Disturbingly, however, in 2012, for the first time, the majority of people who were unemployed were also college educated. The U.S. Congress reached an agreement to continue federal subsidies for these loans at 3.4 percent on June 26, 2012, preventing an interest hike to 6.8 percent. The majority of students who responded to a Yahoo News call for commentary, however, described their education as a burden and saw few avenues to resolve its effect on their lives.

Indebted Graduates Tell Loan Horror Stories

Tanya Carter, a 2008 graduate of the University of Toledo, drew on all the federal loans she could access and used private loan funding to finish her degree. She now says the decision ruined her life. She does not believe she will ever have the financial stability to marry and have a family, much less buy a home or even a car.

Fordham University graduate Lauren Dollard was more frank in her description of deferred life plans due to a $157,000 student loan debt. “My boyfriend won’t marry me because of my debt,” she told Yahoo. “He doesn’t want it attached to his name.” While Dollard added that his reasoning “could also be an excuse,” she said she’d trade her education “in a heartbeat” to live “as an independent adult.”

Private Loans Complicate Educational Debt Pain

Sentiments like these are common among hard-pressed graduates, especially those who have a mix of both federal and private loans. While federal loans have mechanisms to tie payment levels to existing income, and some venues for loan consolidation and forgiveness, there are almost no “outs” with private loans, and educational debt cannot be erased by bankruptcy.

A recent report by the Consumer Financial Protection Bureau cited borrower ignorance as a contributing factor to what many analysts call the impending student loan “bubble.” Salvatore Aiello, a 2009 University of South Carolina graduate told Yahoo that he does blame his own ignorance for his $68,000 debt.

“My high school did a terrible job explaining our options when it came to financial aid,” he said. “They made it seem that if I wasn’t rich or beyond poverty I would not be able to go to college.” Others, like Logan Canale, a 2009 graduate of Queens University in Charlotte, N.C. see no value in their education.

“My private college was way too expensive for what it was worth,” wrote Canale. “I just feel like I have been beaten by the system and taken advantage of. Who is making money off my education? Because it’s not me.”

Educational Debt Effects Parents’ Retirement

As an added complication to the educational debt crisis, many parents have felt compelled to cosign private loans for their children. In the recession, many of these same people saw their 401k and other retirement savings wiped out. They, too, are now increasingly enslaved to a burden of educational debt that will imperil the safety of their retirement.

Given the sluggish nature of the American economic recovering, the ongoing and contentious debate in the nation about escalating healthcare costs, and continued high unemployment, many young people are making the decision to skip college altogether. What this portends for the future talent and potential of the American workforce is frightening, but the truth is painfully clear. As it stands today, a college education in the U.S. is far more akin to a nightmare than the dream of a lifetime.

1. Student Identity Theft Scam

The most common type of scam is the student identity theft, where scammers try to pass of as legitimate colleges and hack your IDs and social security numbers which might be used by others to get a loan in your name. Another common type of scam is the phony scholarship scam in which companies try to lure you by offering scholarships that don’t exist. Just like there are diploma mills who try to pass of as accredited online universities by using similar logos, similarly there are some phony websites that present themselves as government agencies.
How to protect yourself: Don’t be fooled by them and don’t give out personal info unless you are very sure about them. In fact, it’s best if you check out their reputation through your local consumer protection agency.

2. Too Good to be True Offers

Most financial, loan providing institutions advertise themselves to reach their customers, through advertisements, tele marketing and increasingly through the internet. If you receive tele marketing calls that sound too good to be true, they probably are. Any ad or mail that promises really low interest rates or pressurizes you through claiming one time offers should also be looked at with skepticism.

How to protect yourself: Just remember:

• FAFSA is free and always will be.
• The Education Department does not send any kind of ads or mails to get people to borrow money.
• Legitimate student loans do not charge upfront fees.

