Showing posts with label Get Out Of Debt Guy. Show all posts
Showing posts with label Get Out Of Debt Guy. Show all posts

Wednesday, September 27, 2017

Student Loan Debt Hurts Economy, Consumers, and Retirement Savings, essay by Steve Rhode


When you live in a society like ours that is dependent on consumers to consumer goods and services, a reduction in the ability for growing sections of society to do their job and purchase stuff is going to lead to slower growth. That’s not good.

When growth slows there is less of a need for workers, jobs are cut, wages go flat, and life becomes tougher for many.

Historically, people accumulated wealth through homeownership and savings. When reaching the age of retirement the home could be sold and the equity created could be withdrawn. With less access to this type of wealth accumulation and the inability to save for retirement due to growing student loan debt, tragedy is on the horizon.

Student loan debt is hurting an entire generation of consumers who are setup for financial failure at this point.

The easy access to student loans has led to a growing for-profit private student loan industry that since 2009 has been drawing in many through loans and co-signing. Private student loans exploded with the advent of the for-profit schools. As an example, read Navient Knew Loans Were Garbage When They Saddled Students With Them. Yet the current Department of Education under Secretary Betsy DeVos seems resistant to crack down on protections from these schools.

Federal government student loans have been a blessing for many to obtain funds to attend higher education but they have been a curse as well. Schools who were qualified to receive federal funds looked at that easy money as a way to make an easy sale of a student into a seat regardless of the ability of the student to benefit from the loan and school.

Data published by the Federal Reserve Bank said, ” findings are consistent with American youth having accommodated tuition shocks not by forgoing schooling, but instead by amassing more debt.”
The Federal Reserve Bank of New York goes on to say, “Further analysis demonstrates that the tuition hike and student debt increase, despite leaving higher educational attainment unchanged, can explain between 11 and 35 percent of the observed approximate eight percentage-point decline in homeownership for 28-to-30-year-olds over 2007-15 for these same nine cohorts. The results suggest that states that increase college costs for current student cohorts can expect to see a response not through a decline in workforce skills, but instead through weaker spending and wealth accumulation among young consumers in the years to come.”

At the same time as homeownership has been declining, kids are living with their parents at an increasing rate.


As a society nothing good is going to come from lower amounts of wealth accumulation, and weaker spending.

Unless we tackle the growing problem of excessive student loan debt and allow those with unmanageable student loan debt to have access to a fresh start in bankruptcy, the economic future of the days ahead is going to be less than it could have been.

Steve Rhode


This article appeared on the Personal Finance Syndication Network web site and also on The Get Out of Debt Guy site. Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve here.

Thursday, September 7, 2017

Terrific essay by Steve Rhodes: Is Betsy DeVos Nuckin Futs With Break From Student Loan Debtor Protections?

This terrific essay by Steve Rhode first appeared on Consumer Debt Guy blog site on September 6, 2017.
***
By Steve Rhode on September 6, 2017
   
The Consumerist is reporting the Department of Education has terminated its cooperation with the Consumer Financial Protection Bureau in dealing with student loan servicer problems.
“DeVos accuses the Bureau of not living up to its end of agreements established in 2011 and 2013, by doing too much to hold loan servicers accountable.”
“DeVos suggests that actions taken by the CFPB to rein in shoddy student loan servicers and collectors only confuses borrowers.
“The Department takes exception to the CFPB unilaterally expanding its oversight role to include the Department’s contracted federal student loan servicers,” DeVos wrote. “The Department has full oversight responsibility for federal student loans.”
However, the Department’s ability to root out fraud was thrown into question last week, when the agency appointed former for-profit college executive Julian Schmoke to run the Department’s enforcement division.
While Schmoke currently works as a high-ranking director at a community college in Georgia, he spent several years working for DeVry University, a college that has been repeatedly accused of fraud by both federal and state authorities.”
“The claim that the CFPB ‘unilaterally’ expanded its oversight role over servicers and collectors of federal student loans is unfounded,” Persus Yu, director of the National Consumer Law Center’s Student Loan Borrower Project, said in a statement.
“Education is now trying to stop the CFPB from handling loan-related complaints, but Education’s failures are what led Congress to give the CFPB authority to help students,” Yu said. “DeVos is prioritizing the interests of predatory for-profit schools, debt collectors, and troubled student loan services over the interests of student loan borrowers.”

This recent action and the fact the Department of Education has not approved Borrower Defense claims leads me to wonder where is any proof the Department of Education gives a damn about student loan debtors.

Tuesday, July 25, 2017

National Collegiate Student Loan Trust's student loans may be uncollectible against California co-signers: Sweet!

National Collegiate Student Loan Trust (NCSL)has been in the news lately. The New York Times recently broke a story about NCSL's efforts to collect on the defaulted student loans it holds. According to the Times, NCSL holds $12 billion in private student loans, and more than 40 percent of those loans ($5 billion) is in default.

