Sometimes people wonder how their payments get out of control so quickly. And many people have a wrong idea about how interest rates on big loans work. This article is designed to help explain the choice one person made, as revealed in a bankruptcy case. This case is In re Hixson, 450 B.R. 9 (S.D.N.Y. 2011), Hixson tried to get rid of just some of his debt – the part represented by his ex-wife, who wasn’t paying, and never had paid, a cent on their joint debt.
Hixson graduated from the Julliard School of Music with a Ph.D. in clarinet in 1998. His student loans at the time were 91 thousand dollars and change. He was married to a woman about whom not much is said – but she had loans totalling about $47,500. That’s all we really know, so what follows is a mixture of guess-work and hypotheticals. But it is intended to be realistic and to show the situation the couple faced.
Let’s suppose that Hixson had several loans with an average interest rate of 7%. This is the way they’re done – every year is a different loan in most programs, and they can have different interest rates. Applying the loan calculator, this is what he faced, more or less. We’re going to guess that he had agreed to a ten-year payment plan. Using our favorite loan calculator (click here for an explanation of how to use it, if you need one), we plug in $91,000, interest at 7% and “120 payments” and we get…
He was on the hook for $1,056.59 per month. That’s pretty much, but if you have a pretty good job it would at least be possible. But who would want to? Hixson, whose degree was in clarinet, was probably counting on getting a university position. This apparently did not happen.
Now let’s consider his then-wife, who had about $47,500 in loans. We’ll just say they averaged 8% interest, and that she, too, was going to pay them over the course of ten years. Here’s what she was looking at:
She was on the hook for $576.31, so together the couple was looking at ten years of payments at a little over $1,600 per month. Again – possible if one or both were in teaching positions. We don’t know what her degree was in, or what it was. What we do know is that the couple didn’t like what they were facing, because they agreed to consolidate their loans. Let’s figure they got a slightly better rate by doing so. We’ll say that the rate on the consolidated loan was 6%, although again we emphasize we do not know what it really was. If that was so, and they kept their payment schedule to a “new” schedule of ten years, here’s what they faced:
Not much savings there, so it is possible we have got some of the numbers wrong. No matter, because what happened afterwards is really more important. In the seventeen months following this loan consolidation, Hixson made 12 payments of approximately $440 each. It isn’t clear why the payments were that size, and Hixson’s wife made no payments – then, or ever.
About 18 months after consolidating their debts, Hixson and his wife divorced. This means that they were both on the hook for the total amount due, but they were no longer married. It would appear from the case, though vaguely, that the ex-wife agreed to pay her loans, but that she never did. In any event, Hixson stopped paying, too, in December 2000. No payments were made until the Department of Education caught up with Hixson and began garnishing wages in October of 2004. They garnished him for between two hundred and six hundred dollars for a year before he declared bankruptcy. The DOE never made any attempt to collect from Hixson’s ex-wife. Hixson was not a clarinet professor – he was apparently a computer internet sales person.
After declaring bankruptcy, Hixson apparently stopped paying on the debt for another four years (although this isn’t clear). What is clear is that in December 2006, Hixson was facing a debt now totalling approximately $195,000. He tried to get it discharged.
At the time relevant to the case, Hixson was making about $40,000 take-home pay per year and living in NYC. His ex-wife had never paid a cent, and the DOE was after Hixson for it all. He faced two options: ten years of payments about $2100 per month (more than all of the money he had, after necessaries) or 21 years of $808/month payments. The bankruptcy court found that Hixson’s situation was not “undue hardship” that would allow any of the debt to be reduced. It also found that, because Hixson had not been making payments, he had not satisfied the “good-faith” test that the courts require for there to be any right to relief at all.
The Point of this Article
We do not know what Hixson did, or “how it all turned out.” We seriously doubt it turned out well for anybody other than the university which sold Hixson a nearly useless degree that took him at least six years to earn, cost whatever out of pocket (or in work) that Hixson had already paid before the case began, plus the $100,000 in loans Hixson got stuck with. Hixson’s total projected payments (not counting anything paid before the bankruptcy court’s ruling): about $350,000. And these are after-tax dollars – so they likely imply a real cost more like $500,000.
After paying enough to buy a mansion, Hixson will, if he manages, be left with nothing but his degree. We simply wish to point out what a disaster this probably was for Hixson. Be very careful before taking on a student loan!
