Month: June 2015

When is it OK to walk away from Sallie Mae?

If youre one of the 43 million Americans burdened by student loan debt, then you know that repaying your loan isnt fun.

So what if you just stopped?

Thats what author Lee Siegel recently proposed in his controversial New York Times op-ed Why I Defaulted on My Student Loans. He wants borrowers to stop paying on the collective $1.2 trillion in total student debt, in order to protest a system that in his mind unfairly penalizes poor and middle-class students.

If the banks have become too big to fail, then the people have become too small to succeed, argued Siegel, defending what he says would be a collective act of civil disobedience in an interview with CNBCs On the Money.

Read More11 strategies to avoid student loan debt

Is the Government Charging Some People Too Much for Student Loans?

For young people with good jobs, repaying student loans has probably never been easier. In the past four years a growing number of companies have begun offering to refinance people’s federal loans, which generally means buying the debt and then collecting payments from borrowers at a much lower interest rate than the government was charging.

The companies–which include startups and traditional banks alike–say this is an attractive business opportunity because certain graduates are bound to pay back their loans on time. Buying their debt now and collecting small, but virtually guaranteed, payments over time can be a profitable enterprise.

For the peoplewhom these companies target–often graduate school alums–the deal has few drawbacks. Thosewho refinance public loans through a private company like Social Finance or CommonBond pay lessinterest over the long haul. They also giveup the right to enter into government repayment plans, but it’s unlikelythese particular folks would need to rely on such programs, which are aimed atstruggling grads.

When Should I Consolidate My Student Loans?

Receiving a bill from several lenders each month is intimidating and not always the best way to pay off your student debt. Private student loan consolidation can combine all of your student loans into one loan, with one interest rate, and one monthly payment.

To be considered for student loan consolidation, you must be a graduate, have a good financial standing, and good credit. Often times, a co-signer can help you secure an even better rate. In many cases, loan consolidation saves money and stress, but there are some instances where it should be avoided.

When to Consolidate Student Loans

  • After Periods of High Income: If youre receiving a bigger paycheck, this is the perfect time to seek out student loan consolidation. Since you are making more money, you have a better debt to income ratio, which allows you to lock in a lower interest rate.
  • Before You Quit a Job: Before you hand in your resignation letter, consolidate your student loans. Doing so will help lower your monthly payments and help you pay your monthly debt payments while you look for a new job. Most importantly, most lending companies will not allow you to consolidate your loans if you are unemployed.
  • When You Have Multiple Servicers: If you have more than one loan with more than one company, it can be a hassle keeping your payments straight. Loan consolidation takes the stress and guesswork out of your monthly payments.
  • When You Can Get a Lower Rate: Securing a lower rate can help you save money on your monthly payments, as well as in the life of the loan. Even just securing a new loan for one percent less than your original rate can result to thousands of dollars save in the lifetime of the loan.

When Not to Consolidate Student Loans

There are so many benefits to consolidating your student loans, but it is not for everyone. You should not consolidate your loans if:

  • You Want Federal Loan Benefits: Some individuals will qualify for certain loan forgiveness programs with their federal loan. Other benefits of federal loans include income-based repayment plans and the interest may be tax deductible. Once you roll your federal loans into a loan consolidation with a private lender, you will lose these benefits and eligibility to loan forgiveness plans.
  • You Want to Prepay Higher Interest Loans: If you are paying more money towards a higher interest loan, then consolidation might not be the best choice for you. Once you consolidate your loans, it is as if you have one new loan. So even if you only have five years left on one loan, once you consolidate it, you will have a new loan for a different amount of time.

Remember to do the math and your research before deciding whether student loan consolidation is right for your financial situation.

Check out Credibles unique student loan consolidation marketplace to compare lenders and get the best offer possible.

Car Loans: Are Longer Terms a Bad Thing?

Any time you drive a really cool car, its inevitable that youll end up on the manufacturers website, configuring your ideal version of that car. As soon as you finish, youll look at the total price, laugh at the thought of spending that much money on a car, and then go back to trying to convince yourself that your current transportation situation is fine just the way it is.

After driving the Fiat 500 Abarth, I did exactly that as soon as I got home. Conveniently, Fiat includes a payment estimator with its configurator, but instead of quoting an absurdly high number like I expected, it told me I could buy the convertible version for $369 per month. My first thought was, Oh no, I could actually afford to buy this car.

