• Modern-day debtors' prison alleged in Ohio

    By Andrew Welsh-Huggins, The Associated Press

    Several courts in Ohio are illegally jailing people because they are too poor to pay their debts and often deny defendants a hearing to determine if they're financially capable of paying what they owe, according to an investigation released Thursday by the Ohio chapter of the American Civil Liberties Union.

    The ACLU likens the problem to modern-day debtors' prisons. Jailing people for debt pushes poor defendants farther into poverty and costs counties more than the actual debt because of the cost of arresting and incarcerating individuals, the report said. 

    "The use of debtors' prison is an outdated and destructive practice that has wreaked havoc upon the lives of those profiled in this report and thousands of others throughout Ohio," the report said. 

    Chief Justice Maureen O'Connor of the Ohio Supreme Court, responding to the ACLU's request to take action, promised to review the findings. O'Connor told the group in a letter Wednesday: "you do cite a matter that can and must receive further attention." 

    The report says courts in Huron, Cuyahoga, and Erie counties are among the worst offenders. 

    Among the report's findings: 

    — In the second half of last year, more than one in every five of all bookings in the Huron County jail — originating from Norwalk Municipal Court cases — involved a failure to pay fines. 

    — In suburban Cleveland, Parma Municipal Court jailed at least 45 defendants for failure to pay fines and costs between July 15 and August 31, 2012. 

    — During the same period, Sandusky Municipal Court jailed at least 75 people for similar charges. 

    Judge Deanna O'Donnell of Parma Municipal Court said Thursday the court was unaware of the issue until contacted earlier this week by the ACLU. She said officials were examining the 45 cases in question. 

    "If there's an issue here, a problem, we're going to correct it," O'Donnell said. 

    Messages left for Norwalk and Sandusky municipal court officials Thursday weren't immediately returned. The ACLU also sent letters to officials at Bryan, Richland County and Hamilton County municipal courts and Springboro Mayor's Court. 

    ACLU spokesman Mike Brickner said the group believes the practice is widespread in Ohio. 

    The report is a follow-up to a national 2010 report that focused on Georgia, Louisiana, Michigan, Ohio and Washington. 

    That report determined that many courts are violating a 1983 U.S. Supreme Court decision that courts had to hold a hearing to determine why people are unable to pay before sentencing them to incarceration. 

    "The report shows how, day after day, indigent defendants are imprisoned for failing to pay legal debts they can never hope to manage," according to the 2010 report, 'In For a Penny: The Rise of America's New Debtors' Prisons.'

    "In many cases, poor men and women end up jailed or threatened with jail though they have no lawyer representing them," the report said.

    A similar 2010 report by New York University's Brennan Center for Justice looked at the growth of court fees in Florida. It concluded, in part, that the "current fee system creates a self-perpetuating cycle of debt for persons re-entering society after incarceration."

    Courts are breaking the law by holding defendants in contempt of court for failing to pay fines without proper notice or allowing an attorney to be present, the report said. Courts are also issuing arrests warrants for people who fail to show up and pay their fines and jailing defendants who are too poor to pay, according to the report.

    Court costs should be recovered through civil lawsuits, not jail time, the report said.

    Related:
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    Has disability become a 'de facto welfare program'?
    Broke and ashamed: Many won't take handouts despite need

    © 2013 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

  • Student loan debt hits record high, study shows

    David Mcnew / Getty Images

    Students march on Hollywood Boulevard while protesting the rising costs of student loans for higher education on September 22, 2012. The average college student who graduated in 2011 had $26,600 in student loans, according to a new report, which estimates two-thirds of last year's college graduates had student loan debt.

    By Scott Cohn, CNBC Senior Correspondent

    The average college student who graduated in 2011 had $26,600 in student loans, according to a new report, which estimates two-thirds of last year’s college graduates had student loan debt.

    The average debt is the largest since the Institute for College Access and Success began compiling the figures in 2005, and it comes amid soaring college costs, record loan defaults, and a persistently difficult job market for college graduates.

