Mentor

Author: it-teaam

  • Is Your Student Loan Forgiveness Invalid?

    Is Your Student Loan Forgiveness Invalid?

    This is not an April Fool’s joke.

    If you are counting on Public Service Student Loan Forgiveness – the federal program that forgives your student loan debt after 10 years of qualifying work in public service and 120 consecutive student loan payments – then pay close attention.

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    Is Your Student Loan Forgiveness Invalid?

    As first reported by the New York Times, a student loan borrower’s acceptance into a federal student loan forgiveness program may not be binding and could be rescinded by the U.S. Department of Education.

    In a legal filing March 23, the Education Department said that student loan borrowers could not rely on the approval letters sent by the program’s administrator, FedLoan Servicing, because any approvals are considered tentative.

    Four student loan borrowers (and the American Bar Association) sued the Education Department to seek reinstatement of their eligibility for the Public Service Loan Forgiveness Program. The plaintiffs claim they initially qualified for Public Service Loan Forgiveness, only to have the decision subsequently reversed.

    “The [U.S. Department of Education]’s response is illogical, untenable and bewildering,” Linda Klein, president of the American Bar Association, told the  New York Times. “[An unreliable certification system] exposes those undertaking public service work – exactly what Congress intended them to do – to crippling financial risk.”

    So, you now work in public service – or plan to work in public service. What does this all mean and what should you do?

    Here is what you need to know about public service student loan forgiveness:

    1. Understand How Public Service Student Loan Forgiveness Works

    The Public Service Loan Forgiveness Program is a federal program that forgives federal student loans for borrowers who are employed full-time (more than 30 hours per week) in an eligible federal, state or local public service job or 501(c)(3) non-profit job who make 120 eligible on-time payments.

    There are only two types of federal student loans that qualify: Direct Loans (such as Stafford Loans) and a Federal Direct Consolidation Loan. Therefore, private student loans are not eligible.

    Today, more than 550,000 have signed up for Public Service Student Loan Forgiveness.

    It is important to note, however, that no student loans have been forgiven yet under this program, which began in 2007 and requires 10 years of employment in public service.

    The U.S. Department of Education has not released the application for Public Service Loan Forgiveness, although it is expected to be available before October 2018 (the date when the first borrowers become eligible, since this date is 10 years after the start of the program).

    In order to be eligible for Public Service Loan Forgiveness, you have to make the majority of the 120 student loan repayments under an income-driven repayment plan.

    2. This Is An Individual Lawsuit With Specific Circumstances

    You don’t need to panic that suddenly your years of hard work in public service will not result in student loan forgiveness. This lawsuit involves individual litigants with specific, unique cases.

    Therefore, their circumstances may not apply to you.

    3. Choose Your Employer And Type of Employment Carefully

    The Consumer Financial Protection Bureau estimates that 25% of the U.S. workforce is employed in public service, and many of those employees may be eligible for some form of student loan forgiveness, including Public Service Loan Forgiveness.

    For example, one of the litigants in the case worked at a non-profit organization.

    While the Public Service Student Loan Forgiveness program includes employment at a 501(c)(3) non-profit organization, not every non-profit or type of employment qualifies.

    Keep that in mind when considering Public Service Loan Forgiveness, your employer and position. If you are unsure whether an employer or role would qualify for Public Service Loan Forgiveness, then you may want to look at alternative options that you know would qualify.

    Of course, this begs the question that how do you know if your employer qualifies if you are allegedly told it does and later find out it does not? In this circumstance, there is no bright line rule.

    This lawsuit may provide some insight. The Education Department also may provide more clarification as the program starts to forgive student loans.

    4. Public Service Student Loan Forgiveness Should Not Be Your Primary Reason For Entering Public Service

    If your calling is to work in public service, thank you for your commitment to serve our country and for your sacrifice.

    However, entering a public service career to have your student loans forgiven after 10 years should not be the driving force for your decision.

    Over the course of 10 years, the program’s rules may change and it is possible that the program looks different than when you started your public service career.

    It is also possible the program does not exist in its current form, or at all.

    5. The Trump Administration May Change Student Loan Repayment

    Last October, then-candidate Donald Trump proposed an income-based repayment plan that would allow student loans borrowers to cap their monthly student loan payments based on their income and then have their student loans forgiven after a certain period of time.

    Currently, under the Pay As You Earn (PAYE) and Revised Pay As You Earn (REPAYE) income-driven repayment plans, you pay 10% of your discretionary income each month toward your federal undergraduate student loans for 20 years, at which point any remaining balance on your federal undergraduate student loan is forgiven.

    Under REPAYE, if you have graduate school student loan debt, the repayment period is 25 years before your remaining student loan debt is forgiven.

    During the presidential campaign, Trump said he would combine the existing repayment plans into a single plan to make it less confusing for borrowers.

    While Trump’s proposal raises the monthly payment cap from 10% to 12.5% of income, his proposal forgives the remaining student loan balance five to 10 years sooner than the current income-driven repayment plans.

    How does Public Service Loan Forgiveness program fit within this framework?

    While the Trump administration has not enacted these proposals, the future of the Public Service Loan Forgiveness program is less clear.

    The program could be continued, modified, eliminated or folded in to a new repayment plan program.

    If Congress were to eliminate Public Service Loan Forgiveness (and place all borrowers into a single income-based repayment program), for example, existing borrowers likely would be grandfathered in, since they borrowed with the expectation of entering public service and qualifying for loan forgiveness.

