For the record, I am not now, nor have I ever been, a member of the Hitler Youth. I point this out because based on the comments to my last few columns (which focused on the idea that a National Service Corps could help solve our student debt crisis) it would seem that some of you — not too many, thankfully — seem to think I’m affiliated with the organization. This, as you can imagine, is a bit troubling for a nice Jewish boy from New Jersey.

Here’s an example from commenter JakeFlagg:

“National Service. Didn’t that idea come from the National Socialists of the Third Reich? Hitler Youth? Of course it did, and this ‘admin’ has been on a fascist tear that Americans can hardly believe, but ought to, since we’ve essentially had fascist ideals in place since the 1920′s.”

Then… there’s this:

“Soon nearly 90% of the country will be branded as terrorists,” LSummers29 wrote. “Stock up on food and ammo or face imprisonment Hitler style, it’s your choice.”

[Related Articles: The Other Student Loan Slow Jam: Is It Time for a National Service Corps? and It's Time to Solve the Student Loan Crisis]

Not everyone was so incendiary. Many recognized that we indeed have a big problem, and offered ideas for a solution. After all, Americans now owe over $1 trillion in student loan debt, more than they owe on their credit cards. As real wages for most American workers stagnate and full-time employment for recent grads becomes the exception rather than the norm, college debt is becoming the anvil that hangs from the neck of many graduates. Something needs to be done.

Many commenters suggested an attitude adjustment (in the most positive context) on the part of students to take on less debt, and make sure they can repay the loans they do receive, which isn’t at all unreasonable.

“Just like credit card debt, folks need to take resposibility (sic) for spending what they do not have,” wrote RAH12345.

Others suggest that students now do what many of their parents did — think “work, not “debt” and take part-time jobs to help pay for school.

“It took me 12 years to graduate debt free,” said a commenter using the screen name litnakaro. “Worked full time, went to school fulltime or part-time depending on what I could pay for with cash each semester.”

But while changes by individual students obviously can make a huge difference, I think we need systemic changes to fix a systemic problem. That requires changes in government policy, especially when it comes to higher education, where federal funding plays such an overwhelmingly decisive role.

To that end, here are three ideas for policy changes from our readers that I found most intriguing. Some of them could work in conjunction with the National Service Corps, while others would stand-alone. I’ve also included my own thoughts regarding their impact and feasibility.

[Free Resource: Check your credit score and report card for free before applying for a credit card]

1. Skin In The Game

Moravecglobal:

“All higher education loans are guaranteed by the university endowment. Graduate of a university like University of California Berkeley defaults. The University of California Berkeley endowment repays the taxpayers. Watch UC Berkeley graduate default drop like a rock!”

William concurs:

“Have the federal government lend at 1% to the schools. Have the schools lend at 2% to the borrowers. The total period for the loan is ten years. If the borrower cannot pay, the school is on the hook to the federal government. The schools become banks, the school is also the guarantor. The taxpayer is protected. Watch crappy degrees disappear and degrees get cheaper. In the event that the borrower cannot find a job, the borrower is not obligated to pay during their time of unemployment during that ten year period. Make the colleges have a vested interest in helping that graduate find a job rather than sticking them out into the wind to twist.”

Moravecglobal and William make an excellent point. Today, colleges and universities have little financial incentive to rein in costs. Why should they when the government and private lenders dole out student loans like candy canes at the Santa Chair in malls — not to mention the fact that the debts are non-dischargeable in bankruptcy? And in case you missed it, the New York Times recently ran a great article about the student debt crisis which featured this shocking statement from E. Gordon Gee, president of Ohio State University.

“I readily admit it… I didn’t think a lot about costs. I do not think we have given significant thought to the impact of college costs on families.”

I’m all for proposals that impress upon all the stakeholders — students, universities, government, private lenders — the severity of the issue. These suggestions make one wonder: What do we have to do to make colleges start taking this problem seriously?

2. Reinstate Recourse

Allan Collinge, founder of StudentLoanJustice.org:

“I have an even better idea: return the standard consumer protections that should never have been taken away, such as bankruptcy statutes of limitations, refinancing rights, and others.  It is the removal of these protections that enabled the runaway inflation we are seeing, and similarly it is the return of these protections that will put college prices back in check. Beyond that, I look forward to alternative payment proposals such as what the author puts forward.”

Student loans may seem like any other kind of debt. They do come with interest rates, after all, and they require monthly payments.

But in point of fact, they are quite different. More like tax obligations, student loans almost never go away, even after a borrower declares bankruptcy. And if consumers default on student loans, their options for refinancing are often significantly more limited than with mortgages or other types of debt.