    While unemployment among college graduates is only slightly higher than the overall rate, the study found a stunning 37.8 percent of recent graduates are working in jobs that do not require a college degree. The study said that means wages are depressed, making the situation for graduates even more difficult.

    “Recent college graduates have entered an enormously difficult job market, which poses particular challenges for those who need to begin paying back student loans,” the study said.

    Most expensive colleges 2012-2103

    Indeed, the report cites recent U.S. Department of Education Data which show the federal student loan default rate at its highest level in 14 years. The New York Federal Reserve recently reported more than five million student loan borrowers have at least one loan past due.

    For the Class of 2011, the study said, graduation has been an especially rude awakening.

    “Most students in the Class of 2011 started college before the recent economic downturn,
    but the economy soured while they were in school, widening the gap between rising college costs and what students and their parents could afford,” the study said.

    Should college students have a credit card?

    The nation’s soaring student debt — which recently topped $1 trillion — has sparked debate over whether a college education is worth the price in the current job market. But the study noted that unemployment for young workers with only a high school education is more than twice the rate of their college-educated counterparts.

    Compounding the problem, the study said, are state budget cuts, which have led to large tuition increases, fewer grants, and an increasing need for college students and their families to borrow money to finance their education.

    Colleges that bring the highest paychecks

    The study found wide variations in indebtedness from state to state, with the largest debts concentrated mostly in the Northeast.

    The most indebted state is New Hampshire, with an average debt of $32,440, followed by Pennsylvania at $29,959, Minnesota at $29,793, Rhode Island at $29,097, and Connecticut at $28,783.

    The state with the smallest average debt is Utah at $17,227, followed by Hawaii at $17,447, California at $18,879, Arizona at $19,950, and Nevada at $19,954.

    Alabama A&M University, a public college in Huntsville, and the College of Mount St. Joseph, a private non-profit college in Cincinnati, were among those who had the highest average debt, according to the study.

    Students face their own debt bubble

    The study found 20 colleges it listed as “low-debt,” averaging between $3,000 and $9,750. While it did not rank the colleges by debt level, the list includes Yale University, Hunter College in New York, and the California State University Campuses in Bakersfield and Sacramento.

    Missing from the study are for-profit colleges, which critics say have worsened the student debt crisis. The study cited data showing 96 percent of graduates from four-year, for-profit colleges took out student loans, borrowing 45 percent more than graduates of other types of colleges.

    But the study said so few for-profit colleges report their data that it is impossible to include them in the results.

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    America's student loan debt has hit a new record. CNBC's Scott Cohn reports on the real cost of college and provides a look at some of the ugly numbers.

  • Drowning in student loan debt? Here's help

    Jacquelyn Martin / AP

    Gan Golan, of Los Angeles, dressed as the "Master of Degrees," holds a ball and chain representing his college loan debt.

    By Herb Weisbaum, The ConsumerMan

    As college students start the fall semester, millions of graduates (and drop-outs) struggle to pay off a mountain of student loan debt – more than $1 trillion dollars, according to the Student Loan Debt Clock. That’s more than all the credit card debt Americans owe.

    College seniors who graduated with student loans in 2010 owed an average of $25,250, according to the latest data from The Project on Student Debt. That’s up five percent from 2009.

    And these days, a college degree doesn’t guarantee employment, let alone a good-paying job.

    “You don’t realize the seriousness of paying back that loan until you finish school,” said Langdon Bueschel of Seattle, who needed financial aid to attend the University of Washington.

    When he graduated in 2008, Bueschel had a degree in English and $12,000 in student loan debt. He has a job designing online advertising, but most of his money goes to living expenses. Because he missed so many payments, his balance now stands at $18,000 and counting.

    “I could have been more responsible and paid more quickly,” he admitted, “but sometimes things come up.”

    The most recent report from the U.S. Department of Education found that more than 320,000 borrowers had defaulted on their student loans as of September 2010. That is, they were 360 days or more late in making their payments.

    Can’t handle your student loan payments?
    You may have options and there’s an easy way to find them. The Student Debt Repayment Assistant on the Consumer Financial Protection Bureau (CFPB) website can help students – and their families – figure out the best repayment options and what to do if they’re behind in their payments.

