By Mike Roberts The Credit Solution Copyright 2012 by Mike ...

[Pages:17]By Mike Roberts

The Credit Solution Copyright 2012 by Mike Roberts

Copyright Information:

Copyright 2011, 2012 by Mike Roberts

All rights reserved. No part of this book may be reproduced, distributed, transmitted, stored in a retrieval system or used in any form or by any means, whether electronic, mechanical or digital, except as may be expressly permitted by applicable copyright laws or as expressly allowed by the publisher or the author in writing.

Publisher Information:

Published by Smart Consumer Solutions, LLC, 601 Van Ness Ave., STE E869, San Francisco, CA 94102.

Disclaimer:

All of the information contained in this publication is true and accurate according to the best information available to me at the time of publication. Please understand, however, that laws and credit industry practices and procedures are constantly evolving; so you should independently update laws, practices and facts before you take action. I do not accept any responsibility for errors or mistakes of any kind, or for any damages or losses that might result from the use of any information provided.

Also, I am not a lender, a collection agent or a credit reporting agency. I am not an accountant or an attorney, and nothing in these materials is intended as professional advice. It is personal opinion only. I am providing it to you without any warranties or guarantees whatsoever. To obtain advice as to the tax or legal consequences of any action covered in these materials, or any action that you might consider based on these materials, you should consult an attorney, an accountant, or both. What I have tried to do here is simply offer solid, useful information that I have obtained through my own personal and business experience. Any action you choose to take based on any information that I provide, including forms and other attachments, is entirely your responsibility.

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Contents

Introduction ..................................................................................................... 3 The goal of this report...................................................................................... 4 Walking away isn't an option ............................................................................ 5

Bankruptcy won't erase your student loans ............................................. 5 Cancellation probably isn't available either ............................................. 6 Loan repayment options ................................................................................... 7 Deferment/Forbearance .......................................................................... 7

Deferment ..................................................................................... 8 Forbearance .................................................................................. 8 Consolidation.......................................................................................... 9 Advantages ................................................................................... 9 Limitations .................................................................................. 10 Rehabilitation........................................................................................ 10 Student loans and your credit rating ............................................ 11 Loan repayment is OK.................................................................. 11 Rehabilitation is much better ....................................................... 11 How to find the money for rehabilitation ..................................... 12 How rehabilitation works ............................................................. 13 Some final points on rehabilitation .............................................. 15 Conclusion ..................................................................................................... 16

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Introduction

Back when John Kennedy was President, a high school graduate with good grades could attend a name-brand college or university without breaking the bank. In those days the annual bill for tuition, room and board at a good school ran somewhere between $1,400 and $2,300. That wasn't necessarily cheap (in 1960 dollars), but it was low enough that you could get a degree without going into debt. This was true even if your parents weren't rich.

That was then. It's a very different story now. Today if you're an in-state student attending a public institution you can expect to pay around $22,000 per year for tuition and other necessary expenses, and that's considered a bargain. If you're out of state, or if you're enrolled in a private school, you can count on paying twice as much. These are numbers that make higher education simply unaffordable for most people.

And the need for a quality education has kept pace with the rising costs. Now more than ever, you have to get a certificate or a degree if you want to land a really good job and enjoy a stable, financially rewarding career. In the words of Lennon and McCartney, an education is your "ticket to ride."

So what do you do if you need a good education and neither you nor your parents can write a check to pay for it? The answer is simple: You go into debt. You borrow the money to go to school. Sure, you do your best to borrow as little as possible (you apply for some tuition aid here, you work a part-time job there), but still you borrow.

With college costs as high as they are these days, you have no choice. If you're lucky, you don't end up borrowing too much. You get your degree, find a good job, and make payments that you can comfortably handle. Within a few years the payments are history, your student debt is gone, and you're on your way.

But fewer and fewer people are so fortunate. According to the Wall Street Journal, two-thirds of today's higher education students borrow to pay their bills; and by the time they graduate, they owe an average of some $23,000. Many, especially graduate and professional school students, take on six-figure debts. If you have student loan debt that you can't pay, then this report is here to help you. In the following pages I'm going to discuss what your options are if

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you can't pay your student loan(s), and I'm going to show you how to avoid trashing your credit as you work your way through your options.

The goal of this report

As you probably know, student loans come in a dizzying array of types and flavors. Some are subsidized by the federal government, and others are not. Sometimes the federal government is the lender, sometimes the school loans the money, and sometimes it's a private lending institution. Each program has its unique features; they all have their strengths and their weaknesses.

In this report, I'm not going to get into which loan programs might be best for you; and I'm not going to describe any of them in detail, at least as far as their requirements and merits are concerned. There are two good reasons for this:

1. There is already plenty of solid, detailed information available about all the various loan programs, how they differ, and how to apply for them. Here are just a couple of the excellent resources available: (a website operated by the U.S. Department of Education), and (a privately published site that has a wealth of information. You can go to these sites, and to some of the links on these sites, and find out everything you could possibly want to know about the pros and cons of these various programs.