We have no connection to this calculator, but it will allow you to put in payment terms (number and interest rate) and determine how much money you could borrow; or it can help you take the loan principle and figure out how much you will have to pay – over a length of time you can set – to pay it off. In other words, this program lets you get a realistic handle on the amount of blood, sweat and tears your educational loan will cost. We hope it makes you take a hard look at the universities and their tuition rates.
For Help with Student Loans
If you are either considering signing or co-signing for a student loan, or if you are at any stage in student loan repayment, you may be interested in our report on student loans.
The only sure way to avoid trouble with student loans is not to get into it. Be careful and know what you’re doing.
A Simplified Explanation of Student Loan Repayment
Why they get out of control so quickly
Sometimes people wonder how their payments get out of control so quickly. And many people have a wrong idea about how interest rates on big loans work. This article is designed to help with that, and it comes in large part from our Report on Student Loans and our discussion of a case everyone considering signing up for a student loan, and especially considering loan consolidation with another person, should read carefully. This case is In re Hixson, 450 B.R. 9 (S.D.N.Y. 2011),
A Simplified Student Loan Scenario
Suppose you borrow $100 at 10% interest and you agree to make one payment per year. At the end of year one, you will owe $110. To make any progress, you must pay more than ten dollars (the interest); since it’s a student loan with a 100-year maturity, your payment is $11. It isn’t magic or fancy book-keeping. To make progress you must pay more than the interest, otherwise it gets added to the principle. Your $11 payment will reduce the total owed by only one dollar.
Times are rough, though, so you seek and get a deferment of that first payment. At the end of year 2, you now owe $121. Your $11 payment will not make any headway on the principle, but it will hold things steady. If you need a second deferment, you are now on a downward spiral – even if you make all your scheduled payments till doomsday, you will still get further and further behind.
This won’t happen. Instead, your payments will rise. After a few deferments your payments will be significantly higher and will stretch out just as far into the future as ever. In other words, deferments in which the interest continues to run are extremely dangerous and are to be avoided if possible. If you renegotiate the deal (consolidating your loans, for example), you can possibly change the payments back, but you will do this at the price of increasing the number of payments unless you can get a lower rate of interest, which is not likely for student loans.
Leverage and the Idea behind Student Loans
The idea behind student loans is simple: you pay one price for an asset that should help you in many ways over a long term. Inflation should help, too, because although your income should go up over time simply because of inflation (as well as your increasing experience), your payments will remain constant. Thus your payments should, in theory, go down relative to your income.
That’s the theory. It’s easier to see in something tangible, like a house. Suppose you buy a house for $100,000 with an interest rate of 5%. You pay $10,000 down and agree to pay $100/month for as long as it takes. If the price of the house goes up 10% in the first year, you have made a great bargain: the house is now worth $110,000. The amount you spent to get that house was only $11,200, so you have made $8,800. If your income has kept up with inflation, your hundred dollar payment will be easier to pay than it was at the start, too.
Student loans theoretically work the same way. You pay something down and take out loans for tuition, and you get a sort of two-faced asset: your education and a job using that education. The job, hopefully, is better than you would have gotten without the education, and it should also appreciate over time, so the value of your assets will rise, while inflation will reduce the real impact of your loan payments.
Not So Fast
The theory behind taking loans is easy, so why did so many homeowners go broke in the early 2000s? Because the home-buying spree, like student loans, were based on a premise that isn’t always right. The asset you buy isn’t always worth it – and prices don’t always go up. If prices go down, or if the educational asset does not result in financial gain, and if inflation is low, the leverage can cut the other way. The payments remain constant (or go up if payments are missed), while the ability to pay goes down.
And this is what has happened to so many people in the 2000s. Our Report on Student Loans discusses the way bankruptcy law has affected the equation and makes some suggestions about what to do if you are struggling with student loan payments. For help with the math of your loan, we suggest that you use a loan calculator, and you will find the link to that in the side panel. For a case study of the choices and issues facing one real person who took out student loans, please read A Case Study: The Choices Facing Hixson.
Are you considering getting a student loan? Do you have one already and happen to be considering your alternatives? You will be well-advised to use a loan calculator. This will allow you to determine the size of the payment you can live with – and we highly recommend you try not to underestimate how much misery loan payments can bring you.
How to Use the Calculator
We somewhat arbitrarily took $200 as the maximum monthly payment that would be tolerable. This number is based upon our own experience and what we’ve observed. Note that the payment schedule is for ten years. Considering what we’ve said about leverage, if you have a good job, it can make sense to make your payments over this long, or even longer, a period. But we hated every minute of ours, and the world is unpredictable, so the longer period exposes you more to the risk of losing your job or other changes. You could sign up for a longer period and make extra payments, and that is what we did.
