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View Diary: College Tuition Crisis Continues; Debt Crushing Graduates (168 comments)

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  •  Bankruptcy Filings Hit Record 2M in 2005 (none)
    Wed Jan 11, 9:21 AM ET

    The rush of indebted consumers to file bankruptcy before a tough new law took effect pushed personal filings for 2005 to their highest annual level on record -- more than 2 million, according to new data.

    Significant increases in consumer bankruptcy filings occurred in every region, according to the data released Wednesday by Lundquist Consulting Inc., a financial research firm based in Burlingame, Calif. It tallied 2,043,535 new filings last year, up 31.6 percent from 1,552,967 in 2004 -- meaning that one in every 53 households filed bankruptcy petitions, according to the company.

    The new law, bringing the most sweeping overhaul of the U.S. Bankruptcy Code in a generation and making it harder to erase debts in bankruptcy, took effect on Oct. 17. In anticipation, personal bankruptcy filings jumped in September to the highest on record. They averaged more than 9,000 a day, up roughly 50 percent from 2004's average daily volume, during the first two weeks of September.

    By contrast, Lundquist analysts noted a sharp drop in the number of filings since the Oct. 17 deadline. Within the smaller number overall, a greater proportion were made under Chapter 13 versus Chapter 7 of the code. Nearly 60 percent of filings made after Oct. 17 came under Chapter 13, compared with the usual 30 percent under the old regime, Lundquist said.

    The new law bars those with above-average income from Chapter 7 -- where debts can be wiped out entirely -- except under special circumstances. Those deemed by a new "means test" to have at least $100 a month left over after paying certain debts and expenses now have to file instead a 5-year repayment plan under the more restrictive Chapter 13.

    In November, for example, Chapter 7 bankruptcy filings plunged to 17,286 from 81,952 in November 2004, according to Lundquist. Chapter 13 filings were 9,201, compared with 34,865 a year earlier.

    Total filings from Oct. 18 through Dec. 31 were around 38,000, representing fewer than 2 percent of all filings for the year, the firm said.

    Filings in Ohio jumped 51.7 percent in 2005 to 135,142, making it the second-highest state in volume, the data showed. California was the highest, with 164,856, a 35.9 percent increase.

    On the Net:
    Lundquist Consulting Inc.: http://www.LundquistConsulting.com

    •  Parents Worry Most About College Savings (none)
      By EILEEN ALT POWELL, AP Business Writer
      Fri Dec 30

      All those reports about the rising cost of a college education appear to be having an impact on the savings patterns of American families.

      A survey finds that parents with children under age 18 are more concerned about saving for their children's educations than they are about saving for retirement.

      The study was commissioned by The Vanguard Group mutual fund company, which is based in Valley Forge, Pa., and Upromise Investments Inc. of Needham, Mass., which channels shopping rebates into educational savings accounts.

      The survey found that 37 percent of the more than 1,100 parents who were interviewed said saving for college was of primary concern, compared with 34 percent who said retirement was their top financial concern. The rest said that saving for a house, car or other major purchase was most important.

      Interestingly, more families with children under age 12 were saving for college -- 64 percent -- compared with families with children aged 12 to 17, where the rate was 59 percent, the study found. And 30 percent of families with younger children said that grandparents and other relatives were helping them to save, compared with 25 percent of families with older children.

      John Heywood, a principal of Vanguard's education markets group, said he suspected parents were motivated by surging college costs.

      "I believe people are recognizing the increasing costs of college and starting to save earlier," Heywood said.

      The cost of sending children to college has been rising fast in recent years. According to the latest survey from the College Board, a nonprofit association based in Washington, D.C., tuition and fees at four-year private institutions rose nearly 6 percent to $21,235 for the 2005-2006 academic year from $20,045 in 2004-2005, while costs at four-year public institutions went up more than 7 percent to $5,491 from $5,126.

      Most financial advisers urge families to save first for their own retirement and then put money aside for their kids' education, arguing that families can borrow to fund college but not retirement. But Heywood said this conflicts with parents' aspirations for their children.

      "People hear that and they say, 'Too bad about retirement savings; my kids are going to college.'"

      He added that for young families, "retirement is farther off than the kids going to college, so there's less urgency."

      The families who have started saving for their children's college educations have set aside about $4,700 per child so far, the study found.

      It said that about four out of 10 families were familiar with the Section 529 college savings plans, which are tax-favored programs set up by states to help families save for college. Savings in 529 plans grow tax-deferred, and withdrawals are tax-free when used for education.

      Vanguard manages Section 529 programs in New York, Iowa, Nevada and Colorado has provides fund options in 14 states. Upromise can channel families contributions into 529 plans.

      _

      On the Net:

      http://www.vanguard.com

      http://www.upromise.com

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