While I agree with Alan in principal, the combination of seemingly unlimited student loan money from the government, and the reinstatement of bankruptcy options, could unleash a wave of chapter 7 bankruptcies among recent graduates. However, assuming the government continues doling out student loan money at will, we should consider allowing student debt to be recast in a chapter 13 bankruptcy, which could reduce principal and interest rates for graduates in real trouble.

3. Get the Government Out

KB9TTX:

“As long as easy money flows from governments to students’ accounts to the universities, the universities will not need to cut costs … or even try to cut costs. Further, many public institutions receive funding directly from the governments. So why is tuition so high then? I assert that in most cases we will find that tuition is legislated to be some proportion of revenues. If a university requests, X in revenues then tuition is set at Y% of X. If X is based on costs of previous period, then X will continue to rise with inflation and special programs du jour. Thus Y% of X will rise too. Since universities don’t “enjoy” the free market feedback loop of losing dissatisfied customers (for every drop out, the government has another student in the queue for a Stafford grant), they have little incentive to reduce costs in a consistent meaningful way to “stay in business”. Therefore, to fix this looming Tuition loan tsunami, get the federal government out of the business of education funding. Let the market place correct the distortion. Let the prices fall back to the levels that a student can work and pay or save for college in a meaningful way rather than the life long 529 plans that so many have to use today (another federal government market distortion mechanism). But certainly, another Federal program isn’t going to solve the problems generated from a Federal program.”

[Free Resource: Check your credit score and report card for free before applying for a credit card]

KB9TTX wasn’t the only commenter to express this sentiment. A number of others pointed out that one reason why college tuitions are rising so quickly now is the same reason why residential real estate prices shot up during the 1990s and 2000s: There’s just so much money to borrow.

Unlike the mortgage bubble, however, which was driven by banks looking to make big profits from securitization fees (Fannie and Freddie notwithstanding), this time around most of the money is coming from the federal government.

On the one hand, I absolutely agree. The current system offers no effective check on tuition costs, and likely does play a major role in fueling tuition inflation.

On the other hand, it’s hard to imagine how to extricate the government from the present scheme without causing chaos. If government support for student loans went away immediately, America’s system of higher education could conceivably crumble.

Phasing out such support gradually also raises all sorts of thorny questions. Would art majors be the first to lose federal subsidies? Or would the reductions be made by type of institution, possibly with controversial private for-profit universities losing support first? While it’s easy to see how government spending is helping to fuel tuition increases, I have yet to see any concrete steps for how such a change might be implemented.

Solving this problem will take time, and I thank all the commenters, even the ones who think I’m a Nazi, for taking the time to think about the issue and what we might do about it.

[Student Loans: Research and compare options for student loans at Credit.com]

Image: Will Hale, via Flickr

You’ve no doubt heard the advice many times: “Check your credit reports at least once a year to make sure they are accurate.” It’s good, solid advice worth heeding. But what happens when your credit information gets mixed up with someone else’s – and you can’t seem to separate it? Or worse yet, if you check your credit reports and find no problems, but still get turned down for credit due to negative information?

The phenomenon is called “mixed files,” and it can be very difficult to straighten out.

[Credit Score Tool: Get your free credit score and report card from Credit.com]

To learn more, I spoke with Jill Riepenhoff, a reporter for the Columbus Dispatch. Along with her colleague Mike Wagner, she recently conducted an in-depth investigation into credit report complaints. Following is an edited excerpt from my interview with Riepenhoff on Talk Credit Radio:

Who’s Complaining?

This project had really organic beginnings for us though. A colleague of ours in the newsroom has had a long-time problem since 1994 trying to correct her credit report. She has been mixed with somebody who has a similar name and it’s just year after year of frustration. When I heard this, I thought, “That is crazy. That doesn’t happen.”

The first thing that I did was go to the Ohio Attorney General’s consumer website and I just put in the search terms of the big three credit reporting agencies. Immediately, I saw hundreds of complaints, and I thought there’s probably something here. So that was really how this began, it was just a personal story from someone in our newsroom, and wondering whether it was an isolated case.

[Free Resource: Check your credit score and report card for free with Credit.com]

We sent public record requests to the Attorney General of all 50 states and then we also did a Freedom of Information Act request at the Federal Trade Commission which was the full regulator of the credit reporting agencies until last July when the new Consumer Financial Protection Bureau took over.

From the AGs, we were able to get complaints from about half the states. The others either wanted to charge us too much money or they weren’t public records. A couple of states just completely ignored us.

Ignored and Frustrated

The number one theme that jumped out right off the bat was that these consumers, by the time that they were contacting the AG’s office or the FTC, their concern was long ignored by the credit reporting agencies. Whatever the issue was, they could not get it corrected nor could they get anyone on the telephone at the credit reporting agency to help them.

