College Dropout Loan Debt

A new problem that has arisen is an increase in the number of people with college debt but no degree to show for it, with student debt now topping $1 billion. Nearly 30% of college students who took out loans dropped out. Fewer than 25% of students did so ten years ago, according to Education Sector. 

College dropouts are also the most likely to default on their loans, falling behind four times more often than graduates. Obama's administration is trying to address the issue by coupling its goal of ensuring that high school students are prepared for at least one year of higher education with new targets for college graduation rates.

The poor economy has forced more students to decide between the benefits of a degree and the burden of paying for it. More students are now taking on jobs or taking a reduced course load to save money, which also increases the likelihood that they will not graduate. In a 2009 study, half of college dropouts said that work was a major factor in their decision. Only one fourth said they had spent too much time socializing.

Although college dropouts make more than those with only a high school diploma, they earn about a million dollars less than college graduates over their careers. College enrollment has increased by 38% in the past decade to more than 20 million, according to government data.

However, lawmakers and regulators have recently shown more concern over the growing market of for-profit institutions with low graduation rates and high student debt. FinAid.org reports that students who receive a bachelor's degree from a for-profit college will have an average debt of over $41,000. Students graduating from a public university have roughly half that amount of debt. For-profit colleges also saw the biggest increase in borrowers who drop out.

The Education Trust found that more than half of students who take out loans to enroll in two-year for-profit colleges never finish. At traditional non-profit and public colleges, only approximately 20% of students with loans who started college in 2003 dropped out within six years. By comparison, about 8% of Americans between ages 16 and 24 do not have a high school diploma.

The Obama administration has made increasing the college graduation rate by 2020 one of its top educational priorities. Some schools have also tried to streamline majors and course offerings to help students stay on track. Education experts say many students aren't prepared for the more rigorous course work in college and that many schools don't offer enough guidance for these students.

As a reminder, student loans are generally not dischargeable in bankruptcy. However, if you are struggling with student loan debt, bankruptcy may be an option worth considering. Filing bankruptcy may allow you to eliminate many of your other debts, freeing up money to repay your student loans. Please feel free to leave any comments or questions.

Longer Unemployment Benefits Are Winding Down

Many out of work Americans are getting their last unemployment checks sooner than expected, even though Congress renewed extended unemployment benefits through the end of 2012. The checks are stopping for the long-term unemployed.  More than 5 million people have been out of work for more than 6 months.

Federal unemployment benefit extensions, which supplemented state payments for up to 99 weeks, were just intended to continue until the job market improved. Congress renewed the program in February when it was set to expire, but also phased in a reduction of the number of weeks of extended aid and made it more difficult for states to qualify for the maximum aid. Since then people in 23 states have lost up to 5 months worth of benefits.

This month an additional 70,000 people will lose benefits earlier than expected, increasing the number of those cut off prematurely this year to nearly 500,000 according to the National Employment Law Project. That does not include those who exhausted the weeks of benefits they were entitled to.

Some states are also making it harder to qualify for the first few months of benefits, which are covered by taxes on employers. In Congress, Republicans say the unemployment benefits extension prolongs joblessness and has not kept unemployment rates down, while Democrats say those out of work have few alternatives and that the payments are one of the most effective forms of stimulus since most of it is immediately spent.

The benefits expiration is contributing to what economists refer to as a "fiscal cliff", or a drag on the economy at the end of this year when tax cuts and recession-related spending measures will end unless Congress acts. The Congressional Budget Office has warned that the combination could contribute to another recession next year.

Unemployment is lower than it was when the emergency unemployment extensions were put into action in November 2009. It is down to 8.1% from 9.9% then. However, it is still far higher than pre-recession norms and there are more than 3 job seekers for every opening.

Supporters of the extended benefits says the cuts are premature, while conservative economists and political leaders argue that unemployment benefits prolong joblessness and transfer wealth from one area of the economy to another without contributing to growth.

Most states offer 26 weeks of unemployment benefits, plus the federal extensions. The number of extra weeks in each state is determined by several factors, including the state's unemployment rate and whether it is higher than three years earlier.

Some states have also tightened eligibility. Most people nationwide can apply for benefits by phone. Nationally, 30% of applicants are rejected according to the National Employment Law Project. If you are unemployed and are unable to keep up with your debts, you may want to consider filing bankruptcy. I can help you file bankruptcy in Kansas or Missouri. I welcome any questions or comments you may have.

Most Americans OK With Overspending

A new survey from COUNTRY Financial shows that most Americans spend more than they make, at least occasionally, but they are mostly okay with that. The May 2012 COUNTRY Financial Security Index concluded that 52% of respondents spent in excess of their monthly income at least a couple of months each year, but only 9% said their lifestyle is more than they can afford. If you are spending more than you make on a regular basis and find that you cannot afford it, you may want to talk to me about your options, such as filing bankruptcy in Kansas City.