Squadrons of NCSL attorneys have fanned out across the United States to sue student-loan defaulters, but they have been running into trouble. In case after case, judges have thrown NCSL's collection lawsuits out of court because NCSL can't produce the paperwork to show that it owns the debt.

And now, in California,  NCSL faces another obstacle to its debt-collection efforts. An obscure  California statute may make it impossible for NCSL to collect against co-signers on private student loans taken out in the Golden State.

Section 1799.91 of the California Civil Code requires lenders to provide loan co-signers with a specific written notice that warns them of the risk they take when they co-sign a loan. The warning states:
You are being asked to guarantee this debt. Think carefully before you do. If the borrower doesn't pay the debt, you will have to. Be sure you can afford to pay if you have to, and that you want to accept this responsibility.

You may have to pay the full amount of the debt if the borrower does not pay. You may also have to pay late fees or collection costs, which increases this amount.
 The creditor can collect this debt from you without first trying to collect from the borrower. The creditor can use the same collection methods against you that can be used against the borrower, such as suing you, garnishing your wages, etc. If this debt is ever in default, that fact may become part of your credit record.
Importantly, California law requires co-signers to acknowledge receipt of the statutory warning by signing their names below the cautionary message.
National Collegiate Student Loan Trust requires most of its student borrowers to obtain co-signers on their loans; and reportedly, most NCSL loans do not contain the California statutory warning. The combination of missing documents and the California co-signer statute may make it virtually impossible for NCSL to collect on defaulted student loans in California. Moreover, when NCSL borrowers in California find out that their student loans may be uncollectible, it seems inevitable that more of them will default.

Of course no one should encourage a solvent debtor to welsh on a lawful debt. People who took out private loans held by NCSL should pay them back if they have the ability to do so. But the banks made it virtually impossible for destitute private student-loan borrowers to discharge their private college loans in bankruptcy when they lobbied Congress to pass the so-called Bankruptcy Reform Act of 2005. Now, at least, hard pressed student-loan defaulters have some defenses if they get sued by NCSL--particularly in California.

I am grateful to Steve Rhode for alerting me to this important development. Mr. Rhode wrote on this issue in the Get Out of Debt Guy blog site.  I'm also grateful to California attorney Christine Kingston for calling Steve's attention to the California co-signer statute and its significance for student-loan debtors.

 References

Stacy Cowley and Jessica Silver-Greenberg. As Paperwork Goes Missing, Private Student Loan Debts May Be Wiped Away. New York Times, July 17, 2017.

 Steve Rhode. California Student Loan Co-Signer Statute Helps to Kill Student Loan Debt. Get Out of Debt Guy, July 25, 2017.











Thursday, July 20, 2017

Building a Better America Budget A Laugh for Student Loans: Great Essay By Steve Rhode

The House Budget Committee has just rolled out a first pass at a new federal budget titled Building a Better America.

People dealing with student loans had better start thinking quickly and clearly if their political ideology is more important than the future of student loan debtors.
Here are a couple of choice sections.
“The Federal Government holds most student loan debt; as of the first quarter of 2017, its portfolio was $1.29 trillion, up from roughly $516 billion in fiscal year 2007. As Federal lending consumes an ever-larger share of the student loan market, it crowds out private and other lenders that may have better products to meet borrowers’ needs.”
It would appear the argument is the government wants to get out of the student loan market and drive more people to private student loans which don’t have any of the payment options, forgiveness programs, or helpful options federal loans have.
“Account for the True Costs of Student Loans. By statute, the government’s accounting procedures for assessing the costs of student loan programs do not incorporate market risk. For example, borrowers may have trouble finding a job and repaying loans in an economic downturn. To measure student loan program costs, the budget recommends using fair value accounting, which does assume such market risk.”
While the budget may recommend fair value accounting, the Department of Education is busy trying to gut regulations protecting students from underperforming schools which lead to failed educations and problem debt. The administration can’t have it both ways.
“In areas such as health care, welfare, environmental regulation, education, workforce development, and transportation, we put federal spending on a budget and empower the states, which are best suited to address the individual needs of their citizens and communities.”
I get the philosophy of returning more responsibility to the states but won’t this just create an inequity in the ability of individuals to plan for education when there may be a patchwork of education initiatives by state instead of one federal regulation when it comes to student loan and education issues?
“Simplify and Streamline Higher Education Programs and Financing to Protect Students and Taxpayers. The current Federal aid system is complicated and time-consuming for students and parents trying to make higher education financing decisions. In addition to Federal grant aid, six loans, nine loan repayment plans, eight loan forgiveness programs, and 32 options for loan deferment and forbearance exist. Each program has different eligibility criteria and terms. The budget envisions a simplified, transparent, and fiscally sustainable aid system. Principles for reform include more transparency for loans and repayment plans, removing perverse incentives to over-borrow, consolidating the array of programs, and protecting taxpayers.”
While it is possible that some changes could be made in the loan options, forgiveness programs, and repayment options, the key question here in a budget that is poised to trim costs is what will be cut and eliminated? The administration has already indicated they would like to like to change income driven repayment programs to make them shorter but have higher monthly payments. The Trump administration also would like to make wholesale changes or eliminate forgiveness programs like the Public Service Loan Forgiveness program.
I’d love to hear your opinion. Do you think the changes proposed in this budget will help to make American education great again? Post your comments below.

