New Jersey bankruptcy Article

The New York Post
By Vicki Elmer
April 26, 2012

FOR many recent college graduates, the dream of owning a home may have to be postponed awhile as they first grapple with repaying mounds of education loans.

Outstanding student loan debt now totals over $1 trillion, according to a report last month from the Consumer Financial Protection Bureau. That surpasses the amount owned on all credit cards in the United States.

Student debt has become an issue in the presidential race, with both President Obama and Mitt Romney, the presumed Republican nominee, supporting efforts to extend loan subsidies set to expire in July.

Last year alone, students took out $117 billion just in federal loans. And it’s no wonder: According to the College Board, the average annual cost of out-of-state tuition, room and board at a public institution is $29,657; at a private nonprofit, it is $38,589.

“Some student loan payments are as high as a mortgage,” said Cari Sweet-Kostoplis, an assistant vice president of the Jersey Mortgage Corporation in Parsippany. She noted that one client who had monthly loan payments totaling $2,800 opted to work as a prison psychologist to qualify for a federal student loan forgiveness program offered to those who undertake community service work after graduation.

Ms. Sweet-Kostoplis and other industry experts say that many first-time buyers get turned down for mortgages because their student loan debt significantly raises their overall debt level. Most lenders follow underwriting guidelines that limit total debt payments — for the mortgage and property taxes, plus credit cards, student loans, car loans and other debts — to 45 to 50 percent of a borrower’s adjusted gross income.

Assuming the mortgage and taxes will eat up 33 to 35 percent, that means student loan payments, plus credit card bills, can account for no more than 10 percent or so of gross income, Ms. Sweet-Kostoplis said. That equals $833 a month for someone who makes $100,000 a year.

To lower monthly loan payments, borrowers can restructure or consolidate student loans. Mark Kantrowitz, the founder of FinAid.org, which offers advice on student loans and scholarships, says some students choose to extend the length of the loans.

Loan consolidations may be done through the student loan provider Sallie Mae, and could net an interest rate as low as 3 percent and a term of up to 25 years, said David Boone, a first vice president of Provident Bank in Jersey City, N.J.

Before embarking on a home search, Mr. Boone recommends aggressively paying off student loan debt and refraining from taking on any more big debts, like buying a car. Borrowers should also make sure that their student loan payments are made in a timely manner. A loan would be declared delinquent if payments were 30 days or more late, said Heather Jarvis, a lawyer in Wilmington, N.C., who offers student debt training as well as advice for high-debt individuals.

Ms. Jarvis, who graduated from law school with $125,000 in student debt, also notes that there is no statute of limitations on collection for past-due student loan payments, and says she even knows of people who have had their Social Security checks garnished to repay them.

Conversely, she added, repaying student loans on time and in full would also help improve a borrower’s credit score.

Another way to lower student debt is to get the borrower’s family involved, though this comes with risks.

For example, Mr. Kantrowitz said, parents or grandparents could agree to take out a home equity loan and use the proceeds to pay off the student loan balances. The borrower would then repay the home equity loan, either to the parent or directly to the lender. Home equity loans usually have lower interest rates than student loans because the debt is secured, he said, adding that if the rate was at least two percentage points below the student loan rate, it could be worthwhile making the switch.