All kinds of debt and credit help and info from Michael

About Michael Bovee

Michael started CRN in 2004 with a mission to provide detailed debt and credit help and advice that encourages and allows people struggling with debt to solve their debt problems just like a pro - but without the high fees.

Fixing the student loan debt problem – 5 things.

The U.S. Department of Education recently unveiled a new and improved methodology for calculating student-loan payment delinquencies. Where it once figured the late-payment rate of student loans as a whole to be 17%, the department has now determined that when the same data is expressed in terms of individual borrowers, it’s as high as 38%.

However, the new calculations don’t even take into account the borrowers who are currently in default or have had their payment plans modified by loan servicers so that their accounts no longer appear to be past due – even though many technically are. Taking all that into consideration, the number of distressed borrowers approaches 50%.

There are two problems with the ED’s latest effort to convince a skeptical world that it really does know how to manage the more than $1 trillion of directly-originated and government-guaranteed student loans that are on its books.

The first problem is, frighteningly, the ED has demonstrated that it really doesn’t know what it is doing — not with all its restated metrics and loan-administration mishaps. The second is that even this latest parsing of payment-performance data has yet to inspire anything more than a frustratingly incremental approach to solving what is clearly a rapidly deteriorating situation.

Starting with the manner in which performance is evaluated, there are three categories of loans: those that are not in default, those that are and those that are someplace in between because the contracts have been temporarily restructured (granted forbearance) or permanently modified (via the government’s Income-Based Repayment and Pay As You Earn plans).

True, the above three categories combine to make up the aggregate value of student loans currently in repayment, but each of these types must be separately tracked and analyzed, for two reasons: first, so that migrations between delinquency statuses (30-, 60-, 90-days past due, for example) can be monitored and corrective actions (with regard to servicing) taken; second, so that the activities of the loan servicers can be more closely scrutinized than they currently are.

These private-sector companies are compensated for managing payment performances to within predetermined standards. So it’s reasonable to be concerned about the temptation to improve upon the results, such as by temporarily accommodating delinquent borrowers so their loans no longer appear as past due.

These dreadful metrics should inspire lenders and servicers to find a comprehensive solution, but don’t. The plain truth is that the plans to help student loan borrowers — those currently in place (income-based repayment programs) and proposed (such as Sen. Elizabeth Warren’s reintroduction of the Bank on Students Emergency Loan Refinancing Act) — don’t do enough.

Here’s why: PAYE and IBR are helpful but cumbersome. Not only must borrowers re-qualify for the relief they need every year, but as their incomes grow, so will the value of their monthly payments. That makes it harder for households already under pressure to set budgets, let alone plan for the future.

What Can Be Done?

A loan portfolio in which roughly half the borrowers are either in trouble or treading water is one that is in obvious need of restructuring. So let’s stop wasting time pointing fingers about how these loans were first approved or structured, or why borrowers are still struggling as the economy improves, and solve the problem. Here’s how.

  1. Restructure every loan—without regard for origination channel and payment status—for terms of up to 20 years. Longer repayment durations will do more for affordability than monkeying around with interest rates, although these, too, should be reconfigured because the consumer-unfriendly rate-setting mechanism that Congress put into place in 2013 has more to do with politics than it does finance.
  2. Permit partial and full prepayments—without penalty. Just because a loan has a lengthy duration shouldn’t mean that it can’t be settled ahead of time. Penalty-free prepayments—where the additionally remitted amounts are appropriately applied against the principal—will help borrowers to limit the amount of interest they pay overall.
  3. Expunge previous credit histories for loans that are subsequently refinanced. The standard 10-year repayment plan that was originally put into place is to a large extent responsible for the problems many borrowers have had. Creditors should therefore be more concerned about repayment performance after the contracts have been restructured.
  4. Offer student-loan borrowers the same tax relief that has benefited homeowners. Waive taxation on the value of the debt forgiveness that may be granted on an exception basis, just as it has been for distressed home mortgages that were permanently modified after the crash.
  5. Permit student loan debts to be discharged in bankruptcy. This will motivate recalcitrant owners and servicers of government-guaranteed loans to come to the bargaining table with tangible, sustainable solutions.

