Americans owe more on student loans than on their credit cards

A statistic that’s hard to believe.  Let’s think about it – more Americans own credit cards than have student loans.  But thinking about the state of the economy, how hard it is to find a decent job with benefits (especially if you are a recent college graduate), it makes sense that the collective balances on student loans is much higher than the collective balance on credit cards (plus Americans got hampered earlier during the Great Recession by credit card companies with increased interest rates or reduction in the maximum line of credit or both).

Did you realize that, in the vast majority of instances, student loan debt is not dischargeable in bankruptcy?  In other words, if you take out a significant amount of student loans during college, and have difficulty making those monthly payments, those student loans become a noose around your neck.

And you think the collection agencies for credit card companies are bad?  I’ve heard horror stories about efforts to collect on student loan debt.  Yikes.

Americans, individually and collectively, have borrowed so much, we are overwhelmed by our debt.

To get a better perspective on the issue of student loan debt, I’ve attached a link to On Point with Tom Ashbrook.  A recent show – Paying Student Loans – aired on April 23, 2012.

http://onpoint.wbur.org/2012/04/23/paying-student-loans

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A bankruptcy judge files for bankruptcy protection

Shocking indeed.  I first found a reference to this story in the April 24, 2012 edition of The Daily Journal (California).   The first nine paragraphs are quoted below.

A federal judge has filed for bankruptcy protection in his own district creating the unusual situation in which a colleague on the bench will preside over his financial matters.

U.S. District Judge Otis D. Wright II filed for Chapter 7 bankruptcy under mounting credit card debt and a steep mortgage late last year, according to court documents.

Wright and his wife, Evelyn, listed approximately $90,000 in debt mostly on credit cards, plus an $800,000 mortgage on their Rancho Palos Verde home in a bankruptcy petition filed in December 2011.

The petition, filed before U.S. Bankruptcy Judge Ernest Robles in Los Angeles, shows how even individuals with income above the median household income in California can land in choppy financial waters.  The Wrights combined income dropped from $271,000 in 2009 to $171,000 in 2011 – apparently related to troubles his wife encountered in her business as a clinical social worker in Rolling Hills Estates, which left them unable to pay bills and targeted in at least two collection lawsuits.

Legal experts said it is rare for a judge to file for bankruptcy and could raise concerns for litigants about Wright’s ability or temperament to decide financial cases, such as breach of fiduciary duty claims.

“This just looks really bad,” said Gregory L. Ogden, a professor at Pepperdine University School of Law with expertise in judicial ethics.  “Judges are supposed to have a degree of financial probity, and financial stability tends to promote that.”

According to the bankruptcy petition, the Wrights owe $18,000 in student loans but accumulated most of the debt between 2009 and August 2010, including $56,000 on two credit cards, plus $12,700 at Nordstrom, Inc. and $4,500 at Macy’s Inc.

A lawsuit by American Express seeking an undisclosed sum was dismissed from Los Angeles County Superior Court, while a suit by Nordstrom remains pending suit, the couple reported in their bankruptcy petition.

The real estate bubble appears to have added to the couple’s problems:  They either purchased or refinanced their home in August 2006, according to court documents, listing its value as $800,000 with a reported a monthly mortgage of $5,335 before taxes, insurance and other expenses.

Having to file for bankruptcy protection is embarrassing and humiliating for anyone.  It must be even more so for a bankruptcy judge, who having spent time presiding over other cases, must now face the mirror as a debtor.

Another proposal to “misappropriate” our social security (retirement) dollars

You are likely not surprised that there’s another proposal to “raid” the Social Security pot.  But you may be surprised to learn about the latest proposal.

First, some background information.  When the typical American hears the phrase “Social Security,” he/she thinks about retirement.  But there is another component of the Social Security program:  disability.

As reported in today’s Wall Street Journal (an article entitled “Stress Rises on Social Security: Report Says Program Will Exhaust Reserves Three Years Earlier Than Expected” by Damian Paletta), the disability trust fund, originally projected  to be exhausted of funds by 2018, is now projected to be exhausted of funds by 2016.  Once those funds are exhausted, benefits would be cut by 25% [that doesn’t make sense to me if the funds are exhausted].

Below are quotes from the article.

Treasury Secretary Timothy Geithner said the Obama administration would seek to work with Congress to come up with a long-term solution to repair the solvency of the disability trust fund but didn’t offer specifics.

