Bankruptcy of Your Student Loans

Bankruptcy of Your Student Loans

Sunday, December 27, 2015

WHAT IS ALL THE FUSS ABOUT STUDENT LOANS? HAPPY (debt free) NEW YEAR!

The student loan situation is on the verge of a catastrophic collapse!  At no time in history has there been anything that even comes close the amount of "unsecured" money borrowed by the public; the student loan crisis is rapidly approaching $1.3 Trillion Dollars!

Everyone has borrowed money.  Even growing up you asked your parents or your friends to lend you some money with the promise to pay them back.  Most parents are smart enough to know that they probably won't see that money again.  Your friends tend to think that you will be a good enough person to repay the money they loaned you, as they probably are thinking that if they lent you some cash when you asked, perhaps when they need money, you will re-pay the favor?

As an adult, you may find the need to borrow money from someone besides mom and dad or the kid you shared a locker with at school.  In high school you might have found the need to work to earn some extra spending money, because, well... because mom and dad's weekly allowances just weren't meeting the need?  

Having a job is great, your'e getting some experience and "learning some responsibility" as they say, but having a car to get to and from work and to go other places would be the ultimate!  So you head down to the local used car lot and find that little honey and "your 1st car".

The dealer makes it sound so great, and tells you that you can purchase your baby with no money down and the payments will be affordable.  Besides you have a job, and this will prove how responsible you can be; won't your parents be "so" proud?  The process only takes a short while, sign a few papers, and viola you have the keys and your'e on the road!

Borrowing money to pay for your 1st car was simple and exciting.  The dealer said that the title to the car will held as "collateral" on the loan as security in case you are unable to make the required payments.  No biggie, you plan on making the payments and making them on time, so no worries about that.  Besides, you plan to work more and even hope to trade that car in for a newer one in the near future.  And listen, if you can't pay it off, they will just take the car back and sell it to someone else.

When we talk about lending or borrowing money we use the term credit and debit. Credit generally is the term associated with where or who the money is coming from. A creditor is the person or entity that is doing the lending. As the one borrowing, you are named as the debtor.  And as you pay on the borrowed money, the payments are considered debits to your account balance; thus the term "debit".  If you have a debit card, you know that the money is instantly paid out of a bank account, usually a checking account that you have funds in.

There are several types of credit and it may help to try and define them. For example you may hear the term "Consumer Credit"?  Well basically consumer credit is the credit (or should we say the ability to purchase or pay) used by consumers to purchase non-investment goods or services that are consumed and whose value depreciates quickly" 
source: www.investopedia.com

Non-investment consumable goods are things like food, clothing, entertainment, cell phones, your internet service, and other short-life items you buy on a regular basis.  You may use a credit card to make these kinds of purchases, and that type of buying using credit is referred to as "revolving credit", because for a lack of a better explanation, it seems to continue to happen repeatedly on a very short cycle.

Besides revolving credit there is also what is called "Non-revolving Consumer Credit". Non-revolving consumer credit includes car loans and student loans.  In 2014 is was reported that non-revolving consumer debt amounted to $2.4 Trillion Dollars. As stated in the first paragraph, student loans account for $1.3 Trillion Dollars, nearly half of all of the non-revolving consumer credit debts outstanding.

The total of all Consumer Debt for both the Revolving and Non Revolving Consumer Credit debt in America is reported to be a staggering $3.3 Trillion.  Again, the student loans owed are a full one-third of that total.  Remember this... car loans are secured by a title, while student loans are fully unsecured.

Now there is another segment of the credit business which also needs a quick glance; the home and commercial mortgage market.  Purchases of real estate like homes, condos, and commercial properties all fall into the mortgage business.  A mortgage is simply the loan of money to purchase a property where the lender holds title to the property until the mortgage (or loan) is paid off. In other words, the property is the borrower's collateral and the property "secures" the loan.  If the buyer fails to make the payments, the lender forecloses on the property and takes it back or re-sells the property, much the same as the car dealer would do.

The total money in the mortgage marketplace is also very significant, however borrowing in the mortgage business has seen a slight reduction recently in total dollars being borrowed. Mortgages were reported at the end of 2014 to be at $13.43 Trillion Dollars and this secured debt total has actually come down from a 2008 all-time high of $14.72 Trillion.  Compare this to the increase reported in the total student loan debt, which continues to climb upward.