    Public Service Loan Forgiveness alternatively could be restricted by capping the amount of loan forgiveness, restricting the eligible fields or establishing a means test for forgiveness.

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  • More Fees For Student Loan Borrowers In Default?

    More Fees For Student Loan Borrowers In Default?

    Will student loan borrowers in student loan default have to pay higher student loan default fees?

    Last week, the Trump administration issued its first policy on student loans.

    As a result, loan guarantee agencies that collect on defaulted debt can charge borrowers who have defaulted on their federal student loans fees up to 16% on their student loan balances – even when these borrowers promise to make good on their student loans within 60 days.

    The action comes days after a Consumer Federation of America report showed that 1.1 million borrowers defaulted on their federal student loans last year.

    Here is what you need to know, whether it impacts you and what you can do about it.

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    What Happened

    In a two-page “Dear Colleague” letter, the U.S. Department of Education asked guarantee agencies to disregard a July 2015 memorandum issued by the Obama administration that forbid the agencies from charging up to 16% of the principal and interest accrued on student loans if the borrower entered the government’s student loan rehabilitation within 60 days of default.

    Sen. Elizabeth Warren (D-MA) and Rep. Suzanne Bonamici (D-OR) sent a letter to Secretary of Education Betsy DeVos urging the Education Department to uphold the Obama administration’s guidance on collection fees, which they said resulted in an “unnecessary financial burden.”

    “Congress gave borrowers in default on their federal student loans the one-time opportunity to rehabilitate their loans out of default and re-enter repayment,” Warren and Bonamici wrote. “It is inconsistent with the goal of rehabilitation to return borrowers to repayment with such large fees added.”

    The Obama memorandum pertained to federal loans issued by banks prior to 2010, known as the Federal Family Education Loan (FFEL) Program. Since 2010, all federal student loans have been issued only by the federal government.

    The memorandum was issued after the 7th circuit court of appeals asked the U.S. Department of Education for guidance in a lawsuit against United Student Aid Funds (USA Funds), which challenged the assessment of collection costs. Bryana Bible, a student loan borrower, sued USA Funds after being charged $4,547 in collection costs on a loan on which she defaulted in 2012. Although Bible signed a rehabilitation agreement with USA Funds to set a reduced payment schedule, USA Funds charged her the fees.

    The U.S. Department of Education sided with Bible in an amicus brief, which led USA Funds to sue the Education Department in 2015. USA Funds paid $23 million to settle a class action lawsuit related to the Bible case without admitting any wrongdoing.

    What Prompted This Decision: Higher Student Loan Defaults Fees

    The Trump administration rolled back its predecessor’s position on the grounds that there should have been public input on the issue.

    However, Warren questioned whether Taylor Hansen, a former for-profit college lobbyist who worked at the Education Department, played any role in the decision.

    Hansen’s father, Bill Hansen, served as Deputy Secretary of Education under President George W. Bush and runs USA Funds, which has been involved in a multi-year lawsuit with the Education Department.

    The Education Department said that the younger Hansen resigned Friday and did not have any conflicts of interest. Prior to 2015, USA Funds earned approximately $15 million per year from these fees.

    As reported by Bloomberg, according to the National Council of Higher Education Resources, the Education Department had never flagged the fee as inappropriate in any of the more than 135 audits or reviews it conducted of companies such as United Student Aid Funds since 1992.

    From the viewpoint of the National Council of Higher Education Resources, DeVos is simply “righting a wrong” by reversing Obama’s directive.

    Direct Loans Not Impacted

    If you have student loans from the U.S. Department of Education – such as a federal Direct Loan such as a Stafford Loan – you are not impacted by this action.

    What You Can Do About This: Student Loan Hack

    Your best option is to consolidate your student loans.

    Under the new rule, if you have a FFEL loan, you essentially no longer have a 60-day period for protection from these fees.

    However, when you consolidate your FFEL student loans into a Direct Consolidation Loan, you can be protected by the 60-day grace period.

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  • Student Loan Costs Will Rise 18% This Summer

    Student Loan Costs Will Rise 18% This Summer

    College and graduate school are about to get more expensive.

    Here’s what you need to know.

    Undergraduate Student Loans

    Interest rates for federal undergraduate Student Loan Costs will rise from 3.76% to 4.45% – an increase of 0.69 percentage points, or 18.4% – starting July 1.

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    Graduate Student Loans

    Graduate students will also pay more for school. The cost for a federal direct unsubsidized graduate student loan will rise from 5.31% to 6.00% – a 13% increase.

    PLUS Loans

    PLUS Loans, which both graduate students and parents of undergraduate students can use, will rise from 6.31% to 7.00% – a 10.9% increase.

    The Financial Impact

    Each year, Congress sets the fixed interest rates for federal student loans. This rate is based on the May 10 auction of U.S. Treasury notes, and applies only to federal student loans disbursed from July 1, 2017 – June 30, 2018.

    The changes do not apply to private student loans, which are student loans not issued by the federal government. If you have a federal student loan issued prior to July 1, 2017, these changes do not impact your student loans.

    While the relative percentage increases may seem substantial, the absolute financial impact is less severe.

    For example, a college student who borrows $10,000 before July 1 would owe $12,013 under a standard 10-year repayment plan and current 3.76% interest rate. Under the new 4.45% interest rate, a college student who borrows $10,000 after July 1 would owe $12,408.

    The difference is only $395 over 10 years, which equates to a few extra dollars per month in interest.

