Archive | James H MaGee

Student Loans: Should I borrow the money? What is a Parent Plus Loan?

As I approach my 19th year in the practice of law, I often ponder the risks of assuming large student loans. I took the risk, and I successfully repaid my student debt. Others have not been so lucky.

I signed my first student loan promissory note on September 6, 1985. I finished undergraduate studies with a loan debt of $11,000. My total borrowings topped out at just short of $60,000.00 in 1993 following law school. It was a surreal number to me. I found it depressing. If I recall correctly, the payments were over $750 monthly, and started in January,1994. I struggled at first as my first job as a lawyer did not pay very much. I bumped along, scraping, scrimping, and saving (and keeping my old car running) for just about two years, until 1995 when I was able to “consolidate” to a payment of some $450 monthly plus an “unconsolidatable” loan that I paid $60 monthly on the side of for a total of about $510 monthly. This was a princely sum for a 27-year-old with an old, dying car and no outside family help.

Essentially, I paid my last student loan payment in July 2010. Some sixteen and one-half years later.

I have always been a bit entrepreneurial, In 1996, I was able to start my own law practice. From its inception, it has always done pretty well. Others have not been so lucky. Many of my friends have struggled with student loan payments.

How would my road be different today if I was a graduating high school student?

I don’t know if I would have even gotten so far today as tuition is higher and some of the student loans I was able to take out are not as available. Many of the loans offered today are Parent Plus loans, in which the student loan lenders try to get the parents of a student to sign up for the student loan. I don’t know if my parents would have been so willing to sign student loan notes for me in the amount required to get through four years of private undergraduate education. Also, with tuition hikes, the $10,000 I borrowed to get through my undergraduate program may be equivalent to borrowing $30,000 today. Would my parents (both hardworking people with high-school educations ) have been willing to sign up for $30,000 (in today’s dollars) of parent-obligated “plus loans”?

I likely would have had to attend a less expensive school under today’s situation, other than the Whitworth College (a private Presbyterian affiliated college in Spokane, WA) that I attended. I greatly benefited from my time at Whitworth. I believe that my educational experience at some other school would not have had the same qualities that Whitworth provided me. I can safely say that under today’s situation, my trajectory would have be different now than the one I was able to take.

If you are a parent, and your child is extremely motivated and a high achiever, I would probably step up and sign up for an appropriate amount of Parent Plus student loans as a last resort. However, if your child is a bit unsure of his/her direction, I suggest that you avoid the Parent Plus loan option. In the case where your child is less focused or not a high achiever, you are better off taking out a home equity loan (if you have any home equity) to pay for their education rather than taking out Parent Plus loans. The reason I recommend this approach is because even if you end up in financial trouble, the home equity line of credit can potentially be discharged through bankruptcy should you lose your home, whereas the Parent Plus loan is less dischargeable in bankruptcy.

If you are a child and are considering asking your parents to sign up for a Parent Plus loan for your benefit, all I can say is that you better be “on target” with your education. If you’re reading this blog, there’s a very good chance that you are aiming pretty well.

Seriously, for a young person to make good on their promise to their parents in return for their financial support through a Parent Plus loan, you need to get in, get great grades, graduate, and get to work. Do not screw your parents financially by changing your major five times, and by partying while you bring home a string of C’s, D’s and the occasional F. You need to decide on your major (or at least your department) before you show up for the first day of college as a freshman, and you need to stick with it even if you decide you might “want to go in a different direction”. You do not have the right to ask your parents to obligate themselves unless you are giving 110%. If you are not achieving top honors (baring some sort of learning disability) while asking your parents to sign up for Parent Plus loans, you are insulting your parents. Parent Plus loans did not exist when I was in college, but during my first couple of years at school, my parents did pay for some of the tuition. My way of honoring their commitment was to graduate summa cum laude which means “highest honors”. I was 5th in GPA in my college graduating class and finished with a 3.91 Grade Point Average. I received one “B” grade in my freshman year and two in my senior year. Every other grade was an “A”.

