Student debt is soaring out of control as tuition costs rise and assistance continues to fall. The disturbing trend is forcing many students out of school and forcing others into a lifetime of debt repayment. Middle-income students are often the ones left out to dry in the process as the low-income students often receive Federal aid and high-income students don't need anything. A new plan in New York calls for middle-income students' families to contribute no more than 10% of their annual earnings to tuition costs. Right now, many families are paying far more than they can afford to put their children through school. Perhaps other states should consider similar plans before we start sending a whole new generator of debtors into the workforce.

From Zwire.com:
Believing that middle-income students too often get the shaft when it comes to financial aid, New York State Senator Ken LaValle (R-Selden) has unveiled an initiative that would throw a lifeline to families facing certain debt from college costs, but with the proviso that students who benefit remain in New York State for five years. Under the legislation, those families whose total net taxable income falls between $60,000 and $150,000 per year would not have to contribute more than 10% of their annual earnings to tuition costs and other related fees, LaValle said, but not before they have exhausted their possibilities for obtaining money from other state and federal aid programs, such as Federal Pell Grants and the NYS Tuition Assistance Program.

The European Union has adopted a series of new rules aimed at giving consumers more and better information that makes it easier for them to make informed decisions about consumer credit and loans. The new rules would make the total cost of the loan clear and establish a standard for calculating interest rates. Moreover, consumers would have to be informed of the reasons why a loan is refused. These rules are a great start for the EU and the US should follow their lead and adopt several of their own rules designed to increase transparency for consumers.

From ChinaView.CN:
The European Parliament(EP) Wednesday approved new rules governing consumer credit across the 27-nation European Union (EU). In welcoming the approval, MEP Malcolm Harbour, who serves as a spokesman on the internal market for a political group in the parliament, said the new rules "will give consumers more and better information, making it easier for them to take informed decisions." Under the new rules, the total cost of loans will be clear and there will be a standard method of calculating interest rates. Consumers will also have to be informed of the reasons if a loan is refused.

JPMorgan Chase has become the latest bank to fall victim to consumers unable to pay their credit card bills. The bank announced that its earnings are down to $3 billion from $3.9 billion after a $1.3 billion subprime-related writedown. The move follows Citigroup's huge $18.1 billion writedown after higher than expected credit costs due to increasing defaults on consumer loans and credit cards. And this may only be the surface of the problem according to many analysts...

From NBC:
JPMorgan Chase became the latest bank to disclose the rising toll from the US mortgage crisis and increasing consumer loan losses, saying fourth quarter earnings sank 21 per cent following a $1.3bn subprime-related writedown. The subprime damage at JPMorgan, while significantly less than at rival Citigroup, still drove earnings down to $3bn, or 86 cents per share, from $3.9bn, or $1.09 per share, last year. Citi disclosed an $18.1bn writedown on Tuesday and said it lost nearly $10bn in the fourth quarter. It reported higher than expected credit costs do to increasing defaults on consumer loans.

A new mortgage act gives a tremendous tax break for homeowners. Now, homeowners can refinance their mortgages and pay no taxes on any debt foregiveness that they receive. Many of the beneficiaries of this new law already avoid taxes by qualifying as a short sale, but the law will still help a select few save money and is worth researching. Consult your local tax professional for more information on whether or not you can qualify!

From IndiaPost:
Homeowners found three attractive tax breaks among their holiday presents, thanks to the federal Mortgage Forgiveness Debt Relief Act of 2007, which was enacted in December. Forgiven debt may be free from income tax. The first tax break concerns forgiveness of debt, which occurs when a lender forgoes repayment of principal and/or interest the borrower owes. Typically, discharged debt is considered ordinary income to the borrower for income tax purposes. The new law allows taxpayers to exclude this amount and thus escape the tax liability. "When you're worried about making your payments, higher taxes are the last thing you need to worry about. So this bill will create a three-year window for homeowners to refinance their mortgage and pay no taxes on any debt forgiveness that they receive," President Bush said in his remarks upon signing the law.

The government is again overhauling taxes and this time there is a change that will greatly benefit those in lower tax brackets - they won't have to pay any capital gains tax! Obviously, the largest benefactors are retirees that will be able to cash their investments out for free if they fall within these tax brackets. Those with relatives in low tax brackets can also gift investments to them to sell tax-free. The best summary of this rule online right now is over at the CPA Journal for all of those interested in this great new opportunity.

From PFBlog:
Yes, for the next three years (2008 to 2010), taxpayers in those two tax brackets [10% and 15%] won't have to pay anything for long-term capital gains and qualified dividends. The tax rate on such income for those of higher income, will stay at the prevailing rate of 15%. For short-term capital gains and disqualified dividends, all taxpayers still have to pay tax at the marginal tax rate just like other ordinary income.

