Student Loan Debt & Bankruptcy Loophole

Prior to 1976, you could include student loan debt were dischargeable in bankruptcy. This is how it should be. After 1976, the lobbyists fought hard to change the law so that the only way you can discharge your student loan debt was to die! Yes, in a nutshell, that is the only way. The entire premise for bankruptcy is to give consumers a clean slate on outstanding debts and that should certainly include student loan debt.

What is and has always been included in bankruptcy is credit card debt. While I am not condoning this option, I am merely pointing out a potential loophole to a law this is clearly questionable. If you opened up enough credit card and had enough available credit, you could theoretically pay off your entire student loan debt with your credit cards. On the surface that may not be a smart idea, but it is possible? One could even make the argument that the interest on some credit cards is lower that the rate of some student loans. In addition, if you already consolidated student loans at a higher interest rate, you can’t refinance your student loan to take advantage of the very low rates right now.

So you have essentially transferred your student loans to credit cards and at some point down the road your unable to continue making your credit card payments, you could have all of your credit card debt excused in bankruptcy. I don’t want to argue if this is right or if it’s even legal, but I am pointing out that this may be your only loophole to get out from under the stress of a lifetime of student loan payments.

Student Loan Interest Tax Deduction Misleading

If you file an itemized tax return, you can deduct up to $2,500 of student loan interest. I do itemize my taxes each year so this deduction is very helpful. However, both my wife and I both pay student loan interest per year to the tune of about $6000. While doing my taxes last year with one of the popular tax software tools, I soon realized that we could only deduct $2,500 of student loan taxes per return.

I initially thought the tax software program I was using had a bug or a glitch in it. After doing some digging, the tax software was right. Maybe it’s just me, but I think the gov has it wrong. I feel you should be able to deduct up to $2,500 of student loan interest per individual each year. For my wife and I to be able to deduct our student loan interest, we would have to file separately, which would give us less deductions. Seems to be a catch 22.

I recommend that the nerds writing the tax laws make it so that student loan payers can deduct up to $2,500 per individual, regardless of their filing status. Better yet, I wouldn’t mind if they increased the student loan interest tax deduction to $3,000 per individual.

Right now, 10% of my take home pay is going toward my student loan payment. Ten percent may not sound like a lot, but it certainly is to me. Like the millions of other Americans struggling with student loan payments, I could certainly use any extra text breaks congress wants to send my way.

Is Sallie Mae Completely Clueless?

If your student loan is with Sallie Mae, you will completely understand what I am talking about.

My wife has both private and federal student loans with Sallie Mae. When she calls to talk about her loans, it literally takes 20 minutes just to get to the right person. She calls the main number to talk about her private student loan and always gets passed around on the phone until someone can finally speak to her about the private loan.

Here is the best part. When she is talking to a customer service rep about her private loan and asks about her federal loan, they have no clue. They usually respond with, “well that is a different area and I can’t see your federal loans. Huh? Are you kidding? How on earth can a company be so clueless? It begs the question, are Sallie Mae customer service people complete morons or is Sallie Mae setup in such a way that one hand has no idea what the other hand is doing? I suspect that maybe it’s a little of both.

Here is yet another example. My wife sent in a forbearance form for her federal student loan. About two weeks later, we received a letter in the mail from Sallie Mae. The letter stated that your request for forbearance on your private student loan was denied. What? Again, is Sallie Mae as incompetent as they seem to be? The forbearance request was for her federal loans not her private loan. Good grief!

And one more complaint before I hop off my soapbox. Sallie Mae is the slowest to respond to changes to your student loan account. My wife pays her private student loan on the 25th of the month. Starting on the 28th is when the automated phone calls start. Even though the account is current, we must receive 3 automated calls every single day from Sallie Mae. This crap goes on for a week until finally their robo caller gets updated. It only took 10 days for them to know the account is current, but hey it’s Sallie Mae. We all know they are clueless morons!

Remove Student Loan Late Marks From Credit Reports

Just like any other loan you take out, your student loan or loans are reported to the three major credit reporting agencies either every month or every 90 days. If you make a payment past the grace period, your student loan provider will notify Equifax, Trans Union, and Experian that you made a payment late for a given month. Once this happens, you now have a negative late mark on all three credit reporting agencies for your student loan account. Each late mark will stay on your credit reports for seven years!

If you have ever looked at your credit reports, and I hope you do, you would then see either a 30, 60, 90, 120, or 180 day late mark identified for a given month. Any of these derogatory marks will hurt your FICO score, but the higher the number of days late the lower your FICO score will drop. If you continually make your student loan payments late each month, your FICO score will drop accordingly.