    “You just answer a few questions and we’ll be able to point you to the best repayment program or action you should take in order to best manage your debt,” said CFPB student loan ombudsman Rohit Chopra.

    First, you need to know what type of loans you have – government, private or both – because the remedies are different. Not sure? The Student Debt Repayment Assistant has a link to the National Student Loan database where you can find out.


    “We can lead you in the right direction for the income-based repayment program on federal loans and we can tell you how you might negotiate with your private student lender,” Chopra explained. “Let’s say you’ve fallen behind like so many people have, we can even tell you about ways to negotiate with debt collectors and maybe even get your credit report fixed so you can get back on track.”

    Of course, nothing’s guaranteed. But your chances of modifying the repayment terms are fairly good with a student loan from the federal government. Private lenders are generally not as willing to help. Still, it’s worth a try. 

    “Options vary by lender, but many private student loan programs offer borrowers a partial forbearance during which the borrower makes interest-only payments for a short period of time until the borrower can get back up on his or her feet,” said Mark Kantrowitz, publisher of FinAid.org and Fastweb.com. “This keeps the loan balance from growing bigger and digging the borrower into a deeper hole.” 

    Kantrowitz points out that some private lenders may make reductions in the loan balance or interest rate when the hardship is of a more permanent nature and they know they are unlikely to recover the full amount owed.

    Think Ahead
    Headed to college and in need of financial assistance? Then consider this advice from the Consumer Financial Protection Bureau: take advantage of all federal loans before you apply for private loans, especially those with variable rates. 

    Remember: it is virtually impossible to discharge any type of student loans in bankruptcy. This obligation stays with you forever. 

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  • How big debt is threatening security clearances for thousands of troops

    Denis Poroy / AP file

    A sign offers military financing at a used car lot in Oceanside, Calif. on Oct. 12, 2006. The lot is one of many businesses in downtown Oceanside that offer credit to Marines from nearby Camp Pendleton.

    By Bill Briggs, NBC News contributor

    Nearly 36,000 active-military members who hold security clearances have recently sought urgent financial advice or aid because heavy debts and delinquent bills threatened to void their classified status, according to a nonprofit that helps troops and veterans solve money problems.


    “You can lose that security clearance if you have credit or debt issues,” said John E. Pickens III, executive director of VeteransPlus. “If you lose that clearance, you can become un-promotable or you can be taken from your assignment. And, ultimately, you can even receive a bad-conduct discharge.

    “If you’re going to be entrusted with national security,” he added, “the military figures you’ve got to at least be able to pay your bills on time.”

    Pickens’ nonprofit has offered financial counseling to more than 150,000 current and former service members. Among that crowd of clients, more than half are active duty, National Guard members or reservists. And out of that portion, he said, 46 percent have expressed worries about their security clearances.

    Approximately half of America's 2.4 million active duty, National Guard and reserve troops hold some level of security clearance, said Pentagon spokesman Lt. Col. James Gregory. Most of those 1.19 million service members possess the second-highest security rating - "secret" - while the next largest portion hold a higher status: TS/SCI, (Top Secret/Sensitive Compartmented Information), he added. The sensitive nature of certain military jobs typically dictate the security classifications. 

    “All military members know they are required by the Uniform Code of Military Justice to pay their debts,” Pickens said. “But right now, the Department of Defense says excessive and delinquent indebtedness is the No. 1 cause for denying or revoking security clearances.”

    Asked to confirm that massive debt and late payments are, indeed, the leading factors in security-clearance terminations, Gregory said: “One reason (for concern) is that a person with big debts is more likely to accept money in exchange for revealing secrets.  So that's why financial things are one of the biggest reasons that a clearance would not be granted or be revoked.

    “That said,” Gregory added, “the military takes a ‘whole person’ approach. Finance is only one factor to be considered among many others when it comes to security clearances. The U.S. military pays close attention to debt and other financial issues when it comes to screening applicants for security clearance to handle sensitive information.”