The money exists to pay for all this.

It’s no secret that the ED rakes in enormous profits from its student loan programs. Much of that is a result of the risky manner in which the government has chosen to finance this activity (low-rate, short-term borrowing is used to support its high-rate, long-term lending at a time when the Federal Reserve is contemplating raising rates). But even if the ED were to “match fund” its portfolio as lenders often do, it would still earn substantial profits from the combination of fees and interest that are charged.

What’s not so well-known is how these profits end up appropriated by Congress to offset the national debt. Said differently, lawmakers are, in effect, taxing the very same constituents it should be helping.

This story is an Op/Ed contribution to Credit.com and does not necessarily represent the views of the company or its partners.

Related Articles:

This article originally appeared on Credit.com.

This article by Mitchell D. Weiss was distributed by the Personal Finance Syndication Network.


Share Button

9 Plead Guilty to $20M Scheme to Defraud Soldiers.

Eight Alabama residents and one Georgia resident pleaded guilty to participating in a scheme in which they stole thousands of identities to file more than 7,000 false tax returns, according to the U.S. Attorney’s Office of the Middle District of Alabama. Over the course of nearly three years, the group defrauded the government of approximately $20 million. A 10th accused conspirator is scheduled to appear in court April 6.

The group collected identifying information from a variety of sources, including a military hospital. Defendant Tracy Mitchell of Phenix City, Ala., worked at a military hospital in Fort Benning, Ga., where she had access to service members’ identifying data, including information about soldiers deployed to Afghanistan, according to a news release about the case. Court documents cited in the release say Mitchell used the information she accessed at the hospital to file fraudulent tax returns.

Other defendants took data from the Alabama Department of Corrections, a call center in Georgia where two of the defendants worked and two unnamed Alabama state agencies. This went on between January 2011 and December 2013.

Identity thieves favor the tax-return tactic as a way to cash in on sensitive data, which they can get by breaking into databases containing the information (aka a data breach) or following people’s paper or electronic footprints.

The success of a tax-related identity theft scheme depends upon thieves filing fake tax returns early in the season before victims do. This leads to a delay in refunds for those who are entitled to them, not to mention the hassle of straightening out identity theft and dealing with the consequences of someone using your personal information. Losing control of your Social Security number may mean years of identity theft problems, which can take time to fix.

Additionally, identity theft can lead to damaging information on your credit report, potentially hurting your credit standing and everything it’s used for, like getting loans or applying for an apartment. To look for potential signs of fraud, you can get your free annual credit reports from AnnualCreditReport.com, and you can get a free credit report summary, updated monthly, on Credit.com.

Related Articles:

This article originally appeared on Credit.com.

This article by Christine DiGangi was distributed by the Personal Finance Syndication Network.

 

Share Button

Should you get help negotiating settlements?

Most of the debt negotiation help requests and questions I deal with come straight to me from the person who needs assistance and answers. But occasionally I receive phone calls from friends and relatives about a situation with someone they know. Here is a recent exchange about stalled out debt negotiations, why that can occur, and when it may be a good idea to seek out help from a debt negotiator.

Ron writes: I have 6 credit card debts I can not pay due to lack of work. I sold some stuff around the house and managed to settle 3 cards. Two of my cards have now charged off and went to law firms for collection. I tried to settle one of those and they will not budge on the amount. Any help or any chance you think they will budge later before I get sued.

Can I get help settling my remaining debts, or should I wait and see if I can get them to budge?

It is important to know when you hit a wall negotiating and settling your own debt, and whether you can clear the hurdle, or should get help.

6 reasons your debt negotiations may stall out, and when to seek help.