I must say that these complaints (at least the ones from the FTC) were unverified. We don’t know what happened. We can’t say with 100% certainty that this was a legitimate complaint. But when you read the narratives of these, you just knew that there was something in there. Elderly people that were complaining because they didn’t know how to use a computer, they wanted to get their credit reports, they couldn’t get anybody on the phone to help them navigate the system. That’s a credible narrative in my mind.

Mixed and Mismatched

(To understand how this happens), I kind of picture it a little bit like a library. It’s not like there is a report that they picked out of the file cabinets that says “Jill Riepenhoff.” What they do, is when a creditor orders a report it kind of searches through all the library shelves and looks in all the books and finds all the ones that look like they belong to Jill Riepenhoff.

[Free Resource: Check your credit score and report card for free with Credit.com]

Well when I order my credit report, they’re pulling the books, if you will, that have my exact name, my exact address, my exact Social Security number, my exact date of birth, and typically they ask something about my account information: what’s your mortgage payments or who’s your car loan with or something like that. So, when the computer goes to pull the books off the shelf, they’re only finding those accounts that exactly match the needed information.

When creditors do that, they have much looser standards. They don’t have to ask for all that information, they can pull off the shelf based on a partial Social Security number or a partial name. So, like, we found situations where it was close enough. Myra could easily include information from somebody named Maria, for example. So the computers go in and pull all those books that look kind of close enough. Then, boom! You have a mixed report because you have Maria and Myra on the same report now. But that consumer won’t see that because it’s only going to pull the things that exactly match.

Your Worst Nightmare

One of the stories that we highlight in the series is the woman who went to buy a car in Colorado. And the week before she went to buy the car, she checked her credit report to make sure everything was in order. It was fine, she had a wonderful credit score. She even paid for the score to make sure that everything was above board.

She goes into the dealership. She even goes on her lunch break, thinking this is going to take that little amount of time. The next thing she knows, she’s practically in custody in the car dealership because when the car dealership ran her credit report, the matching formula used said was on a terrorist watch list from the federal government.

It took her about six years (to straighten it out) and she had to file a lawsuit in order to make the damage go away. On her own, she could not convince the credit reporting agency that she was not the international drug trafficker who the alert was up against.

Learn More

To listen to the full interview with Riepenhoff: Download the interview here; play the interview online here; or get the podcast on iTunes.

Learn how to correct mistakes on your credit report here.

Image: Omad, via Flickr

This past week brought some good news, some bad news and some interesting news. The good news is that credit card delinquency rates are down. Actually, I think that qualifies as fantastic news! The bad news involves skimming at gas pumps and an unintended negative consequence of the Credit CARD Act of 2009.

The interesting news is that there are three new travel credit cards on the market. Let’s start with that.

New credit cards reflect consumer push-back

This is an interesting take on three new consumer credit cards: The Bank Of America Travel Rewards card, the BankAmericard Privileges credit card with Travel Rewards, and the Fairmont Visa Signature Card from JPMorgan Chase. The reporter notes that these new cards have some good features, though none are terribly comprehensive. If you like travel cards, read this and see what you think about the new kids on the block. @ChicagoTribune

Prepaid Debit Cards: Here a Fee, There a Fee

I’m a faithful reader of the New York Times Bucks Blog because it always has some thoughtful analysis of personal finance topics. Last week in my news roundup I included the Bankrate study that looked at prepaid cards. Here, Ann Carns does a good job explaining why you should read all the fine print before getting a prepaid card. @NYTimes

How scammers can steal your credit card information at the gas pump

Gas prices are going down and that’s cause for celebration. But the bad news is that you still need to be careful when you pay at the pump. Thieves use skimmers to steal your information from your bank card. Consumers aren’t the only ones who can lose money. A CBS news correspondent says that skimming costs the financial industry more than $350,000 a day. @sharylattkisson @CBSNews

TransUnion: National Credit Card Delinquency Rate Ticks Down, Reversing Two-Quarter Trend

It’s good to hear that the national credit card delinquency rate (the rate of borrowers 90 or more days past due) has dropped a little from the end of 2011 to the end of 2012. Also, the average credit card debt per borrower in the fourth quarter of 2011 decreased by $242 and is down to $4,962 per borrower. @MarketWatch @TransUnion

Stay-at-home mom fights new credit card rule

I think we all knew this issue would become a major problem for stay-at-home parents. When the Credit CARD Act passed in 2009, there was a clause that required card issuers to start considering individual income, not household income, when someone applies for a card. This part of the CARD Act became effective last October. This article gives a thorough and revealing look at what happens when this practice is put into place. @CNNMoney @BlakeEllis

Image: 401k, via Flickr

Are you one of the millions of consumers who opted to do a short sale on your home during the mortgage crisis?  There may be some good news for you as earlier this month, Fannie Mae announced new mortgage guidelines targeted at troubled mortgage borrowers that potentially reduces the amount of time it takes to obtain a new mortgage from four years to two years.