It is becoming increasingly apparent the the U.S. economy may be in trouble unless some major changes are made. Consumers are taking on more debt than ever before in order to fund their spending habits while lenders are being bailed out and acquired by foreign companies. Meanwhile, a mortgage crisis has broken the back of the largest source of funds for most Americans. When consumer debt rises to $15.4 billion in the same month that Citigroup is bailed out by foreigners for $7.5 billion then we know we are in for some problems - especially when Consumer Confidence hit an all-time low...

From SeekingAlpha:
It took a few years, but some key factors are finally exposing the dangerous delusion of the credit-fed lifestyle and how it affects the U.S. economic outlook.

• Debt is up, and consumer confidence is down
• Sovereign-wealth funds are coming to the rescue of drowning U.S. lenders
• Two wars and broken social services mean the national balance sheet will get much uglier
  

The sub-prime credit disaster and subsequent brake-slam of the international finance industry are tossing momentum back and forth from the highest levels of the economy down to the lowest-paid workers. Unemployment is also up, and you can bet that driving around to look for a job gets a lot more urgent when gasoline costs upwards of three bucks a gallon.

U.S. consumers managed to set several records this year: More bankruptcies than ever before, more foreclosures than ever before, and ironically more online spending than ever before. This past holiday season resulted in $29.2 billion in spending online alone as credit cards offer consumers more and more credit. Brick-and-mortar stores showed sluggish growth, however, as more and more business went online and consumers felt the credit crunch. So, why weren't online stores affect? Perhaps online sales - that don't involve an actual cash transaction - make it easier to spend money... Either way, it is important for consumers to keep their online spending in check in 2008!

From Fibre2Fashion:
comScore Inc released its final update of holiday season e-commerce spending for the 2007 holiday season (November 1 – December 31). $29.2 billion was spent online during the holiday season, marking a 19-percent gain versus the same period last year. "This year’s online holiday shopping season has concluded with a record $29 billion in spending, a 19-percent gain versus year ago," said comScore Chairman Gian Fulgoni.

Bankruptcies are expected to be up sharply again during the beginning of this year if history repeats itself. It is increasingly important for consumers to realize the ramifications of bankruptcy before going through with the process. Bankruptcy remains on your credit report for ten years and can make it extremely difficult to obtain future loans. As a result, it is important to explore other alternatives such as debt settlement or credit counseling as a way to get out of debt while avoiding bankruptcy. Debt settlement is a process that can reduce what you owe by up to 40% while helping you establish a payment plan. Meanwhile, credit counceling is a process that entails putting together a budget and paying off what you owe over time. Either program is often a better option than bankruptcy that should be explored!

From Journal Gazette:
Last year, post-holiday bankruptcy filings spiked in the first quarter to more than 185,000 – a steep increase over the year before. If the general rule about history repeating itself bears out, we should expect another surge in the beginning of 2008.

A new government tax break for those with mortgage insurance means you might be eligible for a rather sizeable tax break! Those paying for mortgage insurance are now able to write off the full amount if they make under $100,000 or part of the amount if they make over $109,000. Unfortunately, this only applies to mortgages that have originated between 2007 and 2010, but it still provides incentive for people to take on mortgage insurance. A great move by the government who wants to reduce the risk of mortgage securities in order to help the market recover!

From BusinessWeek:
Homeowners with a new mortgage that is covered by insurance can claim a tax break on the insurance this year. The break, called the qualified mortgage insurance deduction, lets taxpayers with an adjusted gross income of less than $100,000 write off the full cost of mortgage insurance. Folks who earn less than $109,000 can take a write-off for part of it. To qualify, the mortgage must have originated between 2007 and 2010. The deduction can be taken for insurance on a principal residence or a second home.

It now looks like there will be even more trouble ahead for consumers as additional credit card companies pile on loan loss provisions for an increasing number of deliquences. American Express led the pack last week but now at least two other credit card companies have added their names to the list - most recently Capital One. The problems are affecting all people too: Capital One's modest incomes to Amex's affluent incomes. And we have also already begun to see the effects of the crunch during the December shopping season...

From Forbes:
What's in your wallet? If you're a Capital One credit-card customer, it might be plastic but not cash. The credit-card company said Thursday that its 2007 earnings will fall short of previous expectations due to loan delinquencies and additions to its reserves during the fourth quarter. The company said it is reserving $1.9 billion for loan losses in the fourth quarter, approximately $1.3 billion of which are charge-offs.