Then I looked at the loan term it was using to calculate my payment. The reason my estimated payment was so low was because Id have to pay that $369 for 72 months. In 72 months, Ill be 32 and will have just celebrated my five-year wedding anniversary. Heck, I could even be a father by then. Thats much too far in the future to still be paying for a car.

Not long ago, the idea of taking out a 72-month car loan would have been absurd. Whether it is or not, its certainly not unheard of anymore. As Detroit News reports, the average car loan term is now 67 months for new cars and 62 months for used cars. Even worse, longer-than-normal terms of 73 to 84 months made up just barely under 30% of all vehicles financed in the first quarter of 2015.

The amount of money that customers are financing has gone up as well. In the first quarter of 2014, it was $27,612, but in 2015, it rose to $28,711. As a result, average monthly payments are now up from $474 to $485.

Longer terms on larger loans with higher payments have the potential to be a problem if more people end up defaulting on their loans, but there are definitely advantages to longer loan terms.

Will tax PINs help curb ID theft? The Beat (poll)

CLEVELAND, Ohio — Currently, the IRS has a pilot program in Georgia, Florida and Washington, DC, that allows every taxpayer to have what theIRS calls an Identity Protection PIN instead of using Social Security numbers to file yearly income taxes.

The IRS says Georgia, Florida and the District of Columbia were chosen for the pilot because they have higher levels of tax-related identity theft.

What if all 150 million-plus taxpayers nationwide had six-digit personal identification numbers instead of using their Social Security number? Or what if the IRS gave all taxpayers an entirely different number — a private number thats used to file taxes but nothing else? Many countries, particularly some in Europe, have taxpayer identification numbers.

Is this a good idea? Do you think it would cut down on the cases of tax ID theft? Let us know in the adjacent poll.

How Can I Lower My Student Loan Debt?

Its a great question, and you should start by really understanding whether you have a healthy level of student loan debt. Then, even though theres no right answer for every scenario, you can choose from a few different options in order to make the best choice for your personal situation.

Where to start?
Know your debt to income ratio (or DTI). Your DTI is how much you owe on debt payments every month as a percentage of your monthly income. DTI includes all debt, including your student loans, car loans, and minimum credit card payments.

Whats a good level of debt or a bad level of debt?
If your DTI is higher than 20%-30%, you might want to lower your debt obligations each month, especially by targeting your student loans.

You can lower your student loan debt obligations in two ways: (a) refinance to a new loan with a longer term to lower your monthly payment, or (b) refinance to a loan with a lower rate that offers greater savings over the life of the loan.

Why the choice between (a) lower monthly payments every month or (b) lower interest paid over the life of your loan? Its tied to the length of your loan.

o To reduce each months payment, you can choose a longer loan term to spread out the amount you owe over the life of your loan. For instance, moving your $80,000 loan from a 10-year, 5.99% fixed rate loan to a 15-year, 6.09% fixed rate loan saves you just over $200 on your payments each month. That said, it will increase the amount of interest you pay over the life of the loan.
o To reduce the total amount of interest you pay over the life of the loan, you might want to choose a shorter loan term, which typically comes with lower rates due to the reduced risk to your lender.

Should I choose: a) lower monthly payments or b) less interest payments over the life of the loan?

Again theres no right answer so here are some examples to help you think through the trade-offs:

Scenario A: Longer term, lower monthly payments. Youre an entrepreneur, a small business owner, or even someone who has not yet built up his or her emergency fund, and you need spending flexibility in the short term. Its okay to opt for lower monthly payments now. And you can do that by refinancing to a lower rate and a longer term.

Scenario B: Shorter term, lower interest paid over the life of the loan. Your goal is to save as much as possible on student loan interest payments, and you have some excess cash now. You may also choose to prepay your loans (ie, pay more than your monthly bill) in order to save on interest payments in the long run (because youre lowering the principal owed on your loan by prepaying it early). And dont worry about getting hit with a fee for prepaying – its illegal for any lender to charge you for paying off your education loan early. By prepaying and/or refinancing to a lower rate, shorter term loan, you can save thousands on your loan payments overall.