The survey did find that 51% of respondents have a household budget in place. However, many appear to have a difficult time following it every month. Budget shortfalls occurred at least 6 months out of every year for 21% of respondents in the survey. I would suggest that because most families have a budget, they do not see their overspending as a problem.



Those surveyed compensated for the excess expenses with a variety of things. 36.2% used money from a savings account and 21.7% used a credit card. Additionally, 12.3% delayed bill payments and 7.8% borrowed money. It is also noteworthy that of the 21% of survey respondents who reported regularly having monthly expenses in excess of their income, only 13.5% adjusted their spending the next month to get back on track.

Lots of Americans also say that they are not meeting their savings goals. According to the survey, 61% of budgeters and 30% of non-budgeters create a monthly savings goal. However, of those with a savings goal, 57% of budgeters and 54% of non-budgeters say they meet their goals 50% of the time or less. I would suggest moving savings funds to a less accessible, but still liquid, account. For example, you may want to consider a money market account with limited check writing availability. Please feel free to leave your comments or questions.

New Homes Sales Are On The Rise

New home sales are picking up steam. This may be another sign that the housing market is finally recovering. New home sales in April rose 3.3% from March and were up 9.9% from a year earlier, to a seasonally adjusted rate of 343,000 according to the Commerce Department.

However, we are still far below historic levels. Since 1963, the average new single-family homes sold per year in the U.S. has been 671,000. New homes account for about 10% of the houses sold each year. 

Sales of previously owned homes have also risen lately, suggesting gains throughout the housing industry. The National Association of Realtors said that sales of previously owned homes rose 3.4% in April from March. This includes sales of multi-family dwellings, such as condominiums and duplexes. The Commerce Department figures only include single-family homes.

Housing prices are also rising. The median new home price in April was $235,700, which is nearly 5% higher than a year earlier. With all of this news, some economists are becoming more encouraged about the housing market. However, some economists and analyists had expected even stronger new home sales based on the double-digit order increases in recent months by large publicly-traded home builders.

Toll Brothers, Inc., which is a luxury builder, said that its contracts for the quarter ending April 30th were up 47% from last year. The National Association of Home Builders also reported that confidence among home builders hit a five year high in May.

It is important to note that the housing recovery could quickly revert if the economy goes back down, interest rates rise or inventory swells as banks seek to sell more foreclosed properties. If you are facing foreclosure I may be able to help you save your home and stop the foreclosure process through bankruptcy or other means.

146,000 new homes were listed for sale at the end of April, a supply that would take over 5 months to deplete at the current sales pace. Only 46,000 new homes were completed in April, a record low. However, decreasing inventories could increase future new home building. Home prices also rose 1.8% in March, on a seasonally-adjusted basis, compared to the previous month. As always, questions or comments are welcome.

More Disclosures Needed in Student Loans

For many, obtaining a college degree, which should lead to higher income and more opportunities, also often means years of paying off student loan debt. Schools should be forced to do more to educate students about the cost of their education and the student loan process.

In the U.S. approximately two thirds of Bachelor's degree recipients receive student loans from public or private lenders. In the early 1990's only about 45% of graduates borrowed money from any source, including family. The average debt for student borrowers last year was approximately $23,300, 10% of student borrowers owed more than $54,000 and 3% owed more than $100,000.

Federal law requires schools to provide basic "entry" and "exit" loan counseling. However, many schools market themselves to students without explaining the actual cost of attendance. Additionally, financial aid letters often blur the distinction between loans and grants, making the school look like a better deal than it really is. Also, once students are enrolled they are generally not receiving any counseling during the years they are enrolled, while still borrowing money every year.



President Obama's administration has proposed rquiring colleges to clearly disclose costs in a standardized "shopping sheet" that would allow students to see the aid they are receiving and the debt that they would incur. Later in the year the administration plans to post an internet "scorecard" that rates each college nationally on affordability and value, which are defined by graduation rates and whether graduates earn enough on average to repay their debts.

Additionally, a pending bill in the Senate would require colleges and lenders to educate students about the differences between federal loans and riskier, pricier private loans, and their borrowing choices. However, I think there is always more than can be done to help students and potential students to truly understand how much college is going to cost and how much debt they are going to have after graduation, including how long it will take them to pay it off. As a reminder, student loans are generally not dischargeable in bankruptcy. Please leave any questions or comments you may have.

New Rules for Prepaid Debit Cards

Prepaid debit cards are very popular depsite the fact that they are largely unregulated and often charge high fees with little disclosure. As new rules have targeted credit cards and traditional debit cards, many banks have increased their presence in the prepaid debit card market.

Today the Consumer Financial Protection Bureau introduced a preliminary rule for prepaid products, the first ever. Most fees on these cards will not be regulated, such an average $5 monthly maintenance fee. However, the rule will require companies to reimburse consumers for unauthorized charges.

Card providers argue that they offer a competitive price and help consumers control their spending. Some regulators and consumer advocates are concerned that companies are leading low-income consumers into a relatively expensive product as opposed to simple checking accounts. In 2009 borrowers had approximately $29 billion worth of prepaid debit cards. By 2013 that number is expected to rise to $90 billion.