    According to Mentor, there are over 44 million student loan borrowers who collectively owe $1.4 trillion in student loan debt. Today, student loan debt is the second highest consumer debt category in the U.S. – second only to mortgage debt.

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  • The Best Private Loans For Graduate School

    The Best Private Loans For Graduate School

    What are the best private loans for graduate school?

    If you are starting or returning to graduate school this fall, then it’s that time of year to start thinking carefully about your student loan strategy.

    Whether you are an aspiring dentist, doctor, pharmacist, veterinarian, lawyer or MBA, here is what you need to know to make an informed decision on the best private loans for graduate school.

    According to Mentor, you can expect to graduate with the following student loan debt if you pursue one of these degrees:

    Dental School: $260,000

    Medical School: $180,000

    Pharmacy School: $160,000Veterinary School: $140,000

    Law School: $140,000

    Given the expected debt load at graduation, it is critical that you understand your options now and have a student loan game plan in place before you start graduate school.

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    What are the best private loans for graduate school?

    When it comes to the best private loans for graduate school, you have two primary options: federal student loans and private student loans.

    For federal student loans, there are two types: Unsubsidized Stafford Loans and Graduate PLUS Loans.

    1. Stafford Loans

    Amount You Can Borrow:  For graduate school, you can borrow $20,500 per year of Stafford loans with an aggregate limit of $138,500, which includes any Stafford loans that you borrowed as an undergraduate.

    These loans are fixed rate Direct unsubsidized loans. Each year, under federal law, Congress sets the interest rate on federal student loans with an effective date of July 1.

    The current interest rate for Direct Unsubsidized Loans for graduate students from July 1, 2016 – June 30, 2017 is 5.31%.

    Fees: When you borrow a Stafford Loan, the federal government charges an origination fee of 1.069% of the disbursed loan amount. The fee amount is deducted from the amount that you borrow.

    Therefore, the student loan amount that you receive is lower than the amount that you borrowed. However, you are still responsible to repay the full amount of the student loan that you borrowed.

    For example, if you borrow $20,500 in Stafford loans, you will pay an origination fee of $219.14 and receive a net amount of $20,280.86. You will still be financially responsible to repay the $20,500.

    Repayment: Student loan repayment begins six months after you graduate or become enrolled less than half time.

    2. Graduate PLUS Loans

    Amount You Can Borrow:  Graduate PLUS Loans are for both student and parent borrowers (Parent PLUS Loans). You can borrow up to the cost of attendance as determined by your school, less any financial aid received.

    Unlike Stafford loans, there is no aggregate limit. To qualify for a Graduate PLUS Loan, you must not have an adverse credit history. You have to complete a Free Application For Federal Student Aid (FAFSA®) and can request a Direct PLUS Loan at StudentLoans.gov.

    The current interest rate for Graduate PLUS Loans from July 1, 2016 – June 30, 2017 is 6.31%. Like the Stafford loan, the Graduate PLUS Loan is a fixed rate loan (but a 1% higher interest rate).

    Fees: When you borrow a Graduate PLUS Loan, the federal government charges an origination fee of 4.076% of the disbursed loan amount, which is deducted from your loan principal before your student loan is disbursed and sent to your school.

    Repayment: If you are a student borrower, repayment begins six months after you graduate or become enrolled less than half time. If you are a parent borrower, typically repayment begins once your loan is fully disbursed.

    However, you may request a deferment while your child is enrolled at least half-time and for an additional six months after your child graduates, leaves school or drops below half-time enrollment.

    3. Private Loans For Graduate School

    A private student loan is a non-government student loan that may be issued by a bank, credit union or other financial services company.

    Unlike Stafford and Graduate PLUS Loans, which are both fixed interest rate student loans, private student lenders typically offer both fixed and variable interest rate loans.

    With private student loans, you typically have to start repayment while in school, but some lenders have programs to minimize the payments while you are in school. If you have a strong credit profile, you can find private student loans with both lower fixed and variable interest rates than federal government student loans.

    Can I Refinance Private Loans For Graduate School?

    Yes, you can refinance private loans for graduate school and receive a lower interest rate if you meet certain qualifications and are approved with a private student loan lender.

    With federal student loans, every borrower receives the same fixed interest rate regardless of a borrower’s underlying credit quality. If you have bad credit, this can work to your advantage because the federal government does not underwrite student loans based on credit scores.

    However, if you have a strong credit profile, you may be paying more for your student loans – at least initially – when you borrow as a graduate student.

    If you have a high credit score and are a responsible financial borrower, you will have an opportunity to refinance your student loans for a lower interest rate either before or after you graduate or in residency (depending on your degree type).

    The reason that you potentially can lower your interest rate when you refinance student loans is that unlike the federal government, private student loan lenders underwrite student loans based on the borrower’s underlying credit profile.

    This means that those borrowers with solid credit, or who have a qualified co-signer, benefit most from student loan refinancing (although there are other factors besides your credit profile such as monthly income, cash flow, debt-to-income and other metrics).

    Whether you pursue a Stafford Loan, Graduate PLUS Loan or private student loan (or a combination thereof), it’s never too early to get started on your student loan game plan.

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  • Navient Student Loan Lawsuit: What Navient Says Happened

    Navient Student Loan Lawsuit: What Navient Says Happened

    Have you heard about the Navient student loan lawsuit?

    Here is a question for you to ponder: does your student loan servicer owe you a fiduciary duty or are they just there to collect your student loan payments?