In any event, in the example above, we chose $200 as the monthly payment, a 9% interest rate, and a ten year period (120 payments) and clicked on “calculate.” The calculator returned the “Loan Amount = $15,788.34” And so we know that we could not get a loan larger than that, on those terms without exceeding the $200 per month payment.
What if we could get a better interest rate, though? Suppose we got an interest rate of 5%? That seems almost free compared to the rates for credit cards! How big a loan could we get without going over our $200 payment ceiling?
As you can see, that yielded a loan total of $18,856.27. As we point out in our Student Loan Report, that’s about a fourth of the cost of one year at Harvard or Yale. So what if you ignored our warnings about length of payment schedule and went with a repayment period of 20 years (this would likely be half of your entire work life, so we almost hate even to mention it). How much could you borrow then?
We made the change by changing number of payments from “120” to “240.” In other words, you can borrow $30,305.06 if you agree to repay for twenty years. That’s still less than half a year’s cost of the Ivy League Schools, and under a year’s out-of-state tuition for most state universities. So let’s flex one last time, and consider doubling our acceptable payment amounts to $400 per month for twenty years. That’s way too much, in our opinion, but here are the calculations:
With a simple rate of interest, doubling the payments allows you to borrow twice as much. And so, for the price of $400 per month for twenty years, you can almost afford a year at an Ivy League school.
We deliberately presented the information this way so that you would feel every cent and every minute. It is our belief that there are almost no circumstances where agreeing to anything like this makes sense. To see the real-life calculations facing the plaintiff (bankrupt person) in the Hixson case we refer to in our article on repaying student loans, please read A Case Study: The Choices Facing Hixson. In Hixson, the student got out of school with approximately $100,000 in debt and no job in his subject. It’s a pretty sad tale, but every person contemplating a student loan should consider it.
We have no connection to this calculator, but it will allow you to put in payment terms (number and interest rate) and determine how much money you could borrow; or it can help you take the loan principle and figure out how much you will have to pay – over a length of time you can set – to pay it off. In other words, this program lets you get a realistic handle on the amount of blood, sweat and tears your educational loan will cost. We hope it makes you take a hard look at the universities and their tuition rates.
http://yourlegallegup.wpengine.com/wp-content/uploads/2018/03/YLLU_Main_Logo.png00Ken Giberthttp://yourlegallegup.wpengine.com/wp-content/uploads/2018/03/YLLU_Main_Logo.pngKen Gibert2018-06-16 02:35:342018-10-04 17:19:35How to Calculate Student Loans
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http://yourlegallegup.wpengine.com/wp-content/uploads/2018/03/YLLU_Main_Logo.png00Ken Giberthttp://yourlegallegup.wpengine.com/wp-content/uploads/2018/03/YLLU_Main_Logo.pngKen Gibert2018-06-16 02:12:182018-10-04 17:23:04Rule against Hearsay – Your Best Weapon against Debt Collectors
The following is an email from a user of the Litigation materials. This customer used our materials to file a response, discovery, and to respond to a motion for summary judgment. She was ready for trial, but the debt collector gave up rather than fight at that point.
Dear Ken,
Thanks to you and your informative materials and website, we scared off the Debt Buyer, Midland Funding! Today was my day in court and guess what? The attorney for the Plaintiff, Midland Funding, did not show up. The judge had a shocked look on his face, because I am guessing, this was not normal for the court. I made a motion to dismiss, and it was granted.
After buying your Debt Defense System, and listening to your conference calls, plus watching and listening to the videos and articles on the website, I was armed with enough knowledge to do what needed to be done. Serving discovery, including request for production of documents and interrogatories and then responding to their Motion for Summary Judgment, and then the coup de grace, the Plaintiff actually withdrawing their motion for summary judgment, gave me the courage and skills to face them head on.
Most people today have debt problems and are facing harassment and possibly default judgments. EVERYONE should arm themselves with your material.
I will highly recommend your website and materials to everyone.
THANK YOU!!!!
Joanna McConnell
http://yourlegallegup.wpengine.com/wp-content/uploads/2018/03/YLLU_Main_Logo.png00Ken Giberthttp://yourlegallegup.wpengine.com/wp-content/uploads/2018/03/YLLU_Main_Logo.pngKen Gibert2018-06-16 01:49:532018-10-04 17:28:33Testimonial from Joanna
What you should do if you’re worried about bills or debt collectors – real help for real people
In this article we’re briefly going to jump right in – actually all the way in – to the topic of debt collection. That’s because I want you to know, in a solid, specific way, why you have such a good chance to win if you get sued by a debt collector. You’ll see that by the time we finish this video.