For what it is worth, that is my story. If you are a parent and your child does not have a commensurate level of committment to educational and study dedication, then you have the right to say “no” to a Parent Plus loan when asked by your child.

If you are a child and you do not intend to excel and be at the top of your class and department, you have no right to ask your parents to so obligate themselves to a Parent Plus loan, unless of course your parents are so wealthy that the Plus Loan is of no financial consequence to their long-term economic position.

Thank about it. Student loans are only for people ready to give a 110% effort towards being a student. There is a reason they are called student loans, and not called “play time, find myself loans.” Student loans are serious. If you take one out, you need to be serious about your career based on the education that you are buying with your student loan.

An update on the state of Washington’s economy

This past Tuesday, House Democrats presented their plan to fix the state’s budget shortfall. They have proposed relying on $400 million in delayed payments and reduced support for local governments, while mainly protecting basic education from further cuts.

The House Democrat’s plan saves over $890 million without asking voters for a sales tax increase, which was initially suggested by Gov. Chris Gregoire. On top of this, the Democrats propose to leave $504 million in reserves. The proposal does, however, open the door to higher local taxes.

The largest savings come from delaying the $405 million in payments to schools until the next budget cycle. That budget cycle begins in July of next year. Their proposal also calls for $65 million in cuts to higher education, and $224 million in cuts to health care and human service programs.

Democrats suggest decreasing distributions to local governments by $82 million. This will include support for criminal justice programs, along with the elimination of a sales tax credit for rural counties. To make up for that, the state would essentially give local governments authority to make tax increases without a public vote.

Another $18.1 million will come from the elimination of another tax break. This tax break allows out-of-state banks the ability to claim the break on interest earned on first mortgages. The plan also accounts for nearly $54 million in fund transfers, including more than $37 million in unspent agency money being returned to the state’s general fund.

The Democrats are looking to save an additional $130 million in other areas, including reductions to the Department of Corrections’ chemical dependency treatment and community supervision programs.

In a statement on Tuesday, Gov. Gregoire called the budget proposal “a good start”, stating “I’m pleased this budget leaves a sizable ending fund balance as we must continue to plan for unforeseen circumstances.”

Senate Democrats are expected to unveil their budget proposal next week. The 60-day legislative session ends March 8.

Many experts believe that we may be headed for another recession. Don’t enter a second recession with mountains of debt. I can help you to understand the options available to you for dealing with your debts. I am sure that I can be of assistance to you, to a family member, or to a friend as we all know people experiencing trouble these days even if we are not experiencing our own financial troubles. Please do not hesitate to make contact with me. I emphasize courteous and discrete consultations that fill your time with useful information. The impact to your life after an in-person consultation with me may be substantial, and life-long. You will enjoy a new peace of mind and a fresh hope for the future with a new roadmap for financial success that we develop together. You can contact my scheduler through our website for your free 30 minute consultation. If you wish, you may schedule your free 30 minute consultation by phone by calling us at 253-383-1001 Monday through Thursday from 9:00 AM until 5:45 PM, and on Friday from 9:00 AM until 12 noon.

An update on Washington Mutual’s bankruptcy reorganization plan

Washington Mutual Inc. has reached an agreement with previously objecting creditors that could lead to an approval of its latest bankruptcy reorganization plan.

This morning, a hearing in WaMu’s bankruptcy was delayed several hours as attorneys worked towards obtaining a settlement involving creditors who bought certain WaMu securities. The WaMu securities in question were converted into stock when regulators seized WMI’s flagship bank in 2008 and sold WaMu’s assets to JPMorgan Chase.

The securities investors voted against WMI’s plan, because they faced far less recovery as stockholders than they would as debt holders. This raised doubts as to whether WaMu could win court approval.