    Based on the financial counseling sessions provided by VeteransPlus, statistics show that service members and veterans who approach the nonprofit have an average debt-to-income ratio of 46.5 percent, Pickens said. According to “The Ultimate Credit Handbook,” by Gerri Detweiler, a debt load of 36 percent or less is healthy for most people to carry, but a ratio of 43 percent to 49 percent means that dire financial difficulties are probably imminent unless immediate action is taken.

    The nonprofit’s counselors also see an average unsecured debt (such as credit cards) of $9,700 and an average secured debt (such as a home) of $16,500.

    How much is too much?

    “I wish I knew that number,” Pickens said. “But if you’re not paying your bills and your debt-to-income ratio is what the military would consider to be excessive, they look at you as a risk.

    “Military folks are susceptible to the same kinds of pressures and economic things as everybody else,” Pickens adds. “Their spouses get laid off. They have foreclosures. The fact that they have to move around frequently means they’re often upside down on their houses when they have to sell.”

    In April 1990, Derek Staden, then 19, learned he was about to be deployed from his Air Force base in Wichita, Kan., to the Middle East as the U.S. military launched Operation Desert Storm. Then a senior airman whose duties included refueling aircraft, Staden’s mailbox suddenly was flooded with offers for credit cards and high-interest loans.

    “Just out of nowhere – all from creditors locally,” Staden said. “I guess they knew our base was deploying. All we had to do was endorse the checks and they would cash them for us. I was a young man and I’d never seen anything like that before. I didn’t know how the interest payments worked so I took them and took advantage of them. I bought some things I needed and things I didn’t need.”

    When Staden returned to his base later in 1990, those same creditors demanded that he repay the loans or balances or they would report him to his commanding officer. He knew his security clearance would be at risk if his superiors learned of his unpaid bills. He had earned that classified status during basic training. He needed the clearance because he was involved in secret, Cold War practice drills during which he refueled aircraft.

    “I had to keep those payments up to speed because the military frowns on having debt issues like that,” Staden said. “It wasn’t an option to call my parents and ask for help because they taught me growing up how to be responsible for your obligations. I didn’t want to call them to tell them I’d been duped by creditors.

    “I just had to scale back, spend all my weekends in the dorms (on base). Those were some lean times for me. I was so embarrassed.”

    Staden, who left the service in 1995 and now lives in New Orleans and is trying to get into the music-production business, estimates that his debt ultimately reached in the low $20,000 range.

    "I felt like I didn’t have anywhere to go for help – outside of my parents. I figured if I went to the adjutant on base I would get myself in trouble,” he said. “It made me second-guess a lot of things. I thought I was more prepared for living on my own. That was probably part of the reason I didn’t re-enlist. It was very stressful.”

     

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  • Zombie debt collections: Hollywood Video is dead, but bills still haunt consumers

    George Frey / Bloomberg via Getty Images file

    Like a monster in a bad horror flick, every time this Hollywood Video debt collection controversy seems to be killed, it keeps coming back to life.

    By Bob Sullivan, Columnist, NBC News

    Talk about Red Tape: Consumers across the country say they are being harassed into paying bills they don't owe to a company that no longer exists. And it's not the first time. Like a monster in a bad horror flick, every time this Hollywood Video debt collection controversy seems to be killed, it keeps coming back to life.

    When Hollywood Video and its parent, Movie Gallery, went out of business in 2010 and declared bankruptcy, they had only one real asset: unpaid fees. About 3 million U.S. residents owed money to the firm — a lot of money — nearly a quarter of a billion dollars, according to the Rhode Island attorney general's office. But attempts to collect that money on behalf of Hollywood Video's creditors have become a series of bad horror flicks to former customers, who claim they are being repeatedly harassed by debt collectors waving bills the consumers don't owe. And now, an NBC News investigation of 500 complaints filed against one of those firms in the past 90 days — Universal Fidelity — shows that consumers accuse the company of everything from bullying to threatening to ruin their credit, despite promises to all 50 state attorneys general that it would never do so.

    The pile of complaints, provided to NBC News by the Houston office of the Better Business Bureau, offers a rare glimpse into the consumer side of the collections business.