Big banks, who are looking for new customers, are joining the prepaid debit card market. In March, Wells Fargo introduced a reloadable prepaid card. Regions Financial also unvailed a prepaid card targeted at borrowers who typically do not have a traditional bank account. JP Morgan also announced earlier this month that it would start offering prepaid cards. The card is called "Liquid" and carries a $4.95 monthly maintenance fee but does not charge consumers to add money to the card.

The banks have recently become drawn to prepaid debit cards because they were not included in the Dodd-Frank regulatory law and other recent crackdowns on debit and credit card fees. The Dodd-Frank law exempted prepaid cards, allowing banks to impose high fees on merchants when consumers make a purchase with a prepaid card.

Advocacy groups have also questioned if card issuers clearly explain to cardholders the fees associated with the prepaid cards, including activation charges, and charges for loading money onto the card, checking the card balance at ATMs and for calling customer service. For example, Wells Fargo charges $3 for customers to withdraw money using a bank teller and $5 to replace a lost card.

A study conducted also concluded that some customers were unaware that their prepaid cards are not necessarily protected by the FDIC (Federal Deposit Insurance Corporation). The Bureau's new proposal does not address this issue. However, the Bureau is seeking to apply Federal Regulation E, which applies to debit and gift cards, to prepaid cards. Regluation E requires companies to reimburse customers for unauthorized transactions that occur when a prepaid card is lost or stolen.

As a reminder, you may discharge credit card debt in bankruptcy. I look forward to your questions and comments.

Almost 1/3 of Student Loan Debt is now from Grad School

Graduate school, which generally leads to higher income, is increasingly leaving students with higher debt. As discussed in a previous post, Congress is attempting to keep student loan interest rates at lower levels. However, little attention is being paid to graduate students. Student loan debt in the U.S. now tops $1 trillion and graduate students account for approximately 1/3 of that sum, which is likely to grow.

Beginning in July, subsidized Stafford loans will no longer be available to graduate students. This likely will force graduate students into more expensive loans to pay for tuition. Currently, subsidized Stafford loans are the most popular student loans. More than 1/3 of students sign up for them annually because the government covers the interest payments while students are still enrolled. Other loans charge students the interest while they are still in school.

Without the subsidized Stafford loans, experts say that graduate students will likely soon account for a larger share of student loan debt. It is estimated that the student loan debt load at graduation will increase by about 6% on average.

The cuts are part of the federal goverment's move to slash spending across the board. Last year President Obama signed the Budget Control Act of 2011, which eliminated the subsidized Stafford loan for graduate degrees. This was expected to save around $21.6 billion over 10 years, with nearly $5 billion going to the deficit reduction. The adminstration says they removed the subsidized Stafford loans for graduate students because those with advanced degrees tend to have higher incomes, and these loans do not encourage more students to enroll in graduate school.

However, with the struggling economy, more adults have been returning to college for graduate degrees and leaving with more debt. Master's degrees account for about $200 billion in outstanding student loan debt, while other advanced degrees account for another $100 million. This year approximately 830,000 people are expected to graduate with advanced degrees, with debt averaging around $43,500, up 10% from five years ago. Since the fall of 2007, roughly 56% or 3.6 million graduate degree recipients incurred loans.

In spite of the rising student loan debt levels, proponents of the government's decision to elimiate subsidized Stafford loans for graduate students say that they don't need as much help because they'll make more money. During a 40 year career, individuals with only a Bachelor's degree will earn nearly $2.3 million on average, while those with a Master's degree will earn an extra $400,000 on average. The median income for someone with a Master's degree is on aveage about $12,000 higher a year than someone with just a Bachelor's degree.

However, the pay difference is even smaller in some fields. For example, the arts and journalism. Some professions even require a Master's degree but typically do not pay more. For example, teaching and social work. Additionally, since the recession tuition has risen 11%, to an average of nearly $22,000 per year for private, non-profit graduate programs. At public universities, tuition rose 25% to $9,247, outpacing undergraduate tuition hikes.

Schools are raising tuition even though enrollment continues to grow. Between 2007 and 2010, enrollment in graduate programs grew 11%, to an all-time high of 2.9 million students. Costs are generally rising because colleges are charging higher tuition for more popular programs and public universities are receiving less funding from their states. However, it is often argued that graduate programs are expensive to run, especially in technological intensive fields such as engineering and science, and profitable departments often subsidize less profitable or unprofitable departments.

I suggest that anyone considering graduate school look into attending public universities, which are generally cheaper than private institutions. You should also consider if the cost of attending graduate school is worth it. An individual with a Bachelor's degree in business or engineering should earn about $19,000 a year more with a Master's degree but you need to consider how much you'll have to borrow in student loans and how many years it will take to pay that off. It is also important to remember that student loans are generally not dischargeable in bankruptcy. I look forward to your comments and/or questions.