Before you get even more stressed out about late marks on your credit report, there is some hope for you to repair these and get your FICO score climbing towards that coveted 850 score. I am going to be honest and say that removing late marks for student loan accounts are the most difficult credit reporting repair items. Since most student loans are federally backed, the student loan providers have tighter restrictions on changing previously reported late marks.

You have two options available to repair your student loan credit reporting items: dispute the late marks with the credit reporting agencies or send a goodwill letter to the student loan provider.

Let’s explore the first option. Under the FCRA (Fair Credit Reporting Act), you have the right to dispute any negative items on your credit report that you feel is inaccurate. Equifax, Trans Union, and Experian all have options to dispute by phone, by email, or my letter. I highly recommend you initiate a dispute by letter and be sure to send it certified mail with a return receipt. This method of dispute is the best because it leaves a paper trail. In order to dispute a late mark, you will first need to order your credit report from Equifax, Trans Union, and Experian. You can get one report free per year through annualcreditreport.com.

Once you have a current credit report from Equifax, Trans Union, and Experian, you can start the process of disputing any late mark you have on your credit reports for your student loan account(s). Here are the links to start the dipute process for the big three credit reporting agencies:

Equifax Dispute Options

Trans Union Dispute Options

Experian Dispute Options

Your second option in case the dispute fails to remove the late marks is to send a goodwill letter to the student loan provider. Your goodwill letter should be clear and concise. The letter should ask if they would be willing to remove one or more late marks they are reporting to the three reporting agencies as an act of goodwill on their part. Keep in mind that they are under no obligation to change anything they are currently reporting so don’t be offensive. Keep it simple and keep it respectful. Once you have your letter complete, send it the the correspondence address for your student loan provider.

Don’t Give Up! If your unsuccessful at disputing off your late marks, try the goodwill letter. If both of these methods do not work, then keep trying. You can dispute the late marks on your credit reports every 2 -3 months. On the other hand, you can send a goodwill letter to your student loan provider as many times as you want. Just keep trying and stay positive!

Student Loans: The Death of the American Dream

Sure we have been going through a tough economy since 2008. No one can deny that. The shrinking of 401K retirement accounts, the bursting of the housing bubble, millions of job loses, and foreclosure notices getting printed like toilet paper have all been devastating in the U.S. If you combine all of these individually bad circumstances together, you will come up with a massive financial disaster that we haven’t see in my lifetime. You see I wasn’t around during the Great Depression.

Even identifying all of those financial issues, I believe that the student loan industry will be the leading cause to the death of the American dream in the United States. Let’s first define what the American dream is, at least through my eyes. You start off by going to college so you can get a good paying job. After college you fall in love and get married. As soon as your married, the newlyweds buy their first home together. Soon after moving into that home with the white picket fence, you have 2.5 kids. You watch your kids grow up following the same American dream.

NOT! The American dream is dead. Who killed the American dream is the obvious question to ask. Let me start by answering when. Now bare with me. Go back in your head to the point where your sitting in the admissions office of the college you attended years ago. Right after orientation, you talk to a counselor to pick the classes you will take for the first semester at college. Here it comes. The counselor says something along the lines of, “you should apply for student loans to pay for the classes and books you will need”. And there it is. Those few words spoken by a counselor to a young and naive college student is when the American dream started it’s long agonizing death.

It’s no coincidence that student loans are pushed hard by colleges to naive women and men. It’s the same reason credit card companies are hanging around colleges giving out free t-shirts to student who sign up for a brand new shiny credit card. At that age, students have no idea how to manage and handle debt. And let me tell you, student loan debt can accumulate faster than you can call for help with tuition costs, living costs, and college books. Unlike credit card debt that can be included in bankruptcy, student loan debt is with you forever. It will never go away unless you leave this planet.

That 17 or 18 year old who just started college has no clue that he or she will be in bondage to a student loan provider for the rest of their lives. The cost of higher education has consistently gone up every year and no surprise so has the amount of student loan debt a student accumulates upon finishing college. Don’t kid yourself, this is big business. Don’t believe me? Google the profits for the two biggest student loan providers, Sallie Mae and Nelnet. It’s a great business model for them, but a nightmare for you. The federal student loans are backed by the federal government. You can’t just not pay. You have to pay and pay interest and fees through your nose until it hurts. If you don’t pay, Sallie Mae or Nelnet just asks Uncle Sam to sue you, garnish your wages, ruin your credit, take your tax refund, or even your social security payments.