    'Not in business to harass'
    Paul Farinacci, president and chief executive of Universal Fidelity, denied accusations of harassment and said his telephone representatives are schooled to operate within the law.

    "Everybody here is trained in customer service. ... We are not in business to harass, harangue or threaten people," he said. He also said his company had unfairly become a "consumer advocate punching bag."

    The Hollywood Video collections saga has already been through two nasty episodes. In 2011, when collections for unpaid late fees and unreturned movie charges first began, complaints quickly piled up against Oklahoma-based National Credit Solutions. Consumers said their credit reports were being ruined by $39 late fees they didn't owe, and they claimed that operators for the firm were ruthless.

    The drumbeat became so loud that Hollywood Video's bankruptcy trustee, First Lien Term Lenders Liquidating Trust, reached a settlement with all 50 states' attorneys general under which it would drastically alter its collection tactics. It promised to remove any credit blemishes it had placed on consumers' reports and never to threaten consumers' credit reports in the future. It also turned to a set of new collection agencies, including Houston-based Universal Fidelity, which promised to clean up the process.

    But within the past two months, a pile of fresh complaints has arrived from around the country, raising new questions about the collections process. In Houston, 430 of the roughly 1,000 complaints filed against Universal in the last 12 months have arrived since June 1.

    The Virginia BBB office warned of a "flurry" of new complaints last month; the situation got the attention of the St. Louis Better Business Bureau office, which issued a new consumer warning July 5.

    "The enormous number of complaints seems to indicate that something is wrong," Michelle Corey, president and chief executive of the St. Louis BBB, said in the warning. The agency also said there was an increase in complaints against a second Hollywood Video collection company, Rhode Island-based West Bay Acquisitions. That company did not immediately respond to request for comment sent via telephone and e-mail. According to the Boston chapter of the Better Business Bureau, about 180 complaints have been filed against West Bay since June 1. The firm has responded to those complaints statements like this:

    "West Bay Acquisitions abides by all ... laws. It is our company policy that all disputed debts be thoroughly investigated," it says in responses posted on the Boston BBB website. "All of the accounts that West Bay Acquisitions, LLC attempts to collect on have been verified by the client to be valid debts."

    More US coverage from NBCNews.com

    Bill Smith, an investigator for the St. Louis office, told NBC News he was concerned that collectors keep trying to wring money out of consumers who don't owe a debt to Hollywood Video.

    "It seems pretty clear a lot of people are receiving these notices who do not owe this money," he said. "As to why so many people are continuing to be bothered by this thing, I don't have a good explanation."

    One of the consumers contacted by Universal Fidelity is Roslyn James, a 32-year-old mother of two in Tacoma, Wash. She contacted NBC News looking for help, exasperated that the firm continues to claim that she owes $19.16 for renting "Sherlock Holmes" in early 2010. Universal also says she owes a second bill of $44 for two movies that were rented earlier. James says she has told operators numerous times that the bills are inaccurate, but she says the firm continues to contact her.

    "I was angry because I want to get it taken care of. ... You almost just want to pay it just to get rid of it, but to me, it's the principle," she said. She's says she's been told to file a dispute in writing with the company, but she hasn't gotten around to doing so yet.

    "When am I going to send a letter? " she asked. "I have two kids, and I don't even have time for myself, let alone taking care of things I shouldn't have to."

    James also accused Universal of threatening to wreck her credit, something that would be expressly forbidden by the stipulated order Hollywood Video's trustee signed by with the states.

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    "When I called the only number they provide and ask them how I can resolve this, they tell me I have to pay to get it off my credit report," she said.

    Farinacci said he could not discuss an individual consumer's account, citing privacy reasons, but he said James' claim wasn't possible. Agents click on a notice every time they log on reminding them they cannot discuss credit reports with consumers, he said.

    "Absolutely not," he said when asked directly whether his operators threaten consumers' credit to get them to pay bills. "There is no Hollywood Video or Movie Gallery account that is listed on anyone's credit report. That is one area where there is no wiggle room. We do not discuss that in any fashion at all."

