NCVTV June 2017 Money Management Highlights!

Since graduation season is still in full swing for the month of June, all of the June NCVTV episodes covered the topic of student loans.  We talk about everything from helping your young person start off on the right foot by establishing good money habits to possible changes to student loan debt in the forthcoming national budget.  If you or anyone you know has student loan debt, June’s NCVTV episodes are a must watch!

Episode 15 – The Boomerang Effect

So, what is a boomerang, what does it do, and what does it have to do with student loan debt?  Aussies use boomerangs to hunt with, in the outback.  The way it works is the hunter throws it at the target and… it comes back!  Just like your child when they finish college!  if you’re dreaming of an empty nest, here are a few things you can do to help Jr. launch successfully.

I think it goes without saying that the first thing you need to do is make sure he or she actually finishes the degree.  Notwithstanding their student loan debt, the chance that your child will eventually be able to earn enough to pay off the debt and live on their own while doing so increases substantially if they finish their degree.  So, this habit of college students to start school, take a break, start school, take a break and start school again is not necessarily the best idea.  Help your child understand he or she needs to be in it to win it!

Second, try to encourage your child to stick with federal subsidized loans which are need based loans.  If your kid doesn’t qualify for federal unsubsidized loans, federal loans are generally preferable to private loans, with better interest rates and possible forgiveness later on (in certain circumstances).   The cheaper your student loan debt (meaning the lower amount you take out and the lower the interest rate), the less likely your little whippersnapper will wind up back in your house, on your couch and in your pantry.

Third, go back and watch episode 11 of NCVTV.  I talk about some tips to help people manage student loan debt by making some good decisions before signing on the dotted line.  The more things you can do to shave down the overall cost of college, he less likely your child will ending back at home indefinitely.  The truth is the best thing he or she needs to be successful at college is persistence, commitment and, most importantly, parents who are willing to help them make the best possible decisions.  It’s up to you and you can do it!

To watch the episode, click here.

Episode 16 – Holy Garnishment, Batman!

This episode deals with a very important aspect of federal student loans that many people don’t think about but that could impact the borrower and co-signer later in life.  I’ve commented before that student loan debt is generally not dischargeable in bankruptcy.  What you might not realize is that federal student loan debt is treated like tax debt.  If you don’t pay it, the federal government can garnish your social security benefits to pay for it.  This is true whether or not you are the original debtor or simply the co-signer. 

So, what is garnishment and how does it work?  It means that you owe someone money and some authority has the ability to withhold it from your social security benefit, tax refunds or wages (in some states).  Now, this is a very general definition of garnishment.  Every state is different but every state has to allow garnishment of federal debt.  If you have more questions about the state garnishment rules, you need to ask an attorney in your town or state about whether or not garnishment applies to you and what your rights are.  For now, just know that any federal debt can be garnished from your wages or social security benefits.  Something to think about!

How can you avoid this circumstance?  First off, unless you are willing to pay the debt, do not co-signe for it.  Second, you should go back and watch NCVTV episode 13 which is all about student loan forgiveness to see where to start to figure out if you are eligible for a forgiveness program.  If you check out the resources page here on my website by clicking this link, you’ll see a list of links that can take you to the web pages that can help you figure out if you qualify for one of these plans, too.  I encourage you to check these resources out to make sure you are getting the help you need BEFORE you have problems paying for your loans defaulting on them.  These programs may make the difference for you and keep your personal finances on track!

You should also know that the student loan forgiveness programs we have now might go away at some point.  Do not wait to find out if you qualify for a forgiveness program or it could be gone!  Also, remember ncvtv episode 14, about Sinful Servicers.  Don’t rely on your servicers to help you with forgiveness programs.  From what I understand, they are likely to encourage you to apply for forbearance or deferment rather than a forgiveness plan.  You need to take responsibility for your student loan debt and educate yourself about whether or not you might qualify for one of these plans.  Think of it like this, if you can fill out a FAFSA form, you can fill out the paperwork needed to apply for a forgiveness plan.

To watch the episode, click here.