Countrywide reported a record number of foreclosures in December that marks a continuation of the subprime mortgage crisis that plagues the US economy. Now, many analysts are speculating that the mortgage giant may be forced into bankruptcy if things get any worse. This could spell bad news for consumers who will find it more difficult than ever to obtain new home loans as liquidity for mortgage securities declines substantially and lending standards increase due to more government oversight.

From Reuters:
Countrywide Financial Corp, the largest U.S. mortgage lender, said on Wednesday that foreclosures and late payments rose in December to the highest on record, sending its shares tumbling for a second day to their lowest in nearly 13 years. Analysts attributed Wednesday's drop to deteriorating credit quality reflected in Countrywide's monthly operating report, and renewed concern the lender might not survive the housing crunch and could seek bankruptcy protection. On Tuesday, Countrywide rejected bankruptcy rumors.

Recent earnings numbers put out by credit card companies are quickly confirming what many analysts have already seen coming: American consumers are quickly finding themselves in a pile of debt that may be extremely difficult to escape. Subprime mortgage defaults combined with a consumer credit crunch have led to a substantial increase in defaults. Capital One is the first such credit card issuer to report the decline in credit quality as it raised its loan loss reserves. It appears as if credit card companies may have been just as careless when loaning to individuals as the mortgage sector.

From MarketWatch:
Credit-card shares were among the top decliners in the financial sector Thursday after Capital One Financial Corp. lowered its earnings outlook and raised its loan loss reserves, with increasing clarity that the credit crisis sparked by careless home lending has spread to the consumer sector.

American consumers continue to take on more debt despite major problems in the credit and mortgage markets. The Federal Reserve released a report showing credit card balances increasing at the fastest pace in years with the biggest gain in outstanding debt since August - a 7.5% annual rate! Perhaps consumers should take a hint from corporations who have taken a conservative approach and kept as much cash as possible on their books. It's time for consumers to get the help they need and start reducing their debt and increasing their savings.

From MarketWatch:
U.S. consumers took on more debt in November, increasing their credit-card balances at the fourth fastest pace during the six-year expansion, the Federal Reserve reported Tuesday. Total seasonally adjusted consumer debt increased by $15.5 billion, or a 7.5% annual rate, in November to $2.51 trillion after a revised 1% rise in October, the Fed reported. It was the biggest gain in outstanding debt since August.

There has been a lot of speculation that Countrywide could go bankrupt amid the mortgage crisis and it has a lot of consumers wondering how it may affect them. The first thing that consumers' will notice is a much more difficult loan application process that involves much more strict lending guidelines. New government regulations are making it very difficult for subprime borrowers who do not have a huge income to justify a home mortgage payment. Home sales will also fall further as mortgage financing becomes even more rare. Fewer mortgages means fewer buyers, meaning more homes will stay on the market and prices will fall with increased supply. Combined, this only means more hurt for a company has exhausted many of its extraordinary financing options - maybe it will happen.

From FoxBusiness:
Countrywide Financial, the nation's largest mortgage lender, is on a collision course with bankruptcy, with potentially severe impacts on the ability of U.S. consumers to refinance their homes or get new mortgages, according to Weiss Research analysts Mike Larson.

The IRS is finally considering at refund loans and whether they are being used by tax cheats in order to game the system. Many middle-class Americans are taking advantage of the system by falsely identifying their income in order to qualify. These loans are traditionally available to the working poor in order to help them attain temporary assistance but now many others are taking advantage of the program as a "free" loan opportunity. Clearly, this is a practice that has to stop and the IRS is definitely taking the right steps...

From Baltimore Sun:
Last week, the Internal Revenue Service said for the first time it will be looking at refund loans and whether they encourage cheating among tax preparers, as some critics claim. Sounds hopeful, though at this point the agency only is seeking public comment ... A refund loan is an advance on your tax refund - minus fees. The loan is repaid when the IRS deposits your refund in the bank ... Millions of tax filers likely will take out refund loans this tax season. Don't be one of them.

It appears as if the credit crisis is not only limited to people defaulting on home loans, it's now affecting the rich as well. Many millionaire investors around the world have begun pulling out a significant amount of money in order to reduce risk. Unfortunately, this is causing a lot of pain for money managers and those who manage cash for the rich. So much money being pulled out is also causing damage to the markets themselves, which continue to feel the effects of a lack of liquidity.

From The Guardian:
As the credit crisis drags on, not even the world's millionaire investors are immune from its effects, and the private banks which manage their money could be next to feel the pain. Rich investors are reducing leverage on their portfolios, robbing wealth managers of a lucrative income stream just as difficult financial markets cast a shadow over their results. As the credit crisis eats away the value of their assets, millionaires are paying back cash they borrowed for investment purposes to reduce risk, private bankers say.