    Well, the answer may surprise you depend on who you ask.

    If you read Navient President & CEO Jack Remondi’s Medium blog, he will tell you that “At Navient, our priority is to help each of our 12 million customers successfully manage their loans in a way that works for their individual circumstances.”

    If you read Navient’s latest court filing in the ongoing CFPB student loan lawsuit, however, you’ll learn a more striking reality:

    According to court documents filed by Navient, “There is no expectation that the servicer will ‘act in the interest of the consumer.’”

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    Here is what you need to know and how it will impact your student loans:

    The Navient Student Loan Lawsuit

    If you have a student loan, there is a good chance that it may be serviced by Navient.

    Navient, which spun off from Sallie Mae and is the nation’s largest student loan servicer, has more than 12 million customers and services more than $300 billion of government and private student loans.

    In a student loan lawsuit filed against Navient in a Pennsylvania federal court in January, the Consumer Financial Protection Bureau (CFPB) alleged that, among other allegations, Navient “systematically and illegally [failed] borrowers at every stage of repayment,” including:

    • created obstacles to repayment by providing bad information;
    • processed payments incorrectly;
    • failed to act when borrowers complained;
    • illegally cheated many struggling borrowers out of their rights to lower payments, which caused them to overpay for their student loans;
    • deceived private student loan borrowers about requirements to release their co-signer from the loan; and
    • harmed the credit of disabled borrowers, including severely injured veterans

    The CFPB also alleged that Navient improperly directed borrowers into forbearance when these borrowers otherwise might have qualified for income-driven repayment plans, and did not adequately keep borrowers in income-driven plans informed of deadlines to maintain their eligibility under such plans.

    Navient’s Response

    In a statement, Navient denied all allegations and said the student loan lawsuit was politically motivated.

    According to Navient’s motion to dismiss filed on March 24, Navient operates pursuant to U.S. Department of Education contracts, which specify in detail how servicers are supposed to collect payments, communicate with borrowers and receive compensation for these activities.

    Navient notes that there has been no violation of any of these established legal rules, regulations or contract requirements.

    Navient notes that the CFPB has investigated Navient since 2013 and has not found any violations of actual servicing rules.

    Does Your Student Loan Servicer Owe You A Fiduciary Duty?

    This may come as a surprise to some student loan borrowers, but Navient says it is not a fiduciary financial advisor.

    According to Navient, Navient’s relationship with borrowers is that of an arm’s-length student loan servicer.

    Navient says its role is to collect payment owed by borrowers – and in this role, “the servicer acts in the lender’s interest,” and there is “no expectation that the servicer will ‘act in the interest of the consumer.’”

    Navient added that courts “routinely hold that servicers and lenders ‘do not owe borrowers any specific fiduciary duties based upon their servicer/borrower relationship.’”

    What If You Need Help Choosing The Best Student Loan Repayment Plan?

    You may reach a different conclusion depending whether you read Navient’s court filing or its CEO’s public blog posts.

    Navient’s motion to dismiss:

    “Borrowers could not reasonably rely on Navient to counsel them into alternative payment plans unless Navient had an affirmative duty to provide such individualized financial counseling. But the law imposes no general duty to provide information without some fiduciary relationship.”

    Navient further notes in its response to the CFPB student loan lawsuit that the U.S. Department of Education does not pay Navient enough to provide sufficient customer service that the CFPB would like Navient to provide.

    President & CEO Jack Remondi’s blog posts:

    In Remondi’s February 12 Medium blog post, he offered four ideas for a better student loan program. His fourth idea is to encourage borrowers to engage more with their student loan servicers.

    Similarly, if you read Remondi’s May 2016 blog post, he wrote, “At Navient, we make it a priority to educate our federal borrowers about income-driven options…These programs are our primary tool in helping borrowers avoid default. As a result, we are a leader enrolling borrowers in these programs.”

    If Navient does not owe you a financial responsibility, you may want to think twice about asking your student loan servicer for financial advice.

    Your Next Action Steps

    Given Navient’s response to the lawsuit, what are your next action steps?

    1. Understand all your student loan options

    If Navient says it may not act in your best interest, then it is time for you to get empowered. Don’t rely on your student loan servicer to have all the answers. Do your homework and understand your options:

    2. Prepare for any potential changes to your student loans in the Trump administration

    There may be several changes to your student loans in the Trump administration, including student loan forgiveness and fees for student borrowers in default, among others.

    Become familiar with the latest student loan views from President Trump and U.S. Secretary of Education Betsy DeVos.

    3. Contact the Consumer Financial Protection Bureau

    If you want to file a formal complaint regarding your student loan lender or student loan servicer, contact the Consumer Financial Protection Bureau.

    The CFPB supervises financial services companies and enforces federal consumer financial laws.

    Once you submit a complaint to the CFPB, the CFPB will forward your complaint to the student loan company or servicer, which will have 15 days to respond regarding your complaint and the proposed steps that will be taken to resolve your complaint. Once you receive the company’s response, you have 60 days to provide feedback.

    4. Look beyond your student loan servicer for help with your student loans

    It may seem counter-intuitive if you cannot rely on your student loan servicer to act in your best financial interest.

    You need an action plan that is tailored for your specific financial life circumstance.

    Your financial situation is unique, and therefore you need to find the option that is in your best interest.

    Don’t let your student loan servicer steer you toward a short-term option when you should choose the long-term solution. Knowledge is power when it comes to your personal finances.

