Posted On: 2006-01-09Length: 29:08
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Goodman day, it is January 9, 2006. This is episode 156 of The Financial Aid Podcast. My name is Chris Penn welcoming you back from the weekend. I hope you have a great one. Got a lot to do today. We're going to cover some news and Congress and the scholarship from the Dolores Zohrab Liebmann fund and do part one of an interview with Jay Fleischman from The Debt Podcast. It's going to be part one of this series because it is a fairly long interview. We're going to cover a lot of stuff as well some Podsafe Music from Alice Marie. So let's get started with the news.
In the wake of the resignation of Tom Dulay from the House of Representatives as the House Majority Leader, Republicans are scrambling to find some new leadership. One of the people advancing their candidacy for House majority leadership is none other than John Boehner from Ohio. Now those of you who are longtime listeners of the Financial Aid Podcast will recognize John's name. John Boehner was also the representative who introduced and sponsored the Higher Education Reauthorization and Reconciliation Act legislation focusing on none other than the interest rate hikes and the lovely think it will do to your interest rates and your ability to consolidate your student loans as of July 1, 2006. So, John of course is looking at trying to push his agenda and hopefully be elected as House majority leader. Hopefully those people who are in the House who are going to be looking at positions their perspective future leader has taken will take out good, hard, long, look at John's support or lack thereof for education finance or for financial aid and, despite the fact that he made the right choice is not supporting education. So track record for him, not so good. So, if you would like to voice your opinion to your representatives and your representative is Republican because this is the Republican election, let them know that maybe the Republican caucus may want for the House Majority Leader because chances are he's not going to do anything good for higher education as House Majority Leader. He certainly hasn't as a representative. Otherwise not too much news on the financial aid fund. One interesting thing, kind of a minor little thing, is that in 2005, the Word of the Year chosen by Oxford and by the American Dialect Society, the word? Podcast. So podcast clearly taking off. If you're looking at more information about podcasting or to start your own perhaps, check out podcast411.com. A very fun site with lots of helpful hints. So episode 87, by the way, is Rob's interview with the Financial Aid Podcast. Let's move on to our scholarship update really quickly here.
Today's scholarship update, the Delores Zohrab Liebmann fund. This is a full graduate tuition scholarship for basically any amount of tuition plus an $18,000 annual stipend. Fellowships are restricted to graduate students who are United States citizens attending an accredited institution of higher education within the United States. The program of study is not limited to Armenian studies and candidates can be of any national descent. Applications must be submitted through the dean of the University. The fund makes grants to support the publication of dissertations, historical, or literary works with the focus on Armenian culture or history. Additional conditions apply. The amount for the fund in 2004 was about $900,000. Graduate fellowships in any recognized field of study in the humanities, social science, or natural sciences including law, medicine, engineering and architecture or other professional training and scholarly publications focusing on Armenian culture and studies are the focus of the fund. So, this scholarship you have to apply through the dean of your university so check in with them. You can find more information about the scholarship as well as 90 some odd other scholarships worth over $270 million at our free scholarship website, studentscholarshipsearch.com. That's makes the scholarship update for today the Dolores Zohrab Liebmann Scholarship Fund.
Alright let's move on to the interview with Jay. Jay Fleischman is a consumer debt and bankruptcy attorney in the state of New York. You can find more information about him at his website debtpodcast.com. This interview was done last week and covers a lot of things for 2006 so hope you enjoy it.
Jay: I think 2006 is going to be a financially devastating year for a lot of people and they don't even see it coming.
Chris: have you been keeping up at The Financial Aid Podcast and what's going on in Washington with a student financial aid?
Jay: I have I have. What sort of impact do you think that realistically is going to have on new applications? Do you think that it's going to be nearly as devastating as a lot of people claim?
Chris: well a lot of people, not just students, don't really think 10, 15, 20 years out. They're trying to get through the next four years, the next two years and they will find for the loan because really, for a lot of them who haven't really been given a lot of good financial aid counseling they think student loans are the only game in town and whatever the interest rate is whatever the terms are finalized.
