Smartline urges borrowers to consolidate now

Smartline’s state manager Michael Daniels says this is a sound strategy for a range of home owners – from those who are experiencing financial stress to those wanting to get ahead.

“Almost every time we come across someone in mortgage repayment stress we find that credit cards and personal loans are the culprits,” Mr Daniels said.

“Our first response to this situation is to look at a consolidation home loan as this can significantly reduce the immediate cash flow burden on a borrower.”

While borrowers could save thousands by choosing a mortgage option over a credit card or personal loan, Mr Daniels warns that some caution does need to be exercised when consolidating debt.

“The overall interest cost of a loan is usually greater when the loan term is extended,” he said. “So if you are consolidating debt, it’s important not to stretch the repayments out over a 30-year term.

“One good way to avoid a higher ‘life of the loan’ interest cost is to make additional repayments (above the minimum) on your home loan once the debt is consolidated.”

Much of the Australian property market has experienced some level of capital growth over the last year or two.

“This means that many people now have enough equity to combine their personal debts into a home loan,” Mr Daniels said.

Meanwhile, interest rates are at record lows which means that we can borrow more on our incomes. If interest rates begin to rise again, you may not be able to have a consolidation loan approved by the lender, according to Mr Daniels.

While none of us plan to have lower income, and none of us plan to lose our income, it remains a possibility.

“Many of us take on income protection insurance for illness or injury but we cant protect ourselves from business failure or the loss of a job. No income, no consolidation loan,” Mr Daniels said.

“There are a number of considerations with consolidating debt into your home loan and the strategy needs to be discussed with an experienced mortgage adviser in light of your individual situation.”

[Related: Step away from interest-only loans, says Smartline]

Old debt: Student loans should not reduce Social Security

Student loan debt dogs not just young people, but an increasing number of retirees. Some 700,000 Americans on Social Security are still paying on student loans, and last year the government garnished a portion of disability and retirement payments due nearly 160,000 people with education debt.

The statistics show that the student-loan problem transcends generational lines and that any solution must include some measure of forgiveness for seniors of limited means.

With $1.2 trillion in such debt hanging over the country, the student loan total has surpassed credit-card debt, which hovers at $703 billion. Two-thirds of student-loan debt is owed by people under the age of 40, but $18.2 billion of it is owed by those 65 or older, according to the Government Accountability Office.

Some seniors are in this position, not because they were fiscally irresponsible but because of medical calamity. Medical bills are blamed for more than 60 percent of personal bankruptcies. Unlike other forms of debt, however, student loans cannot be absolved by bankruptcy; balances chase borrowers to the grave.

Federal loans are discharged upon death, but thats small consolation to those who watch balances rise and interest accrue even when they become unable to work. In one particularly outrageous case, the government is garnishing a portion of the Social Security check of an 80-year-old with Alzheimers disease.

Proposals put forth by President Barack Obama and assorted presidential candidates vary in their calls for loan forgiveness. The federal government has $18 trillion of debt all its own and cant afford to pay everyones past-due tuition nor should it. But to dun the elderly, particularly those with limited means or severe health impairments, is unduly harsh public policy. Old age has enough insults all its own; student-loan debt shouldnt be one of them.

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2016 Presidential candidates and their stances on student loans

With the presidential primary elections nearly four months away, candidates are laying out their platforms for many issues. One issuethat some Elon students will soon be dealing with is student loans.

Three of thefront-runningcandidates, Hillary Clinton, Bernie Sanders, and Donald Trump have made student loans one of their main focuses of their campaigns.

Starting with Hillary Clinton, the democratic front-runner, she has been vocal about expressing her displeasure with colleges making a profit off of student loans. If elected president, Clinton saidshe plans to release the New College Compact, which would cost $350 million over ten years to get rid of some of the financial burdens that students face when borrowing money for tuition.

