Student loan debt now exceeds credit cards

Eight thousand dollars and climbing. The debt counter keeps on turning for college freshman Allison Clevlend.


The 18-year-old University of Wisconsin-Oshkosh student has started her higher education under a new reality where debt sometimes has the final say over where she goes and what she does.


"Oshkosh was my last choice of school, but I didn't get the financial aid I need," said Clevlend, who lives at home and works part time to limit her need to borrow.

"I'm looking beyond college," she said.

Total student loan debt now exceeds total credit card debt in this country, according to Mark Kantrowitz, publisher of FinAid.org, a website that provides information about student aid and scholarships.

College graduates owe more than $850 billion in student loans, according to FinAid.org. The Federal Reserve estimates Americans owe about $828 billion in revolving credit, including credit card debt.

The change, which first happened in June, reflects the culmination of multiple trends: Consumers are paying down their credit cards, more students are going to college than ever and tuition continues to outpace financial aid.

"We have students who are living off their loans. When you get to that point, it's no wonder students are having to borrow the maximum," said Beatriz Contreras, director of financial aid at UWO. "That was not the intention of financial aid when it was started."

Loan critics say the ballooning rate of student borrowing has been largely overlooked while people focused on problems associated with credit card use.

"Like everything that I've been shouting for the past five years, no one really listened. The people who you would think would be up in arms were just not there," said Alan Collinge, who runs a Web site called StudentLoanJustice.org, where students can share stories about loan troubles.

Even some students don't know how much they owe.

"I guess it doesn't really bother me too much at this time," said William Durfee, 21, a math major at the University of Wisconsin-Oshkosh. He said he knows he borrowed in the range of $6,000 to $7,000 for the current semester, and he's taken similar sized loans for three previous years of college.

The way he sees it, "I'm going to find a higher paying job after finishing school, and that will help to pay it off," he said.


That sentiment has been echoed for years: Hard work in school should pay off with a college diploma and a good job.


A 2010 report from the College Board Advocacy and Policy Center estimates college begins to pay off for the average graduate by age 33. Compared with a high school graduate, the typical four-year college graduate who enrolled in a public university at age 18 has earned enough by then to compensate for being out of the labor force for four years and for borrowing enough to pay tuition and fees without grant aid.

But American's may have crossed a line where borrowing for school does more harm than good.

The number of students defaulting on their loans has been rising since 2003. According to the most recent federal Department of Education figures, 7 percent of students defaulted in 2008.

That number could be even worse. The Chronicle of Higher Education reported in July that one in every five government loans that entered repayment since 1995 went into default.

UWO Chancellor Richard Wells said responsibility for reducing student debt lies on everyone's shoulders. He said university officials must control costs, governments should reasonably subsidize higher education and students must work hard to graduate on time.

"It challenges us all in fundamental ways if we intend to improve the educational experience and control the costs," he said.

Contreras said she advises students to learn as much as they can about their loans to avoid problems, and she suggests families begin planning years in advance by saving money and pursuing scholarships to minimize the need to borrow.

"Awareness, awareness, awareness. Ask questions, and it's never too early to look into this," she said.

Debt-relief plans may surprise you

He lost his construction job in November 2009, and hasn’t found steady employment since, picking up handyman work and odd jobs wherever possible. His wife Emily took a job recently, mostly so they could get benefits.

Mike headed back to school during his unemployment, hoping to pick up trade skills that will either make him more valuable to an employer or help him branch out on his own. Then, the couple’s young child required some medical care, which the couple really couldn’t afford. They paid for it with their credit cards, and a small revolving debt suddenly became a big one.


Now they are struggling to pay off the debt. Mike and Emily have kept current on the bills, but mostly with minimum payments, and Mike lives in fear that he will spend the next decade or more paying off debt, rather than saving for his daughter’s college costs or his and Emily’s retirement.

So Mike and Emily are considering debt relief. They were getting phone calls about debt settlement, promising to cut outstanding payments and ease their paycheck-to-paycheck pressure. Mike knows that bankruptcy may also be an option if he doesn’t find regular employment soon. But his hope is that he can get through the rough patch, reducing the debt all the while, and come out the other end of the downturn with a new skill set, a new job and a fresh financial start.


“I’ve never picked a debt-counseling company before, but I talked to two companies and they had different plans, different amounts I’d have to pay every month,” Mike wrote me. “I know there are some bad stories about credit counseling. I know it’s not the same as picking a financial adviser, but how do I decide who can help me pay off my debts?”

It’s a great question, especially now that new laws aimed at protecting consumers from debt-settlement companies’ steep fees are set to go into effect — but which some service providers are likely to ignore — at the end of this month.

Debt relief takes many forms

While “debt management” and “debt settlement” may seem like the same thing, nothing could be further from the truth. Debt management typically involves a plan that slows or stops the interest clock but results in the consumer paying his debt in full. Debt settlement generally is about convincing creditors to settle for less money than is owed.