_______________________________________________________________________________

This essay by Steve Rhode first appeared in  Get Out of Debt Guy on July 18, 2017. To learn more about Steve Rhode, click here.

Wednesday, July 12, 2017

Half a millon bucks in student loans to become a pharmacist: Does that make any sense?

Earlier this week, I read a letter posted on Steve Rhode's web site: Get Out of Debt Guy and distributed on the Personal Finance Syndication Network.  An anonymous writer asked Mr. Rhode how to handle $500,000 in student loans that he or she borrowed to become a pharmacist.  Rhodes' advice was spot on, and I won't comment further about how this individual should manage all that debt.

My purpose here is to ask the simple and obvious question: How could anyone be permitted to accumulate a half million dollars in student loans to obtain a pharmacy degree?

As I said, the writer posted anonymously, so I have no way of knowing whether the person is male or female.  I'll just refer to this debtor as Pete.

As Pete mentioned in his query to Steve Rhode, he obtained a GED when he was 35 years old, about ten years ago. He obtained a BS in Neuroscience, another BS in biochemistry, and a doctor of pharmacy degree, which he recently completed. So I'm guessing Pete is about 45 years old, and he's embarking on a new career as a pharmacist.

Will Pete earn enough money as a pharmacist to pay off $500,000 in student loans? No, he won't.  We don't know the interest rate on his loans, which are both federal and private; but let's assume all his loans are accruing interest at 6 percent a year. That's $30,000 a year just to pay accruing interest on the debt.

What are Pete's options? Perhaps he can enroll in a 20-year income-base repayment plant, whereby his loan payments are based on his income. If he obtains a job paying $60,000 a year, which seems reasonable, his payments will be less than $400 a month. But of course, a payment that low won't begin to cover accruing interest on Pete's loans.

Pete might get a public service job that will allow him to make income-based payments for 10 years with the balance forgiven if he makes 120 consecutive payments.  Again, his monthly payments probably won't even cover accruing interest.

Bottom line is this: Pete, who is in his mid-40s, doesn't have a snowball's chance in hell of ever paying back $500,000 in student loans.

We can blame Pete for borrowing so much money or for obtaining two bachelor's degrees instead of one. Perhaps we can criticize him for making poor choices when choosing where to study. Maybe he could have borrowed less money had he attended less expensive colleges.

But that would be pointless. The parties who bear the blame for Pete's unmanageable debt load are the U.S. government and the banks, which loaned Pete way too much money.

Pete's situation is atypical, I'll grant you, but it is far more common than many people believe. Not long ago I blogged on a Hofstra law graduate who owes $900,000 in student loans--pretty damn near a million bucks!

The student loan crisis is not small beer. Less than half of the nation's student borrowers in repayment are paying down the principle of their loans. The problem is as obvious as a tsunami barreling down on a beach full of sunning vacationers.

Why can't we put some limit on the amount of money students can borrow? The amount of interest that can accrue? The amount of penalties and fees that can get added to borrowers' debt when they default?

In fact there are lots of things we could do to limit the harm caused by the student loan crisis. But nobody is talking about fixes. The college presidents, whether they are Ivy League college leaders or the CEO of Bobby Joe's College of Auto Mechanics, are saying nothing about the student loan mess. Every school, college, and university participating in the federal student loan program--more than 4,000 institutions--is dependent on regular infusions of student-loan dollars to keep the doors open.

Someday, it will become apparent that a high percentage of the nation's accumulated student-loan debt--30 percent, 40 percent, perhaps 50 percent--is not going to be paid back; and this house of cards will collapse.

But until that day comes, our politicians, academics and the national media will continue focusing on what they think is the most important topic of the day--President Trump's alleged communications with the Russians. And like summer vacationers lolling on the beach, a lot of pundits, intellectuals and journalists are going to be caught unawares as the student-loan tsunami flows over America's colleges and universities and destroys a good many of them--beginning with the small liberal arts colleges.

References

Steve Rhode, How Do I Handle My $500K of Student Loans to Become a Pharmacist? Personal Finance Syndication Network. 


Monday, July 3, 2017

Department of Education Punts on Borrower Defense to Repayment Rules. Essay by Steve Rhode



I’m still waiting to be pleasantly surprised by the Trump Department of Education (ED) under Secretary DeVos. It has not happened yet.

From the recent actions to remove critical information from consumer notices to wanting to get a single loan servicer to handle all federal loans, the current incarnation of ED seems to be moving in a direction that provides less support and help for debtors.