In exchange for withdrawing their “no” votes, the investors will receive $18 million from JPMorgan and an unsecured claim of about $618,000. On top of that, these investors will be able to seek reimbursement of legal fees, up to $15 million.

I will post additional updates as developments in the case unfold.

What is the state of Washington’s economy?

A recent story presented by KOMO News stated that as of February 9, 2012, Washington State’s budget shortfall is down to $500 million. The state’s economy is stabilizing and showing signs of growth as people rely less on state services.

Numbers released last Thursday by the state’s Economic and Revenue Forecast Council showed $96 million in extra revenue and an additional $340 million in expected savings from less reliance on state services. Prior to this report, state legislatures had been looking at about a $1 billion shortfall.

According to Steve Lerch, the U.S. economy has had higher job growth than anticipated. He also stated that Boeing manufacturing output, growth in the software sector, and strong exports have placed the state in a “decent” position.

Lerch still has his reservations about celebrating, though. He feels that due to our country’s financial situation compounded by the economic crisis overtaking Europe and the slowdown in Asia creates a variety of risks that Washington state needs to continue to monitor.

With these risks in mind, state budget officials are looking at ways to cover more than just the current shortfall. They hope to retain a buffer of approximately $600 million in case the state economy struggles again.

House Republicans plan to release their proposal for the budget by tomorrow, and the Democrats have promised to release their ideas next week.

Any new developments on the national mortgage settlement?

According to the National Mortgage Settlement web site, 49 state attorneys general and the federal government reached agreement to settle a long-running dispute with the country’s five largest loan servicers: Ally/GMAC, Bank of America, Citi, JPMorgan Chase, and Wells Fargo. The settlement will provide as much as $25 billion in relief to distressed borrowers and direct payments to states and the federal government.

The agreement settles state and federal investigations finding that the country’s five largest loan servicers routinely signed foreclosure related documents outside the presence of a notary public and without really knowing whether the facts they contained were correct. Both of these practices violate the law. The settlement provides benefits to borrowers whose loans are owned by the settling banks as well as to many of the borrowers whose loans they service.

If you are a home owner, and your loan was serviced by one of the five loan servicers listed above, the settlement may apply to you. However, eligibility may take some time to determine. The agreement will be performed over a three year period.

Another point to consider is that, the agreement does not affect any individual’s rights. A consumer may still bring an individual action, be a part of a class action, or seek further review/relief from the Office of the Comptroller of the Currency (OCC).

Additionally, loans owned by Fannie Mae or Freddie Mac are not impacted by this settlement. The FAQ page on the site contains links to both sites to help you determine if your loan is owned by either Fannie Mae or Freddie Mac.

The National Mortgage web site contains quite a bit of useful content, including a list of Frequently Asked Questions about the agreement, an executive summary of the agreement, and even a list of contact information for the 49 participating state attorneys general offices.

Here is the information for Washington state residents:

Washington Attorney General Rob McKenna
1125 Washington St. SE, PO Box 40100, Olympia, WA 98504-0100
(360) 753-6200
http://www.atg.wa.gov/

This is a complex agreement. I may be able to help you understand your situation; I can certainly help you by discussing certain tradeoffs and options concerning home ownership and bankruptcy. You can contact my scheduler through our website for your free 30 minute consultation. If you wish, you may schedule your free 30 minute consultation by phone by calling us at 253-383-1001 Monday through Thursday from 9:00 AM until 5:45 PM, and on Friday from 9:00 AM until 12 noon.

Bankruptcy and Litigation

After a decade of litigation and related bankruptcy, Jacqueline Palank of the Wall Street Journal wrote on the question of who owns the song, “Whoomp! (There It Is)”.

This song is familiar to anyone who attended a sporting event in the ’90s. Released in 1993, “Whoomp! (There It Is)” was one of those ubiquitous pump-up-the-crowd songs played during sporting events, a status cemented by its inclusion on the first volume of “Jock Jams.” It was later declared the 65th worst-song-ever, surrounded by such other ’90s gems as “How Bizarre” by OMC, “Breakfast at Tiffany’s” by Deep Blue Something and “Supermodel (You Better Work)” by RuPaul.

