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Letters: Creating a paper trail
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While there are loads of fan mail for Paddy and Tess, not so much for commentator Peter Morici. Professor Morici gave a commentary on last week's show on how students drive themselves into debt by taking on perhaps intellectually stimulating degrees that don't translate into jobs that can pay off that debt.
Lynne Slater wrote, "Liberal arts is where students broaden their thinking skills and their creativity and hopefully, their sense of ethics." She pointed out that much of the economic troubles we are having now stem from business school grads.
David Lazarus of the Los Angeles Times joined Paddy and Tess for the rest of the segment to help answer listeners' questions. From unpaid magazine subscriptions and your credit score to merging credit cards with your sweetheart to learning how much you really owe on a loan -- this weekend's segment is all about your quick-hit money questions.
Two important items.
1st: Everyone should carefully track their debt. There is no reason to "set up autopayment and forgot about it" I look at all of my statements every month to make sure that payments are being applied correctly, interest rates are corrects, no extra fees charged, etc.
2nd: If this loan truly should have been paid off in 2009, not only should she not have to make any more payments, she should be entitled to a refund for the last 3 years worth of payments plus interest. I would bring this up with the attorney.
My comment pertains to the caller, Shannon, who claimed her student loan debt should have been paid off but the creditor claimed she still owed $22K. Towards the end of the conversation Shannon stated she received documents that also included personal information about someone else.
David's advice was right on, but I think the real answer comes from this "bonus" documentation she received. If the creditor mixed up the records that they sent her then it is very possible that they also mixed someone else's $22K debt with her file.
It sounds as if Shannon truly doesn't owe the debt, but she will have to do the work to prove it. That is the price for not paying attention to her money.
I'm an avid listener of MarketPlace Money, and find your advice to callers very useful. When I listened to the story about the New York school teacher (Shannon), I found it to be inconclusive, and would have like to have known more before I agreed with your advice to her. What more information should you have presented the listeners, you might ask.
1) Is the loan a variable interest loan? Or did it have a teaser rate attached to it?
2) Did the loan has a balloon payment due at the end of 10 years?
As a student of finance, from the much derided B-school :-( , to calculate the monthly payment for a fully-amortizing loan I know that I need 3 pieces of information. If the caller had consolidated her loans, we know the loan amount (1st input); if the caller recalled correctly that the loan is for 10 years, we know the duration of the loan (2nd input). The 3rd and final input is the interest rate on the loan. Using the 3 inputs, one can calculate the monthly payment and see if it matches the monthly amount the lender is automatically withdrawing from Shannon's bank account.
If the monthly repayment is consistent with with the loan amount, duration and interest rate that by itself is sufficient to tell the lender there is a mistake on their part. And since she has the original promissory note, she should be able to do the calculation readily because it has all 3 of the required inputs. There is no need for an attorney, and spending $300 to have a legal sounding, on the law firm's letterhead threatening letter.
What my hunch is based on the information presented in the segment: Shannon was offered a teaser-rate loan, and the monthly repayment was calculated based on this artificially low rate. And when the rate reset, her monthly payment was not recalculated. So, what she ended up with is much similar to a interest only loan, instead of the fully amortizing loan that she thought she signed up for. Since she setup an automatic payment through her bank, she was unaware of the situation. The loan changing mutiple hands didn't help the process either.
Oh, there is one more thing to ask Shannon. Based on her understanding, the loan should have been repaid by 2009. Is the bank still doing an automatic withdrawal from her bank even now, and what has she done about that. You, Tess, can actually do a segment about the pros and cons of setting up these automatic payments for recurring expenditures such as cable bills, utility payments, etc. Just saying!