There’s much more to learn, of course, and we’re even going to go back and fill in a few of the gaps from today’s discussion, but for now I want to show you that defending yourself from debt collectors isn’t – and doesn’t need to be – magical in any way. There are no secret methods here, no weird or bizarre tricks like writing things at angles or declaring that your mother sold you into slavery when she signed your birth certificate. There’s just knowing who the debt collectors are and how they operate, and knowing what to do about that in court.
Anybody can do it. Really. And if you do it, you will probably win your case.
Now before I get started, I want to tell you a little bit about lawyer-speak. I do that sometimes, and I want you to know how to take it. For example, I said above that if you understand what I’m about to tell you and do it right, you will “probably” win your case. Against almost all debt collectors and except in rare situations, I mean that you absolutely should win your case. But… nothing in legal life is guaranteed. It’s drilled into us in law school and later in practice that unexpected things happen, and people do wrong – they don’t know something, pay attention, or care sometimes when they should. That stuff happens, we all know it does, and it’s why I say things like “probably” when other people might sound more certain. I have a habit of speaking more precisely. Marketing and advertising is usually the opposite of that. So don’t worry – I wouldn’t tell you stuff if I didn’t think the chances were overwhelming that it would do you good. See that? I did it again! And I’ll probably do it all through these videos and articles. Don’t worry about that.
Okay, so you didn’t know it, but we were talking about what’s called the “Rule against Hearsay.”
That’s what’s called a “rule of evidence.” Rules of evidence control what a court is allowed to consider in rendering its decision. In debt collection cases, this is absolutely critical. I estimate that fully 95% or more of every debt collection case that actually goes to trial or is resolved on motion for summary judgment, will be determined by the way the rules of evidence are applied.
We’ll go into this in more detail later. For now, I want you to understand that courts are allowed to consider only evidence given under oath in court – unless there’s a specific rule that would allow something else to be considered. Think about it – among other things, that means that business records are not allowed – because they’re not evidence given under oath in court – unless there’s a specific rule that would allow them in.
The rule that debt collectors use is the “business records exception” (to the rule against hearsay). That rule is slightly different in different places, but it always requires someone who is familiar with the way records are kept to testify to certain specific things. And DEBT COLLECTORS ALMOST NEVER CAN TESTIFY TO THE WAY RECORDS WERE KEPT BY THE ORIGINAL CREDITORS. That means that if you object and know what to say, the debt collectors can virtually never get their most important evidence in front of the court. They must lose their case then, and you must win.
We’ll talk more about the specifics later, but bear in mind that debt collectors buy vast quantities of debt at a time, and they so rarely need effective affidavits from the original creditors that they really essentially never get them. They probably won’t have them in your case, and won’t be able to get them, either. If you know how to object and (1) invoke the rule against hearsay and (2) point out their inability to follow the business records exception, you should be able to win your case.
Sometimes judges aren’t ready to listen to you, and we’ll talk about that in a later video, too. But for now: learn how to use the rule against hearsay, and you should win your case. No magic. Just the rules of evidences as they SHOULD be applied.
http://yourlegallegup.wpengine.com/wp-content/uploads/2018/03/YLLU_Main_Logo.png00Ken Giberthttp://yourlegallegup.wpengine.com/wp-content/uploads/2018/03/YLLU_Main_Logo.pngKen Gibert2018-06-16 01:44:072018-10-04 17:33:04Why you should Win if Sued for Debt
Find the rules that will apply to your case, learn them, and follow them even if you have good reason to think you could get away without doing that. That’s because it’s the debt collectors who need the court to “relax” (ignore) certain rules, and there’s a risk that a court that gives you a break on some procedure ALSO gives the debt collector a break on the rules of evidence.
