Hot topics in the student loan crisis explained

By Andrew Zashin*

Although some object to labeling it a “crisis,” there is at least widespread consensus that, whatever we call it, our higher education system could be improved. Student loan debt in the United States tops $1.6 trillion. And as many as one in 10 of those 44 million borrowers are defaulting on their debt.

Higher education costs and student loan debt are hot topics, and every 2020 presidential candidate has some plan to address the rising costs of secondary education, the debt load and defaults on that debt affecting many students today. From one side, there have been proposals for free college and widespread forgiveness of federal debt. From the other side, there have been proposals for different forms of tax relief related to loans, different repayment programs and some discussion of the current system of federal grants and loans. Here are some of the hottest issues today.

  • Student loan forgiveness: many progressive Democrats are pressing for student loan forgiveness. Sen. Elizabeth Warren, D-Mass., for example, has suggested canceling $50,000 in debt for households with income of up to $100,000. Households of up to $250,000 would be eligible for some cancellation on a graduated scale. Ostensibly, there would be a mechanism to seek cancellation of privately funded debt as well, and the forgiven debts would not be taxable as income. Others vary in their opinions as to how this would be structured, but there is definitely a progressive push toward widespread cancellation of existing debt.
  • School costs: another sweeping change suggested by progressives is, of course, the idea of “free college.” Sen. Bernie Sanders, I-Vt., suggests eliminating tuition and fees at all public colleges, universities, community colleges, tribal schools, trade schools and apprenticeship programs. He would then look to divert more funding to already existing programs such as work-study and Pell grants to help out families living closest to the poverty level close the gap on other expenses of schooling, like housing and food. While campaigning in 2016, President Donald Trump was in favor of pushing the schools to do more to help lower income students attend, specifically by using endowment dollars for this purpose, rather than relying on federal funds.
  • Income-based repayment plans: Democratic presidential candidate Andrew Yang proposes loan repayment plans that are income based, up to 10% of income, paid for a period of 10 years, after which time the remaining debt would be forgiven. Trump is pressing for streamlining currently available repayment plans into one similar plan, with a repayment cap of 12.5% of income, paid for a period of 15 years.
  • Bankruptcy: Common wisdom says student loans are not dischargeable in bankruptcy at all. This is not quite true, but the burden is so high as to make it nearly impossible. Generally, an effort must have been made to pay back the student loans, and a significant financial hardship must be shown, both in that a basic standard of living could not be sustained if the loans are repaid, and that the hardship would last for the majority of the payback period. There has been some talk around better defining what an “undue hardship” is and, in general, making it easier to discharge student loans in bankruptcy.
  • Tax breaks: The recent Tax Cuts and Jobs Act did away with taxation on student loan discharge for death and disability, which decreases the already heavy burden faced by those who have experienced the death or disability of a breadwinner. But the future of the student loan interest deduction is unclear. Even though it did remain in the final version of the Tax Cuts and Jobs Act, Trump originally proposed eliminating it. This deduction provides up to $2,500 in deduction of interest paid on a student loan. There are a number of very different thoughts on how to tackle the problems of higher education costs and rising student loan debt. This is sure to be a hot topic throughout the 2020 election and beyond.

This article originally appeared as a column for the Cleveland Jewish News.

2023-11-10T13:38:10-05:00November 4th, 2019|Debt, Student Loans, Tax Breaks|

Education can help when you are in debt

By Andrew Zashin*

This article originally appeared as a column for the Cleveland Jewish News.

At the end of July, the Urban Institute released a report on delinquent debt in America, and the figures were rather astonishing. Using 2013 data obtained from TransUnion, the institute sought to study the nature of American consumer (non-mortgage) debt. What they found was that nearly 12 million adults, or 5.3 percent of Americans, have past due debt. And, on average, consumers owe $2,258 just to become current on that debt.

While those numbers may not seem too awful, keep in mind that a payment must generally be at least 30 days – and often 60 days – late before the creditor ever reports it to a credit bureau. Even worse is that an astounding 35 percent of Americans have debt in collections, with an average debt amount of $5,178. Data for the Cleveland metropolitan area is similar, with 5.9 percent of individuals having past due debt, and 34.9 percent in collections for an average amount of $4.207.

What if you in danger of becoming – or already are – one of these? What should you do? What should you know? Well, first, you will want to educate yourself as to your rights and obligations so that you will not fall victim to unlawful collection behavior. Some important pieces of legislation in this area are the Fair Debt Collection Practices Act and the Fair Credit Reporting Act.

The Fair Debt Collection Practices Act sets out some basic rules that debt collectors must follow. For example, debt collectors may not telephone outside of the hours of 8 a.m. to 9 p.m. local time. They must cease communications, other than initiating a lawsuit, if the debtor sends written notice that the debtor refuses to pay the debt and/or wants no further communication. They may not telephone repeatedly with the intention of annoying or harassing the debtor, misrepresent their identity (like saying they are police) in an effort to collect, threaten arrest or legal action that is not actually being considered, or seek a repayment amount that is not supported by the original agreement made between the debtor and the creditor. Debt collectors may not be abusive or use profane language, may not contact a debtor known to be represented in the matter by an attorney, or divulge information about a debt to a third party.

The Fair Credit Reporting Act, on the other hand, controls what the credit reporting bureaus – including TransUnion, Experian, and Equifax – may do. Under this law, these agencies most provide debtors with the information contained in his or her files, as well as the steps taken by the agency to verify the information. Per a subsequent amendment to this law, consumers are entitled to obtain one free credit report each year from each agency in order to keep tabs on and check the accuracy of the information compiled in his or her file. This act also limits how long negative information, such as late payments, collection actions and bankruptcies, will stay on a debtor’s record, and handles how other types of debts and transactions, such as medical bills, tenant rental histories, and check-writing habits may be handled and reported.

Of course, while these laws are intended to make sure consumers are treated fairly by creditors and debt collectors, this does not mean the debt goes away, and it is extremely difficult to get out of paying a debt entirely. Though it may sound obvious, it is imperative to come up with a plan to manage the debt. The most extreme measures might include debt consolidation or perhaps even bankruptcy. However, for most individuals, some good old-fashioned budgeting, maybe even some financial counseling, and a little time are all that is needed to get back on track.

*Andrew Zashin writes about law for the Cleveland Jewish News. He is a co-managing partner with Zashin & Rich, with offices in Cleveland and Columbus.

2023-11-10T13:38:15-05:00August 14th, 2014|Credit Reports, Debt|
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