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He Got $221,000 Of Student Loan Forgiveness, But Then This Happened

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This veteran thought he got $221,000 of student loan forgiveness, but then this happened. Here’s what you need to know.

Student Loans: Bankruptcy

A Navy veteran was granted $221,000 of of student loan forgiveness, which is also known as student loan discharge. U.S. bankruptcy judge in New York, Cecilia G. Morris, ruled that Kevin J. Rosenberg will not have to repay his student loan debt because it will impose an undue financial hardship.

However, in a relatively rare move in bankruptcy cases, his student loan servicer, Education Credit Management Corporation (ECMC), is now appealing the ruling.

“Instead of pursuing those opportunities available to him, and paying back his taxpayer-backed federal student loans, Plaintiff, for the past 10 years, has held various positions in the outdoor adventure industry, including starting up and running his own tour guide business,” ECMC wrote in filings.

ECMC claims that Rosenberg, who has a law degree from Cordozo Law School at Yeshiva University, could have earned more income working as an attorney. Rosenberg borrowed $116,500 of student loans between 1993 and 2004. He filed for Chapter 7 bankruptcy in 2018 and asked the court last June to discharge his student loan debt, which had grown to $221,400, including interest. At the time of filing, Rosenberg’s annual salary was $37,600, and after living and debt expenses, his monthly net loss was $1,500.

Traditionally, unlike mortgages or credit card debt, student loans cannot be discharged in bankruptcy. There are exceptions, however, namely if certain conditions regarding financial hardship are met.

The Brunner Test: Financial Hardship

Those conditions are reflected in the Brunner test, which is the legal test in all circuit courts, except the 8th circuit and 1st circuit. The 8th circuit uses a totality of circumstances, which is similar to Brunner, while the 1st circuit has yet to declare a standard.

In plain English, the Brunner standard says:

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

“Inability to pay one’s debts by itself cannot be sufficient to establish an undue hardship; otherwise all bankruptcy litigants would have an undue hardship,” ECMC argued.

What Else Can You Do If You’re Struggling To Make Student Loan Payments?

Here are some potential action steps:

1. Income-Driven Repayment: For federal student loans, consider an income-driven repayment plan such as IBR, PAYE or REPAYE. Your payment is based on your discretionary income, family size and other factors, and you can receive federal student loan forgiveness on the remaining balance after 20 or 25 years of payments. However, you will owe income taxes on the amount of student loans forgiven.

2. Pay Off Other Debt: Pay off credit card debt first. Credit card debt typically has a higher interest rate than student loans. You may qualify for a personal loan at a lower interest rate, which can be used to pay off credit card debt, save you money in interest costs and potentially improve your credit score.

3. Contact your lender: If you’re facing financial struggle, don’t keep it a secret from your lender. Contact your lender to discuss alternative payment options.

4. Refinance student loans: Student loan refinancing rates are incredibly cheap right now and start at 1.99%. Student loan refinancing is the fastest way to pay off student loan debt. To qualify, you’ll need a credit score of at least 650 and enough monthly income for living expenses and debt repayment. If you meet those requirements, you may be a good candidate for student loan refinancing. If you don’t, you can also apply with a cosigner to help you get approved and get a lower interest rate.

This student loan refinancing calculator shows how much you can save with student loan refinancing.

Follow me on Twitter or LinkedIn. Check out my website or some of my other work here.

Zack Friedman is the bestselling author of the blockbuster book, The Lemonade Life: How To Fuel Success, Create Happiness, and Conquer Anything. Apple named The Lemonade Life one of “Fall’s Biggest Audiobooks” and a “Must-Listen.” Zack is the Founder & CEO of Make Lemonade, a leading online personal finance company that empowers you to live a better financial life. He is an in-demand speaker and has inspired millions through his powerful insights. Previously, he was chief financial officer of an international energy company, a hedge fund investor, and worked at Blackstone, Morgan Stanley, and the White House. Zack holds degrees from Harvard, Wharton, Columbia, and Johns Hopkins.

Source: He Got $221,000 Of Student Loan Forgiveness, But Then This Happened

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Three Credit Score Myths That Are Wildly Untrue

Sydney Enzler opened her first credit card when she was a 19-year-old college student. Her mom encouraged her to open the account in order to build credit and establish a strong credit score.

“I wanted to use my credit cards every once in a while to build credit, but I generally just use them for larger purchases,” said Enzler.