That’s what you don’t want.
http://yourlegallegup.wpengine.com/wp-content/uploads/2018/03/YLLU_Main_Logo.png00Ken Giberthttp://yourlegallegup.wpengine.com/wp-content/uploads/2018/03/YLLU_Main_Logo.pngKen Gibert2018-06-16 01:40:172018-10-04 17:37:25The Rules – Your Anchor to Justice – Learn and Follow Them
http://yourlegallegup.wpengine.com/wp-content/uploads/2018/03/YLLU_Main_Logo.png00Ken Giberthttp://yourlegallegup.wpengine.com/wp-content/uploads/2018/03/YLLU_Main_Logo.pngKen Gibert2018-06-16 01:33:112018-10-04 17:43:07Worried about Debt? You Are Not Alone
Why people don’t do the things they need to do. Procrastination is murder in debt defense, where you often have only a few days to respond to a suit. And over the longer haul, debt is a problem that tends to get worse. Why don’t people do whatever is necessary to protect themselves? Maybe you just need a little extra motivation.
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http://yourlegallegup.wpengine.com/wp-content/uploads/2018/03/YLLU_Main_Logo.png00Ken Giberthttp://yourlegallegup.wpengine.com/wp-content/uploads/2018/03/YLLU_Main_Logo.pngKen Gibert2018-06-16 01:22:532018-10-04 17:50:13Get Hopping – Defend Yourself when Sued for Debt
Case Study on Student Loans – Hixson
The Choices Facing Hixson
Sometimes people wonder how their payments get out of control so quickly. And many people have a wrong idea about how interest rates on big loans work. This article is designed to help explain the choice one person made, as revealed in a bankruptcy case. This case is In re Hixson, 450 B.R. 9 (S.D.N.Y. 2011), Hixson tried to get rid of just some of his debt – the part represented by his ex-wife, who wasn’t paying, and never had paid, a cent on their joint debt.
Hixson graduated from the Julliard School of Music with a Ph.D. in clarinet in 1998. His student loans at the time were 91 thousand dollars and change. He was married to a woman about whom not much is said – but she had loans totalling about $47,500. That’s all we really know, so what follows is a mixture of guess-work and hypotheticals. But it is intended to be realistic and to show the situation the couple faced.
Let’s suppose that Hixson had several loans with an average interest rate of 7%. This is the way they’re done – every year is a different loan in most programs, and they can have different interest rates. Applying the loan calculator, this is what he faced, more or less. We’re going to guess that he had agreed to a ten-year payment plan. Using our favorite loan calculator (click here for an explanation of how to use it, if you need one), we plug in $91,000, interest at 7% and “120 payments” and we get…
He was on the hook for $1,056.59 per month. That’s pretty much, but if you have a pretty good job it would at least be possible. But who would want to? Hixson, whose degree was in clarinet, was probably counting on getting a university position. This apparently did not happen.
Now let’s consider his then-wife, who had about $47,500 in loans. We’ll just say they averaged 8% interest, and that she, too, was going to pay them over the course of ten years. Here’s what she was looking at:
She was on the hook for $576.31, so together the couple was looking at ten years of payments at a little over $1,600 per month. Again – possible if one or both were in teaching positions. We don’t know what her degree was in, or what it was. What we do know is that the couple didn’t like what they were facing, because they agreed to consolidate their loans. Let’s figure they got a slightly better rate by doing so. We’ll say that the rate on the consolidated loan was 6%, although again we emphasize we do not know what it really was. If that was so, and they kept their payment schedule to a “new” schedule of ten years, here’s what they faced:
Not much savings there, so it is possible we have got some of the numbers wrong. No matter, because what happened afterwards is really more important. In the seventeen months following this loan consolidation, Hixson made 12 payments of approximately $440 each. It isn’t clear why the payments were that size, and Hixson’s wife made no payments – then, or ever.
About 18 months after consolidating their debts, Hixson and his wife divorced. This means that they were both on the hook for the total amount due, but they were no longer married. It would appear from the case, though vaguely, that the ex-wife agreed to pay her loans, but that she never did. In any event, Hixson stopped paying, too, in December 2000. No payments were made until the Department of Education caught up with Hixson and began garnishing wages in October of 2004. They garnished him for between two hundred and six hundred dollars for a year before he declared bankruptcy. The DOE never made any attempt to collect from Hixson’s ex-wife. Hixson was not a clarinet professor – he was apparently a computer internet sales person.
After declaring bankruptcy, Hixson apparently stopped paying on the debt for another four years (although this isn’t clear). What is clear is that in December 2006, Hixson was facing a debt now totalling approximately $195,000. He tried to get it discharged.
At the time relevant to the case, Hixson was making about $40,000 take-home pay per year and living in NYC. His ex-wife had never paid a cent, and the DOE was after Hixson for it all. He faced two options: ten years of payments about $2100 per month (more than all of the money he had, after necessaries) or 21 years of $808/month payments. The bankruptcy court found that Hixson’s situation was not “undue hardship” that would allow any of the debt to be reduced. It also found that, because Hixson had not been making payments, he had not satisfied the “good-faith” test that the courts require for there to be any right to relief at all.