    'Bullies'
    Several consumers who filed complaints with the Houston BBB against Universal Fidelity did indicate that they believed their credit was threatened.

    "These people are bullies and threaten all kinds of things (i.e. bad credit, more fees, legal fees, other debt collectors etc.)," wrote one. Another consumer had a similar complaint: "I only paid it because they said it would affect my credit if I did not and I did not want to jeopardize my job."

    Leah Napoliello, an investigator for the Houston office of the BBB, said her agency updated its report about about Universal Fidelity after inquiries from NBC News.

    "Consumers have recently alleged in complaints that they are told that non payment would affect their credit rating," the report now says.

    Smith, of St. Louis, added that it was possible that consumers erroneously assumed that their credit would be affected.

    "There are enough of those complaints that I am concerned, however," he said.

    Receipts required?
    The database of complaints against Universal Fidelity yields a list of other alleged bad behavior. Dozens of consumers say that when they call and indicate that they paid their bills before the stores closed, operators respond by saying the consumer must provide a receipt of payment or else they must pay the bill. For many, those receipts would be two or three years old, and long since thrown away.

    More than 10 percent of the complainers say they were "harassed."

    One such complaint suggests how far consumers say Universal Fidelity operators will go to nudge them to pay bills they believe they don't owe.

    "I explained that I did not rent these DVDs, and (the operator) said they were not in the business of verifying the accounts, solely collecting on them," wrote one, who was told to pay $47.90.

    "I asked them how I can go about proving I didn't rent these DVDs and she stated that I would have to send in a receipt or contract stating it was impossible. Since I didn't rent them, no receipt is available. … ‘Is it really worth going through the hassle of filing a police report when you could just pay us $48 little dollars today?' (the operator said.) I responded, ‘Absolutely. I am not in the practice of just handing out my money.'"

    Farinacci, when read that complaint over the phone, was incredulous.

    "I can't imagine a person would get into get into that kind of an argument over $47," he said, referring to his employee. "It's hard for me to sit here and to fathom that individuals here are saying those things. ... Have we ever made a mistake? Sure. Honestly, we sent out 400,000 letters last month. (We) make hundreds of thousands of phone calls. Could there be an instance where an agent didn't properly cross the T's and dot the I's? Yes. … But we follow all rules and regulations."

    RED TAPE WRESTLING ADVICE

    If you were a customer of Hollywood Video, be on the lookout for a letter claiming you owe a debt. Collectors haven't reached out to all 3 million customers yet, so you might be next. Officials at Houston's Better Business Bureau say the letters, and subsequently the complaints, seem to come in waves.

    Farinacci said debts must be disputed in writing, so don't bother getting into a discussion with a telephone operator.

    If you really do owe the money, you should pay the bill -- fair's fair. You won't have to pay interest charges or additional fees.  There's plenty of reports that operators offer consumers the chance to settle the charges by paying 50 cents on the dollar; consider doing that, but make sure you get proof that the debt is settled.  Some complainers indicate that they take such a deal, but still end up getting bills anyway.

    Smith said that while there have been more than 1,000 complaints against Universal Fidelity, nearly all have been closed with satisfaction; Universal seems to quickly drops it efforts to collect from individual consumers upon receiving a BBB complaint. Nearly all the complaints against West Bay have been satisfied, too. That means it might be even more important to complain to the BBB (which you can do online) than to send a dispute letter to the collection firms.

    For further reading, see Universal Fidelity's Frequently Asked Questions page. Also, see the stipulated order restricting the company's collection efforts.

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  • Ohio school district hires collection agency to go after unpaid lunch money

    By Sylvia Wood, msnbc.com

    An Ohio school district has hired a collection agency to prove to students and their parents that there’s no such thing as a free lunch.

    The Columbus City Schools hope to recover an estimated $900,000 in unpaid lunch money from almost 6,000 students. The district loses roughly $2,622 every school day in unpaid lunches, according to a report on NBC4i.com. Most of the delinquent accounts average between $150 and $170, according to Meade and Associates, the collection agency in Westerville hired by the district to collect the money.