. . .

The Social Security disability program and the Medicare program that covers hospital care are already paying more in benefits than they collect through tax revenue.

They make up the difference by drawing down trust funds built over many years when they collected more than they spent.  The Social Security retirement system still collects more than it spends.

. . .

In recent years, the Social Security disability rolls have soared, as many Americans with mental and physical health problems sought to enter the program and others with less severe issues applied because of a scarcity of work.

. . .

Mr. Astrue, [the Social Security Administration Commissioner and] a Republican, urged Congress to address the funding shortfalls but said in the interim lawmakers could consider redirecting some of the money meant for the retiree program to the disability fund.

What?!!!  I don’t think so.

The “fix” for the Social Security Disability Trust Fund is not to raid the Social Security Retirement Trust Fund.

The WSJ had a series of articles last year about the Social Security Disability program.  There are problems on many fronts.  One huge problem is the disability fund is now considered by too many as unemployment compensation.

Do you recall former President George W. Bush advocating for allowing individuals to take at least a portion of the Social Security retirement tax dollars to invest themselves?  Many people were opposed to the idea including me.  Now, I’m reconsidering this proposal.

Give me my social security retirement tax dollars so I can invest myself.  I want my retirement dollars available for me when I retire (presuming I live long enough to reach that magical retirement age.  And if I don’t, then my heirs will inherit my retirement money).

America is facing a host of fiscal issues.  Redirecting retirement benefits to shore up the disability benefits is a recipe for disaster.  Fix the disability program.  Congress, keep your paws off our retirement benefits!!

Update: termination of Wall Street Journal subscription

On Monday March 26th I called the Wall Street Journal to cancel my subscription.  I was informed the subscription would cease effective Wednesday, March 28th and that the carrier would be notified.   To my surprise I received the paper on Wednesday, March 26th. I assumed with each successive day that I would not find the newspaper in my front yard.  But, I continued to receive the newspaper.

I planned to call last week but became preoccupied with matters at work.  Finally, I called this morning.  The sales representative was shocked to learn I was still receiving the paper.  She confirmed their records showed my subscription ended Wednesday, March 28th (though I’m still receiving e-mails daily).  She presumed the carrier is in such a “groove” with delivering the paper to various homes, that he overlooked the fact that I canceled my subscription.

I have no doubt the carrier has been notified to stop delivering the paper to my home.

And, yes, I’ve been too busy to read those “free” issues.

Truth-In-Lending Statement for Student Loans

Okay, it’s been some time since I’ve had student loans.  And I don’t recall if there was a Truth-in-Lending Statement when I made my loans (equivalent to the Truth-in-Lending Statement for purchasing a home).  If no such document exists, it should be mandated.

Today I read a story on NPR.org which had link to an article in the Atlantic.  That article entitled “The 1% of the Student Debt Crisis: Owing $150,000 in Loans” by Jordan Weissmann, begins:

Meet Kelli Space.  She went to Northeastern University to get a degree in sociology.  And she graduated in $200,000 of student loan debt.  In the economy’s newest trillion-dollar crisis, she is the 1 percent.

Kelli is not the face of America’s student debt problem. Among the 37 million people in this country with student loans to pay off, the median balance is $12,800.  A whole 72 percent of borrowers have less than $25,000 left in debt, according to data from the Federal Reserve Bank of New York.

No, students like Kelli are the rarities, the white rhinos.  Only about 5 percent of borrowers owe more than $75,000.  The question is: How do they get there?

You can read the remainder of the article by clicking on the link below.

http://www.theatlantic.com/business/archive/2012/03/the-1-of-the-student-debt-crisis-owing-150-000-in-loans/254973/

Kelli is not a doctor or a lawyer. One can expect students in those professions to amass such a heavy debt load.  But for a sociology degree?

Kelli surely would have benefited from a Truth-in-Lending Statement each semester or year that she took out a loan for her college education.  I envision such a statement informing the student of the interest rate (fixed or variable) and the monthly payment based on the amount borrowed.  Each semester or year the student borrows money for his/her education, the lender (whether through the federal government program or a private bank) will provide the student an updated Truth-in-Lending Statement.  Thus, after the 1st two years, if the student has accumulated a signficant amount of student loans and his/her monthly payment will be $500 (and that’s $500 before food, transportation and rent), the student should have a wake-up call and reassess his/her educational path [ideally, the student should understand the consequences of sizeable student loans before embarking on his/her educational track].