Episode 17 – Whippersnappers in the Wild

Ah, once upon a time, I was a whippersnapper, too!  We love our young people and the fresh perspective they bring to every situation.  However, I have seen a disturbing trend growing amongst whippersnapper college students, and that is using loan money for things other than the cost of attending college.  Student loan debt is not intended to cover anything other than what it truly costs the student to attend college.

How can you help your child make better decisions about spending their student loan money?  First of all, we should encourage borrowers to only take out the minimal amount of student loan debt that they need in order to complete the school year or that they can reasonably expect to pay back after college.  A big part of this is the fact that we really need to help educate our young people about the consequences of their actions and make them understand the true value of a college education and how to maximize the return on their investment because truly, a college education is an investment in the student and their future.  We want to make sure we help them understand it can be a bad investment if it isn’t managed correctly so, let’s try to help them see how to make choices that will make it a good or even great investment!

Second, it’s very, very important to make sure the student is completely involved in every step of the student loan process.  They should, at the very least, help fill out the FAFSA form or, fill it out themselves.  We should also make sure they are involved with every decision about what student loans they are taking out, even the parent PLUS loans, and how much is being spent on their education.  Sit down with them and involve them in the process.  Teach them to do the work while you are standing by as a safety net.  This is a great opportunity to let them learn some adulting skills while you are there to help if they make a mistake.  This also has the benefit of giving them ownership in their financial situation.  If they see how much things are costing and what they are gonna have to pay back at some point, they’ll be more likely to take their studies seriously, graduate and be successful in paying off their debt.

And don’t forget, if it is appropriate, there is no reason why your whippersnapper should not have a job while he or she is going to college.  Unless there are extenuating circumstances, encourage your child to get a job.  For most kids, working while in college is a good thing.  There are studies that show it can help them be more successful (read graduate), too!  Millions of people all over the world do it, maybe your child can to!  I think we can all agree that it’s better to be tired and sleep deprived in your early twenties than your forties!

To watch the episode, click here.

Episode 18 – Ch ch ch ch changes

It’s time to talk about the first draft of the national budget and how it might affect student loan debt.  Of course, we need to start with the numbers!  We already know that we are at $1.4 trillion dollars in student loan debt, nationally.  The US Dept of Ed states that as of the start of 2017, $72 billion dollars of student loans are in default.  In the last 5 years, public school tuition has gone up 9%.  Clearly, the student loan situation in the United States is a serious problem.  Unfortunately, the new draft budget, which has yet to be approved by Congress, includes a number of cuts and changes to the student loan programs that are in existence today.  Here are some of the programs and changes that are in the draft budget:

$700 million in cuts to perkins loans.  $487 million in cuts to student work study programs.  $16.3 billion in cuts over 10 years for Pell Grants.  $8 billion in cuts to subsidized student loans (where the government pays the interest on your loans while you are in school, the gold standard for a student loan, in my opinion).  Complete elimination of public service student loan forgiveness programs (though you may be able to be grandfathered into PSSLF programs in certain circumstances).

The problem with all these cuts is that the price of a college education continues to rise making college a lot more expensive, overall.  There are a few more things to say about the possible student loan changes in the new budget that show all is not lost.  Here they are:

First, there will be some student loan relief programs available.  They will be consolidated into what appears to be an income driven repayment plan that sort of resembles the current income driven repayment plans. 

Second, It pays to note that the undergrad repayment period is 5 years less than it is currently, even if the percentage of disposable income is up 2.5%.  It’ll probably be easier to administer the program, too, since there will likely only be that program for student loan forgiveness.  At least there will be some forgiveness available, and that is encouraging.

This information is important to know, for a lot of reasons but primarily so you can get in front of it and make better student loan choices now, to ease your burden in the future!  Also, I would like to give a shout out to Forbes magazine for publishing a great article on the changes to the education system in general under the draft budget.

For more information, hop on over to Episode 18 and watch the whole video.  It’s well worth it!

To watch the episode, click here.

These are the highlights of all the NCVTV episodes for June 2017.  Make sure you check them out on my YouTube channel!  I’ll see you there!

Sincerely,

Joy Alford-Brand

Your Dollar Lama