     “Our goal is to recover the balance in full,” Sean Meade, client relations manager, told msnbc.com. But he added, “we’re here to help,” so if “payment arrangements are needed, we’ll work with the family.”

    Columbus City Schools did not return a call from msnbc.com. Unpaid-for lunches are not unique to Columbus. Across the country, districts are struggling as the ailing economy brings more students to school without lunch money.

    “It’s one of those issues that we’re seeing more of,” Diane Pratt-Heavner of the Maryland-based School Nutrition Association told msnbc.com. The group recently surveyed 964 of its members. Fifty-three percent said they had seen increases in the number of students unable to pay for lunch.

    Schools have been trying to balance budget cuts with new federal nutrition standards that are expected to increase the cost of meal preparation.  In response, Pratt-Heavner said her group would like Congress to require the U.S. Department of Agriculture to spell out how schools should respond to requests for unpaid lunches and how to manage the debt.

    “The people working in our school cafeterias are not in this line of work for the money – they want to serve all their kids – but at the end of the day, the new nutrition standards for school meals are raising the cost of serving school meals, and school nutrition programs simply cannot afford to allow unpaid meal charges go unchecked,” Pratt-Heavner told msnbc.com.

    Until then, school districts continue to make accommodations for students who can’t pay. Some offer alternative meals of cheese or peanut butter sandwiches. Districts also try various methods of collecting debts, such as phone calls and letters to parents.

    Pratt-Heavner said more districts are turning to collection agencies.

    Meade told msnbc.com his agency will start contacting parents by early April, using phone calls and letters. Of every dollar collected, the company will earn 26 cents in commission.

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  • Mounting student loans a 'debt bomb' waiting to explode

    By Herb Weisbaum, The ConsumerMan

    It’s a vicious cycle. Many families in this country cannot afford the skyrocketing cost of higher education without student loans. But many graduates cannot find a job and cannot pay off the loans. As a result, they wind up in a much deeper hole (as the interest and collection fees accrue) with no way out. 

    Student loan debt in the U.S. now totals more than $1 trillion. That’s more than all the outstanding credit card debt in the country.

    A recent report by the National Association of Consumer Bankruptcy Attorneys found that both students and parents are borrowing at record rates. 

    College seniors who graduated with student loans in 2010 owed an average of $25,250, up five percent from the previous year. Parents had an average of $34,000 in student loans for their children. The report says the number of these parental loans has jumped 75 percent since 2005-2006. 

    “These are enormous numbers,” says Ike Shulman, a bankruptcy attorney in San Jose, Calif.  “They’re basically setting us up for having a large number of fellow citizens become economically non-functional for the rest of their adult lives.” 

    Growing numbers of people are being crushed by this debt -- unable to pay and unable to get relief. A recent nationwide survey of bankruptcy attorneys by NACBA found that most (81 percent) had seen a spike in the number of people with student loan debt looking for help. But in most cases, there is nothing a lawyer can do. 

    Current law makes it almost impossible to discharge student loan debt through bankruptcy. And unlike other unsecured debt, there is no statute of limitations on student loans. Lenders can pursue borrowers to the grave. 

    “It’s not fair and it needs to be corrected,” says NACBA president William Brewer. “It is a debt bomb that could cripple our society.” 

    The association’s report says the country faces a serious economic threat from this growing mountain of student debt, one that could be every bit as devastating as the mortgage meltdown. 

    “This will be a drag on the economy for the foreseeable future,” warns John Roa, an attorney with the National Consumer Law Center and NACBA’s vice president. 

    It’s a problem for students and parents who co-signed loans
    Dave Ingham, a disabled Vietnam veteran who lives in Minneapolis, fears he could lose his savings and his house because he co-signed student loans -- now in default -- for his son. Ingham is being sued by collectors. 

    His son Shannon has been unable to find work since October 2009. He’s now been diagnosed with acute anxiety disorder and depression. He’s still looking for work, but his father says the loan defaults keep him from getting hired. 

    “It seems that whenever he comes close to a job interview, they run a credit check, see his loan defaults and the interview does not proceed,” Ingham said at a recent telephone news conference arranged by NACBA.  