The overwhelming majority of mortgage lenders follow mortgage underwriting rules published by Fannie Mae and Freddie Mac.  So if you lost your home to a short sale or turned it over to the bank and are now thinking of financing a new home, it’s a good idea to familiarize yourself with their guidelines. The new rules are scheduled to go into effect on July 1, 2012.

As they say, the devil is in the details and not all qualification information is available (or easily found).  In summary, you will be required to come up with a 20% down payment to obtain a mortgage in the reduced two-year time period unless you can prove your problems were the result of extenuating circumstances, for example — a divorce, medical expenses or unemployment.  In these cases, you may be able to secure a mortgage in the shorter two year time period with a lower 10% down payment.

It is my understanding that there are also requirements that interested consumers also meet certain credit and ability to pay standards and pass Fannie Mae’s credit criteria screens — which review your credit report and credit scores.

[Credit Score Tool: Get your free credit score and report card from Credit.com]

This could be a substantial challenge for many of the consumers for whom this revised rule is targeted to benefit.

The presence of a short sale information or flag on a credit bureau report is considered negative by most all credit scores, as it predicts future credit risk. The flag can stay on the report for up to seven years.  Generally speaking, the impact on score will be severe.  The exact impact on a given consumer’s credit score resulting from the reporting of a short sale will depend on several factors:

• The information associated with the short sale reported, and
• The current credit profile of the consumer (the other activity being reported on the consumer).

The negative impact on score is more noticeable if this item is posted on a credit file that has no or little history of missed payments and/or derogatory information and has low balances on active credit.  In these scenarios, the points lost can be 100 or greater.  The impact may be less noticeable if there are indications of high risk behavior (missed payments, etc.) on the credit bureau report as the credit score is already lower — reflecting that higher risk behavior.

There are not really any “tricks” to quickly increase the score quickly when this information is posted on the file.  The points lost due to the short sale flag will have (gradually) less impact over time as the date it was originally posted becomes older (and assuming that you have no other delinquency information on your file).

It appears that this rule change will be most helpful to those impacted consumers who have already re-built their credit since they first enacted the short sale, have steady and sufficient income and are deemed capable of successfully handling the new mortgage they are seeking.

[Featured Products: Research and Compare Mortgage Rates at Credit.com]

Image: macrofarm, via Flickr

The rate at which consumers fell behind on their home loans declined considerably in the first quarter of the year, and now stand at levels not seen in years.

The delinquency rate on home loans for properties of between one and four units fell to 7.4 percent of all outstanding loans in the first quarter of the year, down from 7.58 percent in the fourth quarter of 2011, and 8.32 percent in the same period last year, according to the latest statistics from the Mortgage Bankers Association. While declines are traditionally viewed in the first quarter of every year, the MBA’s data shows that the drops this year were more significant than traditional adjustments would have predicted, showing that the declines are real, rather than the result of seasonal norms.

[Credit Score Tool: Get your free credit score and report card from Credit.com]

“Newer delinquencies, loans one payment past due as of March 31, are down to the lowest level since the middle of 2007, indicating fewer new problems we will need to deal with in the future,” said Michael Fratantoni, the MBA’s vice president of research and economics. “The percentage of loans three payments or more past due, the loans that represent the backlog of problems that still need to be handled, is down to the lowest level since the end of 2008. Foreclosure starts are at their lowest level since the end of 2007.”

Delinquency fell for all types of mortgages except VA loans on a quarter-over-quarter basis, the report said. Prime fixed rate loan delinquency now stands at 4.07 percent, and late payments for prime adjustable-rate mortgages dropped to 9.05 percent, down from 9.22 percent in the fourth quarter. Further, loans backed by the Federal Housing Administration also saw drops in delinquency, falling to 12 percent from 12.36 percent a quarter earlier. The rate of homes that were in foreclosure increased on a quarterly basis, however, rising to 4.39 percent.

[Featured Products: Research and Compare Mortgage Rates at Credit.com]

As the economy continues to generally improve, consumers are finding themselves in a better position to pay off all their outstanding debts on time. Factors such as declining unemployment rates and rising salaries have contributed to Americans feeling better about their personal financial situations. Experts believe that these trends will likely continue for some time, meaning that the housing industry may continue to improve, encouraging more qualified buyers to enter the market.