To decide this matter, Judge Richard A. Schell of the U.S. District Court in Sherman, Texas, scheduled a hearing for Aug. 27. This is when a jury will be selected for a trial over which of two music companies is the true owner.

In 1993, Alvertis Isbell’s Bellmark Records released “Whoomp! (There It Is),” by one-hit wonder Tag Team. According to Isbell, the record label owned the sound recording of the song, while its affiliated publishing company, Alvert Music, owned the composition rights to the song’s written form.

However, DM Records licensed “Whoomp! (There It Is)” in 1997. Bellmark filed for bankruptcy protection the same year. In 1999, Bellmark sold most of its assets, including its sound recording rights, to DM Records. According to Isbell, the composition rights weren’t included in that sale because they are an asset of Alvert, which wasn’t in bankruptcy.

According to Isbell, DM has been wrongly claiming ownership of both the song’s sound and composition rights. Isbell is seeking a ruling that Alvert Music still owns the composition rights, and also wants damages for DM’s alleged infringement on his ownership rights.

DM Records, however, says written agreements do not mention him or Alvert Music by name, and therefore don’t distinguish between the two types of song rights. As a result, both were assets of Bellmark and therefore included among the assets DM Records bought from Bellmark’s bankruptcy.

After a decade of litigation, the parties asked Schell to rule on the dispute without a trial. The judge denied the request Friday stating, “Because there are genuine issues of material fact surrounding ownership of the subject composition copyrights, the court denies both DM and Isbell’s motions for summary judgment.”

If the best interest rates are from banks, credit unions, or savings and loans with low Bankrate.com Safe & Sound Ratings, does it make sense to go for high yields when the bank is potentially at risk?

An article I found on Bankrate.com discussed the truth about risky banks and their interest rates on certificates of deposit. When looking for the best CD rates, every tenth of a percentage point of yield makes a difference. This is especially true right now, when interest rates are at a historic low.

The answer is that it depends. “Technically, consumers have nothing to worry about as long as they stay under FDIC (Federal Deposit Insurance Corp.) limits, which are $250,000 through 2013,” says Robert Laura, a financial adviser and president of Financial IQ in Farmington, Michigan. According to the FDIC website, a CD that matures after Dec. 31, 2013, would have its insured limit reverted back to $100,000, except for certain types of retirement accounts.

The FDIC website states that if you have more than the current limits to invest, it may be better to break up your CD purchases by buying CDs from different institutions to stay under deposit insurance amounts. That being said, should you invest in a CD and the institution fails, the FDIC is required to make good on your investment as soon as possible. This can involve transferring your CD to the institution that acquired the failed bank or sending you a check for the balance due on your CD.

The FDIC website also has information on what happens if your CD is worth more than deposit insurance limits, and your bank fails. If this happens, you may receive some or none of that balance at a later date, depending on whether the FDIC is able to sell the failed bank’s assets and at what price. The FDIC provides frequently asked questions on federal deposit insurance.

Bryan Hopkins, CPA, CFP and president of Hopkins Wealth Management in Anaheim Hills, California states, while the FDIC generally makes good on insured deposits quickly, it’s wise to have other liquid funds in an insured checking or savings account elsewhere. “It could take as long as 90 days to get your money, so it’s a good idea to have funds elsewhere to cover day-to-day expenses,” he says.

Though deposits are currently insured up to $250,000, it does make sense to pay attention to safety and soundness criteria, such as Bankrate’s Safe & Sound ratings. These ratings evaluate a bank based on an individual institution’s capital adequacy, asset quality, profitability and liquidity.

“Psychologically, a bank’s ratings are important and consumers should use them,” says Bryan Hopkins. “Most consumers, especially older ones, remember the Great Depression. While bank failures are handled very differently now than they were then, nobody wants it to be the case where things don’t go smoothly, and have their money be in limbo for months.”