    Can something be done?
    With student loans backed by the federal government, someone in trouble can try to get the payments deferred or modified. There are even loan forgiveness programs.  With private loans, it’s pay or end up in default. 

    The National Association of Consumer Bankruptcy Attorneys wants a “safety net” under student loans, just as there is for other consumer lending. 

    If you start a business that fails, they point out, you can file for bankruptcy and go on with your life. But college students -- or their parents -- don’t have the same protection. 

    “We need to make some common sense reforms, something like creating an escape valve to relieve some of the pressure before the whole thing blows sky high,” says NACBA vice president John Roa. “There’s no way to diffuse this bomb if the status quo remains the same.” 

    NACBA wants Congress to roll back the bankruptcy code to 1978, when borrowers who couldn’t pay off their student loans (private or government-guaranteed) could discharge that debt in bankruptcy. 

    Rep. Steve Cohen, (D-Tennessee), has introduced a bill, H.R. 2028: Private Student Loan Bankruptcy Fairness Act, which would treat private student loan debt the same as other consumer debt. 

    Congressman Cohen says his bill would “restore fair treatment to Americans in severe financial distress” and give “an honest but unfortunate debtor a chance for a financial fresh start.” 

    The bill is supported by the American Association of Community Colleges, the American Association of State Colleges and Universities, the American Council on Education and the American Federation of Teachers, as well as various consumer groups. There is currently no formal opposition.

    The idea of making it easier to discharge student loan debt via bankruptcy will not sit well with those who backed bankruptcy reforms passed in 2005. Clearly, getting the law changed is a long-shot. 

    Dave Ingham says he doesn’t know how to solve the current situation. But he believes something should be done before others face the same financial ruin he does. 

    “It’s something that’s really out of control,” Ingham says. “There are thousands and thousands of us out there who need help with this situation. Please do not give up on us.” 

    Read:  NACBA report and member survey on student loan debt  

    Find helpful information at: StudentLoanBorrowAssistance.org 

    Are you struggling with student debt? Share your thoughts on Facebook.

     

  • Federal judge denies bankruptcy for Harrisburg, Pa.

    Daniel Shanken/Reuters file

    The Pennsylvania State Capitol Building as seen from State Street in Harrisburg, Pa., which in a desperate bid to resolve its debt crisis attempted to file for bankruptcy. A federal judge on Wednesday would not allow the filing.

    By msnbc.com , wire services

    Harrisburg, Pa., cannot file for bankruptcy to get out of its $300 million debt, a federal judge ruled Wednesday.

    The ruling paves the way for a state takeover of finances of the Susquehanna River city of 50,000.

    The city in October became one of the most-high-profile cities to opt for the little used Chapter 9 of the U.S. bankruptcy code, most notably tapped nearly 20 years ago by Orange County, California.

    But for Harrisburg, state law prevents authorization for using the Chapter 9, U.S. Bankruptcy Court Judge Mary France said in Wednesday's ruling.

    "We are certainly disappointed at the judge's ruling and while we respect her opinions we will take some time after Thanksgiving to determine whether we want to file an appeal," said Brad Koplinski, a city councilman who voted for bankruptcy.

    "We still believe that bankruptcy is the best option for the taxpayers of Harrisburg."

    Mark Schwartz, a Philadelphia-based attorney who represents the city council members who voted in favor of a filing, said he is "leaning" toward filing an appeal, but has not decided yet.

    The Pennsylvania capital's crisis has been a year in the making.

    The city's debt is tied to its nearly 40-year-old trash incinerator. Beset by environmental problems and fines for years, U.S. Environmental Protection Agency shut it down in 2003 with about $100 million in debt already piled on it, some of which had gone to finance other city projects.

    The filing was seen as a barometer for other municipalities seeking potentially to tap this option to deal with mounting debts.

    Jefferson County, Alabama, earlier this month filed a $3 billion Chapter 9 petition, the largest U.S. municipal bankruptcy in history.

    The Associated Press and Reuters contributed to this report.