escape their debt, they’ll find that if they ever return to the U.S. their debts will not be gone. Given the structure of many loans, debts are in fact more likely to grow than be excused. Compound interest, late fees, and collection charges are all typically added to your balance if payment is not made. In addition, late payments will impact your creditworthyness.

Not only will it not go away, but running away will make it worse. The best thing you can do is work out a debt repayment plan that works for you.

How to Keep Your Student Debt Manageable

Many people look at student loan debt as “healthy debt.” And while it is much “healthier” than, say, credit card debt, or even an auto loan sitting on your credit report, it still is a huge responsibility. If you or someone in your household is getting ready to head off to college or go back to school, consider thes money-saving tips.

Go to school in-state. It has been common knowledge for years that going to school closer to home costs less money. If you aren’t getting a full-ride out of state, keep your eye on public schools closer to you. A private university’s tuition sits around $34,740 per year on average. An out-of-state public university isn’t much cheaper at $25,620. However, community colleges and in-state public universities are priced at $3,570 and $9,970, respectively. That’s much less in tuition.
Stay at home to avoid room and board fees. Another great thing about going to school closer to home is that you can stay at home. This will save you thousands of dollars on room and board every year.
Oh – and bring your lunches. It can also save you a ton of money on food. Instead of throwing money at a meal plan or eating on campus every day, you can bring your own lunch and save hundreds of dollars per month.
Take a fast-track in your program. Depending on what your career goals are, you may consider asking someone at the university about a fast-track course for your degree. This will shorten the amount of time you’re in college, making tuition much cheaper.
Avoid private loans. If you can help it, don’t take out any private loans. These are typically higher interested and begin to accrue interest while you’re still in school, unlike loans available through the U.S. government.
Consider taking on work-study or paying your tuition in cash while you’re in school. It’s also possible to work while you’re in school to pay off the remaining tuition you owe. Many schools will work with you on monthly payments to remain in class and will apply funds made through work-study programs to these payments. You can also hold a job off-campus to raise additional funds. This way, you can leave school without owing any money on student loans.

Student Loan Debt Repayment

Remember, if you are feeling overwhelmed by your student debt you have options. Before taking off to India or another remote jungle, consider the options below.

Get more time. Although it is not optimal, may be able to extend the repayment period on your loan to give you more time. Periods for repayment start at 10 years and go up to 30 years, depending on the amount and your ability to pay.
Take a couple months off. You can get a couple months off from paying your student loan if you need it. If you or your partner lose a job and you need a couple months to get back on your feet, you can ask for a couple of months off (most of the time) it is granted. Keep in mind, your loan will still be accruing interest during this time.
Income-based payments. Talk to someone at the bank or company you received the loan through about income-based payments. If you believe your payment could (and should) be lower, talk to someone about adjusting it based on your income. They’ll do what they can to help you.
Financial crisis assistance. If you or your family have faced a serious financial crisis, you can also ask for some time off. This is a bit longer of a period of time than the “couple months off” listed above and, similarly, your loans will still be accruing interest. However, it will keep your loans from going into default.
Keep communication open. If you keep communication open between you and your loan officer, you will be able to work on repaying your student loans. In many cases, these individuals are understanding and will work with you based on your individual circumstances.

All in all, student loan debt is just another type of debt that can help or hurt your creditworthyness. However, it is nothing you should feel like you should run away from. Tackling it head-on and paying it down is the only thing that will truly make your debt nightmare go away.

Readers, what do you think about this man running away from his student loan debt?

First Student Loan? Use This Money Wisely

August 6, 2018 By Tamila McDonald Leave a Comment

student loan uses

Currently, there are approximately 20 million students enrolled at colleges in the US. And, when they graduate, around 70 percent of them will owe money on at least one student loan. In fact, the average student loan debt owed by a single graduate is over $37,000, based on statistics from 2016.

Most students view student loans as a necessary evil. Without the funds, they can’t afford college, leaving them with little recourse.

However, many students, especially incoming freshman, struggle to use the money wisely. But failing to act responsibly can come with significant consequences, ranging from failing to cover school expenses to increasing debt loads. Since approved student loan uses can vary depending on the kind of loan, knowing the right approach to managing this money is a must.

If you have your first student loan and aren’t sure how to handle the money wisely, here are some tips.

Educational Expenses

The primary purpose of student loans is to cover educational expenses. Federal student loans have strict requirements regarding how you can spend the money. Typically, funds from federal student loans are sent to the school first. This ensures the college receives payment for your primary expenses, including:

Tuition
Room and Board
Fees

After meeting these expenses, you can get a student loan refund from the school. Usually, this is a check that you can deposit in your bank account. Then, you can use the money for other qualifying costs, including:

Books
Supplies
Equipment
Personal Computers
Dependent Child Care
Transportation (Not Including a New Car)

By design, the federal student loan program almost forces you to use the money wisely. You cannot spend the funds on anything that does not qualify. If you receive an amount that exceeds your need, then an adjustment to your student loan may occur, or you have to use the excess to make a payment on your student loan.

