Wisdom of Rich Dad

Graduating from college with thousands of dollars in loans is a heavy burden. But take heart: A loan-forgiveness program can lighten the load. Note, however, that most programs cover only federal student loans. And if the program does not involve a work requirement, the amount forgiven is generally considered taxable income.

1 Sign up for the income-based repayment plan. For borrowers with high debt relative to income, monthly payments are reduced, and any remaining debt is forgiven after 25 years. The Obama administration has proposed shortening the time frame to 20 years.

2 Work in a public-service job. Any remaining debt will be forgiven after you have worked full-time in public service for ten years and made 120 payments, beginning on or after October 1, 2007. You benefit only if your payments have been reduced through an income-linked repayment plan. Student loans must be made through the federal Direct Loan program — as opposed to private lenders, such as Sallie Mae — but you can get around this restriction by consolidating your loans into the Direct Loan program. For details on both income-based repayment and public-service loan forgiveness go to www.ibrinfo.org

3 Work in an underserved area. If you enter a profession such as teaching, health services, social work or clinical research, you could qualify for loan forgiveness through one of several programs. But before you make a years-long commitment, be sure the program has the resources to make good on its promise.

4 Work at a national service organization. A stint in AmeriCorps or its member organizations, including Vista, makes you eligible to receive a Segal AmeriCorps Education Award, worth up to $5,350 in 2010. You can use the award to pay for further education or to repay your student loans. The Peace Corps also rewards you for service by canceling up to 70% of federal Perkins loans.

For more information, go to www.finaid.org/loans/forgiveness.phtml.

My son took out a Sallie Mae loan for college expenses. To my astonishment, I found out that I was a co-signer. I don’t recall ever co-signing the student loan documents. Sallie Mae says I have to repay the loan and that I am completely responsible for it. It sends me a statement every month and is now threatening collection action. They have not asked my son for a single penny. Although the loan is only for $6,000, shouldn’t Sallie Mae try to collect from my son first before going after me?
– John Juice

Dear John,
I think your first step is to review the loan documents. Sallie Mae didn’t dream this stuff up. They’re contacting you for a reason. If you don’t have ready access to the loan documents, I’d suggest contacting the Office of the Consumer Advocate at Sallie Mae.

Without specifically referencing you, I discussed the issues surrounding the loan with Patricia Christel, a spokeswoman at Sallie Mae. Her assistance was invaluable in helping me to frame this reply.

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The stock market experienced its biggest loss in over a month, falling 140 points, or 1.1%.

What spooked investors? Standard & Poor’s (S&P) downgraded the US debt outlook from stable to negative.

The reasoning behind the S&P’s downgrade is the growing debt crisis in America. As The Wall Street Journal reports, the US deficit is expected to grow from $1.5 trillion to $1.65 trillion this year and now comprises 10 percent of total US economic output.

The rating firm cited the budget gridlock and lack of faith in the government’s ability to reach a deal to substantially lower the deficit as reasons for the downgrade, “The outlook reflects our view of the increased risk that the political negotiations over when and how to address both the medium- and long-term challenges will persist until at least after the national elections in 2012.”

Currently, the US is the only one of 19 countries to have a negative outlook for their debt while enjoying an AAA rating. This move is substantial, and while the US still retains its AAA rating, over 50 percent of countries that S&P downgrade to negative eventually lose their AAA credit rating.

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One of the most dangerous lies in all of finance and economics is the implied myth that inflation somehow “destroys” wealth. It doesn’t. Inflation doesn’t hurt everyone equally — inflation helps some and hurts others.

Inflation is actually one of the biggest reasons large corporations are so powerful in society. The government and big banks use inflation to force people to spend their money and go into as much debt as they can afford.

But how does it all work? Before we answer that, let’s first look at a parable. Some things are best learned in a story format, and inflation is one of those.

The Saver and the Slave: An Inflation Story

There were once two men who were neighbors. Their names were “Jack” and “John”.

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We’ve all heard warnings about getting too deeply into debt. It seems that lately every other commercial is about credit counseling or debt reduction. Telemarketers call and ask us if we’d like to eliminate high paying bills and before we answer, they’re extolling the virtues of second mortgages and refinancing our house.
 
This column would like to share the benefits as well as the methods of eliminating debt without risk. Without disguising what you owe as a single payment stretched over 30 years. What you’ll find here are some easy to follow tips regarding credit, debt, and the elimination of monthly payments from your life.
 
For example, how long would it take to pay for a set of furniture costing $2,000 if you charged it using a store credit card making just the minimum payments? Some of you would be shocked to learn that it would take over 30 years. Others would shrug it off as the cost of getting what you want. However, let me share what you probably wouldn’t know.
 
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Since the lesson still hasn’t sunk in for many Americans, I’ll repeat here: Your house is not an asset. It’s a liability. Very simply, an asset is something that puts money in your pocket. A liability is something that takes money out of your pocket. The reason people are confused and think that a home is an asset is because from the 1970′s through the early 2000′s they were able to pull money out of their house in the form of loans, like a real estate ATM.

As The New York Times article states: “The wealth generated by housing in those decades, particularly on the coasts, did more than assure the owners a comfortable retirement. It powered the economy, paying for the education of children and grandchildren, keeping the cruise ships and golf courses full and the restaurants humming.”

The problem is that wealth wasn’t generated. Only debt. People didn’t sell their homes to pay for things like college educations and vacations; they borrowed against them. In the process they bought into the illusion that they were tapping an asset when in reality they were growing a liability by taking on more and more bad debt.

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