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  • Can You Discharge Your Student Loans In Bankruptcy?

    Can You Discharge Your Student Loans In Bankruptcy?

    Are you considering filing for student loans bankruptcy? Here is what you need to know about bankruptcy and student loans so you’re fully informed.

    With Public Service Loan Forgiveness on the brink of elimination and federal student loan repayment programs expected to be restructured, student loan borrowers have plenty of new information to digest.

    One facet of higher education finance has not changed, however: the inability to discharge your student loans in bankruptcy.

    Mentor interviewed Josh Cohen, a Vermont-based attorney who specializes in student loans, to share his perspectives.

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    Mentor: Can your student loans be discharged in bankruptcy?

    Josh Cohen: Yes, but only if certain conditions are met. Normally, however, they are not dischargeable.

    Mentor: Let’s speak more about those conditions. In most jurisdictions, a borrower has to establish “undue hardship” under the Brunner test.

    Josh Cohen: Yes, the Brunner test is the legal test in all circuit [courts], except the 8th circuit and 1st circuit.

    The 8th circuit uses a totality of circumstances, which is similar to Brunner, but a bit easier to deal with.

    The 1st circuit has yet to declare a standard.

    In plain English, the Brunner standard says:

    1. the borrower has extenuating circumstances creating a hardship;
    2. those circumstances are likely to continue for a term of the loan; and
    3. the borrower has made good faith attempts to repay the loan. (The borrower does not actually have to make payments, but merely attempt to make payments – such as try to find a workable payment plan.)

    Of course there’s a bit of variance across federal districts, but that’s the basic framework.

    Mentor: What is the process to discharge student loans in bankruptcy?

    Josh Cohen: In order to have a student loan discharged through bankruptcy, an Adversary Proceeding must be filed (a lawsuit within bankruptcy court), where a debtor claims that paying the student loan would create an undue hardship for the debtor.

    Mentor: What are your views regarding private student loans compared to federal student loans?

    Josh Cohen: Private loans, unlike a mortgage or car debt, cannot be cancelled as easily in bankruptcy. Worse, many private lenders require a co-signer.

    That means two people are in trouble if the loan is not paid. The number of parents who are caught in this nightmare, trying to retire with this over their head, is astounding.

    Mentor: What’s the underlying reason why borrowers cannot file for student loans bankruptcy?

    Josh Cohen: There is a story about doctors crossing the stage as they graduate medical school with a diploma in one hand and a bankruptcy filing in the other.

    It is the fear that people would go to school and immediately file bankruptcy.

    Mentor: What happens when a borrower files for student loans bankruptcy, and what are the implications?

    Josh Cohen: There are many factors to consider when looking at bankruptcy. While most people believe internet myths, only a bankruptcy attorney can tell you the true implications – good and bad – of filing.

    Most people can keep their house and car. Unsecured debts like credit card debt goes away. Credit is impacted, but for a borrower who is already behind on payments, the credit damage may not be any worse then where they are.

    Mentor: Student loans used to be dischargeable in bankruptcy, but that changed over time. What happened?

    Josh Cohen: Congress made student loans non-dischargeable over a period of years.

    At first, [student loans] were dischargeable if they had been in repayment for five years.

    Then, [Congress] extended it to seven years. Then, in 1998, they removed discharge ablility except if a debtor could show that paying back the student loans would create an undue hardship. In 2005, they extended this protection to private student loans.

    No one really understands why Congress felt federal loans shouldn’t be discharged. Lots of other federal debt is dischargeable, including Small Business Administration (SBA) loans and taxes.

    Mentor: What advice would you give borrowers who are facing economic hardship and believe that they are unable to repay their student loans?

    Josh Cohen: For federal loans, look to the Income-Driven Repayment plans (IBR, ICR, PAYE and REPAYE). Payment is based on the borrower’s income and family size.

    If the payment is still unaffordable, look at why:

    Is it a budget issue that a bankruptcy could help?

    Would getting rid of credit card debt or medical bills free up cash flow to allow the payments to be affordable?

    Is the borrower living in a place with a higher than normal cost of living?

    Is the borrower living a bit higher than their means (it happens, but the borrower must be willing to admit this).

    Does the borrower have extenuating circumstances that affect their budget?

    Mentor: Those who oppose discharging student loans in bankruptcy might argue that the borrower is avoiding responsibility for a debt obligation that he or she committed to pay back. What would you say to those critics?

    Josh Cohen: In my eight years of doing student loan work, no one wants to walk away from their loans (unless there is a fraudulent school issue).

    What they want is fairness.

    Actually, I think bankruptcy can be more powerful than most people realize, including many bankruptcy attorneys.

    It’s not about getting rid of the loan, it’s about finding a way to survive it and making it affordable.

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  • 6 Reasons Why It’s Time To Fire Your Financial Advisor

    6 Reasons Why It’s Time To Fire Your Financial Advisor

    Finding the right financial advisor requires patience and the right chemistry.

    The good news is that there are many choices for you to find the right financial partner to protect your money and help it grow.

    Not every financial advisor, however, may be right for your specific financial needs.

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    Here are some surefire signs that it is time to replace your current financial advisor:

    1. Your financial advisor ignores your calls and emails

    If your financial advisor does not promptly return your calls or emails, it is a red flag. Your advisor should be available, responsive and proactive. Financial services is a client-centric business. The best financial advisors develop a personal relationship with their clients and contact them regularly – particularly during quarterly earnings and important intra-quarter news updates.