There are 2 types of federal loans which is covered in detail here: https://www.purefy.com/learn/subsidized-vs-unsubsidized-student-loans

Private student loans are different. They aren’t always as restrictive in regards to student loan uses the bank views as appropriate. However, the exact terms vary by lender. You’ll need to read your loan documents to find out how you can use the money.

Additionally, the funds might not go to the school first, though they usually do. In cases where the money doesn’t go to the school, it is sent directly to you. After receiving the cash, you are fully responsible for paying your educational expenses.

While you aren’t under the same restrictions, it’s smart to use the federal student loan guidelines to help you spend the money in the right places. You always want to cover your educational costs first, beginning with your primary expenses and then your other qualifying costs.

After covering those, you do end up with some choices.

Additional Student Loan Uses

Once you handle your educational expenses and school-related costs, you have some decisions to make. However, if you want to use the money wisely, certain options are better than others.

For example, you can send the excess money back to the lender to pay down your student loans. This can help you lower your balance and avoid some interest, ensuring your debt remains as small as possible.

If you have a federal student loan and have an entire disbursement you don’t need, the easiest thing to do is cancel that loan. You have 120 days after the disbursement to handle the process but may need to work with your school’s financial aid office to handle it properly.

For private loans, you just send the money back as a payment. Usually, you can handle this online through your loan account portal.

What About Fun Money?

When you have student loan money that doesn’t have to be spent on educational expenses, it can be tempting to spend it anyway. The idea of a dinner out or a nice vacation during spring break may be enticing, or getting a new wardrobe may leave you invigorated.

The thought of spending the money usually relates to having a little fun, something that can be important in college. After all, earning a degree can be hard, so it’s easy to assume the mindset that you deserve a reward.

But, it’s important to remember that those examples above aren’t smart ways to spend your money.

Student loans are debt. This means you will pay interest on the amount you borrow. Furthermore, the size of your loans impact your creditworthiness, and large debts make it harder to finance other things you may want in the future, like a house or a car.

Plus, the higher your debt, the higher your payment. For example, if you borrow the average amount of $37,000 with a 6 percent interest rate, on a 10-year repayment plan, you’ll be paying around $411 per month. Over the life of the loan, that comes out to approximately $49,300, $12,300 of that being interest.

However, if you don’t use $4,000 of that money (just $1,000 per year) and send it back to your lender immediately, you’ll owe $33,000. The monthly payment then is about $366. You’ll pay a total of just under $44,000 (about $11,000 in interest), resulting in a pure interest savings of $1,300, not including the $4,000 in principal you don’t have to repay.

If you double the amount you send back, making it $8,000, you’ll get a bigger benefit. Then, you’ll borrow $29,000 and have a $322 monthly payment. You’ll repay around $38,600 over 10 years, with $9,600 being interest. That creates a total interest savings, in comparison to the first scenario, to $2,700. When you add in the principal you don’t have to worry about, you avoid $10,700 in student loan debt payments.

There are numerous repayment programs out there and there are even times your loans can be discharged, but don’t use this information to make poor choices, use it to gain more knowledge of paying loans back when the time comes.

Ultimately, limiting your student loan debt is always a smart move. It helps your creditworthiness, lowers your payments, lets you avoid some interest, and can even provide peace of mind.

If you want to be wise with your student loans, only use the money for important educational expenses. Then, if you have any left over, send it back to the lender. Your future self will appreciate your smart thinking and your wallet will too.

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.

Who is Betsy DeVos and What Does She Want to Do to Your Student Loan Debt?

September 15, 2017 By Jacob Evans 1 Comment

Betsy DeVos became a household name when President Donald Trump named her the United States Secretary of Education. Before that, she was an education advocate, fighting for the expansion of charter schools. She also advocated for using voucher programs for private schools.

DeVos was well-known in her home state of Michigan, where she lobbied lawmakers to remove the state’s cap on charter schools. She was successful and made a name for herself as a leading charter school advocate.

Her focus isn’t solely on charter schools and vouchers. Now that she is the Secretary of Education, she is taking on the issue of student loans. DeVos is going after some Obama-era student loan forgiveness protections. These new changes could impact students in the near future.

Changing the Old Student Loan Debt Rules

In October of 2016, the Obama administration approved the Borrower Defense to Repayment. This new law allowed students to receive forgiveness on their federal student loans if the school used deceptive or illegal practices to encourage them to take out the money.

The Obama administration also enacted the Gainful Employment rule in 2015. This regulation required that vocational and non-degree programs meet requirements regarding debt-to-income rates. The regulation was enacted to prevent these programs from saddling students with unmanageable student debt. The fear is they could not pay back the debt because they didn’t make enough money after graduation.

The current regulation states that student loan payments cannot exceed either eight percent of a worker’s total earnings or 20 percent of their discretionary income.