The Point of this Article
We do not know what Hixson did, or “how it all turned out.” We seriously doubt it turned out well for anybody other than the university which sold Hixson a nearly useless degree that took him at least six years to earn, cost whatever out of pocket (or in work) that Hixson had already paid before the case began, plus the $100,000 in loans Hixson got stuck with. Hixson’s total projected payments (not counting anything paid before the bankruptcy court’s ruling): about $350,000. And these are after-tax dollars – so they likely imply a real cost more like $500,000.
After paying enough to buy a mansion, Hixson will, if he manages, be left with nothing but his degree. We simply wish to point out what a disaster this probably was for Hixson. Be very careful before taking on a student loan!
Link to a Loan Calculator
We have no connection to this calculator, but it will allow you to put in payment terms (number and interest rate) and determine how much money you could borrow; or it can help you take the loan principle and figure out how much you will have to pay – over a length of time you can set – to pay it off. In other words, this program lets you get a realistic handle on the amount of blood, sweat and tears your educational loan will cost. We hope it makes you take a hard look at the universities and their tuition rates.
For Help with Student Loans
If you are either considering signing or co-signing for a student loan, or if you are at any stage in student loan repayment, you may be interested in our report on student loans.
For More on student loans and the probable political consequences, read Occupy Wall Street and Debt Jubilee.
Repaying Student Loans
The only sure way to avoid trouble with student loans is not to get into it. Be careful and know what you’re doing.
A Simplified Explanation of Student Loan Repayment
Why they get out of control so quickly
Sometimes people wonder how their payments get out of control so quickly. And many people have a wrong idea about how interest rates on big loans work. This article is designed to help with that, and it comes in large part from our Report on Student Loans and our discussion of a case everyone considering signing up for a student loan, and especially considering loan consolidation with another person, should read carefully. This case is In re Hixson, 450 B.R. 9 (S.D.N.Y. 2011),
A Simplified Student Loan Scenario
Suppose you borrow $100 at 10% interest and you agree to make one payment per year. At the end of year one, you will owe $110. To make any progress, you must pay more than ten dollars (the interest); since it’s a student loan with a 100-year maturity, your payment is $11. It isn’t magic or fancy book-keeping. To make progress you must pay more than the interest, otherwise it gets added to the principle. Your $11 payment will reduce the total owed by only one dollar.
Times are rough, though, so you seek and get a deferment of that first payment. At the end of year 2, you now owe $121. Your $11 payment will not make any headway on the principle, but it will hold things steady. If you need a second deferment, you are now on a downward spiral – even if you make all your scheduled payments till doomsday, you will still get further and further behind.
This won’t happen. Instead, your payments will rise. After a few deferments your payments will be significantly higher and will stretch out just as far into the future as ever. In other words, deferments in which the interest continues to run are extremely dangerous and are to be avoided if possible. If you renegotiate the deal (consolidating your loans, for example), you can possibly change the payments back, but you will do this at the price of increasing the number of payments unless you can get a lower rate of interest, which is not likely for student loans.
Leverage and the Idea behind Student Loans
The idea behind student loans is simple: you pay one price for an asset that should help you in many ways over a long term. Inflation should help, too, because although your income should go up over time simply because of inflation (as well as your increasing experience), your payments will remain constant. Thus your payments should, in theory, go down relative to your income.
That’s the theory. It’s easier to see in something tangible, like a house. Suppose you buy a house for $100,000 with an interest rate of 5%. You pay $10,000 down and agree to pay $100/month for as long as it takes. If the price of the house goes up 10% in the first year, you have made a great bargain: the house is now worth $110,000. The amount you spent to get that house was only $11,200, so you have made $8,800. If your income has kept up with inflation, your hundred dollar payment will be easier to pay than it was at the start, too.
Student loans theoretically work the same way. You pay something down and take out loans for tuition, and you get a sort of two-faced asset: your education and a job using that education. The job, hopefully, is better than you would have gotten without the education, and it should also appreciate over time, so the value of your assets will rise, while inflation will reduce the real impact of your loan payments.