3. Loan Consolidation Scam

Another area that provides great room for student loan scams is debt consolidation. Students take out separate loans on books, tuition and other stuff and all this adds up quickly and becomes quite complicated when you need to pay back these loans, hence debt consolidation. However there are fixed and variable rates involved which may sound complex and complicated. Lenders jump on this lack of knowledge and force students to go for debt consolidation before interest rates go up which might be completely nonsensical.
How to protect yourself: Don’t rush into it. If you do decide to go for consolidation make sure you read the fine print, look at impositions and restrictions and conditional lowering of interest rates. Your consolidation might also be sold to other companies by your lender which might make you lose on the benefits. Ask the lender beforehand about this.
Don’t let a lack of knowledge be a reason for getting scammed into a loan nightmare. Measure all your options carefully and search your options at reputable banks and credit unions, you are sure to find one loan or the other that meets your needs and is legitimate.
This guest post has been written by Sally Croft who is a regular contributor to www.onlinedegreetalk.org where she advices students about affordable online degrees & distance learning education across US.

Student Loan Debt Tops Credit Card Levels

In 2011, American students borrowed in excess of $117 billion, with the Consumer Financial Protection Bureau tracking the total unpaid student debt in the U.S. at more than $1 trillion earlier this year. That is the first time that student loan obligations have exceeded the level of credit card debt in this country.

Increasingly, the question is being asked, however, if a four-year college education is a good “buy.” Reich, now a public policy professor at the University of California at Berkeley said that until three years ago it was “absolutely the case” that a college graduate earned 70-100 percent more that a person with a high school diploma only.

Recession Complicates Work Picture for New Graduates

Now, however, recent college graduates face high unemployment and entry-level positions with significantly lower pay. The news has been filled with stories of Harvard graduates working at Starbucks or taking jobs in retail sales because they could find no other work. In most instances, these jobs offer few if any benefits like health insurance or 401k plan options.

This situation was complicated by the recession that started sometime in 2008, and whose effects continue to linger. Young Americans are entering their working lives with a crushing burden of pre-existing debt that averages $45,000 per student. Since their families’ investments were likely wiped out in the recession, these new graduates also have less of a “fall back” position than previous generations.

Tuition Costs Have Exceeded the Rate of Inflation

College tuition costs continue to rise, to the point that the price of education has climbed faster than the rate of inflation for three decades. A combination of state and federal aid has been the staple to subsidize these degrees, but struggling state governments have cut aid programs in an effort to control costs.

Currently 70 percent of students go to state financed schools, but their families are having to bear more and more of the tuition burden, with rates going up 8.3 percent from 2009 to 2010. Reich said he does not foresee the economy turning around soon. Educational pundits agree that this combination of factors will likely make a four-year education unsupportable for many.

Unlike countries like Germany, Reich said, the U.S. lacks a sophisticated technical training program. Moving ahead, more schools will place a greater emphasis on online learning to control costs since the infrastructure is less expensive to maintain than the “bricks and mortar” model.

In an election year filled with rhetoric about trimming federal expenses, Republicans and other conservatives continue to target federal education assistance. Neither Pell Grants nor Stafford loans have kept pace with rising tuition costs anyway, and although the Obama administration has proposed major changes to link loan payments to income levels, the potential for a student loan bubble “bursting” is strong.

The truth is that other attempts at debt resolution, like loan consolidation with financial counseling should be tried first, because a bankruptcy proceeding is the last resort. The action will destroy the individual’s credit and most often results in a business closing down completely.

Bankruptcy Types Divided into “Chapters”

The types of bankruptcy actions available in the United States are described as “chapters,” with each taking a different approach and being available to different types of debtors. The most common chapters are:

- Chapter 7 has been designed to completely discharge all debts via liquidation of assets and is open to both individuals and businesses.

- Chapter 11, on the other hand, is a reorganization or rehabilitation of a business. Under some circumstances, individuals may file for Chapter 11 if their debts are substantial and their assets considerable.

- Chapter 12 bankruptcy is specific to fishermen and family farmers, and offers a mechanism for rehabilitation.

- Chapter 13 offers individual debt rehabilitation or reorganization. It does not completely discharge the existing debts, but rather restructures them to allow for a program of repayment. This option was designed for people who have a regular income.