CD rates for banks with lower Bankrate Safe & Sound Ratings may be higher than those with higher ratings because those banks may be trying to build up their deposit base by offering higher yields through brokers to consumers. In early December, one-year CD rates varied from 0.5 percent from a bank with a four-star Safe & Sound Rating, to 2.08 percent from a bank with a one-star Safe & Sound Rating. However, there were several banks with one, two, three, and four star safety and soundness ratings offering CD rates from 1.7 percent to 1.99 percent.

Lower-rated banks don’t always offer higher rates than banks with higher ratings, so it is always a good idea to “shop around”. Some higher-yielding CDs may come with higher minimum deposit requirements, and some banks may be seeking deposits with a particular maturity. These banks may offer better terms on some CDs than others.

In many cases, the difference between higher yielding CD rates and lower yielding rates isn’t much. For example, if you buy a $10,000, one-year CD with a 1.9 percent interest rate, compounded daily, you’ll earn $191.81 in interest. If you buy the same CD at a lower rate, 1.6 percent, you’ll earn $161.28—a $30.63 difference.

Do credit reporting bureaus ever make mistakes?

A recent article posted on KOMO News online site, discussed a 2009 California class action lawsuit that challenged credit-reporting bureaus TransUnion, Equifax, and Experian with improperly reporting debts that had been discharged in bankruptcy. The defendants (the credit-reporting bureaus) eventually came to a settlement with the plaintiffs to the tune of $45 million.

The court approved the settlement by issuing an Order Granting Final Approval, but on August 12, 2011, the defendants filed a brief challenging that order. Their challenge is in regards to attorney fees and costs of the case. The reason for the article was to remind readers of the case, because the result of this appeal won’t be known until sometime later this year. The deadline for Appellants to file relevant briefs with the court is January 23, 2012, and Appellees have until February 24, 2012.

The lawsuit was brought on because Equifax, Experian, and TransUnion improperly reported debts that had been discharged in bankruptcy on consumers’ credit reports. Rather than accurately noting that these debts were “discharged through bankruptcy”, the credit bureaus noted that they were “120 days late” or that they had been charged off by the credit issuer.

Incorrectly reporting the status of a debt is illegal, but it also caused a lot of grief for the people affected. This mistake consequently made these debts appear to still be active. When a debt is still reported as active, debt collectors may try to collect on that debt.

The result was that people who had filed for bankruptcy precisely to eliminate their debts and stop getting harassed by debt collectors, had to deal with them anyway.

There are a group of petitioners that are eligible to collect on the settlement that are being represented by this case. To be a member of that group, petitioners had to have received a Chapter 7 bankruptcy discharge AND a credit report issued by one or more of the defendants between March 15, 2002 and May 11, 2009 with incorrectly reported debts. They also must have submitted a claim form with relevant information by November 30, 2009.

Even though the settlement amount seems large, it will be spread out over so many individuals that it likely won’t result to more than a few dollars per person.

Is there anything I can do about a student loan that has defaulted?

College Graduates are Shackled to Student Loan Debt

Typically once your loan enters default status, the lender requires you to pay off the remaining loan balance in its entirety in one lump sum.

However, the U.S. Department of Education has a loan rehabilitation program to bring defaulted student loans current. There are several reasons as to why you should take advantage of this program. When you enter into the program, risk of wage garnishment ends, and the IRS will no longer be able to withhold your income tax refunds.

Additional advantages take place after you have completed the loan rehabilitation program. The loan will no longer be in default status and will be considered current. Furthermore, the negative credit reports to the three national credit bureaus associated with the loan will be deleted. You will now also regain eligibility for the benefits that were originally available on your loans before the loan defaulted. These benefits may include deferment, forbearance, and Title IV eligibility.