Final thoughts on lowering your debt obligations
Youll hear many experts tell you to tackle whichever debt has the highest interest rate first in order to minimize how much youre paying in interest. (If you have credit card debt with a higher rate than your student loans, for instance, get rid of that debt first before paying extra on your loans.) And we tend to agree.

For a more personal perspective on paying off student loans, check out this blog post about paying off grad school debt by CommonBonds very own, Nate Howard. He explains his thought process about how aggressively to pay off his student loans.

Kaitlin Butler is Content Manager at CommonBond, a student lending platform that provides a better student loan experience through lower rates, exceptional customer service, a simple online application, and a commitment to community. CommonBond is also the first company to bring the 1-for-1 model to education and finance.

Here’s a Smart Tradeoff for New Car Buyers

The latest numbers on new car buying show that a flurry of purchases in May lifted the annualized sales rate to 17.8 million. Thats well ahead of the 16.7 million pace from a year ago, and its the highest level in 10 years. No surprise, most consumers areborrowing to make the purchase.

Experian Automotive reports that 85 percent of new car sales involve financing. Total car loan debt tipped the scales at $905 billion in 2015sfirst quarter, up more than $90 billion from a year earlier. While consumers are being pitched more financing options than ever, the smartest long-term strategymay be toignore the mostenticing offers.

A generation ago, the average length of a new car loan was 36 months. Today, 4 percent of new car loans are that short, according to The average loan now runs to more than 67 months, and the percentage of new car loans exceeding six years has revved up from 7 percent in 2008 to 24 percent.

Why I’m grateful to have $70000 of student loan debt

Four years ago, I graduated from college with just over $70,000 in student loan debt.

So far, Ive paid off about $20,000.

And while Im looking forward to the day that Im done making monthly payments for good, Im grateful that I didnt enter the real world debt-free.

If I did, it would have taken me a lot longer to figure out what I know now.

1. You need to plan out your spending.

In college, I wasnt exactly bad with money, but I wasnt great either.

On one hand, I managed to limit myself to spending the money that I made at my $7.41-an-hour campus job, rather than using a credit card.

On the other hand, that money was usually gone within a few days of each biweekly paycheck, and then Id have to go back to living off fruit and cereal Id brought home from the all-you-can-eat dining hall.

Graduating and realizing how much debt Id accumulated was a reality check for me.

I immediately signed up for and began obsessively tracking my spending and planning out my budget every month.

If I hadnt had that black cloud of debt looming over me, I doubt I would have been motivated to become more educated about money. Most likely, I would have kept on living from paycheck-to-paycheck, and spending every dollar I earned as soon as the direct deposit hit my bank account.

2. Being too frugal can be bad for your mental health.

Antonia FarzanOnce I gave myself permission to spend some of my money on weekend trips, instead of putting it all towards my student loans, my life got infinitely better.

During my first year out of college, I lived in a constant state of anxiety about the amount of money that I owed.

I felt like I was doing something wrong if I spent a single dollar that wasnt strictly necessary on something other than paying off my loans or building up a savings account. 

I lived on dubious produce from the discount grocery store, felt incredibly guilty if I had one cheap beer at a bar after work, and turned down the opportunity to go on weekend trips in favor of reading books that Id checked out from the public library.

I wasnt much fun to be around, and I wasnt enjoying life very much, either. Once I started to loosen up and allow myself to spend myself on nonessentials like an occasional yoga class or dinner with friends, my attitude changed. Not only was I happier, but my debt felt like less of a burden, because I wasnt allowing it to ruin my life. 

3. You need less than you think.

Antonia FarzanMy tiny, out-of-the-way apartment is all I really need.

Im always a little shocked when I spend time with my friends who graduated from college without any debt and immediately found well-paying jobs.

Theyre always going to concerts! They have brand new cars! They live in expensive neighborhoods just because its a short commute to work! They go on vacation and stay in real hotels, not the cheapest possible Airbnb! 

The strange thing is that Im not jealous. Over the past four years that Ive been paying off my debt, Ive been questioning every single purchase that I make, so Ive realized whats essential to me, and whats not. I definitely need to be able to travel, for instance, but I dont care where I stay when I do. Id probably spend my money on the same things that my friends do, without considering whether they mattered to me or not, if the idea of paying off my debt didnt motivate me to be more thoughtful.