On October 2016, the then ED announced new regulations to go into force on July 1, 2017. “The U.S. Department of Education today announced final regulations to protect student borrowers against misleading and predatory practices by postsecondary institutions and clarify a process for loan forgiveness in cases of institutional misconduct. These final regulations further cement the Obama Administration’s strong record and steadfast commitment to protecting student loan borrowers, deterring harmful practices by institutions, safeguarding taxpayer dollars and holding institutions accountable for their actions.” – Source

The Betsy DeVos ED is delaying the implementation of the Borrower Defense to Repayment rules. The ED announced today “Postsecondary institutions of all types have raised concerns about the BDR regulations since they were published on Nov. 1, 2016. Colleges and universities are especially concerned about the excessively broad definitions of substantial misrepresentation and breach of contract, the lack of meaningful due process protections for institutions and “financial triggers” under the new rules.” – Source

So the current ED is going to start over again and says, “The Department plans to publish its Notice of Intent to Conduct Negotiated Rulemaking on BDR and GE in the Federal Register on June 16, 2017. The Department will conduct public hearings on BDR and GE on July 10, 2017, in Washington, D.C. and July 12, 2017, in Dallas, Texas.” Goodness knows how long this new process if going to take and what opportunities student loan debtors will have to actually have their loans discharged due to misrepresentation by colleges and schools who received federal student loans.
For example, the ED previously said, “Many of these claims are from borrowers who attended programs that the Department found had been publicized with misleading job placement rates.” – Source

What do you think, should schools who misrepresented the success of their programs or actual employment rates to induce students to enroll, get a free pass and eliminated from the new rules? Let me know what you think by posting your comment below.
Even under the old administration the Borrower Defense to Repayment processing was less than optimal. There are students that have been waiting years for a conclusion to their claims and the next changes will only serve to slow down the entire process of assisting harmed student loan debtors.

As an example, ED previously said they had ” received a total of approximately 82,000 claims.” And while a previous report on the status of the program said 16,000 had been processed and approved, the current ED press release says, “Nearly 16,000 borrower defense claims are currently being processed by the Department, and, as I have said all along, promises made to students under the current rule will be promises kept,” said Secretary DeVos. So where are the rest of the claims?

Steve Rhode

Get Out of Debt Guy – TwitterG+Facebook
This article by Steve Rhode first appeared on Get Out of Debt Guy and was distributed by the Personal Finance Syndication Network.

Wednesday, June 28, 2017

Another Attorney General Jumps on Department of Education: Essay by Steve Rhode

North Carolina Attorney General Josh Stein has joined to voices of others from around the country who are disappointed the Department of Education has decided to delay the July 1, 2017 regulations that would have helped to protect students with federal student loans from fraudulent schools and colleges. See this.

Stein said, “Education is one of the best reasons I can think of to borrow money. But unfortunately, there are some in our world who take advantage of those who are vulnerable – and that includes student borrowers. As North Carolina’s Attorney General, protecting people, including students is my top priority.”

“That is why I find this news deeply troubling. The rules, which were to take effect on July 1, would protect student borrowers – delaying them is misguided and irresponsible.”

“These delayed rules were hard-fought and sound consumer protection measures born out of the problems that other attorneys general and I have seen plague student borrowers time and time again.”

The delayed protections include: 

  • Prohibiting schools from forcing students to pursue complaints in arbitration rather than in court; 
  • Prohibiting schools from requiring students to waive participation in class action lawsuits; and 
  • Providing automatic relief and group relief for defrauded federal student loan borrowers in certain circumstances, including following legal actions by state attorneys general. 
Delaying the rules is a win for for-profit schools that provide a poor result and a loss for student loan debtors who have their futures financially damaged.

Steve Rhode

Steve Rhode

Get Out of Debt GuyTwitter, G+, Facebook


This article by Steve Rhode first appeared on Get Out of Debt Guy and was distributed by the Personal Finance Syndication Network.

About Steve Rhode

Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. 

Thursday, April 13, 2017

Great article by Steve Rhode: "Trump Department of Education Operating Beyond Logic on FFEL Collection Fee Change"

This excellent essay by Steve Rhode appeared earlier on the Personal Finance Syndication Network, PFSyncom and on Mr. Rhode's web site titled Get Out of Debt Guy.  contains a variety of good advice and information about all manner of consumer debt problems, including student loans. You can learn more about Steve Rodes here.
*****

A couple of days ago I wrote about the Trump Department of Education under Secretary Betsy DeVos who told student loan guaranty agencies with FFEL federal student loans to disregard the guidance provided by the Obama administration regarding defaults.

That specific 2015 guidance said student loan debtors who defaulted had up to 60 days after default to enter into a satisfactory repayment plan or rehabilitation to avoid up to 16 percent collection fees being added to their balance on day one of default. The logic was that debtors who entered such repayment plans were not going to incur collection fees that warranted adding 16 percent of the student loan balance. Plus there is underlying guidance to support that position.