    2. Your risk tolerance doesn’t match your financial advisor’s risk tolerance

    Risk tolerance is an individual choice. There is no universal risk tolerance for all investors. Based on your investment strategy, you may be comfortable with certain risk thresholds. For example, a Millennial may invest in a basket of high growth technology stocks that may not be appropriate for a retiree. Don’t let a financial advisor convince you to take additional financial risk if you do not fully understand the consequences or are otherwise uncomfortable.

    3. Your financial background doesn’t match your portfolio to your investment goals

    If your investment goals are to grow your retirement portfolio and pay off your student loans, make sure your financial advisor not only listens and understands your objectives, but also has the requisite background to help you achieve your specific goals. Beyond target financial returns, your financial advisor should understand your outstanding debt, employment history, overall health, desire to purchase a home and estate planning needs.

    If you have significant student loan debt, for example, your financial advisor should have a solid understanding of student loan refinancing, student loan consolidation, student loan repayment and student loan forgiveness. If your financial advisor does not have this background, he or she should be able to recommend the appropriate external resources.

    4. Your financial advisor’s firm is not properly registered

    Do you have a financial advisor or an investment adviser (yes, spelled with an “e” in this case)?

    Make sure you know the difference.

    A “financial advisor” is a generic term that refers to a broker or registered representative. However, an “investment adviser” refers to an individual or company that registered with the Securities & Exchange Commission (SEC) or a state securities regulator. Investment advisers such as wealth managers, portfolio managers and asset managers give advice on behalf of registered investment advisers.

    The SEC regulates investment advisers who manage $110 million or more in client assets, while investment advisers with less than $100 million are regulated by state securities regulators. (Investment advisers with assets in between $100 million and $110 million may elect, but are not required, to register with the SEC).

    To verify your investment adviser, you can access the Financial Industry Regulatory Authority (FINRA) BrokerCheck or call 1-800-289-9999. You can also call the SEC’s Investment Adviser Public Disclosure database. Make sure also to check your financial advisor’s discipline record.

    5. Your financial advisor doesn’t clearly explain financial terms

    A financial advisor should explain investment choices in a manner that you can clearly understand. When it comes to investing, there are no dumb questions. If you don’t understand what EBITDA or P/E ratios really mean, ask. If you don’t understand what your investment advisor is saying, speak up. Don’t invest in companies that you do not understand. Mirror Warren Buffett. He avoids companies that he doesn’t understand. If he can do that, so can you.

    6. Your financial advisor is more like a salesman than trusted advisor

    Understand your financial advisor’s compensation structure. Not all financial advisors charge the same fees. Some are compensated based on a percentage of your assets. Others are compensated for certain investment products. You need to understand any conflicts of interest and how your financial advisor may benefit from a given investment decision. Watch out for high fee investment and insurance products. Always ask if there is a lower cost alternative that can achieve similar results (e.g., an ETF instead of an index fund).

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  • These Entrepreneurs Raised $221 Million To Beat Craigslist

    These Entrepreneurs Raised $221 Million To Beat Craigslist

    At the 2013 White House Correspondents Dinner, Conan O’Brien quipped that Matt Drudge, founder of the Drudge Report, was not in attendance because “he had a prior commitment to teach a web design class in 1997.”

    Successful minimalist websites are a rarity, but Drudge Report (which generates more than 750 million page views per month) and Craigslist are two that have bucked the trend.

    Founded in 1995 by Craig Newmark, Craigslist is the local classified advertisements website that generates over 50 billion page views per month – all without an iOS or Android app.

    For years, Craigslist has been the go-to website to buy and sell used items online. Until now.

    Enter Nick Huzar and Arean van Veelen.

    They are the two young entrepreneurs behind OfferUp, the mobile-driven local marketplace that is disrupting the way that we buy and sell merchandise.

    With over 33 million downloads and more than $14 billion in transactions, OfferUp is now the largest mobile marketplace in the U.S. Founded in 2011, the peer-to-peer commerce marketplace generated more transactions in less than five years than EBay North America had generated in its first 10 years.

    “Since the smartphone was just starting to really permeate our everyday lives, we wanted to make the most seamless, user-friendly mobile app that makes buying and selling locally easier than ever,” van Veelen said.

    With its headquarters in Bellevue, Washington, OfferUp enables users to buy and sell everything from furniture and electronics to cars and boats through its free mobile app. Users can conduct the entire transaction through their smart phone: snapping and uploading photos of an item to sell, adding a description and interacting with potential buyers. OfferUp is a national platform, but the goal is to buy and sell items within a user’s local community.

    Buyers can then message sellers to meet, and then pay for items through the app or in person. Unlike EBay, OfferUp currently does not charge sellers a listing fee or transaction fee. To ensure a more trustworthy transaction, the marketplace has a verified identification system (which requires state-issued identification and Facebook profile), user profiles, buyer and seller ratings and in-app messaging.

    Huzar, 39, serves as chief executive officer and van Veelen, 43, is chief technology officer. Prior to OfferUp, Huzar worked at Microsoft and T-Mobile and founded several start-ups. Van Veelen also worked at start-ups, including with Huzar at Konnects, a networking platform. Together, they oversee over 100 OfferUp employees.