Even if Id graduated without debt, Im sure I would have learned all these lessons eventually. But it probably would have taken a crisis or a major life event to change the way I thought about money. Facing my student loans was a wake-up call, and Im glad that I had that experience in my early 20s.

New for Private Student Loans: Preapproval

One private student lender is offering to speed up the loan approval process for future academic years.

Citizens Financial Group announced Tuesday that it will begin telling some private student loan applicants who get approved for the coming academic year that they can also get loan preapprovals for the remaining years of their college education. For example, some incoming freshmen who get approved for a $10,000 loan for the 2015-16 academic year will be offered preapproval for the same amount for the remaining years of their undergraduate education.

But there’s a catch: The preapproval offer applies only to borrowers who opt for a variable-rate loan–and Citizens preapproves them for variable-rate loans for the future years as well. (The bank also offers fixed-rate student loans.)


  • The New Math of Student Loans
  • Answers to Readers Questions on Student Loans

The bank says the preapproval, offered to selected borrowers with strong credit, will make the application process less time-consuming and onerous for repeat customers. Less paperwork will be required when these applicants return for their subsequent loans, though their credit score and credit reports will be checked each time.

It is the latest attempt by the bank to compete in a growing sector. Private student lenders have been increasing loan originations and have been seeking out the most desirable applicants by lowering interest rates. Many lenders, including Citizens, have also been ramping up refinancing by courting other lenders’ borrowers with the possibility of refinancing their current loans into new loans with lower interest rates.

As competition intensifies, this multiyear approval strategy, which appears to be a first in the private loan industry, is intended to capture more borrowers for the long run. Private student lenders have been increasingly discussing ways to turn student-loan borrowers into lifelong customers by selling them mortgages, investment services and other products as they get older and build up more wealth.

“In addition to our desire to help students pay for college, we are also looking to build long-term relationship with our customers,” says Brendan Coughlin, head of education and auto finance at Citizens Financial. “If you can provide a young adult with a great experience, the hope is you can continue to build that into a long-term financial relationship.”

Variable interest rates are generally lower. At Citizens, they range between 2.68% and 9.43%, while fixed rates range between 5.75% and 11.75% for undergraduates. (The bank also offers discounts that total half a percentage point to eligible borrowers.)

But borrowers should keep in mind the risks they’re taking by signing up for a variable-rate loan. Should the Federal Reserve raise interest rates, it’s likely that the interest rate on such a loan will increase, pushing up the monthly payments. The loan’s interest rate is pegged to the one-month London interbank offered rate and can change as often as each month.

Citizens says that borrowers who are approved for its multiyear option will be shown the interest rate they could get with a fixed-rate loan, outside of this program, as well. In addition, borrowers who chose the multiyear option aren’t required to stick with it. If they want their next loan to have a fixed rate, they can submit a separate application to the bank for the next academic year.

SA farms’ debt-finance level may rise to 35-year high

Debt-finance levels among farmers in South Africa, the continentâ??s biggest corn producer, may rise to the highest in 35 years, curbing growersâ?? ability to get more funding as they contend with the worst drought since 1992.

Farmersâ?? ratio of debt to assets, or the proportion of assets financed by debt, may climb to 48% in this year, said Ernst Janovsky, the head of agribusiness at Barclays Africa Group That would be the highest since 1980 and compares with 35% in 2014, Department of Agriculture data show. The estimate for US growers this year is 10.9%, Mitch Morehart, a senior economist at the US Department of Agriculture, said June 1.

â??Theyâ??ve got to start thinking of where they are going to get money,â? Janovsky said by phone. â??You have to start taking out of your own pocket where previously you could have borrowed,â? he said.

South Africa predicts a 32% drop in this seasonâ??s corn harvest to the smallest in eight years after the drought ravaged crops in some of the largest growing regions. Farmers were still recovering from insufficient rains received in 2012, with their balance sheets strained since then, according to Nico Groenewald, Standard Bankâ??s head of agribusiness.

â??Once we go beyond 50%, then we are most probably in a spot of bother,â? he said by phone. â??We could absorb some of this by consolidating debt.â?

Grain SA, a lobby group thatâ??s the biggest representative of South African corn growers, â??is aware of a few farmers who decided to put their farms up for sale because of financial difficulties due to the drought,â? Chief Executive Officer Jannie de Villiers said, declining to provide more information.

Â2015 Bloomberg News