Jay: sure I remember when I was going to law school and I have student loans, I had no idea what the terms were. I knew that I needed the money and this is what I was told was the only game in town and well it was either sign for it or go home. And I wasn't going home.
Chris: yeah well, let's going to be more concerning, rather than the rates and things that people are seeing now is the, not for students who were in school because for the most part students who were in school, payment on the interest and everything is deferred so they are okay as long as they stay in school, but for the people who are into payment now they're the ones who are going to be feeling the pain.
Jay: well what would you recommend to people who are currently in repayment, what can they do to minimize the impact that it's going to have on them, if anything?
Chris: there is really two answers, well there's three answers. One of which is don't make your payments and go into bankruptcy and then see you. But I try not to advocate that.
Jay: Well bear in mind that even if they go into bankruptcy that...
Chris: student loans are not forgivable.
Jay: sure. Right and in fact under the new code, under the old code it was student loan's that were partially or fully under written by Federal Government that were nondischargeable but under the new code that has been expanded to encompass not only your typical Stafford, GSL and things like that, but also privately funded student loans, plus loans, even unpaid tuition charges, which used to be dischargeable are now considered educational benefit loans and in fact there is a line of thinking that says that some portion of peoples credit card debt, if they can be traced to the payment of tuition people may have a problem with those as well.
Chris: really. I did not know the unpaid tuition bills one. I knew about the private student loans. Wow that is interesting that is very interesting I wonder how many people... for people who are not going into bankruptcy there is really two choices. You have until July 1, 2006 which is one the laws take effect. Your first choice is to pay off all your loans by then if that's a possibility. For people who are in the last year or so of their loan payments it might be a possibility if they get a good tax refund to just pay it off, paid down. Period for people who are not in a position to do that, loan consolidation is the only way to go. And what that does is, the rates are currently 30 to 35% lower than what they will be on July 1 so they need to consolidate those loans and lock them in today's rate, at a fixed rate and the new legislation cannot affect their loans after that.
Jay: for those who are still in their last year of repayment, for the most part those people would not really be all that negatively impact by an increase in rates anyway is because what's the difference between the old rate and that he would rate it. Her last year of repayment it's really what a couple hundred of dollars. It's really the younger people who have potentially 6, 7, 8 years of repaying their loans. Those are the folks that I think are going to be the hardest hit. And of course they tend to be the people who, because they're younger and their earlier on in their careers they've got less disposable income so that increase in the industry is really going to hit the ball hard.
Chris: that's absolutely true. As an example, your average graduate is going to come out from a private four-year with $30,000 in loans. Enough about $314 a month. If they consolidate today they can top that down 290 for a month and youth the rest to pay off higher interest. If they way and do nothing as of July 1 for three hundred fourteen goes to $345 a month.
Chris: so even on a month-to-month scale that still a dinner out or a couple of lunches out a minimum payment on a small car.
Jay: exactly. You're right. And by refinancing they would really be from $314 to under $200 a month?
Chris: that's right.
Jay: and is that fixed or is that an increment sensitives extended payment sort of plan?
Chris: it's fixed, well 99% of the time loan consolidation is fixed with a level of repayment plan. You can opt for what are called graduated repayment plan. Two and five year plans where the first two or five years you're doing interest only and then you're doing interest capital together after that. Generally speaking we tell people, you know you're saving enough money as it is, go with the levels so that you can budget easily and predict what your payment is going to be all the time.
Jay: right. That makes more sense and as you said going from $314 to under $200 is going to help people in terms of being able to make a dent in other debt repayment or even beginning to find a 401(k). Other financially prudent vehicles for their investment. So that sounds like good for your business I would guess. You guys must be getting busier I would think.
Chris: yes we are. As an example there was a big seeing on CNN Money this morning about basically the ways people can handle this interest rate change because usually what happens is the rates before the budget reconciliation act went through the rates were set at the end of May to take effect at the end of July 1. This year we got notice effectively seven months before so we have a lot more time to tell people hey this is what you need to do, just about everybody, usually just about everybody, financial aid officers and colleges are saying consolidation maybe maybe not but everyone has to look at the legislation and know that the president is going to sign it and say hey you have got to do this. Unless there is some really bizarre extenuating circumstance, if you haven't already consolidated, this is what your going to have to do if you don't want to be slammed by the payment.