Not So Fast
The theory behind taking loans is easy, so why did so many homeowners go broke in the early 2000s? Because the home-buying spree, like student loans, were based on a premise that isn’t always right. The asset you buy isn’t always worth it – and prices don’t always go up. If prices go down, or if the educational asset does not result in financial gain, and if inflation is low, the leverage can cut the other way. The payments remain constant (or go up if payments are missed), while the ability to pay goes down.
And this is what has happened to so many people in the 2000s. Our Report on Student Loans discusses the way bankruptcy law has affected the equation and makes some suggestions about what to do if you are struggling with student loan payments. For help with the math of your loan, we suggest that you use a loan calculator, and you will find the link to that in the side panel. For a case study of the choices and issues facing one real person who took out student loans, please read A Case Study: The Choices Facing Hixson.
How to Calculate Student Loans
Are you considering getting a student loan? Do you have one already and happen to be considering your alternatives? You will be well-advised to use a loan calculator. This will allow you to determine the size of the payment you can live with – and we highly recommend you try not to underestimate how much misery loan payments can bring you.
How to Use the Calculator
We somewhat arbitrarily took $200 as the maximum monthly payment that would be tolerable. This number is based upon our own experience and what we’ve observed. Note that the payment schedule is for ten years. Considering what we’ve said about leverage, if you have a good job, it can make sense to make your payments over this long, or even longer, a period. But we hated every minute of ours, and the world is unpredictable, so the longer period exposes you more to the risk of losing your job or other changes. You could sign up for a longer period and make extra payments, and that is what we did.
In any event, in the example above, we chose $200 as the monthly payment, a 9% interest rate, and a ten year period (120 payments) and clicked on “calculate.” The calculator returned the “Loan Amount = $15,788.34” And so we know that we could not get a loan larger than that, on those terms without exceeding the $200 per month payment.
What if we could get a better interest rate, though? Suppose we got an interest rate of 5%? That seems almost free compared to the rates for credit cards! How big a loan could we get without going over our $200 payment ceiling?
As you can see, that yielded a loan total of $18,856.27. As we point out in our Student Loan Report, that’s about a fourth of the cost of one year at Harvard or Yale. So what if you ignored our warnings about length of payment schedule and went with a repayment period of 20 years (this would likely be half of your entire work life, so we almost hate even to mention it). How much could you borrow then?
We made the change by changing number of payments from “120” to “240.” In other words, you can borrow $30,305.06 if you agree to repay for twenty years. That’s still less than half a year’s cost of the Ivy League Schools, and under a year’s out-of-state tuition for most state universities. So let’s flex one last time, and consider doubling our acceptable payment amounts to $400 per month for twenty years. That’s way too much, in our opinion, but here are the calculations:
With a simple rate of interest, doubling the payments allows you to borrow twice as much. And so, for the price of $400 per month for twenty years, you can almost afford a year at an Ivy League school.
We deliberately presented the information this way so that you would feel every cent and every minute. It is our belief that there are almost no circumstances where agreeing to anything like this makes sense. To see the real-life calculations facing the plaintiff (bankrupt person) in the Hixson case we refer to in our article on repaying student loans, please read A Case Study: The Choices Facing Hixson. In Hixson, the student got out of school with approximately $100,000 in debt and no job in his subject. It’s a pretty sad tale, but every person contemplating a student loan should consider it.
Link to a Loan Calculator
We have no connection to this calculator, but it will allow you to put in payment terms (number and interest rate) and determine how much money you could borrow; or it can help you take the loan principle and figure out how much you will have to pay – over a length of time you can set – to pay it off. In other words, this program lets you get a realistic handle on the amount of blood, sweat and tears your educational loan will cost. We hope it makes you take a hard look at the universities and their tuition rates.
Rule against Hearsay – Your Best Weapon against Debt Collectors
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Testimonial from Joanna
Notes from a User of the Litigation Materials
The following is an email from a user of the Litigation materials. This customer used our materials to file a response, discovery, and to respond to a motion for summary judgment. She was ready for trial, but the debt collector gave up rather than fight at that point.
Dear Ken,
Thanks to you and your informative materials and website, we scared off the Debt Buyer, Midland Funding! Today was my day in court and guess what? The attorney for the Plaintiff, Midland Funding, did not show up. The judge had a shocked look on his face, because I am guessing, this was not normal for the court. I made a motion to dismiss, and it was granted.
After buying your Debt Defense System, and listening to your conference calls, plus watching and listening to the videos and articles on the website, I was armed with enough knowledge to do what needed to be done. Serving discovery, including request for production of documents and interrogatories and then responding to their Motion for Summary Judgment, and then the coup de grace, the Plaintiff actually withdrawing their motion for summary judgment, gave me the courage and skills to face them head on.