In a mind blowing twist, the company who was at the heart of the underlying court case who brought this issue to light, USA Funds who is now Great Lake Higher Education, said that even though the Trump administration rolled back the inability to charge the 16 percent collection fee on day one, they are not going to do it.

Great Lakes said, “Since the U.S. Department of Education issued a Dear Colleague Letter on July 10, 2015, our guarantors have not assessed collection fees on borrowers who entered into rehabilitation agreements within 60 days of default on or after July 10, 2015. Notwithstanding the Education Department’s March 16, 2017, decision, prompted by a request from a federal judge, to withdraw that Dear Colleague Letter, the Great Lakes Affiliated Group Guaranty Agencies will continue their practice of not assessing collection costs on borrowers who agree to rehabilitate their loans within 60 days of default.” – Source

So did the DeVos Department of Education even talk to Great Lakes before falling face first into this? Logically you’d assume they didn’t since Great Lakes obviously did not want to reverse course on this.

My favorite quote on this matter came from Danielle Douglas-Gabriel with the Washington Post who said, “In light of the Education Department’s recent action, USA Funds is seeking to dismiss its lawsuit against the agency.” So not only is the collection company at the heart of this issue not going to charge the collection fee but they are dismissing the lawsuit as well.

So what was the purpose at all for the Department of Education to reverse course on this? None I can see. Let me know what you think in the comments below.

Steve Rhode

Get Out of Debt GuyTwitter, G+, Facebook


This article by Steve Rhode first appeared on Get Out of Debt Guy and was distributed by the Personal Finance Syndication Network.

Wednesday, February 15, 2017

"Debt and Introspection Are More Related Than You Think": Essay by Steve Rhode

This excellent essay by Steve Rhode originally appeared on the Personal Finance Syndication Network, PFSyncom.  Mr. Rhode also maintains a web site titled Get Out of Debt Guy that contains a variety of good advice and information about all manner of consumer debt problems, including student loans.  You can learn more about Steve Rodes here.

 **********

Debt and Introspection Are More Related 

Than You Think

by Steve Rhode

Steve Rhode
Why are people victims? Why are some people always the brunt of pranks, jokes, gaffes and catastrophes and others are not? Over the years of helping people with financial problems I’ve observed that many people experience not only a financial disaster event but also difficulties in other areas of their life. Is this a coincidence or are there underlying issues that cause us to sabotage our ability to achieve happiness and financial success? Are some people just victims of affairs that involve credit, debt and money? They answer is yes, but why?

There has been little study of victim profiling and when we think of someone as a victim the first thoughts that are present are those of people who have suffered a terrible misfortune beyond their control at the hands of some external event. There are people who are victims of events and situations beyond their control.

For example, people who are randomly murdered, raped, abused, injured or harmed, physically or emotionally. Take disorganized killers for example, their victims are selected because of the opportunity to carryout their act rather than because of anything unusual about the victim themselves. A disorganized killer, as categorized by a serial killer profile, may simply walk up to the next door they come to, ring the bell and kill whoever answers the door. If your time is up, it’s up.

A rape victim may just have simply been the next target of opportunity. Sometimes there is no greater explanation or rationale for their misfortune other than “wrong place, wrong time.” And while we search for a deeper or greater meaning why their life was altered in such a fundamental way by grotesque violence, sometimes life is simply random and chaotic.

Victims of financial problems present similar rationales, Sometimes they were truly disadvantaged by people who duped them.

Recently, a furniture store went out of business, there was no indication that it was in trouble. Every outward sign indicated that the company was stable. Suddenly they go out of business and furniture that previous customers ordered will not be delivered and the status of the deposits left for those orders is undetermined. These folks are truly victim of the transaction. There is no doubt that sometimes events are random and can leave you in financially deficient position. Here is an example that almost everyone has experienced where we lose 100% of our money, vending machines. Sometime they just take your money and don’t deliver the goods. Some people attempt to deliver a couple of well placed smacks and move on. We just accept that it happens sometimes because it does.

In my work helping people with financial problems I’ve observed that while some people suffer from random financial misfortune, there truly is a pattern of financial victims who are often found to repeat the same or similar financial mistakes over and over again. Rather than learn from the situation, they can be seen waving the flag of entitlement and summoning up an army of excuses for this weeks episode of financial misfortune. Can’t you picture the commercial for next weeks show? Stay tuned for up scenes from next weeks show when Bob will lose his job and not have any savings to fall back on because he blew it all on day trading last week. What will Mary say when she finds out? Tune in Tuesday at 8 PM Eastern Time.
What is striking is the number and severity of poor financial decisions some people make. It’s too frequent to just be a random happenstance.

To what degree do we hold people accountable for their individual actions? Is the recipient of misfortune ever to be responsible for their misfortune? Early victim theory in the 1940s actually labeled the person to whom misfortune befouled as a hapless person who brought it on. Since then victim theory has swung to the opposite direction and essentially anyone who is the recipient of anything negative or unexpected is to be cuddled and cajoled and not accept any responsibility for their actions. But it that realistic or healthy? Whatever happened to personal responsibility?