    In her 2016 Internet Trends report, Mary Meeker, a senior partner at venture firm Kleiner Perkins Caufield and Byers, wrote that OfferUp users spend an average of 25 minutes per day on the OfferUp app, which is the same amount of time users spend on Instagram and Snapchat (and more time than on both Pinterest and Twitter).

    Huzar attributed the high level of engagement to OfferUp’s focus on a secure, frictionless user experience, an image-driven platform and the creation of a community built on personal connectivity.

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    The Investment Thesis: A Venture Capitalist Perspective

    Great investments are built on a solid investment thesis.

    Now valued at over $1 billion, OfferUp is no different.

    How did venture capitalists view the investment opportunity?

    The advent of the mobile revolution transformed the way in which people transact. Ask Jeff Jordan, a general partner at Andreessen Horowitz (an OfferUp investor), the former president of PayPal and the former president and chief executive officer of OpenTable. According to Jordan, as a mobile-first platform, OfferUp emerged as a disruptor by providing an improved user interface, frictionless experience and on-demand transactions from anywhere.

    “Nick and Arean did a fantastic job rethinking what a smartphone could do to deliver an easier, faster and more enjoyable user experience for both buyers and sellers, which in turn has driven both liquidity and virality in the marketplace,” said Justin Sadrian, a managing director at Warburg Pincus, an OfferUp investor. “We have been one of the most active investors in marketplace businesses around the world, and rarely have we seen the scale, liquidity, virality and growth that OfferUp has demonstrated in a market this big.”

    In the early 2000s, Craigslist disrupted the classified advertising market by converting newspaper readers to online users and thereby decimating the print media advertising model. Twenty years later, the smart phone is the new digital disruptor – and a major force in driving users from PC to mobile.

    In this technology shift, Huzar and van Veelen saw massive opportunity, particularly as Craigslist did not adapt to the new mobile paradigm. As new fathers, they needed to sell their old belongings to make room for their newborns, but felt limited by the existing online options.

    They created OfferUp to create a “simpler and more trusted way to buy and sell locally” – one in which users leverage the power and ease of their smart phone to take photos and then list and sell items in a more seamless way.

    “I strongly believe OfferUp will surpass Craigslist and all other competitors as the go-to marketplace for the American consumer to buy and sell locally,” said Josh Breinlinger, an OfferUp board member and managing director at Jackson Square Ventures, which led OfferUp’s Series A financing round. “To achieve this, they need to continue growing consumer awareness, increase seller liquidity (percentage of items that sell), and continue to emphasize ease of use and trust for all users.”

    OfferUp has raised over $221 million from some of the smartest minds in technology and finance, including one of its most recent investors, Max Levchin, co-founder of PayPal and co-founder and chief executive officer of Affirm.

    “OfferUp is one the most exciting e-commerce companies I have come across in a long time,” Levchin said in a statement last November. “While consumer commerce continues to evolve in specific areas, it’s rare to have a company completely redefine the marketplace experience from start to finish. OfferUp is that type of company and it has been rewarded by a fiercely loyal and engaged user base, and explosive growth. I am excited to work with Nick, Arean and the team there to continue to usher in the era of mobile-driven local commerce.”

    Other OfferUp investors include Coatue Management, Tiger Global, T. Rowe Price, Allen & Company, High Line Venture Partners, GGV Capital, Third Kind Capital, Altimeter Capital and Vy Capital, among others.

    How Can You Make Money On OfferUp?

    As a marketplace, OfferUp is not only positioned to help declutter your life, but it is also a monetization platform to convert unwanted items to extra cash.

    Huzar and van Veelen focused intently on understanding the competitive landscape, consumer behavior and the economic backdrop to design a tech-enabled solution for its customer base.

    According to a 2016 OfferUp and ClearVoice survey, OfferUp found that 48% of respondents consider their home to be cluttered with items they do not use, and 62% own more than 10 items they have not used in the past year. OfferUp also found that 46% of respondents find it difficult to meet their household expenses on time each month, and 50% have more than $1,000 in credit card debt.

    Despite these statistics, 68% plan to donate their unneeded items, and more than one in eight people planned to throw them in the trash. Why? Respondents feel that it is easier to donate than sell, citing the required time investment and amount of work.

    OfferUp is hoping technology will simplify the sale process and enable users to monetize the cash hiding in their home.

    Some users use OfferUp to help grow their small businesses. Vance Lile, a Vancouver, Washington resident, owns an antique reselling businesses that he uses as a second source of income. Greg Theer of Tacoma, Washington uses OfferUp to sell his unique clock and garden sculpture creations to help fund his son’s college tuition.

    Van Veelen sees the mobile trend continuing in 2018. “I think we’ll continue to see a shift towards mobile,” van Veelen said. “OfferUp was one of the first, truly mobile marketplaces and more and more experiences are going to continue to happen exclusively via smartphones.”

    Top 3 Tips From OfferUp To Convert Your Items To Cash

    Here are some pointers from OfferUp co-founder Arean van Veelen to maximize your profit:

    1. The top unused items in our homes are clothes and shoes (67%), games and toys (34%), electronics (33%), jewelry and accessories (22%) and kitchen supplies (18%).
    2. OfferUp has a very visual interface so the quality of your photos can impact how many offers you receive. Take photos of your item from all angles so that buyers can get a feel for the size and dimensions of the item you are selling.
    3. Unsure about a selling price? Rather than specify a price, sellers can also list their item as “not firm on price,” which means buyers are able to chat and negotiate with sellers before deciding on a price.

