June 7th, 2010
Monday Jumpstart to Personal Finance & Credit Report News
The Wall Street Journal reports that nearly 45.9% of unemployed Americans have been out of work longer than six months. That means seven million Americans have been unemployed for more than 27 weeks, and most of them–4.7 million Americans–have been unemployed for more than a year. This statistic is the highest rate of chronic joblessness since the Labor Department started keeping track in 1948.
On a brighter note, USA Today reports that the number of Americans filing for first-time joblessness has fallen slightly. 460,000 initial jobless claims were filed at the end of May, down 14,000 claims from the previous week. Hopefully we will see continued improving numbers in the job market in the coming summer weeks.
For your personal finance and credit help, today’s roundup has your week’s worth of information and advice to keep you financially fit.
April 7th, 2010
Revamped Federal Loan Program Is Good News For College Students
College students get a break from Uncle Sam with a revamped federal student loan program to kick-off July 1st. As part of the historical healthcare bill passed in March, the program will streamline the federally-backed loan program and aid borrowers to make higher education more affordable for low-income families.
Whereas federal student loans have previously provided by both private lenders and the federal government, all federal student loans will now be funded direct by the government’s Direct Loan program. This removes the $61 billion student loan program that subsidized loans from private lenders, meaning the banking industry will feel these changes the most in billions of dollars lost in federal subsidies and kickbacks. The Direct Loan program has a smoother origination process, decreasing borrowers’ confusion over loans by streamlining the loan process and standardizing it across schools: your school determines the amount you are eligible for, sends you the master promissory note, and you sign it.
December 9th, 2009
Dear Credit Karma – Student Loan Consolidation
Dear Credit Karma,
I just graduated from college and I have a lot of student loans to pay off. Is a student loan consolidation a good option for me? What should I look for when choosing the right fit for me?
Student loan consolidation is a “right fit” for your financial life if, with all costs and calculations considered, it is worth it to extend the life and overall cost of your loan in order to save on your monthly payments now.
The biggest benefits of loan consolidation are reduced monthly payments, the convenience of paying one check a month and managing one repayment plan, and the opportunity to lock in lower interest rates than your original loan. But it comes at the cost of spreading out your loan over a longer repayment period, so the added interest on extended payments will add up to a higher overall cost for your college education.
For new graduates like yourself, the benefit of paying less a month, especially if you might not have stable employment or be able to afford paying your current monthly student debt, paying less monthly for loans could make consolidation worthwhile.
To determine if its the right fit for you, calculate the overall cost you will expect to pay if you consolidate your multiple loans, and consider if the money you save in monthly payments is worth the longer payment plan. For example, lets say loans A, B, and C cost you $212.00 monthly for a 10 year repayment plan. You decide to consolidate your loans to a single 15 year repayment plan with a reduced monthly payment of $166.00 monthly. You will spare the extra $46 a month, but you are also paying for loans 5 extra years and could end up paying, lets say, $5,000 more in interest over the life of your loan.
Also, consider the interest rate your lender offers you. If your current loans have variable interest rates and you want to refinance to lock in a low fixed rate now, then consolidation might be a good idea that could end up saving you more money. While federal student loan consolidation does not require a credit score check, lenders for private student loan consolidations do run a hard credit inquiry. So if you are consolidating private student loans and have poor credit, your lender may only offer high interest rates that could end up costing you thousands in the long run; is it worth it to refinance to a much greater overall loan cost for a monthly savings of $25-$50?
If you only have a few more years to pay off or only owe a couple thousand dollars to pay off your loan, then consolidation may be more hassle than its worth if your current payment plan is manageable for you. It comes down to whether you are willing to pay more in the long-run in order to have extra money now to furnish your new apartment or buy your first car.
Check out more resources available online, such as Bankrate’s FAQs on student loan consolidation, to educate yourself more about student loan consolidation before making a decision.
Submit a question now, and maybe Credit Karma will answer your question on our next Q & A blog post!
March 2nd, 2009
The Right Size for a Student Loan
Going to college these days is nearly requiring that students take out a loan to cover the ever increasing college tuition. What puts students and their parents in a tough situation is the task of deciding how large of a loan to borrow in order to cover the costs of college. It all comes down to doing the research and figuring out how much is right for the parent and student before making the decision and going into debt.
The student loan landscape is ever changing, and may have been true for the parent, may or may not be true for their child. So it is important to take the time to work with the college and your child’s high school counselor to learn about scholarships and grants, which do not need to be repaid, and federal programs that are available. All of these programs need applications and will take hard work on the part of the student and parents in getting them.
Before all of that, the parent should sit down and go over their finances in order to figure out what they are able to afford and how much assistance they need. Getting a student loan that is too large will end up costing big when it comes time to pay back the loan, especially if money is just sitting there waiting for a college expense. Once you have a reasonable estimate for what is available to the student, how much is able to be provided each month, you need to figure out how much is needed. This will not only include tuition, but the ever increasing costs of textbooks, housing, car and car repairs, gas, food, fees for various items, and so on. This will take a little while, but once the parents have a number, they should only borrow that amount.
It would be easy for the parents to dump it on their children, that they will have to work in order to make up any shortcomings between the needed money and the loan. However, college is a lot of work and there will be little time available for the student. What ever job they do have, most likely it will be work that is for minimum wage or close to it. If the student does have the time for a job, they should work with their school and department to find a situation within their field of study, as it will provide them with experience and connections that will help in the long run. Just know that there will be little money earned from it.
Once a number is determined for the size of the student loan, the last step is to research the numerous companies and agencies that provide student loans. Campuses are required to be unbiased when it comes to offering selections for lenders, but any advice there should be independently researched. What is important is that the parents do not just get a loan. They should research the fields, know exactly how much will be needed and from whom they borrow the money.
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