Of these chapters, the most common is Chapter 7. All assets are surrendered and liquidated, with the proceeds distributed to the creditors.

Some Property is Exempt from Bankruptcy Liquidation

Federal law, and the law is most states provides an exemption for specific types of property, for instance the debtor’s primary residence. Exemption laws do vary widely from state to state, however.

In the majority of cases, personal effects, household goods, and clothing are protected, as are the person’s home and automobile if the payments are current. In some states, the person filing for the bankruptcy can choose which exemptions will apply, state or federal.

States that allow for the use of federal bankruptcy law include: Arkansas, Connecticut, Washington, D.C., Hawaii, Massachusetts, Michigan, Minnesota, New Jersey, New Mexico, Pennsylvania, Rhode Island, South Carolina, Texas, Vermont, Washington, and Wisconsin.
States that do not allow for the use of federal exemptions in bankruptcy cases are: Alaska, Arizona, California, Colorado, Delaware, Florida, Georgia, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, New York, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, South Dakota, Tennessee, Utah, Virginia, West Virginia, and Wyoming.

Why Would A Person Opt for Chapter 7 Bankruptcy?

Although there are serious consequences in filing a Chapter 7 bankruptcy proceeding, it does offer immediate relief and will eliminate large, unsecured debts immediately. Creditors can no longer engage in collection actions once the bankruptcy has been filed unless they have specific court permission to do so. The most common reasons cited for going forward with a Chapter 7 bankruptcy include:

- Financial suffering due to garnishment of wages.
- A large burden of unsecured debt.
- Suspension of the debtor’s driver’s license due to an unpaid judgment.
- Limited income or job loss that makes debt repayment impossible.
- Foreclosure of a home or repossession of a car.
- Temporarily stopping a foreclosure or repossession.
- Taxes owed to the federal government or to the state government.

If bankruptcy is being considered as an option, it’s best to work with a qualified bankruptcy attorney to facilitate the transaction both in terms of speed and ease of resolution.

Loan Modification

Whenever a borrower is unable to repay their loan by its existing terms, and that inability is likely to be long-term, lenders may agree to a loan modification arrangement on the debt. Typically, this means lowering the interest rate, but lengthening the time required to pay off the amount. Of course, this also increases the amount the borrower will actually pay over the long-term, but it may be the only way to avoid a default on the loan. Read More

Home Equity Loan

A second mortgage is often called a home equity loan. Consumers go to a lender to borrow against their current equity in their property (how much of the existing mortgage has been paid) compared to the value of the home on the real estate market. The difference in the two is used to determine the amount that can be borrowed. Read More

Credit Monitoring

Credit monitoring is used to “keep an eye” on specific accounts to prevent identity theft. Often these services are associated with a single consumer reporting agency or authority. The entity collects information covered under the terms of the Fair Consumer Reporting Act. The major CRAs are Equifax, Experian, and Transunion. Read More

Credit Counseling

Credit counseling is personalized counseling that helps debtors avoid bankruptcy proceedings by providing basic financial management education. Often this is paired with negotiation services. The counselors work with creditors to reduce interest rates, lengthen payment terms, and take other steps that make a debt more manageable and subject to resolution over the long term. Read More

Credit Report

A credit report is a detailed individual credit history that is compiled by a credit bureau and serves as a basis to determine an applicant’s credit worthiness for future loans. The report will include personal information like past and previous addresses, Social Security number, and work history. There will be a summary of the number and types of credit accounts and their current standing, as well as the details of any accounts that have been turned over to agencies for collection or garnishment. (All credit reports must include information on how the consumer may dispute errors in any of the data compiled.) Read More

Credit Repair

Credit repair is the process by which a bad credit report is “fixed” either by addressing mistakes it contains or resolving financial issues like debt resolution and loan modification. Often the process requires both financial expertise and legal counsel, with a goal of avoiding personal bankruptcy proceedings. Read More

