US cracks down on debt collection of private student loans

WASHINGTON, Sept 18 (Reuters) - The U.S. Consumer Financial Protection Bureau said on Monday it had ordered National Collegiate Student Loan Trusts and their debt collector, Transworld Systems, Inc to pay at least $21.6 million in penalties and restitution for illegally filing debt collection lawsuits.

According to the agency, the companies allegedly sued borrowers without being able to prove the debt was owed or pursued collection on loans that were too old to sue over, and relied on false and misleading legal documents. The CFPB said the trusts had filed at least 486 lawsuits on debt where the statute of limitations for collections had expired.

A federal judge must still sign off on the judgments against the National Collegiate Student Loan Trusts, a collection of 15 trusts that own more than 800,000 private student loans.

Transworld Systems agreed to pay a $2.5 million fine, stop suing borrowers over expired debts, and take other measures without admitting or denying the CFPB's findings.

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Dumb ways people spend their student loans
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Dumb ways people spend their student loans

Travel and Events

Hitting the road for Spring Break is a common way to squander your student loan check.

"In a two-year period, I spent close to $2,200 on four trips in college," said Jason Butler of The Butler Journal, a website he created to provide information on college and travel. "I went to Orlando for Spring Break in 2006, Miami in 2007 and 2008 for Spring Break and to Washington, D.C., for Howard University's homecoming in 2007." While Butler doesn't regret having those experiences, 10 years after the trips, he is still repaying the student loans that funded his travel.

Students need breaks from their studies, but expensive vacations fall outside the bounds of ordinary living costs. Although you might have fond memories of your trips, it's unlikely that you'll be happy paying for them years later. Avoid wasting your student loan funds on vacation by traveling to the best affordable Spring Break spots.

Rent

Housing is a necessity college students need. While many students live on campus in dormitories provided by the college, this type of housing isn't cheap. According to the National Center for Education Statistics, the average cost of dorm housing at a four-year college was $5,851 in 2014-2015.

You might prefer to move into off-campus housing with several roommates, so you can each lower your individual cost. However, college isn't the time to live in a palace outfitted with expensive furnishings. If you write your rent checks using your student loan proceeds, you might wind up paying for those living expenses for years after you've moved out.

See: The Most Expensive Colleges in Every State

Dining Out

The "board" part of "room and board" is intended to provide college students with decent meals, often at subsidized prices. The average cost for board at a four-year college is $4,602, according to data provided by the National Center for Education Statistics.

Having the occasional meal outside the house is important for socializing. However, it's equally important that college students not make a habit of dining out. You can run through a lot of money quickly when you spend it on food and drinks.

To save money on dining off campus, look online for coupons. Local restaurants often offer specials and discounts, such as a two-for-one meal deal or free appetizer with the purchase of an entree. Before you order your meal, always ask if the eatery has a student discount.

If your portion is large, take half home and eat it for lunch or dinner the next day. This technique effectively lowers your meal cost by 50 percent.

Car

If living on campus isn't possible or financially feasible, you might need a vehicle to get to and from class. Rather than buying a brand-new car with your financial aid money, use your savings to shop for a used vehicle that's in decent shape.

Cars are depreciating assets, meaning that they are worth less every day you own them. If you buy a car with your loan money now, you'll inevitably be paying for it many years after that car bites the dust. Instead, consider buying used or opting for public transportation. If you have a long commute, you might even be able to squeeze in some study time. Additionally, biking could be both an inexpensive and a healthy option for getting to classes and wherever else you need to be.

If you absolutely need a car to go shopping, run errands or simply get out of town, rent one for the day with a few friends and share the cost.

Read: 20 Cheapskate Secrets to Buying a New Car

Clothes and Personal Items

You don't want to show up to class wearing raggedy clothes. However, college is not the time to dress to impress, either. When you're paying back your student loans years from now, those trendy clothes you spent money on will be nothing but a memory.

Thrift stores can be a great place to score deals on clothing, especially slightly used and inexpensive attire. Opt for stores near upscale areas, where people might be more likely to donate pieces they've hardly worn.

Additionally, shop at the right time of year. For example, the worst times to buy fall and winter clothes are late summer and early fall. Instead, wait until later in the season, when retailers are desperate to unload cold-weather clothes and replace them with new offerings.

Save your money for the clothes you'll need for your professional wardrobe after you graduate. Start with your interview outfit and a few basics, and wait to add to your closet until you've received a few paychecks.

Living Above Their Means

Most of us enjoy entertainment experiences like concerts and sporting events. However, avoid paying full price for event tickets while you're in college.

John Schmoll, Jr., owner of the website Frugal Rules, said he made the mistake of viewing his student loan refund as "free money." He used the cash to subsidize the kind of lifestyle he desired but couldn't afford and spent money on "anything from going out for drinks, going on vacation or concerts." The end result of this kind of spending is years of debt.

Along with avoiding expensive events, college students should steer clear of subscription and membership fees. Even if you have the option to cancel, inertia often sets in and prevents you from doing so. If you're currently living above your means, strive to be honest with yourself about whether you're getting a continual benefit from something or should cut the cost.

Similarly, keep big purchases in check during this period. While you're allowed to use student loan proceeds to buy a computer, it's a mistake to buy the latest model featuring all the bells and whistles. Opt for a more basic version, and ask if the retailer offers a student discount. Your computer might be outdated before you graduate, so don't sink your student loan money into something you'll be paying off long after the ink on your diploma has dried.

If you can stop yourself from spending above your budget now, you can save yourself a lot of financial heartache and hardship later.

Up Next: 6 Really Dumb Ways Americans Waste Money

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(Reporting by Lisa Lambert, editing by G Crosse)

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