Another democratic candidate that has been particularly popular with college-aged Americans is Sen. Bernie Sanders. He is proposing a restructuring of the interest rate formula on student loans. His proposed plan would cut interest rates in half, taking the country back to the same formula they used on student interest rates until 2006. Another part of his plan is to allow students to refinance their loans, meaning they can exchange their old rates for newer, lower ones using the current US interest rates.

Donald Trump, the front-runner for the GOP, is less focused on refinancing student loans and more focused on student employment after graduation.Trump saidthat,if elected, he will work to create more jobs for students fresh out of college. That way, they will be able to pay off their student loans quicker and face fewer burdens from their interest rates.

These three candidates, however, are not the only nominees for presidency.For more information on the candidates listed below, click on the following link: Presidential candidates’ stands on student loans.

Jeb Bush (R)

Ben Carson (R)

Lincoln Chafee (D)

Chris Christie (R)

Ted Cruz (R)

Carly Fiorina (R)

Lindsey Graham (R)

Mike Huckabee (R)

Bobby Jindal (R)

John Kasich (R)

Martin O’Malley (D)

George Pataki (R)

Rand Paul (R)

Marco Rubio (R)

Rick Santorum(R)

Scott Walker (R)

Jim Webb (D)

The second Republican presidential primary debate will be hosted this Wednesday, September 16th by CNN. The first round of the debate will begin at 6 pm The second round, which includes Trump, and the other 10 republican front-runners, will begin at 8 pm

Recent Federal Student Loans Look A Lot Like Subprime Mortgages

But while borrowers with toxic subprime loans largely defaulted and lost their homes as their lenders recorded losses, borrowers with federal student loans are likely to have their suffering drawn out for years thanks to a stagnant economy in which wages are barely rising, and existing law and Education Department practices that make it nearly impossible for struggling borrowers to discharge their debt in bankruptcy.

From Student Loans to 401Ks: Money Advice for Millennials

A recent survey found that more than half of people aged to 18 to 29 have delayed major life events like marriage, buying a home or saving for retirement because of student debt. Well take up financial advice for todays young adults, how to avoid fiscal missteps and rebound from ones you may have already made. Whats your money question?

Host: Michael Krasny

Obama to announce changes for college student loans during Iowa visit

President Barack Obama will focus on college students loads on Monday during a visit to Iowa.

He will announce changes to the federal college aid system.

House OKs measure to waive some fees for veterans’ business loans

WASHINGTON Senate and House Small Business Committee leaders applauded House passage Monday of the Veterans Entrepreneurship Act of 2015 (HR 2499).

The bill would lower the cost of Small Business Administration (SBA) loan programs designed to assist veterans in starting and growing their small businesses. Last week, Sen. Jeanne Shaheen (D-NH) and Sen. David Vitter (R-La.) amended the legislation to also increase the lending authority for the SBAs 7(a) program, which reached its annual limit of $18.75 billion.

HR 2499 raises the 7(a) programs lending authority from $18.75 billion to $23.5 billion through the end of the fiscal year and requires the SBA to communicate more consistently and quickly with Congress before the limit is reached again, all at no additional cost to taxpayers.

The legislation now heads to the Presidents desk for signature.

Senate Small Business and Entrepreneurship Committee ranking member Shaheen: Many New Hampshire veterans are applying the same can-do approach they used in the military to start and grow their own small businesses, and our legislation will help them by waiving some of the fees associated with federal small business loans. Im also very pleased that this legislation will allow the SBAs popular 7(a) loan to start lending again. This program is a model of public-private partnership and should be allowed to grow with demand to meet the needs of small business and entrepreneurs. As this legislation heads to the Presidents desk, I want to thank my colleagues in the House, Chairman Steve Chabot and ranking member Nydia Velaacute;zquez, for their diligent bipartisan work to advance the Veterans Entrepreneurship Act and get the SBAs most in-demand loan program up and running again.

Will LendingClub Become THE Online Lending Platform For Consumer Credit?