Bankruptcy

A bankruptcy is a legal proceeding that may involve either an individual or business. Neither is able to pay outstanding debts, and turns to a legal process whereby the debtor files a petition with the court to declare themselves “bankrupt.” The authorities will then evaluate all the debtor’s assets, which will be used to repay a degree of the outstanding debt. When the proceedings are completed, regardless of the percentage paid, the debtor is completely relieved of all debt obligations and can, essentially “start over,” although without the assets that were liquidated. Because the liquidation of assets (which may not include an individual’s primary residence) is often a devastating process, most debtors seek other means of debt resolution for the specific purpose of avoiding bankruptcy. Read More

Garnishment

Garnishment is a legal process that seeks to resolve a debt owed by an individual to a third party. Often the third party is the person’s employer, but in many cases garnishment is used as a means to resolve outstanding federal taxes or to compel the payment of child support. In any of these cases, however, the process is the same. The amount that is determined appropriate in the legal proceeding is deducted from the debtor’s paycheck directly and used to resolve the amount owed. The idea is to take the money before the debtor can spend it for other reasons and direct those funds to repayment of the obligation. Read More

The agency, which was created under the 2010 Wall Street Reform and Consumer Protection Act, holds the somewhat broad mandate to regulate “consumer protection.” The Bureau’s creation and activities have been totally opposed by bank lobbyists and Republicans, and the current proposal is the group’s most ambitious action to date.

In a story by Tony Pugh for the Boston Herald, Richard Cordray, the director of the Bureau said, “Consumer financial products and services have become more complex over the years and they have expanded well beyond traditional banks. This oversight would help restore confidence that the federal government is standing beside the American consumer.”

Major Players in Both Arenas Will Be Affected

There are approximately 175 debt collection agencies that would be subject to the proposed oversight, holding more than $10 million in collection receipts annually. While the agencies represent only 4 percent of the actual number of existing collection firms, they do 63 percent of the yearly debt collection business in the United States.

Some 30 credit reporting agencies, holding $7 million in receipts from annual reporting activities would also face supervision. These firms account for 7 percent of the actual industry presence for the genre, but bring in 94 percent of industry revenue.

Increasing Debt Collection Lawsuits and Credit Reporting Errors

The proposal comes in response to the escalation of federal consumer lawsuits filed since the start of the “Great Recession,” which is now believed to have begun in 2007. That year, there were only 4,372 lawsuits filed under the Fair Debt Collection Practices Act. In 2011 alone, there were 11,811 such lawsuits filed.

The three largest credit reporting agencies — Experian, Equifax, and TransUnion — annually compile financial data on 200 million U.S. consumers, generating reports that are used to determine not just credit ratings, but also job worthiness. According to the Consumer Data Industry, 36 billion credit reports are updated each year, with 3 billion new reports generated.

Inaccuracies on these reports plague consumers, who are often frustrated by the difficulty in getting those mistakes fixed. Estimates suggest that 79 percent of all consumer credit reports are either missing information, show out-of-date account balances, include false delinquencies, or contain other errors.

Trade Associations Downplay Need for the Oversight

In response to the call for oversight, Mark Schiffman, the public affiars director for the Association of Credit and Collection Professionals, said the group will use the 60-day comment period on the bureau’s proposed rule to determine if the guidelines are “overly burdensome.”

Additionally, he said the increase in complaints about debt collection were due to attorneys exploiting the profit potential of the recession. “It’s not an assumption, it’s a fact,” said Schiffman. Attorneys see consumer lawsuits as a viable “cash cow.”

Debt Consolidation Takes Longer and Costs More

Here’s the scenario Ramsey sketched out in his article. You go into a debt consolidation agency with $30,000 in unsecured debt that is comprised of two loans, $10,000 at 12 percent and $20,000 at 10 percent. The terms on the loans are two and four years respectively. Every month you’re shelling out $1,100 in payments and you don’t make enough to do that and live.

So, the consolidation agency says they’ll negotiate with your creditors and get your payment down to $640 a month at 9 percent. You walk out with $460 more money a month in your pocket. Ramsey says what the company doesn’t tell you is that you will now need six years to resolve your debt and that you will pay $46,080 to do it, as opposed to the original $40,392.