Students graduating from college in today’s economy either cannot find a job or are underemployed.  How can they begin to live their lives burdened with sizeable student loan debt?  A lot of these students are back home with mom and dad.  Parents, guidance counselors, teachers, etc. need to ensure students understand the consequences of taking out student loans, how they can no longer assume there will be a job with benefits and at a certain high paying salary upon graduation to cover the monthly student loan payments + food + transportation + housing + “eating out” + movies + iPhone  + iPad + vacation + cable + wedding & honeymoon + kids, etc.

$1500 SAVINGS GUARANTEE

A guarantee from Money magazine.  The guarantee further states,

We guarantee that our money-saving advice will save you an EXTRA $1500 annually – or we’ll refund the cost of your subscription in full.

The cost of the subscription?  $10.  Well, Money magazine is not going out on a limb.

Today I received in the mail from Money Professional Services Division an offer of a 12 month subscription for $10.  The Cover Price is $54.89.  But this offer includes other perks for $10:  (a) MONEY Tablet Edition, (b) Annual Forecast Issue – Best Investments, (c) The MONEY 100 – Best Mutual Funds, (d) Annual Retirement Guide, (e) Best Places to Live – Vacation – Retire, (f) Investing for College, (g) Annual Real Estate and Home Improvement Guide and (h) 401(k) and IRA Check-up.

Even if I don’t save $1500, can’t beat the price for a year subscription.  Will mail payment tomorrow.

The slide continues

Just drove past gas station near my job. Regular gasoline is now $3.81/gallon.

A good sign. But the drop must continue.

Small decline in the price of gasoline

Have you noticed? The gas station that I patronize near my job never reached $4.00/gallon for regular gasoline but came close at $3.93/gallon.

Within the past several days the price began to drop. First, it was $3.91/gallon. Then it was $3.89/gallon. This morning – $3.85/gallon.I was so giddy as I filled my tank.

Let’s hope the slide in gasoline prices continues.

Gauging the health of the American economy, Pt. II

As I mentioned in yesterday’s post, I got a “bird’s-eye” view about the real economy from an employee of a bankruptcy court.  Today I spoke with another individual who has her pulse on the real economy – a staff member in a U.S. Congressman’s constituent’s office.

In speaking to this staff member, I have learned, to my surprise, that many citizens turn to their Congressman or Senator for help with a variety of issues.  This staff member has been inundated with calls and emails from constituents facing foreclosures.  This staff member told me the volume of calls and e-mails is not as high as during the height of the financial crisis, but she noticed the pace has picked up recently. The calls and e-mails are a daily occurrence.  This staff member’s opinion – the economy is not getting better.  She believes things will continue to be bad for some time before there is an improvement.

An employee at the bankruptcy court and a staff member for a U.S. Congressman – both have a pulse on the real economy.

The American economy is still in needed of medical attention.

Gauging the health of the American economy

You may rely on media reports. Or you may rely on what you see around you or what you are told by friends, family & associates. For me I turn to a colleague who works at a bankruptcy court in Maryland.

And her report was not reassuring.

Chapter 13 filings have increased (individuals seeking to keep their homes; avoid foreclosures). And on the business side, things are just as bad. At first there was a wave of businesses filing for bankruptcy protection. Think about all the shops at a mall. Overtime, as the businesses lost customers (who were laid off), the businesses had difficulty making payroll and paying expenses such as rent. Now, according to my friend, there’s another wave of bankruptcy filings: the property owners of those office complexes & shopping malls.

This is crude but think about what happened to the nation of Japan in March of 2011: first the earthquake, then the massive tsunami, then the problems with the nuclear reactors – this third occurrence is still ongoing.

There are still ongoing issues with the American economy. Regardless of who is in the White House as of January 20, 2013, the fundamental economic issues shall remain. The next wave: the federal government. Because of our broken two party system – where the extremes reign, moderates have evaporated and compromise is an alien concept, there shall be layoffs of federal workers, reduction in government services and reduction in government benefits. Things will be worst before there is an glimmer of a true recovery.

Don’t be fooled! Continue to save and live below your means.

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