Credit counselors say many consumers are not nearly as far down the debt hole as they think, and that some budgeting and careful planning — along with a payment plan — is sufficient to dig out.

Christopher Viale, president of Cambridge Credit Counseling, says that roughly half of the consumers who seek his non-profit firm’s help can handle the debt problem on their own, after an assessment and plan. Between 15% and 20% of the people seeking services need counseling, including an intervention with creditors, with another 20% to 25% so deep in trouble that bankruptcy is obviously the best course of action. For the remaining group, some 5% to 15% of his customers, some form of debt settlement may be a compromise.

A debt counselor — particularly if he’s from a not-for-profit firm — is typically offering free help, a no-charge chance to develop a plan. A good counselor will need an hour or more just to get a full assessment of the problem, including a full look at what’s coming in, what’s going out and the challenges facing the family, so they can develop an action plan.

If they offer debt management, the counselor will be contact the credit-card companies, reducing interest rates, lowering monthly payments, getting fees waived, stopping the interest clock — whatever they can do to stem the bleeding. Then, they will take all of that unsecured debt and wrap it into one payment, taking the consumer’s money each month and distributing it to creditors. There are no late fees, and all accounts are current; the consumer’s credit score takes a hit at first, but tends to recover as the payment plan proceeds.

In the end, the consumer pays what they owe, but over a longer time frame and at reduced interest rates.

Unexpected consequences


By comparison, for-profit debt-settlement companies will reduce debt, but the consumer may not be thrilled with the process.

The for-profit firms, typically, are the ones doing the heavy voice-mail and email campaigns, and their salespeople are paid on commission. Those salespeople don’t always care to know much about the consumer’s situation; they know they can make money by getting the consumer to sign up for their more radical approach, whether it’s necessary or not.

Typically, credit-card companies won’t settle accounts for less than is owed. That only happens when the card company writes off the account, and sells it to debt collectors or attorneys who buy the debt at a discount and who then accept less than the full amount from the consumer.

With that in mind, debt-settlement companies effectively tell lenders to stop contact with the consumer, and work instead through them. The consumer makes a monthly payment, but the settlement firm takes out the sales commission and any upfront fees. The remaining amount sits in an account until the consumer has defaulted, with late fees and other charges mounting all the while.

When the account is four to six months in arrears and the lender must get it off the books, the debt-settlement firm works to get the best deal from whoever takes over the debt, using the war chest of payments made to that point as a carrot. Collectors willing to forego a big chunk of what the consumer owed to get a piece of that pie will cut a deal; others will go to a payment plan, knowing that the consumer is at least putting money on account every month.

Card issuers, not amused by these tactics, are increasingly turning the accounts over to attorneys, who sue the delinquent customers. That’s why the strategy is particularly risky; for many debt-settlement customers, bankruptcy would be cheaper and easier.

The government has been trying to clean up the collections and counseling arena for years now; the latest change will go into effect next month. It basically eliminates the commissions and upfront fees that eat into the debt-settlement payments, holding costs down to a small application fee and processing fee.

That said, debt-settlement firms will still be allowed to charge a “success fee” when they strike a deal with a lender, and those fees have no limit. You could wind up paying much of your savings to the agency.

Further, many people in the business believe the new rule doesn’t apply to debt-reduction attorneys, but only to credit-counseling firms. As a result, some settlement firms appear to be taking on figurehead attorney leaders, so they can do business as usual, no matter what the Federal Trade Commission says.

“People who have debt problems tend to be too focused on the monthly payment, and tend to pick the lowest payment they can get, because it gives them the most breathing room,” said Viale. “It may be cheaper and easier every month, but it may be very costly over time. Take the time to get a plan, to understand how it works and to focus on doing what’s right for you. If someone says they can get you out of debt ‘right now,’ they may hurt you as much as they help you.”

Protect Yourself From Harassing Credit Card Debt Collectors

Now more than ever, Americans are forced to face the repercussions of the ongoing economic crisis. With lenders extending more credit to drowning consumers, and families taking out high risk secondary loans on their homes, consumers scatters to find optimal solutions for their newly acquired financial burdens. With the lack of jobs increasing, more people are turning to Debt Settlement, Debt Relief and Debt Mediation as a means to alleviate some of their debt load.

Although these methods allow for a fairly noble solution with confronting debt, in most cases, creditors fail to call off their collection agencies once notified of a consumer’s intent. Whether this is due to the creditor’s decision to ignore notification or whether they simply failed to alert their collectors, the continuing collection process can be very upsetting and demeaning to the person who is genuinely attempting to pay off their debts. In some cases, creditors take on an agitated approach and begin massive campaign of harassment toward the consumer. The world of bill collection can be particularly cut-throat and unscrupulous, and many consumers are quietly enduring harassment because they do not know their rights.