I’ll be honest with you. I hate personal responsibility. I don’t mind accepting responsibility for my actions and the way things turn out. Certainly, life is not always rosy and we don’t always make the best decisions but cut me some slack.

Modern American life not only does not encourage you to be personally responsible, it makes you run from it. We live in such a litigious society that I’m wondering when toilet paper manufactures are going to get sued for excessive chafing. I’m sure they have been already. Maybe toilet paper made out of sawdust wasn’t such a good idea after all gentlemen. Not that I’m bitter about it but ouch, that’s all I’ve got to say on the subject.
My office overlooks the 18th hole on a golf course. I’ve seen all sorts of unusual things on that course. I’ve seen guys playing golf in the dark, near typhoon weather, wearing shorts in sub zero weather and there is even this woman who walks down the center of the fairway from the green to the tee during lunch. For some unexplained reason she has a golf ball, throws it up in the air and smacks it with her hand. She walks to where it lands, picks it up and continues towards the tee. I keep waiting for her to get hit with an oncoming golf ball one day. In my past life, when I was in ophthalmology, I had a patient who was stuck in the eye with a tee shot. It ruptured the eye and she was blind. This is why I never look back on the golf course or in life. I’d much rather get hit in the back with a ball than lose my sight.

When the weather is dangerous, like a big electrical storm, the course blows a siren to warn golfers to get off the course. Most golfers do, some don’t. Some just continue to play so let’s take the golfer who stands with his metal club (lightning rod) pointing skyward during a tremendous electrical storm. If he is struck by lightning, is he partially to blame or is the gold course going to get sued also? Other golfers sought appropriate shelter during the storm by this one places himself in a position of danger, greatly increasing his chances of getting struck and does. Can a victim contribute to the outcome and if so do we serve the victim by simply saying, “don’t worry” or “that’s OK”?

Wouldn’t we serve the victim more by consoling them in their time of need and help them to accept responsibility for their actions which allowed them to be harmed in the first place? Hopefully, they will learn from the error of their ways and not repeat the same mistake again in the future. We do this with children, why not adults?

Financial victims often cry foul because of the actions of others. In fact, they frequently contribute to their misfortune by simply not participating in their financial lives.

For many years I worked in an office. One day in the late 1980’s I decided to pursue my dream and left. I started a real estate company, The Great Virginia Land Company. I thought it would be really cool to work outside all day long. Walking through the country, enjoying nature and making money at the same time. I bought and sold country acreage. When my real estate company was going full force I wanted to make very sure that purchasers of property from me clearly understood the contract they were about to sign which included financing. At first, I would read the contract with them, explain every detail and be available to answer any questions they had. They typically glazed over by the third paragraph. That approach wasn’t working so I made myself available as they read the contract to answer any questions they had. Nobody asked questions and just wanted to know where to sign. I even asked them questions to make sure they had read the contract. Most were put off by my inquisition. Finally, they trained me to just hand them the contract. They would look up and before they could say anything I’d say “here” and point to the signature line. They would look up again and I’d say “here” and hand them a pen.

I used to get excited when I thought someone was going to ask a question about the financing, I wanted to explain it all to them but finally I was beaten into submission by the public’s lack of caring about the contract or financing. The prevailing question was never what the total cost would be, but “what will my monthly payment be?” They didn’t want to be bothered by actually reading or understanding the damn thing. They just wanted what they perceived to be the benefit once they signed the contract.

One day I sold fourteen pieces of property at one time. There were so many people wanting to purchase property from me that I passed out blank contracts, stood on the trunk of my car and as the purchasers all gathered around, like a concert in the park, I shouted out instructions on how to fill in the blanks. “In the first blank, put today’s date.” It was insane but I could not stop the frenzied action. If I had not done it this way, it is very possible that I could have been physically injured. People would get in such a tizzy if they could not sign the contract as quickly as possible. It was frightening at times. One day two people wanted to buy the same piece of property. One person decided to buy it first and the other said they were going to kill me and he had a gun in the back window of his truck. I decided it would be a good time to leave so I calmly walked to the car, jumped in and turned the ignition. Trust me, wrrr-wrrr-wrrr is not the kind of sound you want to hear at a moment like this, the car would not start, the battery was dead and I didn’t want to be. The guy in the pickup truck pulled up and said, “I kill city boys.” To which I could only respond, “Awesome but can I get a jumpstart first?” He gave me the jumpstart and I drove away.

So what did I learn from my experience. I learned people don’t like to see snakes in the grass when they are walking through the woods and they aren’t that interested in understanding consumer transactions.
Inevitably, if a problem ever latter arose from the transaction; the perception was always that they, the purchaser, were the victim, even when the exact and specific situation was clearly spelled out in the contract that they refused to read.