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  • Try These 4 Student Loan Tax Tricks

    Try These 4 Student Loan Tax Tricks

    If you want to save money on your student loans, try these 4 student loan tax tricks.

    There is a light at the end of the student loan repayment tunnel. And it comes at an unlikely time each year: tax season.

    Are you maximizing each and every tax benefit on your student loans for college and graduate school? If not, you’re not alone. The tax laws can be complicated, and it can be daunting to differentiate between a tax credit and tax deduction.

    So, let’s make it easy for you.

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    If you are paying student loans for your (or your child’s) education, here are four student loan tax credits and deductions that you potentially can take advantage of this tax season:

    Student Loan Tax Trick #1: Student Loan Interest Deduction

    This is the most classic student loan tax trick.

    With the Student Loan Interest Deduction, you can deduct up to $2,500 each year of student loan interest that you paid on a qualified student loan so long as you are enrolled at least half-time and are working toward a degree.

    A qualified loan means that you borrowed your student loan solely to pay for education expenses and did not borrow the student loan from a relative or through a qualified employer plan. Examples of qualified education expenses include tuition and fees, room and board, books, supplies, equipment and transportation, among other necessary expenses.

    You can only the deduct the lesser of $2,500 and the actual amount of interest that you paid, including any additional, voluntary student loan payments.

    For example, if you paid $10,000 of student loan interest this tax year, then you only can deduct $2,500 from your taxable income. Since the student loan interest deduction is an “above the line,” deduction, you do not need to itemize your deductions.

    To qualify for this student loan tax deduction, you must have a modified adjusted gross income of $80,000 or less ($160,000 if married filing jointly).

    To find out how much student loan interest you paid over the past year, you should review your Form 1098-E from your student loan lender.

    As long as your paid more than $600 in student loan interest, you should receive Form 1098-E. If you paid less than $600 in student loan interest, you can still qualify for the student loan interest deduction.

    Student Loan Tax Trick #2: The American Opportunity Credit

    The American Opportunity Credit is a tax credit that allows you (or a person paying for your education) to claim up to $2,500 per year for the first four years of school as you work toward a degree with at least half-time enrollment.

    You can apply the tax credit to the costs of college, including tuition and related expenses that are required for enrollment (such as books, supplies and equipment).

    This tax credits covers 100% of your qualified education expenses up to $2,000, and then 25% of the next $2,000 of qualified education expenses up to $2,500 total.

    To qualify for this tax credit, you must have a modified adjusted gross income of $90,000 or less ($180,000 if married filing jointly). Up to 40% of the tax credit may be refundable.

    Student Loan Tax Trick #3: The Lifetime Learning Credit

    The Lifetime Learning Credit is a tax credit that allows you to claim up to $2,000 per year for any college tuition, fees, books, supplies and equipment that were required for your course.

    There is no limit on the number of years that you can claim the Lifetime Learning Credit. To qualify for this tax credit, you must have a modified adjusted gross income of $65,000 or less ($131,000 if married filing jointly).

    This tax credit is a non-refundable tax credit, which means that the tax credit is limited to the amount of your total income tax owed. Therefore, if the tax credit is more than your income tax owed, you will not receive the excess amount as a refund.

    Student Loan Tax Trick #4: Tuition and Fees Deduction

    The Tuition and Fees Deduction, which expired in 2016, enabled you to reduce the amount of your income that was subject to income tax by up to $4,000. The deduction could be utilized for you, your spouse or a dependent for your tuition and fees (but not your room and board).

    To qualify for this tax deduction, you had to have a modified adjusted gross income of $80,000 or less ($160,000 if married filing jointly).

    What’s the difference between a tax credit and a tax deduction?

    A tax credit reduces the amount of income tax that you have to pay. A tax deduction reduces the amount of your income that is subject to income tax.

    Does a tax credit or tax deduction save me more money?

    A tax credit saves you more money than a tax deduction.

    Why?

    A tax credit is a dollar-for-dollar reduction of the income taxes that you owe. For example, a $2,000 tax credit means that you save $2,000 in taxes.

    A tax deduction saves you the amount of the deduction multiplied by your marginal tax rate. For example, if you are in the 30% tax bracket and qualify for a $1,000 tax deduction, your savings are $300 ($1,000 multiplied by 30%).

    Can you claim both the American Opportunity Credit and the Lifetime Learning Credit?

    Unfortunately, even if you are eligible, you cannot claim both the American Opportunity Credit and the Lifetime Learning Credit on your income tax return in the same tax year. You should claim the tax credit that maximizes your savings based on your specific, financial situation.

    Can you claim an education tax credit if you also claim an education tax deduction in the same tax year?

    Yes. If you claim an education tax credit, you can claim the Student Loan Interest Deduction.

    Can you still qualify for the Student Loan Interest Deduction if you are on an Income-Based Repayment (IBR) plan or Income-Contingent Repayment (ICR) plan?

    Yes. The IRS allows you to deduct student loan interest regardless of your student loan repayment plan.

    Which IRS tax forms do you use to take advantage of these student loan tax credits and student loan tax deductions?

    You can use IRS Form 8863 and Form 1040, and speak to a tax professional for more details.

    Is it better to pay off your student loans faster or should you make sure to at least qualify for these student loan tax deductions and student loan tax credits?

    You always should strive to pay off your student loans faster. That means making extra payments to reduce the principal amount of your student loans, which will save you money on interest costs.

    Tax deductions and tax credits are helpful, but you should never make a financial decision solely for tax reasons.

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