Debt Consolidation Companies Aren’t’ Charitable Entities

In big bold letters he says, “They make money off of you.” Well, of course they do. No one ever said loan consolidations were charitable entities. They’re in business to make a profit, and yes, you’re going to pay more for a longer period to erase your debt. And, in the meantime, you’ll eat. There’s nothing to stop you from paying more in a given month and thus resolve the debt faster. That’s what Ramsey doesn’t tell you.

He is quite right that a lack of discipline gets people into debt and that cultivating disciple gets you out. What he doesn’t point out is that most people need time to make the necessary changes to re-direct their lives, to get into a higher paying position, to live on less, and to claw their way out of the hole. Debt consolidation buys time.

Use Debt Consolidation as a Tool

When people really get into trouble with debt consolidation is when they go into the process with the same cavalier attitude that created their money problems in the first place. Never sign on the dotted line until you understand every aspect of the consolidation deal — including how much additional interest you will pay and how long you will have to work to resolve your loans.

In a way, Ramsey is almost being insulting when he suggests that people go through debt consolidation and believe the debt just disappears. Rolling all your debt into one lump sum at a lower interest rate with a single payment isn’t making debt disappear. It is managing the debt in the short term.

Yes, you can simply follow the terms of the deal, pay the extra interest, and let the time bleed out until the debt is resolved. You can also get proactive, take advantage of the decreased pressure in your life, and use the additional money in your pocket to make the very changes that will put more money in your pocket.

How Much Faster Can You Resolve the Debt?

One vital question you need to ask the loan consolidation counselor is, “How much faster will my debt be resolved if I pay X percent more each month?” Make that your goal. Know what it will take to reduce your debt faster and work toward that next level. And then when you get there, call the company up and ask the same question again.

Ramsey does indeed reveal the hard truth about debt consolidation, but he isn’t exploring the fact that debt consolidation is a tool. And, like most tools, if it is used intelligently and well, it can accomplish more than one task. Use the process to buy time and then do exactly what Ramsey says, get disciplined and get debt free.

Look Your Debt in the Face

First, take an inventory of just how bad the situation really is. Sit down and list out everyone you owe money to and make note of the interest rates. That will let your prioritize your debt from most to least expensive.

Your first task is to take care of your credit card debt. If possible, combine all of the balances on the card that has the lowest rate so you’re only looking at one monthly payment. And then discipline yourself not to add to the debt. Pay with cash only, or with a card you know you can keep at a balance of zero monthly.

You Need a Plan to Reduce Your Debt

Debt management is about organizing your obligations and conceiving of a plan to reduce them. For many years, people have turned to refinancing their mortgage and using the equity they hold in their homes to resolve more pressing debts.

Unfortunately, with the collapse of the real estate market and the mortgage crisis, that line of credit is now hard, if not impossible, to access for many people. Many good, hardworking folks are struggling under debt loads that may take a lifetime to resolve.

Loan Consolidation May Be the Answer

Debt consolidation and loan consolidation are greatly misunderstood terms and a vast negative mythology has built up around the process. Even if you are afraid, there is some wisdom in the strategy “do it afraid.”

Seeking a consultation for loan consolidation does not mean you have to move forward with the process. It does mean you will have an offer on the table to consider. Do not lose sight of the fact that debt consolidation professionals may be able to negotiate with your creditors for a better interest rate or for an extension on the life of the loan.

Having One Monthly Payments Lets You Budget

It is a major advantage to face a single monthly payment, because you can budget for that amount and not be constantly shifting money around to meet obligations with a sense of desperation.

One thing is for certain. The end of 2011 showed that consumers have not yet learned their lesson when it comes to the heavy burden of credit card debt. As those bills are coming due in January and February, many will realize they are worse off than they were before the spending urge hit. Loan consolidation and a healthy dose of discipline for the New Year are likely now in order.