So what about "unsecured debts"?  Student loans are essentially categorized as unsecured debt. Meaning there is nothing tangible securing the loan and the lender is loaning the money on the promise to pay only.  Back when student loans first became the norm, the U.S. Government enlisted the help of banks and financial institutions to help students get a college education by offering direct loans to students and providing the money to the banks. 

These Government programs included "grants" and loans funded by Congress in the form of Education Bills and establishment of programs like the Perkins Loan Program, and the Federal Direct Student Loan Program (now re-named the William D. Ford Federal Direct Loan Program) and a host of other programs including Pell Grants, Parent Loans, etc, etc.

Once the Federal Government realized the scope of the size and the complexity of the monster they created, the Department of Education sought help to manage and administer the student loan program.  Initially the responsibility to process education loans and track student debtors and money lent fell upon the individual colleges and universities, who themselves were ill prepared to become lenders, bank managers and accountants overnight.  Nearly overnight another government monster had been created.

Overwhelmed with those tasks, the schools quickly opened the business up to outside enterprises that operated as "servicing agencies" under rigid government rules and regulations.  Agencies who then hired thousands of people and yet while operating under the banner of non-profits, received millions and millions of dollars of taxpayer money to do the bookkeeping for the U.S. Department of Education.  Today the monster is out of control.

The most frightening aspect of all of this, is that no one is doing anything to reign in the beast. All the Federal Government has done is to continue to loan money in larger and larger amounts.  There are no credit checks, no background checks, no attempts made to assess the ability of the borrower to be able to pay off the loans, and yes, no collateral required.

The number of student loans increased nearly 85% since the 2008 recession, and the estimate is that over 40 million people owe student loans.  While a report in USA Today claimed that about 39% of those loans are in deferment status and the other 61% are in repayment, I seriously question those statistics as they fail to mention the percentage of loans that are in default!  In fact checking the internet I found the default rate to be stated at nearly 14%.  

Again, I personally believe those numbers are not the facts.  I tend to believe that the Department of Education is deliberately reporting false information in an attempt to hide the truth, that the student loan crisis is a lot bigger than the congress and the public is being told!  One only has to do some simple research - and while you are at it include a search on how many students are going through bankruptcy to discharge their loans by way of an Adversary Proceeding.  There are thousands of cases under the Undue Hardship Clause, 11 USC §523(a)(8), and hundreds of thousands of dollars of student debt being discharged.

What it amounts to is the government is gambling with taxpayer money, betting on the future ability of the borrower to be gainfully employed and re-pay thousands and tens of thousands of dollars once they graduate.  What they have failed to do is have any tangible jobs waiting!

I recently read an article where the by-line was "It's the Economy Stupid", which is a phrase attributed to former President Bill Clinton during the 1992 presidential campaign.  Today's economy is in my humble opinion, on the verge of a total collapse. How in the world can this nation continue to go down the path it is on without taming the debt monsters?  

The recent passage of the debt ceiling bill has America now at $18 trillion dollars of "unsecured debt" to the world banking federations; essentially the Federal Reserve which is as many fail to know NOT a government banking institute, but a privately funded and operated bank owned by the rich and elite of the world.  The Federal Reserve basically runs the printing press at the U.S. Treasury and prints money like there is no end to it.

Well, there is an END COMING!  The bubble is going to burst.  One of the largest bubbles about to pop is the student loan bubble.  I am of the opinion, it can no longer be sustained, the Department of Education has tried to hold this together for way too long.  The truth is out! 

The number of loans overdue and in serious default has never been higher, the age of debtors has never been higher, the dollar amounts owed and unpaid has never been higher.
Yet the U.S. Department of Education (DOE) is either in complete denial or in complete conspiracy mode.  

Last time I wrote about one of the newest schemes available to delinquent student loan borrowers, called the REPAYE program.  For decades now the DOE has offered forms of repayment avenues to help struggling students extend the payment schedule.  All I see is that the DOE has realized the monster is too big to contain, and that giving the monster a little longer rope, might ease the inevitable attack, death and destruction hiding in the bushes. 

When the monster rises up, take notice... and don't say I didn't warn you!  In the meantime, if you cannot see any way out of the woods, consider learning about 11 USC §523 (a) (8).

My future blogs are going to provide more valuable help in what you need to know and just how it can be done.  You are not alone, there are thousands right now who need a way out!

Happy (debt free) New Year!

Yours truly,
Bob Preston













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