Now 24 years old, Enzler is one of the millions of Americans who owe a collective $1.1 trillion dollars in credit card and other revolving debt. According to the Federal Reserve, the average interest rate on those credit card balances is 16.97% APR.

With interest rates that high, it’s easy to see how credit card debt can quickly spiral out of control and leave you with a bruised wallet – and ego. The reality is that credit cards aren’t going anywhere, and they play a large role in determining your credit score – a critical factor when it comes to getting the lowest possible interest rate on your mortgage or other loans.

Today, I am dispelling three common credit card myths so that you can focus on the things that will actually improve your credit score.

Myth 1: Carrying A Small Credit Card Balance Is Good For Your Credit

Today In: Money

I applied for my first credit card shortly after my 18th birthday and I remember being told by a well-meaning colleague at work that I should try to use the card regularly and carry a small balance. The rationale was that by using the card and paying a small amount of interest monthly, the bank would love having me as a customer and give me a better credit score.

Fortunately, I was a curious teenager and fact-checked that claim, because it’s not true. And not following that advice has saved me hundreds, if not thousands of dollars in unnecessary interest charges over the years.

To begin, your credit score is not determined by your credit card company or any other lender. Your credit card issuer (in my case it was Chase), provides the credit bureaus with regular updates on your payment and account history. These credit bureaus (Equifax, Experian and TransUnion) simply receive information from your lenders and use it to calculate your credit score.

Second, carrying a balance on a credit card will increase your utilization, which could actually lower your score. In general, using less of your available credit is better from a credit score perspective.

The important lesson here is that it’s never wise to pay interest on your credit card if you can avoid it. Always pay off your full statement balance in full if possible. It will help you lower your credit utilization while avoiding costly interest charges.

(Read: The 60 Second Guide To Credit Utilization.)

Myth 2: Checking Your Credit Report Will Hurt Your Score

Reviewing your credit score regularly (and for free) is one of the best things you can do as a responsible credit card user. Period.

However, the myth that checking your credit hurts your score pervades, in part, because of the confusing language that’s used to notate when your credit file has been accessed. Whenever your credit report is requested, you’ll receive an ‘inquiry’. However, it’s important to note that there’s a big distinction between ‘soft’ and ‘hard’ inquiries.

When you request your own credit report, this qualifies as a soft inquiry. Soft inquiries have no effect on your credit score whatsoever. That means that checking your own credit report will not hurt your credit score. It’s that simple.

However, when you apply for a new loan or other type of credit, the prospective creditor will access your credit file to assess your creditworthiness. This will result in a hard inquiry, which will, in fact, have a negative impact on your credit score. Hard inquiries will remain on your credit file for two years, although they will only affect your score for 12 months.

If you’d like to check your credit report, you can do it here for free. By law, each of the three major credit bureaus must give you free access to your credit report once per year. I try to check a credit report from a different bureau every three to four months to check for inaccuracies or fraud. In fact, I just requested my credit report while writing this article and it took all of 90 seconds. You should do the same.

Bonus: If you are serious about protecting your credit you should also freeze your credit files for free.

Myth 3: You Can Pay Someone To Fix Your Credit Score

If you have a history of making late payments and don’t practice sound credit management, there’s no magic switch you can flip in order to have accurate information removed from your credit report on-demand.

While there are a lot of credit repair services roaming the web and social media, the fact is that they don’t do anything that you can’t do on your own.

The best way to repair your credit is to practice good credit management strategies. This means paying your cards and other credit accounts on time, every time. It also means understanding how credit scores work and what the components that go into your score are.

The components of your credit score are as follows:

  • Your payment history comprises 35% of your credit score
  • Amount of debt (credit utilization) comprises 30%
  • Length of credit history comprises 15%
  • Amount of new credit (and inquiries) comprises 10%
  • Your credit mix comprises the final 10% of your credit score

This means that 50% of your score (payment history and length of credit history) is related to time. Clearly, to meaningfully improve your score it will take patience.

If you’re getting ready to apply for a mortgage, or if you are hoping to lower your student loan interest rates by refinancing, here’s what you can do to give your score a boost more quickly. Thirty percent of your score is based on your credit utilization, which is essentially based on a current snapshot of your accounts. While it could take years for negative marks to roll off of your credit report, you can quickly lower your credit utilization.