Despite the recent market sell-off, FANG (Facebook (NASDAQ:FB), Amazon (NASDAQ:AMZN), Netflix (NASDAQ:NFLX), and Google (NASDAQ:GOOG) (NASDAQ:GOOGL)) is still positive YTD. FB is up 16%, AMZN 67%, NFLX 103% and GOOG at 16%. They are currently evaluated using DCF models, which do not take into account the ability of technology companies to enjoy explosive growth through the introduction of new products.

These companies are platforms, and when they introduce a new product, it is immediately adopted by most users who are already embedded into their ecosystem. This allows FB to push video ads, AMZN to easily grow and bundle more services into AWS, NFLX to add original programming and GOOG to introduce deep linking to Android. FANG should not be evaluated based off their current products but their value as platforms that can easily create new products.

Platforms are the inevitable end product of the scalability of technology and a winner takes all market. The company which solves user problems the fastest, attracts users, which attracts more users and results in a platform. The platform then has a captive audience, which can be channeled into new products. So when evaluating a tech company, instead of doing a DCF model, investors should be asking Is this company going to become a platform that will take over the entire marketplace?

To reach an answer to the question, we have to first answer three questions:

  1. How large is the total addressable market?
  2. How does the product help buyers?
  3. How does the product help sellers?

If the company makes its own product and is the seller, it needs to allow people to build on top of their product so that it can be customized to fit any purpose without the use of additional resources from the manufacturer.

Now lets attempt to examine if LendingClub (NYSE:LC) is a company that can take over the entire marketplace. From a fundamental perspective, its a great product because it merely connects borrowers with investors; it bears no credit risk. From the 10-K:

We sell securities or whole loans to investors and the securities are matched in terms of rate and duration with the underlying loans. LendingClub does not assume credit risk or interest rate risk which are borne by investors. Therefore, there is no capital requirement or DSE insurance.

How large is LCs total addressable market TAM?

LendingClubs TAM is the $3.42 Trillion of outstanding consumer debt.

Until 2014, LendingClub only handled P2P loans up to $35,000 for the purpose of consolidating debt, paying off credit cards and home improvement. In 2014, it acquired Springstone Financial LLC for $140 million and entered the market for financing private education and elective medical procedures. In the same year, it started offering small business loans up to $300,000 for expanding businesses, buying inventory, working capital, purchasing equipment and refinancing debt. In a 2015 interview with Forbes, LendingClubs CEO mentioned that there are plans to expand into car loans and mortgages, exposing LC to the entire consumer credit market in the US.

How does LendingClub help borrowers?

LendingClub can attract borrowers by providing:

  1. Easy access to credit
  2. Cheaper access to credit

Accessing Credit

Traditional access to credit through a bank loan:

  1. Go to your local bank and meet with a person who tells you what documents are necessary
  2. Collect the documents and make time to travel to the bank again with the documents
  3. The banker inputs all the information into the banks system and provides a quote.
  4. If you find the terms of the loan acceptable, you sign documents and receive the money 2-4 weeks later.

Traditional access to credit through a credit card:

  1. Locate all of the statements you receive from the credit card company.
  2. Locate the maximum borrowable amount on the statement and dig through the fine print for interest rates.
  3. Plan how you will split the amount across multiple credit cards.
  4. Withdraw the money and then juggle different repayment schedules.

Accessing credit through LendingClub:

  1. Fill out an online form in 3 minutes to receive a quote.
  2. Upload documents in 30 minutes to verify the information provided earlier.
  3. Wait 3-5 days for loan approval.
  4. Wait 2-3 days for the money to be deposited in your account.

Of the 3 options, LendingClub is easily the most convenient choice.

Price of credit

As of 6/30/15, 70.45% of LendingClub borrowers report using their loans to refinance existing loans or pay off their credit cards. Based off this information, we can easily infer that customers have already attempted borrowing from traditional lenders and are not attracted to LendingClub for its convenience, but for its cost of credit. If LendingClub were not a cheaper alternative, borrowers would never refinance debt at a higher rate.

