Student Loans

March 27, 2020 By Jen Lee Leave a Comment

The CARES Act and Student Loans: What You Need to Know

Lots of information out there about the new CARES Act and what it purports to do. It’s a huge document and has a lot of moving parts. In an attempt to pull out useful information for the average consumer and small business owner, we are working on a series of blog posts to help answer some questions.

Student loans are discussed in § 3513 of the bill and there is some relief available, provided your loans are Direct Loans or FFEL loans owned by the U.S. Department of Education. Private loans, Perkins Loans, and FFEL loans not owned by the U.S. Department of Education are not protected by the CARES Act.

If your loan is covered, payments are suspended through September 30, 2020 and no interest accrues during that time. The suspension months also count towards forgiveness programs if you are enrolled in one.

In addition, if you have a wage garnishment or your tax refund is subject to interception for delinquent student loans, those collection efforts are suspended. Credit reporting during this time period is also included in this section and any payment that is suspended is treated as if the regularly scheduled payment had been made by the borrower.

Starting on August 1, 2020, suspended student loan borrowers will receive notices regarding when the normal payment obligations will start again and that the borrower has the option to enroll in income-driven repayment options at that time.

If your loan is not covered under this program, you will want to reach out to your lender or servicer to discuss forbearance options, the terms of a forbearance, and how to apply. Also, it is very important that you find out how the forbearance will be reported on your credit and understand how it may affect your future ability to obtain credit.

This is just a basic overview and is not legal advice specific to your situation. If you have questions about your rights when it comes to debt and credit, you should speak with an attorney in your area for legal advice. If you live in California or North Dakota and would like to speak with Jen Lee Law regarding your situation, please schedule an appointment.

June 14, 2019 By Jen Lee Leave a Comment

The Next Financial Crisis: Parent Student Loans

I often write about trends that I am seeing with clients or things I read online and this week is no different. The number of times that parents taking out student loans for their children has come up in the past week was pretty staggering. My standard advice is to never take a student loan out for anyone else, including your children, unless you have the assets already to pay that debt off. I am seeing people in dire financial straits who are trying to figure out how to take on MORE debt that they can’t possibly afford.

There are several reasons that taking on student loans for anyone other than yourself is a bad idea:

Most people looking to take on student loans for their kids are over 40 years old. By the time you are 40, you should have about 3 times your annual salary in your 401(k) for retirement. So, if you make $100,000 a year, you should have at least $300,000 in retirement savings. If you are already behind on retirement, there is no way you should be taking on debt that does not improve your own ability to earn or retire.
You owe the money, whether or not your child graduates or ever makes a good living. Most of the parent loans do not even have the student as a borrower or co-borrower, so they have no liability on the debt. I can’t tell you how many people I talk to who owe $75,000 or more and the adult child is now living at home because they can’t find a job or are under-employed. So, not only is the parent trying to pay off significant student loans, but also supporting the adult child.
If a federal student loan goes into default, your Social Security can be garnished up to 15%. Social Security already is not a lot of money, depending on where you live, but taking 15% off the top really hurts.
One of the main reasons that the cost of education is so high is because parents have been willing to sign their lives away for these loans. When the schools come up with the family’s expected financial contribution, they make parents feel like they have to do anything and everything to come up with that huge number that most families can’t afford. We are seeing the effects of that with people in their 50s, 60s, 70s, and 80s who are now defaulting on these loans and the financial stress is crushing at a time when life should be enjoyed.

Please think long and hard before taking on debt for others, even when those others are your children. I know that sounds really harsh, but there are so many options out there that do not involve this type of financial stress and I encourage you to talk to your kids about their goals and realistic options.

March 14, 2019 By Jen Lee Leave a Comment

“I Have to Take Out Student Loans to Help My Child! Or, Maybe I Should Bribe Someone!”

In light of the recent cheating scandal for college admissions that’s been widely reported in the last couple of days, I want to twist it a bit to something I hear all the time and be a bit controversial in the process. When we are talking about bankruptcy or other financial disaster planning, people are always worried about their credit and if they will still qualify for student loans for their kids. So, they are in the middle of financial disaster and trying to figure out how to qualify for…more loans.

Honestly, not qualifying for student loans for someone else’s education is a total blessing in disguise. I am a huge proponent of not taking Parent Plus loans and not co-signing student loans. I cannot tell you how many clients I have in their 50s, 60s, 70s, and even 80s who are trying to deal with student loan issues, including having their Social Security garnished at 15% for federal loans that are in default.

What will happen if your child (adult child) can’t afford to go to a $60,000/year university on their own? Well, first of all, $60,000/year universities will have to adapt to people choosing less expensive avenues. The huge inflation in college education costs comes from easy money (that can’t be discharged in bankruptcy, how convenient) and from everyone thinking that they have to go to the highest-ranked college to get a decent job.

One of the celebrities caught up in the cheating scandal has a daughter who has publicly announced that she doesn’t want to be in college at all and is more interested in YouTube. Do you know how much money can be made if you have something that other people are interested in? There is an 7 year old kid making more than $20 million a year doing toy reviews on YouTube. Not that I am encouraging everyone to go out and be a YouTube sensation, but parents put so much pressure on the traditional college path that they totally miss out on the creativity and innovative ideas that kids and young adults have. And part of that pressure is trying to pay for really expensive college educations that are mostly unnecessary.

As an employer, I don’t actually care if someone has a degree. I care about their abilities, their drive, their experience, and what they bring to the table. There are a lot of big companies out there that are missing out on the next generation of innovators because they won’t hire someone who doesn’t have the “right” degree. Ask me how I know. I did my bachelor’s and master’s degrees online (back before online was a thing – it was really correspondence school). I’m pretty much blacklisted from some companies as soon as I list those degrees on my resume. Their loss.

Please do not take out student loans for your kids. Please encourage them to find what they are good at, even if it’s something you don’t understand. Oh, and please don’t bribe people so that your kids get higher test scores (I kind of feel that I shouldn’t have to say that, but apparently, it’s a thing).

The CARES Act and Student Loans: What You Need to Know

The Next Financial Crisis: Parent Student Loans

“I Have to Take Out Student Loans to Help My Child! Or, Maybe I Should Bribe Someone!”

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