Betsy DeVos intends to rewrite both laws. In the meantime, the rules have been frozen, but claims made prior to the freeze are being addressed. That means that students who have already filed claims will likely see their loans forgiven even as new rules are being written.

Reason for the Obama-Era Rules

While most people go to school, get their degree, and enjoy gainful employment, that isn’t the case for everyone. The Obama administration created these rules after hundreds of colleges were accused of committing fraud and eventually collapsed. The students who were enrolled were left with massive debt, and they didn’t receive degrees.

That made it impossible to pay back the debt.

The issue reached a fever pitch when ITT Technical College and Corinthian Colleges collapsed. With the previous rules, students were allowed to apply for loan forgiveness due to fraud, but taxpayers had to pick up the losses. In the case of Corinthian Colleges’ collapse, that loss was $247 million.

The Obama administration’s rules put some of the responsibility back on the schools. If a college was close to collapse, it had to put up financial collateral. The Obama administration’s new rules also banned mandatory arbitration agreements. These agreements made it impossible for students to sue colleges.

With the rules in place, schools had to take financial responsibility, and they could be sued.

Reason for the Change

According to DeVos, the rules are confusing and need to be changed. She claims they are unfair for both schools and students and need to be rewritten.

She states that students will still be protected from fraud, but she wants to create a more balanced set of rules. She says the new set of rules will still help harmed students while protecting taxpayers.

There have been different reactions to the rule changes. The American Federation of Teachers claims that this shows that the administration stands with for-profit universities instead of students. The association wants DeVos to leave Obama’s rules in place.

However, the United Negro College Fund and the National Association for Equal Opportunity in Higher Education state the borrower defense rule could hurt their member institutions. They claim the rule is too vague and support DeVos’ proposed changes.

A Major Lawsuit

While some people are waiting around to find out what will happen with the rule change, not everyone is willing to wait. Attorney generals from 18 states and the District of Columbia have filed a lawsuit regarding the rule freeze. The states want to have the rules restored, and they accuse DeVos of siding with for-profit school executives. They believe freezing the rules will harm students while helping for-profit colleges.

The administration is still determining how to move forward with the new rules. In the meantime, students are encouraged to research their universities or degree programs before enrolling in college. Students should not rely on colleges to give them all of the answers. They need to do their due diligence to protect their interests.

Follow Jacob @DollarDiligence where he shares his new articles, his favorite articles from around the web, and stupid jokes that no one thinks are funny.

You may also enjoy reading:

Photo: CNN and The Libertarian Republic

Three Ways to Tame Student Debt Post-Grad

May 16, 2016 By Michael Thiemann Leave a Comment

College graduation season has arrived. There will be caps tossed, diplomas bestowed and “congratulations” exchanged. New grads will be abuzz with excitement, many talking about jobs they’ve landed and the bright future ahead. But for the nearly 70 percent of bachelor’s degree recipients graduating with debt, that joy will be overshadowed by the daunting task of repaying student loans.

In 2015, the average graduate faced more than $35,000 in loans; higher degrees were paralleled by higher amounts of student debt. And despite what feels like a rebounding economy, the situation today is just as bleak. Recent research suggests student loan debt affects nearly 43 million borrowers and has now surpassed the $1.3 trillion mark. That’s trillion, with a “t.” Let that sink in a moment—more people in the U.S. have student loan debt than even credit card debt. In other words, the student debt crisis is no longer something we can afford to ignore, literally.

If you’re one of the billions of post-grads juggling student debt—two months removed from school or 10 years—there’s a lot you can do to ensure you’re not another statistic. And no, it doesn’t involve winning the lottery or a surprise inheritance. As the CEO and co-founder of Zebit, a free employee benefit that helps working Americans take control of their everyday financial lives, I’ve thought a lot about how recent graduates can manage and eradicate their student loan debts. (Hint: it pays to seek help from your employer!). Below are my top three tips to do this:

Seek support. Dealing with student debt is bad enough, but there are often residual effects that carry over into your personal and professional life; stress brought on by financial insecurity can be detrimental to productivity and may even negatively impact relationships. Talk to your employer about available employee assistance programs (EAPs), and whether or not they subsidize access to counselors. Both are great options to managing side effects of financial woes.
Get Educated. It’s important to have a holistic understanding of your financial situation; this goes a long way in addressing and managing debt. Best of all, there are free assessment and budgeting tools at your disposal, like Zebit’s Instant Budget app—it’s like having free personal financial advisor in your back pocket.
Know Your Benefits. Many companies provide loan repayment assistance programs (LRAP), seeing them as a financial investment to attract and retain top young talent like yourself. It’s worth asking your employer if this benefit is available. If not, consider asking them to explore an alternative financial wellness program like Zebit, which provides financial education, planning tools and no-cost credit options to lower employee stress and improve corporate bottom line. Best of all: it’s free for employers AND employees—something you can both get behind.

For more information about how recent graduates and other working Americans can become financially literate, visit www.Zebit.com. And remember, just as you invested in your education, you should invest in your financial future too.

Photo: Flickr: Simon Cunningham