So how is LendingClub providing cheaper access to credit? Are they merely mispricing it because they are a startup with no experience at credit analysis? The most apparent answer to the question is that LendingClub has fewer costs than the traditional bank or credit card company.

The established players have to manage a large retail footprint, creating rent and employee costs which creates more opportunities for cross selling but also is a consistent cost base which cannot be scaled easily. The incumbents are also running their operations on outdated technology infrastructure, which they dont attempt to improve unless it breaks.

In contrast, LendingClub has no physical locations, has a technology platform, which can easily accommodate more users with the addition of some client support staff. LC also does not have to deal with sending statements or processing transactions made at the borrowers direction; all communications occur over email and LC is automatically paid out of the clients bank account.

Despite the lack of much human contact in the LendingClub process, the company is still able to build relationships with borrowers with roughly 27% of borrowers coming back to LendingClub and obtaining a second loan within four years of obtaining their first loan.

For a borrower, there are few reasons to not be on LendingClub. It provides convenient and cheap access to credit, especially for borrowers with high credit ratings who can borrow for as low as 5% on LC.

How does LendingClub help investors?

Investors in P2P loans are only concerned about the returns they receive on their investment. Despite the interest LC has received from institutional investors, retail investors accounted for 70% of loans in Q2 2015. Institutional investors only accounted for 9% of loans last quarter. Retail investors are attracted to LendingClub because it offers 11% interest annually compared to the 1% they currently receive on CDs. There are more than 100,000 active retail accounts with an average account size of well over $15,000.

Investors will continue to fund loans on the platform as long as they are sufficiently rewarded for their risk. It is difficult to determine what an acceptable rate of return would be for investors in the nascent P2P market but we can absolutely determine that investors are receiving less than double-digit returns on their LC investments. For data on actual investor returns, LendingClub is very helpful with this nifty chart:

(click to enlarge)

As you can see, the median return on a 2-year LendingClub portfolio is 7.3%, which is close to the 8% rate advertised in this video. The returns start as high as 13% when the portfolio is 3-6 months old. Then, the defaults start kicking in and drag down the overall ROI for the portfolio.

The default rates are absurdly high at 6.5% annualized per portfolio which suggests the low cost of credit is being provided by the retail investor who is uneducated about default risk and its implications on his/her portfolio.

NSR Invest has collected data on over $9 billion of LendingClub loans out of the $11 billion issued to date.

(click to enlarge)

The data they have collected points to an alarming trend. Even though consumer balance sheets started improving in 2010, LC default rates climbed from 5.85% in 2010 to 7.46% in 2012. While recorded default rates are lower in 2013 and 2014, it takes 9 months for 89% of a loan in default to be written off so investors can expect the default rate to rise substantially before all the loans come due. APR paid on loans has also declined from 14.8% in 2013 to 13.1% in 2015 even though the creditworthiness of borrowers has remained constant.

The returns on P2P loans are dependent on the credit cycle. Returns will be higher in good times when people are employed and can easily pay off debt or refinance it. Returns will be poor when borrowers lose their jobs and lose access to credit. LendingClub technically has performance data on a period where credit dries up as it issued loans back in 2008 and 2009. However, the data is not very helpful because it only covers loans totaling $70 million, which were probably all issued to early adopters in Silicon Valley, a population not representative of the entire US.

Overall, LendingClub is marginally better for loan investors, but is not the best choice for investors looking to invest in consumer credit. The APR and default rates will change as LC adds new type of loans, but LendingClubs default rate remains too high. If they can bring down defaults from 6.5% to 5% and provide 7.5% return on a pool of 12.5% loans, it will have addressed investor demands for high returns. As of now, LendingClub provides enough returns to keep investors interested – not enough to lock them into the platform forever.

Will LendingClub become THE online lending platform for consumer credit?

It is possible but I cannot crown them the winner yet. LendingClub is tackling a massive market with a large opportunity for disruption and it provides easy and cheap access to credit for borrowers. However, it does not offer returns high enough to keep investors from looking elsewhere. Until LendingClub resolves this problem, any of the other startups in the lending space could leapfrog them by evaluating credit from a different perspective, which leads to lower defaults and higher returns.