Jay: it sounds like it's definitely a wise move. It really sounds to me as if between what about to happen with the interest rates on federal student loans, the increase in minimum payments that are coming down the pike that are probably coming into with a lot of people's mailboxes even as we speak, upcoming adjustments on adjustable rate mortgages all of these things are really turning into a falling house of cards for the American consumer. And that's something that really affects everybody across the board. The majority of Americans to carry a balance. The majority can who carry about only pay the minimum payments most of the time and that's not out of choice but because that's all that they can afford to pay. There overleveraged as it is and between an increase in student loan payments, even for people who are, even for people my age I'm 35 almost 36, people my age are still carrying student loans 10 -- 15 years after school because they deferred or forbeared then they refinanced then a consolidated they get a number of things so a lot of people are even carrying student loans even in their mid-30s. I think that a lot of my friends are even going to get hit as far as what is going to happen with their payments. The fact that they've been so overleveraged and they have an and felt it because the rates have been so low universally for such a long time.
Chris: you know that honestly, the interest rates are low, even comparatively speaking even a graduate in repayment, you're paying 5.3% right now. Lock it into 5.375% and you can actually, when you consolidate when you refinance this is something that's a little known fact about consolidation, if you use that deferment or forbearance before that, that clock reset so you can do that again so let's look at this year if you're looking at an adjustable rate mortgage re setting or maturing on Io and you're looking at doubling your credit card minimum payment, it's not the best idea because interest to still accrue but you can go back to that economic hardship forbearance for another 36 months to give you a little more breathing room. To get your really big interest rate that's taking care of.
Jay: well I think that, a lot of people are looking at be increase in the interest rates and a lot of people are saying well, you know rates are still historically low but the problem is is that we've been conditioned to expect them to go lower and lower over time and now that the clock is beginning to reset and things are on the uptake that's really what the major economic problem is going to be. People have become so used to continually over extending and hyper extending themselves, even 1% increase of things is really going to, I fear, below the bottom out of the boat. And it's going to be a lot of people underwater.
Chris: my seeing lately, I got a book before Christmas, Economics for Dummies, which actually believe it or not I've been reading it this and thinking it really should be a textbook in classes that everyone's required to read so they know how the economy works. They know how money works. Between that and reading the housing bubble blogs, it's a little scary when a trillion dollars worth of the economy can suddenly disappear in a span of eight months. That's a little frightening.
Jay: oh absolutely. What we are seeing interestingly is that even with the housing numbers that came out last week, resales are down, building permits are continuing to go up month by month so what were seeing as far as housing bubble is not only do we have a collapse of what is currently on the market but there's still more supply coming on for the market to further on down the world we've got this ever widening chasm. Now we've got, not only the existing houses that are going to be going into foreclosure because foreclosures have begun to skyrocket around the country over the last couple of months, but were also going to have all these new construction homes just sitting empty. Which filters down to not only the American consumer because they can afford to pay their mortgage but suddenly the builders who were put onto the new job are going to be turned away. The construction industry is going to lag six to eight months behind everybody else and they are going to stop. It comes a steamroll of fact. And yeah it's a scary thing, what's going to happen out there. We're calling it the perfect storm.
Chris: well what's your strategy for customers and your listeners? What's your strategy to get them through 2006 okay?
Jay: as far as the housing bubble?
Chris: in general. Getting through the storm.
Jay: getting through the storm... well the first thing is obviously your home mortgage. If you're not in a fixed rate mortgage the rates are still low enough for your refinance to not take any additional money out of your house, refinance your existing mortgage roll it into a fixed rate because if you don't have a refurb nothing else matters. That's the first thing to worry about. The second thing to worry about is you've got to look about your overall debt picture. If you're only paying your minimum payments as the event December 05. You're in for a rude awakening at your minimum payments are going to go up from 2% to a lot of cases 4%. What you need to do in that case is unique to start preparing for that. The way to prepare for it is when you get your tax refunds back plow all of it into your secured debt because that's what you need to bring down as quickly as possible. Cut up your credit cards. Don't use them come hell or high water. There's no excuse to use a credit card if you're carrying a balance or even if you're not carrying a balance. It's a great drug it's just as addictive as a lot of other things out there that people get addicted to. Credit is an addictive thing. Keep your hands off the plastic. Make sure that you stabilize your housing situation.