Another scam the student loan holders have in their back pocket is hardship deferment. If you fall on tough times, like lose your job, companies like Sallie Mae and Nelnet give the impression of compassion by offering you a hardship deferment. During the deferment, you don’t have to make payments. Wow, to a laid off student loan holder that sounds great. Wait, they are really just screwing you even more. You make no payments for 6 or 12 months, but the interest juice keeps flowing daily. After the deferment, you owe a few thousand more than before the deferment.

Let’s get back to the death of the American dream. The amount of student loan debt for new college graduates is staggering and the worst part about is that they have no idea the hell that is about to start. The monthly student loan payment required by new college grads is huge. Many college grads are having a hard time finding any job, let alone a job that they went to college for and spent tens of thousands of dollars on. Sallie Mae and Nelnet are happy to help you out with a deferment so they can keep your balance growing and growing. That’s their intent.

Having student loans is a burden that will last for years. How long do college grads pay on their student loans? It’s not 5 years, it’s not 10 years, think more along the lines of 25 years. It’s more than one fourth of your lifetime. Think about that for a moment. You spend 4 years in college and then have to take 25 years to pay off those 4 years. It’s insane. I liken my student loan payment to a brand new Porsche that I have to pay on every month for the next 25 years. Here is the kicker, I have to pay for that shiny red Porsche every month, but I never get to see it, let alone ever drive it.

So the American dream. It’s GONE. Why? I can’t find a good job so I am stuck with a lousy job so 30% to 40% of my take home pay is for my student loan payment. I can’t qualify for a mortgage because my debt to income is too high because of my ever growing student loan payment. I am so depressed and stressed out about my student loan payments for the next 25 years, I can’t meet anyone that I want to marry. So no wife, no kids, no house, and no light at the end of the tunnel for my student loan payments.

There it is. The American dream just took it’s last breath while getting stepped on by Sallie Mae, Nelnet, and all of the other blood sucking student loan providers. Having you in bondage to your student loan debt is the main focus of these blood sucking companies. There is not a day that goes by where I am not depressed at my student loan debt. I will be paying on it until I am 65 years old. It makes me want to cry.

Defaulting on Your Student Loan

DON’T DO IT

I can completely understand the temptation of stop paying on your student loans. Many student loan borrowers find themselves overwhelmed with their student loan payments. I do understand. I have been there myself. However, I strongly urge you to do what it takes to make sure you do not put your student loans into a default status. That would be very bad for you. Let’s talk about student loan defaulting and what it could me to you:

Getting hounded by a collection agency
Having your federal tax refund intercepted by uncle sam
Having your paycheck garnished by at least 15%
If receiving social security, those payments can be taken by government
You will eventually get sued and have to show up in court
Your FICO credit score will drop like a lead balloon

There is nothing good that will come from defaulting on a student loan. Luckily a student loan does not go into default status until about 9 months of not receiving a payment. Even if you can’t make a full payment, you can make a partial payment to keep from defaulting. That’s a better part of a year so you do have some time to get your student loan back on track before it goes into default. Not in any particular order, I would suggest trying all of these strategies with your lender to get current on your student loans:

Request a hardship deferment.
Request a forbearance.
Call your lender and tell them your financial situation.
If you can’t make a full payment, make a partial payment.
Financially focus on getting your student loan current again.
Consolidate! If you haven’t consolidated your loans already, now would be a good time.

If you have already consolidated your student loan with your current lender and have exhausted all of your deferment and forbearance requests, look into consolidation your loan to Direct Loan. Direct Loan is a government student loan holder. I was on the verge of defaulting on my student loan with Nelnet and was able to consolidate that one single loan to Direct Loan at a lower interest rate.

While defaulting on your student loan may seem like a solution at this moment in time, believe me it is not. You will be better off taking care of it now rather than dealing with all of the negative consequences down the road. The grass is not greener on the other side. Take care of your student loan troubles now and you will be much less stressed out later in life.

Nelnet Ruined My Credit Report

As I have stated before, I had applied for a hardship deferment last year when my wife was diagnosed with cancer. At that time, we had big medical bills hanging over our shoulders. I intended to get a 6 month deferment so I could take care of the medical bills. Nelnet at first granted my request, but later I found out that the original request was unapproved without my knowledge.

So 3 months into my deferment, I actually had no deferment and the past due balance and late fees were growing like crazy. And once you are behind on big monthly student loan payments, it’s really hard to get caught back up. I called Nelnet and explained what had happened and if there was anything I could do to get current again. No surprise, the only compassion I got from Nelnet was “pad the full amount due”. That’s it. That is the extent of Nelnet’s ability to work with its customers.

Before I was able to get my student loan with Nelnet transferred to Direct Loan, Nelnet has ruined my credit report with a dozen late marks on my credit report. Even though I was making monthly payments for the past 6 months, Nelnet still continued to report my 120+ days late to the credit reporting bureaus. Those 120+ day late marks on my credit reports is killing my FICO score.

