Protesting student debt

This video is another example of the student debt crisis we face in this country.

One fundamental issue is that we’ve created an incentive structure to push students into borrowing money in order to get an education. The rational decision would be to pick an affordable school, but those options are limited. The college experience is so ingrained in our culture that many families want that for their children.

Also, we have young people making bad financial decisions, and too many parents aren’t helping. You shouldn’t take out a big student loan to go to a small, private college if you can pay much less at a state school. Also, if you’re going into a field with little earning power, this decision is even more important.

This video also discusses the Debt Collective, which was born out of the Occupy Wall Street movement and helps people dispute debts with a goal of cancelling their loans. It currently has over 700 people who are planning to never repay their loans.


The crippling cost of college

One of the themes we keep emphasizing has to do with the crippling costs of a college education today in America. Sure, college campuses are much nicer with all the new buildings and new technologies, but they are failing in their basic mission if students leave there with massive student debt that will hang over them for the rest of their lives.

More publications are doing good work discussing these problems. In Newsweek, Megan McArdle asks whether college is a lousy investment.

Why are we spending so much money on college?

And why are we so unhappy about it? We all seem to agree that a college education is wonderful, and yet strangely we worry when we see families investing so much in this supposedly essential good. Maybe it’s time to ask a question that seems almost sacrilegious: is all this investment in college education really worth it?

The answer, I fear, is that it’s not. For an increasing number of kids, the extra time and money spent pursuing a college diploma will leave them worse off than they were before they set foot on campus.

Given the costs, it’s hard to argue with her on this point. She discusses how college was critical for many families in building a better life for the next generation. But sitting on an English degree with $150,000 of debt seems like a pretty bad deal.

That said, we can’t overreact to the current economic conditions. When the economy improves, more of these kids will get jobs with their degrees.

Yet something has to give, and it was very encouraging to hear President Obama challenge colleges to slow down tuition inflation.

Also, the future of free college courses looms on the horizon. Universities would be wise to start figuring out how to lower costs, or they might really have a problem in the future.


Some regulations on for-profit-colleges struck down

It was a pretty technical decision, but a court has struck down some of the regulations put in place by the Obama administration to regulation the for-profit-college industry. This is problematic as many of these colleges are loading up students with a ton of debt, while their degrees don’t get them a job. We’ve also seen some pretty shady practices in recruiting students to these schools. Unfortunately, there are far too many for-profit college scams out there.

This unfortunately tarnishes those colleges that provide good training for students. Hopefully the media attention will make students more selective, but the problem is that these schools are playing with our money, as the taxpayers help fund these student loans. We need more accountability and the court just made it more difficult.


Fixing college tuition

We have some serious problems in the country surrounding college education. We have some of the best universities in the world, so the issue is not quality. The issue is price. The cost of college is soaring, and aggregate student debt will exceed $1 trillion!

President Obama is trying to address the student loan crisis with some sensible reforms, but the bigger long-term issue has to do with the cost of a college education.

Steven Goodman addresses the problem and proposes a solution.

Since loans now comprise 70% of financial aid packages, the growing tuition burden falls squarely on student-borrowers who may have saved for college but who still can’t meet the high cost of attendance. Two-thirds of American undergraduates are in debt. This year, student loan debt will grow to more than a trillion dollars, outpacing credit card debt for the first time. As hundreds of thousands of high school seniors prepare their college applications, and their parents compile documents required for financial aid, Congress needs to seriously consider legislation that will rein in future tuition increases.

There are many reasons for the dramatic rise in tuition, including demand for better student residences, cutting-edge laboratories, IT improvements, cuts in state subsidies and administrative growth. Regardless of which factors are most significant, the fact remains that there has simply not been enough external pressure to force universities to contain costs. Ironically, the accessibility of student loans, while admirable at first glance, has contributed to tuition growth. And while President Obama’s recent proposal to cap student loan repayments depending on income is a step in the right direction, it doesn’t address the bigger problem of runaway tuition in the first place.

This is where government needs to firmly step in. The federal government contributes billions of dollars to research and development on campus and allows universities to function as tax-exempt institutions. Self-policing of college costs has not worked; government needs to tie its support of higher education to college costs.

Read the entire article as it presents a sensible argument.


Debt after College: Credit Counseling for Students

Credit counseling, also called “debt counseling,” is a service provided by organizations that offer professional counseling for consumers in need of assistance in the areas of debt repayment, debt management, and money management. Credit counseling is also a requirement that must be met prior to filing chapter 7 or chapter 13. The types of debt that credit counseling agencies may assist you with include credit cards, personal loans, home loans, car loans and student loans. Credit counseling agencies also assist with utility bill repayment and tax debt.

Getting Started with a Credit Counseling Agency

Credit counseling agencies will require certain documentation to begin the process, so it is important to organize your records before visiting an agency. The credit counseling agency will ask for credit card statements, copies of utility bills, mortgage payment statements or your rental amount/lease. The agency will also expect you to bring a record of spending or a budget that should  include household expenses and any miscellaneous expenses. This documentation is needed in order for the credit counselor to create a realistic budget and debt repayment plan.

Benefits of Credit Counseling

A major benefit to credit counseling is that the credit counselor will handle all lenders, collection agencies, and credit card companies for you. This helps to eliminate the stress associated with collection agency and creditor phone calls. Your credit counselor will negotiate a repayment plan that may significantly lower your monthly payments and interest rates.

You may opt to send monthly payments to the credit counseling agency (by check) or you may authorize a monthly electronic funds transfer from your bank account. Depending on the credit counseling agency, they may offer an option called “debt management system.” If you opt for a debt management system, you will pay the credit counseling agency a lump sum. Out of that lump sum, payments will be made on your behalf. This system can be used as a safeguard against skipped or late payments, which can save money on interest, fees, and any penalties associated with the debt.

An additional benefit to credit counseling is, it can educate you on how to better manage your finances and it will eventually help to minimize or prevent future debt.

Disadvantages of Credit Counseling and Protecting Yourself

While there are advantages to credit counseling, there are also disadvantages. Credit counseling could have a negative effect on your credit, initially. In some cases lenders, specifically mortgage lenders, may not want to extend credit to an individual that may be in the process of completing a credit counseling program. Fortunately, credit-counseling notations will be dropped from your credit report, roughly one month after the credit counseling program is complete.

Another disadvantage to credit counseling is the potential for fraud. This means that in some cases a credit counseling agency could turn out to be a scam. Look out for the following red flags:

  • -Unrealistic promises (“settle for pennies,” or “this won’t affect your credit report”)
  • -Big upfront fees (fees are typically $10-$15 U.S.)
  • -Delayed or missing payments
  • -No accreditation

To protect yourself against fraudulent credit counseling agencies, it’s best to make sure that the agency is approved by the approved by the U.S. Trustee Program of the United States Department of Justice. Locating an approved agency is simple. Just log onto and follow these steps:

  • -Under “Resources” click “DOJ Agencies”
  • -Scroll down to “U.S. Trustees Program”
  • -Under “Bankruptcy Reform” click “Credit Counseling & Debtor Education”
  • -Under “Credit Counseling for Consumers” click “Approved Credit Counseling Agencies”

The search function allows the user to browse through approved agencies by state. Please follow the link below, which should take you directly to the search page


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