The same is true for almost all consumer credit transactions. People don’t read the agreements they sign and if they do read them they will not or do not ask questions and if they even ask a question and understand the answer, the vast majority of people will sign the agreement anyway as long as they want what they get when they do sign it. So, what level of responsibility do we have to adequately prepare for our financial lives?
Legislators and lawmakers think consumers are too stupid to accept responsibility for their situation. They feel that people don’t read the agreements they sign so we need to protect people from themselves. Is that really how we want to be treated, as stupid lemings?

Recently, I spoke to Richard. I’d had the opportunity to review his credit report before we spoke so it was clear to me that Richard had experienced two episodes of financial trouble in his life. The first about four years ago, the second about two years ago, but why? The debts were for unsecured credit cards, some utilities and local stores. Generally, that indicates someone moving into or out of a new area that is unprepared financially for the event. Clearly Richard’s credit report reflected an episodic history of financial trauma. After talking with Richard I learned that about four years ago he had relocated from Illinois to Iowa. He left behind some unpaid bills and had increased his debt load through the move to a point where he could not repay his bills. Once Richard found a job in Iowa he was able to stabilize his finances and repay most of his debts, he still had some old, very small debts outstanding. He also had some utility bills that were unpaid from his stay in Illinois. Richard said he forgot to change his address so the old bills did not follow him to his new address. In spite of Richards’s inability to notify his creditors, he feels it is unfair that they are hounding him and sent him to collections.

Richard said that he learned his lesson from that move and said he believed he would prepare better next time he relocated. Guess what, Richard did the exact same thing two years latter. He up and moves to California without prior planning. He leaves behind a wake of unpaid obligations and is again unable to find suitable employment in the area he has relocated to. Richard moves back to Iowa. Now, the first time Richard made the mistake of impulsively up and moving, you might say he was young, a few years out of college, and inexperienced in the ways of the world. How can we rationalize making the exact same financial mistakes again? Richard clearly knew what the results of his actions would be. He had lived through them once but yet he did not learn from his mistake and repeated it.
When I spoke to Richard he was clearly angry at his creditors for not being more reasonable when he fell behind on his bills. He was angry and belligerent and felt they should be more understanding.
When Richard moved from Iowa to California, he did not make any prior effort to find employment before he left. He just moved. When Richard arrives in California he is unable to find jobs that pay him even half of what was making before in Iowa. Big surprise. Bet you didn’t see that one coming did you? Now, not only does Richard have to pay for the cost of his move and getting started in a new area, he also has previous obligations he had not yet satisfied.

Soon Richard becomes dissatisfied with California, gives up and decides to move back to Iowa. During the course of his move out and back Richard accumulates approximately 25 thousand dollars of debt on credit cards. He financed his move with credit since he did not have any available cash. He stated “I had to use the cards to live on.” Again, Richard leaves and does not notify his creditors where he is going. Again, Richard ends up on the other end of a collection telephone calls and is sought after for unpaid bills. Is Richard really a victim of his creditors?
Richard has a responsible job but yet cannot exhibit responsible behavior in other parts of his life. Sadly, Richard will probably live through another couple of similar events until his financial situation becomes so fucked up that he files bankruptcy (aka financial cleansing) and possibly begins his cycle of debt over again.
I’ve even had one client who had 78 unsecured credit card accounts totaling a million dollars of outstanding credit card debt. This does not include his other outstanding indebtedness. Is he a financial victim or a credit predator? At what point does a reasonable person stop applying for additional credit?

Consider the following story from Carla who contacted me recently. “My car was repossessed on the 31st of January, on Monday I spoke with the bill collector from the car lender, I informed him of my job, the location, everything down to what I did. He demanded that I Western Union him $126 to him within the hour, even though I told him I get paid on the 1st of Feb. (which was only 5 days from that point) he told me this before just as I have twice promised a payment by Western Union and did not comply. I understand that the bank must repossess the car and I’ve heard horror stories of individuals losing personal items kept in the car at the time of repossession. To the repo man himself or whomever else may like that “pink sweater” for their neighbor. I had piles of clothes in my backseat, a satchel, a stethoscope, a sweater of the utmost sentimental value, a gun, college books, and a CD player that I’m sure they plan on selling to make the money while the factory stereo is in the trunk. (also a gift from a friend.) I will be 21 years old this month and am already in a bad situation, forced to live with a man twice my age, which in the beginning was and I suppose still is by my choice. I recently got a job and had thought things were beginning to look up for me, now I don’t even know where my car is, which impound lot or where I mail payments to? My makeup bag was also in there with around $200.00 worth of makeup not to mention documentation and things of that nature I had in a backpack.”

As an impartial third party, you’ve have to marvel at the dysfunction in this persons financial life. I think the most startling statement is the admission of previous failed promises to pay. Can you really be surprised that the collector ordered the repossession of the vehicle after Carla clearly had make promises to pay and then did not honor them. Several other facts in her email are telling also.

Broken promises are going to come back to bite you in this situation. Did she not understand that when she made payment arrangements with the creditor and failed to meet them that it had a higher probability of not turning out well?