Your credit utilization is determined by taking your outstanding balance on your revolving credit accounts and dividing it by the total credit available to you. It could take several weeks for the updated information to be passed from your creditor to the credit bureaus, but it’s a fast way to improve an important metric. For the highest credit scores, aim to lower your utilization below 10%.

Don’t lose sight of the fact that it can take time to improve your credit score. Start to establish healthy credit habits today so that your score reflects them in the future. But most importantly, don’t despair if your credit isn’t perfect.

Regardless of what your credit score is, it’s important to know that your credit score might not be as important as you think it is.

Follow me on Twitter or LinkedIn. Check out my website or some of my other work here.

Camilo Maldonado is Co-Founder of The Finance Twins, a personal finance site showing you how to budgetinvestbanksave & refinance your student loans. He also runs Contacts Compare.

Source: Three Credit Score Myths That Are Wildly Untrue

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How Islamic Finance Could Save the Planet

With mystic peaks, coral reefs, jungles and over 4,000 hours of annual sunlight, Malaysia’s Sabah state is an ideal candidate for clean energy initiatives. But what makes its 50-megawatt solar project, launched in April 2018, special isn’t just its potential to provide electricity to this northern Borneo region. The project is the outcome of funds raised from the world’s first Islamic green bond, with a value of $60 million, unveiled by Malaysia’s Securities Commission in July 2017………..

Source: How Islamic Finance Could Save the Planet

5 Secrets To Refinance Your Student Loans – Zack Friedman

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With interest rates rising, there’s no better time to refinance student loans.

Student loan refinancing enables to you combine your existing federal and private student loans into a new, single student loan with a lower interest rate. As a result, you can lower your monthly payment and save significantly on interest costs, which can help you pay off your student loans faster.

(You can see how much you can save through refinancing with this free student loan refinancing calculator).

Here are 5 secrets to get approved to refinance your student loans:

1. Have a strong credit score

Lenders want to refinance student loans for borrowers with a history of financial responsibility.

One way they measure financial responsibility is through your credit score (or its underlying components). To increase your credit score, make sure that you meet your financial obligations and have a history of on-time payments. Don’t skip any payments and minimize your total debt as well as your credit card utilization.

If you don’t have a strong credit score, the good news is you can apply with a qualified co-signer, which can increase your chances for approval.

Insider Tip: Aim for a credit score of 700 or higher. However, lenders will refinance student loans for borrowers with credit scores starting at about 680.

2. Have a strong income

In addition to a strong credit score, student loan lenders want to ensure that you have stable and recurring income to repay your student loans.

How do you know if you have enough income to get approved?

Review your monthly after-tax income. When you subtract your monthly student loan and other debt payments, does a sufficient amount of income remain for other essential living expenses?

Insider Tip: If you do not have sufficient income after making student loan payments, you can increase your chances for approval with a qualified co-signer who has a strong monthly income.

3. Have no or limited other debt

Student loan lenders will evaluate all your debt – not just your student loan debt.

If you have credit card debt, mortgage debt or auto debt, lenders will sum all your debt payments together to understand your total debt obligations each month. The lower your monthly debt payments relative to your income, the better.

Insider Tip: This free lump-sum extra payment calculator can show you how much money can save by paying off some of your debt with a one-time payment. Pay off some of your debt obligations before applying to refinance student loans.

4. Have a relatively small debt-to-income ratio

Student loan lenders are interested in the relationship between your monthly income and your monthly debt obligations, which is known as your debt-to-income ratio.

For example, if you have $10,000 of monthly income and $3,000 of monthly debt expenses, then your debt-to-income ratio is 30%.

Insider Tip: The lower your debt-to-income ratio, the better. You can improve your debt-to-income ratio by increasing income or decreasing debt (or both).

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5. Be employed

It’s best to be employed with 1-2 years of work experience to maximize your chances of being approved for student loan refinance.

However, if you have a written job offer when you apply to refinance student loans (even if you are in graduate school or residency, for example), you can still get approved for student loan refinancing.

If you are unemployed or do not have stable, recurring income, it will be difficult to be approved for student loan refinancing.

Insider Tip: If you are unemployed or underemployed, your best option is to apply with a qualified co-signer with a strong credit profile.

Here’s a bonus tip: Apply to refinance your student loans with multiple lenders at once, not just one. First, it will only count as a single credit inquiry, and second, you will also maximize your changes for approval.

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