I have called Nelnet several times and asked them to remove the late marks or change them to 30 day late marks and they will not. Nelnet has no compassion for any student loan holder. If you have a student loan with Nelnet, I recommend you drop them like a bad habit and get your loan consolidated elsewhere. Nelnet is the WORST company on Earth to deal with.

Finally Kicked Nelnet to the Curb

After months of unsuccessfully dealing with Nelnet, I finally kicked their sorry butts to the curb. I would rather have kicked them somewhere else if you get my drift. Good riddance. Nelnet has tarnished my credit something bad by reporting past due amount each of the last 6 months even though I have been making my regular payment. Not only that, my principle balance has not gone down in 6 months. Nelnet is a bunch of incompetent thieves.

I applied for a consolidation loan with Direct Loan. It took Nelnet 3 months to send a payoff amount to Direct Loans. I knew they were useless morons before that, but that was the last nail in the coffin. Now that my student loan is with Direct Loan, I can see my principle balance going down with each monthly payment. On top of that, my interest rate was reduced by 1 percentage point.

I am currently fighting back and forth with Nelnet to try and get all of these late marks on my credit report removed. It’s an uphill battle with them, but I am not willing to give up to them.

When You Can’t Afford Student Loan Payment

Have you ever worried about not being able to make your monthly student loan payment? I wonder this each month for my wife. She currently has a private student loan as well as a federal student loan. The private loan is $210 per month which we have been paying on for a while now. The federal student loan is $110,000 and requires an $800 monthly payment. We have not paid the federal loan.

She keeps requesting a forbearance and/or deferment because there is no way we can afford to pay that loan. As a private school teacher, her take home pay is just $1000 per month. Paying a $800 monthly bill with a $1000 take home check just doesn’t work any way you look at it. The forbearance and deferments will eventually run out.

You probably wonder how a school teacher racked up over $100K in student loan debt. I often ask myself the same way. She went through three years towards getting an engineering degree, but then realized it was not something she wanted to do.

After leaving the college of engineering, she did a couple of years getting a business degree, but she felt that was leading her somewhere else. She then started in the college of education and finally felt like she as in the right place. Eventually she received a bachelors and masters from the college of education.

All the while, she was accumulating this huge student loan debt. After working in the public school sector for a year, she hated it with a passion. She eventually led to teach at a private christian school where she loves to talk about God and teach the little children at the same time.

Life is good at this point, except that the student loan continues to grow while her salary continues to stay very low. Public school teachers are not paid very well, but private school teachers get paid about half of that. It’s quite a dilemma.

So what do you do when you can’t pay your monthly student loan bill and don’t anticipate ever being able to afford paying it? We struggle with that question each month and really have no answer to it. Will she be forced to switch jobs to one that pays more? Will we be forced to sell our home and rent in order to pay for this loan? I just don’t know what the future holds for us.

Early Student Loan Payoff Strategies

Because I have such a huge student loan burden, I often think of ways to generate extra income in order to pay off my college student loan earlier than anticipated. The thought of paying off my student loans gets me excited. The idea of paying my student loans off early get me down right giddy with excitement not too mention the relief of stress.

From time to time, I write down ideas that I have that could potentially generate income above and beyond my regular job. Any extra income I can get my hands on would get thrown at my student loan balance. If I make just one extra payment per year, I should be able to reduce the number of years at least 5 and maybe more.

That sounds fantastic now I need extra income. I don’t think my boss will listen to my request for a raise so I can pay off my student loans early so I will have to be creative about earning extra cash somewhere else.

I recently saw a news report that explained how a teenager bought a cellphone on Craigslist and through 14 trades, traded that cellphone up to a Porsche. I am not kidding. If you saw that news story, you know what I am talking about.

Here are a few of my own personal ideas on how to generate extra income:

Start a website and place Google Adsense ads on it that earn revenue on clicks

Sell extra items around the house Craigslist

Sell your prized collection of XXXXXX (fill in with XXXXX) on Ebay

Have a garage sale with stuff you don’t use or clothes you don’t wear

Take a small part time job (although this sounds painful to me)

Ask a wealthy family member for an early inheritance

Write a book on a subject your passionate about and get it published

Rent out an extra bedroom of your home to a college student

Those are just a few of my ideas. If you have some different ideas to raise extra cash, I would love to hear about them. Remember that whatever extra money you generate, you have to apply it to your student loan debt. The day I payoff my student loan there will be a great party going on.

Student Loan Stress

Discussion the Stress of Paying Back Student Loans!