I've recently become very enamored of the notion of splitting out your direct deposit. One of my clients actually turned me on to it about six months ago and what a lot of people don't realize is that when you have a direct deposit of your paycheck by your employer you can't divide that into as many different pockets as you like. All the money does not need to go into your primary checking account so what I've been telling people to do is figure out what they need money wise to pay their debts and to pay their overhead bills each month shovel that amount money on a monthly basis into to separate check the account that is not link to your existing account. Automatic repay out all of their bills out of the separate account. The reason why I'm telling them not to have them linked is because if you've ever had a checking and savings accounts linked and you run short one month well the first thing you do is transfer the money out of your savings and into your checking. That's dangerous when you need that money to pay bills. By bifurcating, by splitting out that direct deposit your assured that at least your monthly that is going to be cracked and you know that whatever is left over is spending money. Ideally you're going to spend less but once you got leftover but worst-case scenario you're ever going to get into the mouth of money that is necessary to keep a roof over your head, keep your utilities on, and to continue to maintain your debt repayment. And I think that for short-term matter that's really going to put people in onto a good road to fixing the problem that they might find themselves in otherwise.
Chris: okay what if they are so far underwater they don't know what to do?
Jay: well the first thing that they should do is talk to a lawyer. Now I'm not saying they should talk to a bankruptcy lawyer with the idea of going into bankruptcy. Mind you even though I am a bankruptcy lawyer by trade I sent away about 60% of the people that come in to talk to me. And the reason is that a lot of times people are underwater because they don't know what to do. They don't know how to juggle their finances. They're spending twice as much as they need to on their cable service because they decided that they wanted to have all the papers you east. They're not managing their utility bills property they're spending twice as much as they need to a cell phone bill because you're not on the right plan. They need somebody's help and there's a place for that. If there's got to be trimmed trend that first. They need to talk to a financial professional who is going to be in the position to give you that input. If, by trimming the fat you put yourself in a position to begin to repay their debt we've solved the problem. If not you may want to look at credit counseling you may want to look at consolidating your debt through either a credit counselor or through another lender. They may be in a position to do that for you. If that doesn't work well then bankruptcy may be an option. It's not an option for everybody but bankruptcy is not the boogie man. Bankruptcy is not the end of the world. Bankruptcy does not spell your financial demise. It is still available. The law for all of its changes for the remote par results in the same think for most people. I tell my clients that it's like taking a baseball game and adding two or three innings at the end of it. The outcome still the same it just takes you a little longer to get there. And for a lot of people bankruptcy is a helpful alternative.
This concludes part one of our interview with Jay Fleischman from The Debt Podcast. Get more information about today's show at debtpodcast.com. Definitely check it out. It's well worth subscribing to, well worth listening to. Alright let's move onto a piece of Podsafe Music to round out today show. We will do Lipstick Diaries from Alice Marie.
Lipstick Diaries from Alice Marie from the Podsafe Music Network at music.podcast.com. That is going to round off this Monday episode of the Financial Aid Podcast. Tune in tomorrow where we plan to cover more of the Jay Fleischman interview and talk about some more financial aid news and of course some more Podsafe Music. So if you're not subscribed to the show, if you are listening to us on My Space or on our website or the show notes, whatever, and you want to get subscribed it's very easy. Just go to financialaidpodcast.com and you can find directions for subscribing there. You should subscribe because you'll get all the latest show just released and you'll get a free copy of our Scholarship Search Secrets Ebook PDF which is only available in the RSS feed. You will not find it on our general website anywhere. If you have questions, comments, or feedback, e-mail me at financialaidpodcast@Gmail.com. I'll be more than happy to take a look at what you've got to say and possibly answer it on the air. Actually, I probably will answer it on the air so if you don't want me to answer on the air you should probably specify that in the e-mail as well. Otherwise, until tomorrow, stay tuned, stay subscribed, and take care.