Most people today have debt problems and are facing harassment and possibly default judgments. EVERYONE should arm themselves with your material.
I will highly recommend your website and materials to everyone.
THANK YOU!!!!
Joanna McConnell
Why you should Win if Sued for Debt
What you should do if you’re worried about bills or debt collectors – real help for real people
In this article we’re briefly going to jump right in – actually all the way in – to the topic of debt collection. That’s because I want you to know, in a solid, specific way, why you have such a good chance to win if you get sued by a debt collector. You’ll see that by the time we finish this video.
There’s much more to learn, of course, and we’re even going to go back and fill in a few of the gaps from today’s discussion, but for now I want to show you that defending yourself from debt collectors isn’t – and doesn’t need to be – magical in any way. There are no secret methods here, no weird or bizarre tricks like writing things at angles or declaring that your mother sold you into slavery when she signed your birth certificate. There’s just knowing who the debt collectors are and how they operate, and knowing what to do about that in court.
Anybody can do it. Really. And if you do it, you will probably win your case.
Now before I get started, I want to tell you a little bit about lawyer-speak. I do that sometimes, and I want you to know how to take it. For example, I said above that if you understand what I’m about to tell you and do it right, you will “probably” win your case. Against almost all debt collectors and except in rare situations, I mean that you absolutely should win your case. But… nothing in legal life is guaranteed. It’s drilled into us in law school and later in practice that unexpected things happen, and people do wrong – they don’t know something, pay attention, or care sometimes when they should. That stuff happens, we all know it does, and it’s why I say things like “probably” when other people might sound more certain. I have a habit of speaking more precisely. Marketing and advertising is usually the opposite of that. So don’t worry – I wouldn’t tell you stuff if I didn’t think the chances were overwhelming that it would do you good. See that? I did it again! And I’ll probably do it all through these videos and articles. Don’t worry about that.
Okay, so you didn’t know it, but we were talking about what’s called the “Rule against Hearsay.”
That’s what’s called a “rule of evidence.” Rules of evidence control what a court is allowed to consider in rendering its decision. In debt collection cases, this is absolutely critical. I estimate that fully 95% or more of every debt collection case that actually goes to trial or is resolved on motion for summary judgment, will be determined by the way the rules of evidence are applied.
We’ll go into this in more detail later. For now, I want you to understand that courts are allowed to consider only evidence given under oath in court – unless there’s a specific rule that would allow something else to be considered. Think about it – among other things, that means that business records are not allowed – because they’re not evidence given under oath in court – unless there’s a specific rule that would allow them in.
The rule that debt collectors use is the “business records exception” (to the rule against hearsay). That rule is slightly different in different places, but it always requires someone who is familiar with the way records are kept to testify to certain specific things. And DEBT COLLECTORS ALMOST NEVER CAN TESTIFY TO THE WAY RECORDS WERE KEPT BY THE ORIGINAL CREDITORS. That means that if you object and know what to say, the debt collectors can virtually never get their most important evidence in front of the court. They must lose their case then, and you must win.
We’ll talk more about the specifics later, but bear in mind that debt collectors buy vast quantities of debt at a time, and they so rarely need effective affidavits from the original creditors that they really essentially never get them. They probably won’t have them in your case, and won’t be able to get them, either. If you know how to object and (1) invoke the rule against hearsay and (2) point out their inability to follow the business records exception, you should be able to win your case.
Sometimes judges aren’t ready to listen to you, and we’ll talk about that in a later video, too. But for now: learn how to use the rule against hearsay, and you should win your case. No magic. Just the rules of evidences as they SHOULD be applied.
The Rules – Your Anchor to Justice – Learn and Follow Them
Find the rules that will apply to your case, learn them, and follow them even if you have good reason to think you could get away without doing that. That’s because it’s the debt collectors who need the court to “relax” (ignore) certain rules, and there’s a risk that a court that gives you a break on some procedure ALSO gives the debt collector a break on the rules of evidence.
That’s what you don’t want.
Worried about Debt? You Are Not Alone
Sample Debt Dispute Letter
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Get Hopping – Defend Yourself when Sued for Debt
Why people don’t do the things they need to do. Procrastination is murder in debt defense, where you often have only a few days to respond to a suit. And over the longer haul, debt is a problem that tends to get worse. Why don’t people do whatever is necessary to protect themselves? Maybe you just need a little extra motivation.
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