2. I'm assuming that you have already made your loan program choices, and that you have already borrowed your money. A long discussion now about why you should have taken another path or chosen a different option isn't going to help you.

If you're reading this report, you're probably not starting out in the student loan process. You're past that. You've borrowed the money, you've finished your schooling, and you're in the pay back phase. You're either having trouble making your student loan payments right now, or you see trouble on the horizon. My goal here isn't to help you choose the right loan; it's to help you figure out how to handle repayment as effectively as possible, and to keep your credit intact while you do it.

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But let's deal with one obvious issue before we get any deeper into this. Is there any way to get rid of a student loan without paying it at all?

Walking away isn't an option

It would be terrific if there was a way to just make your student loans disappear; but as a practical matter, there isn't.

? With many kinds of debt, if you can't pay you can just lay low and wait for the statute of limitations to expire on your loan. Eventually the lender gives up and leaves you alone. This won't work with student loans. Why? Because there is no statute of limitations on student loan debt. Your lender can keep trying to collect forever.

? In very rare circumstances, it is possible to get a student loan forgiven (wiped out); but you have to meet some incredibly tough criteria. Believe me; you don't want to meet these criteria. If you do, your student loans are the least of your problems.

Bankruptcy won't erase your student loans

What about bankruptcy? It's there to wipe out debt, right? Well, it's true that the purpose of bankruptcy is to clean out debt and give folks a fresh start; but certain kinds of debt survive the process. Tax debt is one of those kinds, and unfortunately, student loan debt is another. You should assume that you'll have to repay your student loans even if you go through bankruptcy and get rid of all your other debt. This isn't good news, but it's the truth in almost every case. The reason isn't complicated.

? The federal government is deeply involved in student lending. In both subsidized and unsubsidized loan programs, the government guarantees the loans. This means that if a loan goes into default, the government must write a check to the unfortunate lender. When that happens, the lender's mood improves, but now the government is out the money and it doesn't like that at all.

? To protect itself, the government has made sure that defaulted student loans don't get discharged in bankruptcy. This was easy to accomplish because Congress writes the bankruptcy rules. They decide which types

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of debt are eligible for discharge in bankruptcy and which are not. Student loan debt is not wiped out in bankruptcy for the same reason that income tax debt is exempt from discharge. This is money owed to the government, and the government intends to collect it.

There is one exception to this general rule. It is technically possible to have a student loan discharged in bankruptcy, but only if you can convince the bankruptcy judge that forcing you to repay the debt "will impose an undue hardship on you and your dependents."

This "undue hardship" test is extremely difficult to meet, and the requirements are technical. Don't try this on your own. If you think you might want to file bankruptcy, then discuss this "undue hardship" option with your attorney and make sure he or she is on board and ready to plead your case for you. You should understand at the outset that meeting the "undue hardship" test is a long shot.

? To have your student loan discharged in bankruptcy, you must be able to show, with clear and convincing proof, that you and your family are locked in a spiral of poverty from which you will never escape.

? It has to be obvious that if you are forced to repay your student loan, you and your dependents will be deprived of the necessities of life indefinitely.

? You have to show that you made regular payments over an extended period (five years or more) before you filed bankruptcy.

If you're an ordinary, competent person with some reasonable hope of bettering yourself over your lifetime, you're probably not going to meet the "undue hardship" test.

Cancellation probably isn't available either

Under federal law and the rules of the Department of Education, student loan lenders will cancel a loan under certain, very special circumstances. Unfortunately, you won't qualify for this solution to your problem unless

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? You can't pay because you are terminally ill, or because you are totally and permanently disabled (you have a serious physical or mental impairment that makes you unable to earn income doing anything);

? You can't pay because you have died;

? You don't have to pay because you have somehow managed to convince your bankruptcy judge to discharge your debt; or

? Your school closed while you were attending and before you could finish your studies.

These are the main reasons why people are able to have their loans cancelled. There are one or two others that almost never apply. You can learn more about the details here: . Again, if you're an ordinarily capable person with the ability to provide for yourself, cancellation isn't going to be an option for you.

Loan repayment options

OK. Let's assume that you're not going to be able to just walk away from your student loan debt and forget about it. All is not lost. Even if you can't make your payments, you've got some options. Depending on your circumstances, you might be able to get your payments deferred, get a forbearance agreement from your lender, consolidate your loans, or work your way through a process called loan rehabilitation.

Let's look at each of these options in more detail.

Deferment/Forbearance

Both deferment and forbearance provide some temporary relief because they both let you suspend your payments for a specified period of time. They are not the same, however; and you decide to go this route you want deferment if you can get it. Here's why:

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