1. Your creditor is not known for offering reduce lump sum payoffs.

There are some smaller local banks that will just not negotiate a bill or settle for less. Some types of creditors, like a furniture store, or a medical service provider, are just not going to discount the balance owed. It can help a great deal to know in advance who will settle, and what the typical amounts may be.

2. Your creditor has a policy of not reducing the balance you owe if your account fits certain criteria.

Your balance could be too low, the account you opened too new, or the amount owed today was mainly from purchases you made just before you stopped paying your bill. Some banks refuse to settle when the bulk of the balance you owe is from balance transfers or cash advances. There are some helpful work around strategies in these situations that I cover elsewhere on the site, and can cover in more detail if you post what your concerns are in the comment section below.

3. Your prior success settling your other accounts is catching up to you.

Debt collectors are paying attention to your recent credit history. Some will use programs that are designed to show the collector how good a target you are for payment. The higher the score, the more likely they can collect. Some interpret what they see about your having settled other debts recently as a sign that they should hold out for full payment. You can avoid this by negotiating as many of your debts as you can in a short window of time, say 30, 60, or 90 days.

Navigating this reality as it may apply to you is often better handled by a professional.

4. You look like someone who can pay the full balance.

Similar to number 3 above, but not because you settled other accounts recently, you look highly collectable. If you have a mortgage, car loan, or other secured loan payments being kept current when your other bills are not getting paid, it can impact how you are viewed by a debt collector. It is not at all helpful if you have other credit cards you kept current with, while selectively choosing not to pay a larger balance, or higher interest credit card bill, you look even more like someone who will pay in full (also can be a good profile for a debt collector to sue in court).

5. You said something in your initial negotiation efforts that triggered the hard line stance.

Debt negotiation in general does not require a recipe or formula to follow. Think of it like making an omelet, or a soup. Just about anything can go in those and have it turn out right. But there are times where negotiating your bills for less will be more like baking. Unlike a casserole where anything goes, baking often means the end product is highly dependent on how you follow a recipe.

I have picked up many a file and found that my customer told the debt collector something that would prevent me from giving the a discount too. Here are some examples of things you could say that are not productive to negotiating a good pay off deal with collectors:

  • I fell behind because I lost my job, but have a better paying job now.
  • I chose not to pay this bill because they would not work with me to lower my payments.
  • I have enough money to settle my remaining debts.
  • I am trying to qualify for a home loan (or refinance), but cannot because of this collection account.

You get the gist. You want to stick to discussing only elements of your situation and finances that support the collector accepting the limited money you have, or can pull from other resources, like a family member. Avoid discussing anything with a debt collector that would help them view you as someone who can pay more than what you are offering.

6. Time.

Ron is right to think about how it just may not be the right time to get a deal negotiated. If your negotiating with a debt collector right when they get your account, they are more likely to start with a “we do not settle and will only accept the full balance” position. But a month or two later, they may have a softer stance.

Waiting out a debt collector is best when you know it is less likely you will be sued. Now that Ron’s account is with a collection law firm, the reality of being sued is likely much higher. The strategy from here may be to make certain you are not sued, or be okay with it if you are. Much of what you do from here can depend on the balances on the accounts you have left to negotiate, who you owe, who the collectors are, and some other factors. Talking over strategies for dealing with collections at the stage Ron is at with his last 3 accounts would be extremely helpful.

I support people everyday with their DIY debt negotiations. But I also know there are people and situations that could benefit from hiring someone to do part, or all of the debt negotiating. Ron may be in a situation that could benefit from getting help from a debt negotiator to help resolve the debts he has left. You may be reading this while looking for help and answers too.

You can call the debt help hotline you see on the screen, and choose the option for a debt negotiator, and receive a no cost consult to see what getting some help will look like for you.

Anyone with questions or concerns about dealing with a collector who will not budge on settling for less is welcome to post in the comments below for feedback.

 

Share Button