There are some differences to the program depending on the type of loan that you are trying to rehabilitate. In all cases, you are required to make nine full, on-time payments of an agreed amount within twenty days of their monthly due dates to the Department of Education.

The aforementioned differences have to do with the lender who services your loan after you complete the program. A Direct Loan will be returned to the Direct Loan Servicing Center, a FFEL Loan may be purchased by an eligible lending institution, and a Perkins Loan will be serviced by the Department of Education until the loan balance is paid off.

Some things to keep in mind:

Payments secured through involuntary means, such as wage garnishment or litigation, cannot be counted towards your nine payments.
You are only allowed to perform loan rehabilitation once per loan. That means if your loan falls back into default, you will have few if any options, and you will more than likely be responsible for the remaining balance in full.

Does the bankruptcy double standard play a role in personal bankruptcy?

A recent article from The New Yorker highlights a troubling disparity in the way we view bankruptcy and loan restructuring in general in this country. As was evidenced in the recent bankruptcy filing of American Airlines, bankruptcy for corporate entities is generally considered part of an overall savvy approach to managing debts and investments.

While American Airlines could have continued paying its debts (it filed bankruptcy with more than $4 billion in the bank), it opted to take the bankruptcy route, which will allow it to restructure its debts into ones that make more financial sense. After the company filed its Chapter 11 bankruptcy petition, most analysts praised its decision, citing the success other airlines have had with reorganization bankruptcies in recent years.

However, for consumers interested in filing personal bankruptcy, the attitude of the general public is vastly different.

The current turmoil in the housing market highlights exactly how differently the general public views personal bankruptcy:

The housing bubble falsely inflated housing prices. Arguably, the analysts and economists who were equipped to recognize this bubble for what it was an attempt to prevent its burst did not. Also arguably, consumers might have recognized the bubble, but were less likely to do so than those trained in economic fields.
Lenders and homebuyers took on risky debts, betting on rising home prices to pay them off. We now know that those debts were not so good.
Many banks lost millions or billions of dollars on bad home loans. Some of those banks benefitted from taxpayer-funded bailouts. Others have staunchly refused to refinance (on a significant scale) mortgage loans that have become untenable for their borrowers.
Many homeowners are underwater on their homes. Sources note that many Americans owe up to 50 percent more than their home’s value on their loan. The “smart move” financially for these people would be to walk away from their mortgage, to abandon their homes and stop paying their mortgages. Most don’t, though.

One of the major reasons more homeowners aren’t walking away from their unaffordable homes, even though such a move would be financially logical, is that nonpayment of loans has been morally stigmatized in the media.

Figures including the head of the Mortgage Bankers Association have reportedly noted that defaults on home loans “send the wrong messages” to community and family members. Others have hinted that we would do well to bring back debtors’ prisons. The total effect, in other words, is that personal bankruptcy and similar moves (even when they’re financially savvy) have been labeled as morally deleterious.

The New Yorker article summarizes the problem in its closing paragraphs, noting that the prevailing attitude in the U.S. runs that individuals ought to “do the right thing” by honoring their debts, but that large businesses, banks, and corporations—who usually have much more capital at their disposal—can do whatever earns them the greatest profits.

Many experts believe that we may be headed for another recession. Don’t enter a second recession with piles of debts. I can counsel you on your debts. I am sure that I can be of assistance to you, a family member or a friend as we all know someone experiencing trouble these days even if we are not experiencing our own financial troubles. Please do not hesitate to make contact with me. I emphasize courteous and discrete consultations packed with plenty of information. The life impact of meeting with me in person will be unforgettable. You will enjoy a new peace of mind and a fresh hope for the future with a new roadmap for financial success that we develop together. You can email my scheduler through our website for your free 30 minute consultation at www.washingtonbankruptcy.com or e-mail directly at [email protected]. To schedule immediately, we can be reached at 253-383-1001 M-Th 9am-5:45pm and Friday 9am – 12pm.