I recommend Holding LC due to its growth potential but would not consider buying the stock unless it lowered the default rates on loans.

3 Bad Money Habits You Should Finally Kick

1. Spending More Than You Want to Earn Rewards Points

Provided they’re used responsibly, rewards credit cards can be an awesome thing. However, if you find yourself using a credit card just so you can rack up more points, you might be in for a world of trouble. This can be incredibly problematic if you’re trying to follow a strict budget or struggle to keep yourself from splurging on frivolous purchases.

One way you can break this bad habit is to only use your rewards card for regular, monthly expenses. For example: let’s say you decide to leave your card at home and only use it to make automatic payments on your phone bill, gym membership dues, and car insurance payment – which you then pay back in full every month. This could help keep you from making erratic purchases, while also still providing you with a steady stream of rewards points.

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2. Ignoring Your Bills

Coming home to a big pile of bills is a drag, there’s no doubt about it. But tossing them onto the coffee table and ignoring them for weeks on end can have terrible consequences for your financial well-being. Consistently ignoring your bills is a sure way to find yourself missing your payment due dates, which could have a really negative impact on your credit scores. If you want to see how your debt is affecting your scores, there are many ways to get your credit scores for free, including through

A simple way to combat bill procrastination is to start being proactive. Whenever you find yourself faced with a bill, tackle it immediately and without hesitation. While it might be a bit of a struggle at first, over time you can reap the rewards of having less finance-related stress. Of course, if you still find yourself having trouble making your payments on time, there’s always automatic bill payment.

3. Cycling Your Debt Without Fixing the Real Problem

If you find yourself constantly consolidating debt or transferring balances to new credit cards, you might have developed a habit for debt swapping. While having a lower interest rate and one monthly payment can definitely help solve short-term problems for you, if you do it all the time you could be avoiding the underlying issue. In fact, it might even be keeping you from coming to terms with the behaviors that are forcing you into an almost perpetual state of debt.

If you think you’ve developed a habit for debt swapping, chances are it’s because you’re having a difficult time living within your means and maintaining a positive debt-to-income ratio. Building a budget could reveal to you how much you’re overspending each month and help you uncover ways to cut back and save. In time, you should be able to erase the debt you’ve accumulated and find yourself on much more stable ground. (This free calculator can help you figure out how long it will take to pay off your credit cards.)

For most of us, changing our behavior isn’t as simple as flipping switch, so it may take a lot of time and effort. Starting is the hardest part but, I can assure you, it gets easier with time.

More on Managing Debt:

  • How to Pay Off Credit Card Debt
  • The Best Way to Loan Money to Friends amp; Family
  • Top 10 Debt Collection Rights

Image: iStock

A crisis in student loans? How changes in the characteristics of borrowers and …


This paper examines the rise in student loan delinquency and default drawing on a unique set of administrative data on federal student borrowing, matched to earnings records from de- identified tax records. Most of the increase in default is associated with the rise in the number of borrowers at for-profit schools and, to a lesser extent, 2-year institutions and certain other non-selective institutions, whose students historically composed only a small share of borrowers. These non-traditional borrowers were drawn from lower income families, attended institutions with relatively weak educational outcomes, and experienced poor labor market outcomes after leaving school. In contrast, default rates among borrowers attending most 4-year public and non-profit private institutions and graduate borrowers–borrowers who represent the vast majority of the federal loan portfolio–have remained low, despite the severe recession and their relatively high loan balances. Their higher earnings, low rates of unemployment, and greater family resources appear to have enabled them to avoid adverse loan outcomes even during times of hardship. Decomposition analysis indicates that changes in characteristics of borrowers and in the institutions they attended are associated with much of the doubling in default rates between 2000 and 2011. Changes in the type of schools attended, debt burdens, and labor market outcomes of non-traditional borrowers at for-profit and 2-year colleges explain the largest share.