She kept personal items in the car in spite of knowing that a number of payments had been missed and repossession was a definite possibility and imminent.

She keeps a gun in the car. Is she feeling vulnerable and unprotected?

Carla mentions living with a man twice her age and that in the beginning it was her choice. Is she a victim of her relationship? It truly sounds like a relationship of convenience. Carla seems to indicate that she is a victim of the relationship since she is “forced” to live with him. She has created a situation where she has no other place to go so she lives with someone she does not care for simply because he took her in. She admits it was and is her choice to be there, so is she forced?

She got a job and thought things were beginning to look up. This is irrational optimism when it comes to the vehicle situation. Things will only look up when either the missed payments are brought current or an agreed repayment plan is in place. Just because she secures employment she feels the lender should back off. A good example of fantasy thinking.

Carla appears to be helpless in the situation. Does not know where to send payments and has not thought to contact the lender to ask.

She has also been damaged by the loss of stuff in the car. How about the damage caused to the lender by the loss of payments not received? This is not a consideration or point of view of Carla’s.

People commonly refer to “being forced” to do things in their financial lives. Certainly “being forced” is an example of victim thinking. “I was forced to hand him the money.” Generally, people who are forced are not operating under their free will and are under duress.




 

Monday, February 13, 2017

The Student Loan Bubble That Many Don’t Want to See by Steve Rhode

This excellent essay by Steve Rhode originally appeared on Mr. Rhode's web site, Get Out of Debt Guy.  Rhode's web site contains a variety of good advice and information about all manner of consumer debt problems, including student loans.  You can learn more about Steve here.

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Steve Rhode

I can’t help but see the incredible irony in the mortgage collapse that many said would never happen, and the student loan bubble.
The collapse created by the student loan bubble is different but just as catastrophic. As the average debt per student loan borrower continues to climb and federal and private student loan debt grows, the consequences of not dealing with this bubble will be as traumatic as the mortgage failure recession.

The worst thing about these big economic bubbles is the data stares us in the face but most don’t see it.
Unlike the subprime mortgage failure that caused the foreclosure rate to explode and massive job loss, the bursting of the student loan bubble will cause more systemic issues.
When this bubble bursts, and it will, it won’t lead to an immediate collapse but a collapse of the United States to excel in a future world economy. A collapse in the student loan market will place real eduction out of reach of many and put a drag on the overall economy as fewer and fewer people will be able to pay for tuition that outpaces inflation.
Without easy access to student loans and a shrinking student base, schools will have to cut costs to bring tuition back inside available lending. Many schools, public and private, will fail. Public schools will fail as long as states continue to cut state funding for education.
It seems the thing we value least, at times, is education and opportunity for all. States cut funding for public colleges, teacher salaries remain flat, and education lotteries are a misnomer. They don’t really benefit education.
Like the crazy mortgage asset backed securities (ABS) or collateralized debt obligations (CDO) the private student loan industry had been packaging up student loans into trusts an student loan asset backed securities (SLABS).
Like CDOs that Wall Street rating agencies rated, ABS products have ratings as well. Moody’s Investors Service recently downgraded a bunch of these products.
“Moody’s placed 266 tranches in 141 transactions ($44.9 billion) on review for downgrade, 89 tranches in 59 transactions ($3.1 billion) on review for upgrade and 45 tranches in 34 transactions ($2.8 billion) on review with direction uncertain. Moody’s also confirmed the ratings on three tranches ($1.5 billion).
In addition, 101 tranches ($30.7 billion) previously placed on review for downgrade will remain on review for downgrade and four tranches ($1.4 billion) previously placed on review for upgrade will remain on review for upgrade.”
Moody’s goes on to say, ” For most tranches, Moody’s projects cash inflows to be less than sufficient to repay the notes by their final maturity.”
Moody’s also says that the quality of these securities will continue to decline if there is “growing borrower usage of deferment, forbearance and IBR.” – Source
But other people are seeing the same things and making the same connections as well when it comes to the issues created by federal loans.
Jack Du said, “Unlike private lenders, the federal government doesn’t check credit records for student loan borrowers. This leads to many uncreditworthy borrowers qualifying for loans and then being saddled with debt indefinitely with little hope of paying it back. This harkens back to the sub-prime housing loans that drove up the housing bubble. Investors should be wary of how much longer these aggressive student loan lending strategies can be sustained.” – Source
Du also observed, “student loan asset-backed securities seem to be a valuable asset to the economy. However, whether this industry can sustain itself will come down to whether enough borrowers can eventually pay their debt obligations and that is looking like a slim prospect.”
For a college student himself, he’s pretty smart.
So the situation we have is easy to access federal student loans are becoming lifelong debt and lead people to problematic income driven repayment programs.
The private student loan industry is a mess with fractionalized SLABS and the hooks into co-signers they most often won’t release.
It’s a bubble and a mess, all at the same time.