The Federal Fair Debt Collection Practices Act was enacted to stop abusive, deceptive, and unfair debt collection practices by debt collectors. It is vitally important for consumers to understand the laws protecting them against unfair and coercive debt collection methods. According to FDCPA, a debt collector cannot; Telephone you an unreasonable number of times; Telephone you at an unusual time/ unusual place; Disclose information of your debts to third parties; Use profane or other abusive language; contact you after written notification that you do not want to be contacted any further; Claim to be affiliated with any governmental organization; Misrepresent the character, amount or legal status of a debt; Threaten to take any action that cannot be taken legally; Accuse you having committed a crime; Threaten or communicate false credit information; Attempt to collect, until he honors your request to validate; Use deceptive methods to collect debts; Call you before 8:00 a.m. or after 9:00 p.m.; Call you, but not announce who he/she is.

If you feel you are victim of an abusive or harassing debt collector you should:

(1) Find out if the collector is violating the FDCPA or your state’s laws. If so, send the collector a certified letter, return receipt requested, telling them that you believe he is in violation of the FDCPA or your state’s laws; and, if you want:

(2) Tell the debt collector that he must stop calling you at home and at work.

(3) You can file a complaint online at www.ftc.gov. The FTC is the body in charge of regulating debt collection agencies. They will not handle your case personally, but you should report the agency anyway, since they will sanction the agency if it receives enough complaints from consumers.

(4) Report the activity to your State Attorney General’s office. They will investigate the matter.

(5) You can also gather evidence by recording phone conversations with the debt collection agency. This way you’ll be able to prove the debt collector used illegal tactics, you can sue for damages under the FDCPA.

Finally, always remember – Knowledge Is Power. The more you know about your rights, the less your creditors will be able to take advantage of you and your money.

How to avoid paying hidden credit card fees in UK

Paying by credit card can be a convenient and safe way of making big purchases, but increasingly this peace of mind comes at a cost. A number of retailers, from airlines to local authorities, levy surcharges on customers making credit card payments. These can add significantly to a total cost. Budget travel company Monarch Airlines, for example, levies 5pc surcharges on credit card payments and a 3.5pc charge on those paying by debit card, while buying a £1.70 train ticket from trainline.com on a credit card will incur a £3.50 processing fee.

Such charges are rarely advertised, making it difficult to compare the true cost of goods and services. Some are flat charges applied on each transaction, others are a percentage fee.




A report by the consumer organisation Which? found that not only were these charges becoming more common, but they have risen in the past two years. According to Which?, 80pc of its members disagreed with the practice of levying such surcharges, with only 1pc thinking they were a fair reflection of costs incurred by the retailer.



Even the banking industry agrees that the charges incurred often bear little resemblance to the cost of processing the payments. All banks charge retailers a “merchant fee” for processing payments by debit and credit cards. Most are reluctant to divulge the fee size. Large supermarkets, for example, will be able to negotiate smaller merchant fees due to the number of transactions processed. Plus, credit card payments cost more to process than debit card payments, due to the costs associated with borrowing. There may also be extra security costs borne by the retailer in processing online card transactions.



The UK Payments Administration (UKPA) said the typical charge to process a credit card payment would be between 1pc and 2.5pc. For debit cards the actual cost is likely to be closer to 10p. It said that there seemed little justification for companies charging a credit card fee “per item” bought, rather than per transaction. Ryanair and bmibaby charge card fees per passenger per flight, even if all these seats are made in one credit card booking. Likewise, most ticket agencies levy a card charge per ticket.



A spokesman for the UKPA said: “The credit card costs are per transaction. If you are booking six tickets at once, or one ticket in one credit card booking, the processing costs would be the same. It’s hard to see how companies can charge per item.”



These surcharges are common in the travel industry. Train companies, ferries, airlines, tour operators and travel agents are all likely to levy extra fees if booking with a credit or debit card.



Bob Atkinson of travelsupermarket.com said: “Many travel providers are not only passing the bank charges to customers, they are actually increasing them to generate extra revenue. The fact that some holiday companies also charge for debit card payments is a worrying development.”



Given the state of many travel firms’ finances this is probably one area where you should consider paying on credit card where possible, because of the protection given under Section 75 of the Consumer Credit Act.



This means that should the firm go bankrupt, you will be able to claim a refund from your credit card company. Those paying on a Visa debit card get similar protection.



Action points

Although it can be a laborious task, take all fees into account when comparing costs. Don’t assume the cheapest airline seat advertised, or the lowest ticket price, means this will be the cheapest deal overall.



Factor in all additional costs and see how a deal compares. Not all companies add these surcharges: Which? found a handful of travel companies that followed a “what you see is what you get” pricing policy. These included SeaFrance and Trailfinders.



Once you have found the cheapest deal, look at whether you can reduce costs more with a different payment method. By using a Visa debit card, for example, you may pay a lower debit card fee, but still get the consumer protection. Alternatively some companies do not charge for particular cards: such as a Visa Electron card, or prepaid card, such as the prepaid MasterCard. Weigh up possible savings against any potential loss in consumer protection.