Debt Levels Show Only Minimal Improvement

How passionate is that affair? The surge in consumer borrowing for November 2011 was $20.4 billion, the greatest month-over-month leap in ten years. That debt is now tacked on to the total personal debt outstanding in the nation, which is just under $2.5 trillion excluding mortgages owed. Credit card debt after the November spending flurry stands at $798 billion. That is lower than the $800 billion owed at the end of 2010, but not substantially lower as economic experts had hoped.

The credit card industry has aggressively gone after new business with 0% APR offers on purchases and balance transfers with long promotional periods. Consumers have succumbed to the temptation of those offers, but they could be in for a bitter surprise if the economy takes another downward turn. The rate of personal savings has continued to decline and income growth does not currently match the rate of inflation.

Zero Percent Offers Tempt Consumers

A concurrent concern is that when the 0% promotional offers expire, cash-strapped consumers will roll their debt on to a new 0% plan, which will also carry a transfer fee, thus increasing the total debt load. In the past, consumers have used this strategy to ship debts around from lender to lender, and with longer offers, that practice is once again seeming attractive. In the long run, however, it simply extends the life of the debt and increases the amount owed.

Although retailers have expressed elation at the “success” of the holiday spending, which will likely be as large or larger for December when the numbers are tallied, the real implications of that spending are not positive. Although the causes of the economic recession that began in 2009 will likely be debated for years, the high rate of personal indebtedness in the nation made consumers unusually vulnerable. The collapse of the mortgage industry, high unemployment, and the volatility of the stock market that wiped out retirement savings for hundreds of thousands were, in effect, a “perfect storm.”

Increase Debt Threatens Economic Recovery

With no cushion against job loss, and no ability to resolve mortgage debt in the face of that income deficit, the epidemic of foreclosures was inevitable and catastrophic. Unemployment over the last three years has hovered between 8 to 10%, and now is not the time for consumers to be piling on more debt. Until the holiday season, the trend had been toward financial conservatism, loan consolidation, and debt resolution. The holiday spending spree, however, showed that this new discipline is weak at best.

Going into 2012 with essentially the same debt load they faced in 2011, Americans are, at best, holding the line in a weak economy. If they are lured back into the freewheeling use of credit, dangled by long pay-off periods at 0% interest, the very thing economists have dreaded, the potential of a double-dip recession, could become a reality.

Many Returned to School as a Recession Shelter

With the unemployment rate hovering just under 10 percent for most of 2010 and 2011, older workers were often the first to lose their jobs as employers worked to trim costs. These older, laid-off workers found it difficult to compete against younger job candidates in their original career fields, and hoping to ride out the recession in a positive way, many returned to school, either to finish their degrees, to seek a higher credential, or to enter a completely new field. With their retirement savings already badly depleted by the rocky, erratic performance of stocks on Wall Street, these returning students opted to go into debt, essentially rolling the dice for a better future.

Alarming Debt Accumulation Foretells Future Disasters

Most analysts agree that the accumulating debt in this age group is alarming. Americans in the 35 to 49 age group tend to carry the bulk of their equity in their homes. The decision to return to school, and to finance that education with student loans, could well mean that if these people are not able to find a job that will both support their lifestyle and meet their debt obligations, they could lose their primary residence. Certainly retirement will be a long-deferred decision if it is possible at all.

This also begs the question of long-term care and insurance benefits. Even in the face of the so-called “reform” of the health care system in America, 52 million people have no health insurance coverage, and last year rates increased 8-9 percent. Medical debt is responsible for more than half of the personal bankruptcies filed in the U.S. each year. All of these factors taken as a whole create a potential perfect storm of financial woes in an age group that typically is enjoying its greatest degree of monetary stability in their lives.
Managing Debt Responsibly is Imperative

Since student loan indebtedness in America is now just under $1 trillion, managing those obligations in tandem with other debts, like credit card balances or a mortgage have signaled an end to America’s free money days. Now more people than ever before are seeking to consolidate their loans at a competitive interest rate so they can pay down their balances while maintaining the quality of their lives. Without this kind of responsible debt management, we could see a whole generation of Americans entering old age poorer than at any point since the 1930s.