CARDS BY CATEGORY
CARDS BY CREDIT
CARDS BY ISSUER
News & Tools
New CFPB Project Could Help Those Crushed by Private Student Loans
Paying off tens of thousands in student loans isnít going to be easy for any recent grad, unless they win the lottery or land a high-paying job (which may seem as likely as winning the lottery these days). But some, namely those with federal loans, have it a bit easier than those with private loans.
Federal loan repayment generally has some flexibility. You can defer payment, ask for forbearance or even adjust your payments based on how much (or how little) you earn. When it comes to private loans, however, that kind of flexibility is rarer and varies widely, putting students at the mercy of their particular lender.
The Consumer Financial Protection Bureau (CFPB) is therefore trying to even the field when it comes to private loans. The consumer watchdog agency announced Feb. 21 that it’s taking suggestions for developing a framework for the regulation of private student loans. While the CFPB doesn’t actually have the power to create and enforce rules for private lenders, the plan is simply to gather suggestions from the public, colleges and financial institutions to make recommendations to policy makers. Anyone with skin in the student loan game can submit their ideas here.
So why would lenders be interested in helping those who borrowed too much for degrees and are now having a hard time repaying those loans? The CFPB’s news release points out that it aims to help those “willing to make good on their debts but seeking a more affordable payment, especially when navigating tough times.” In other words, the idea is to give borrowers more negotiating power so they can pay repay their lenders in a way that works for them, rather than simply defaulting.
And, these days, student debt and defaulting aren’t always a choice. Low-level jobs (such as file clerks and receptionists) that used to require a high school education are increasingly open only to those with bachelor’s degrees, according to this New York Times article. This means that skipping the college degree (and the debt that comes with it) before entering the workforce is less of an option.
Even after racking up debt for the requisite B.A., grads still may not be able to earn an income. The Washingtonian recently covered the phenomenon of the “permatern” (or, permanent intern). Recent grads, ready to work, are hitting big cities only to find unpaid (or barely paying) internships waiting for them. As a result, they find themselves working full-time hours for no income for years on end.
Another reason to help? The CFPB argues that, by helping struggling grads, we are helping ourselves. Young consumers floundering in private student loan debt can’t start businesses, buy homes, get car loans and start families — and help give the economy a much-needed jump start.
If you’re struggling with student debt — or any debt — check out our roundup of this week’s best personal finance blogs for inspiration.
Young Adult Money explains how to be indispensable at whatever job you have.
Boomerang Buck shows how a “money buddy” can help motivate you in reaching your debt repayment goals.
Work Save Live describes how an addiction to a certain lifestyle can leave you trapped in the debt cycle.
We Only Do This Once points out that you could probably survive on only half of what you earn.
The Free Financial Advisor provides some motivation for getting ahead when you’re behind on bills.
My Money Design has a beginner’s guide to Roth IRAs.
Government Watchdog Agency Zeroes in on Student Financial Products
The CARD Act of 2009 limited banks’ ability to woo college students with freebies to get them to sign up for credit cards. Yet other financial products offered to students, such as student IDs that double as debit cards and on-campus bank accounts, can be just as dangerous to those with limited financial experience.
That’s why the Consumer Financial Protection Bureau (CFPB) is taking a closer look at the relationships between colleges and universities and financial institutions. The government watchdog agency is asking students, families and anyone from the higher education community to send in comments about their experience with financial products aimed at students. Follow the instructions for submissions here.
CFPB Richard Cordray says the agency’s efforts are simply an attempt to make sure students are “getting a good deal.” And that brought back memories for me — because I didn’t exactly get a good deal when I signed up a checking account at college.
A major bank has a branch on my alma mater’s campus, and, at my freshman orientation more than 10 years ago, it had a table covered in freebies — T-shirts and key chains with bottle openers (got to give them credit for knowing their audience).
I wandered over to the table and started talking to a rep from the bank, who immediately asked me if I had a checking account. I did — at a bank that had branches in that very city. But that bank, the rep pointed out, was a bus ride from campus. Plus, if I wanted to use the ATMs on campus, I’d be charged a fee. So why not open an account at a bank that had a branch right above the student dining hall and an ATM right next to my dorm?
That sounded logical to me, so I filled out some paperwork and got my photo taken for an ATM card. When it came time to pick which type of account I wanted, the rep asked me if my parents would be depositing money in my account for emergencies, or if I’d be getting a job and want to have my checks direct-deposited.
My reply was something to the effect of, “Yeah, I guess. Sure.”
“Well, then you’ll want this account,” the rep said, and I circled it on the form. No, I didn’t ask any questions. Yes, I’m embarrassed to admit that.
I moved a few hundred dollars from my old bank to my new one and used my free ATM access to get cash for pizza.
A couple months later, I opened up my statement to see a few ATM withdrawals, a few deposited birthday checks and Ö a monthly fee?
Turns out, I’d chosen an account that required a money wire or direct deposit of a certain amount every calendar month. Because that didn’t happen, about $10 was getting sucked from my account every month — because I kept only a few hundred dollars in the account, that made a significant dent.
I went into the bank’s branch on campus that day and asked all the questions I should have asked in the first place. I got a new account that required me to maintain a higher minimum balance — but that didn’t require regular deposits. I monitored my balance carefully and was able to avoid fees.
I’m not blaming the bank. I was an adult, fully capable of asking questions. Yet perhaps campus financial institutions’ marketing techniques and their fee disclosures warrant a look. Although college students are on the cusp of adulthood, they often don’t have the know-how (or the motivation) to make good, thought-out choices about financial products.
To help students avoid the mistakes I made, the CFPB published a step-by-step guide on student checking accounts. The highlights include:
- Research your account options before arriving on campus. That way, you won’t have to make a snap decision in front of the bank’s marketing people.
- Ask about fees.
- Be particularly suspicious of student financial products marketed as “free” and “easy.”
For motivation to make shrewd financial choices at any age, checkout my favorite personal finance blog posts of the week:
Drop that Debt discovers an unexpected perk of snow storms — you can’t leave your home and spend money.
Square Pennies has some tips for fighting back against inflation.
Money Master Mom explains why she’s happier without a “nice” car.
iHeartBudgets warns against the budget-devouring consequences of dining out.
Money Smart Life provides some guidance for staying on track after paying off all your debt.
Frugal Beautiful has some tips for having frugal night in instead of an expensive night out.
Should a Personal Finance Course be a Graduation Requirement?
Did you have to pass a personal finance course, along with English and chemistry, to graduate high school? Chances are, you didn’t — and many experts in the education field think that needs to change.
In a recent a column for the Washington Post, Brian Page (a personal finance and macroeconomics teacher in Reading, Ohio) describes the consequences of grads’ lack of financial literacy.
For one thing, there’s the recent financial crisis, which was fed by consumers who didn’t know what to do with their money, trusting “experts” they shouldn’t have trusted. Then there are the consequences that don’t necessarily rock a nation’s financial foundations — but that can affect individuals and their families for a lifetime. Credit card debt. A lack of emergency savings. A lack of retirement savings. An inability to budget.
Navigating the financial world can be perplexing and, as Page points out, it’s a test most people never had to pass in school. They never had a teacher to correct their bad habits and don’t have enough knowledge about credit cards, debit cards, 401(k)s, IRAs, the stock market, compound interest and mutual funds to avoid common pitfalls.
While only a handful of states require high school personal finance courses, 82 percent of parents and 89 percent of educators think it should be a graduation requirement. †In the meantime, kids and parents can rely on a variety of helpful guides, including this one from the Presidentís Advisory Council on Financial Capability.
While my high school offered a personal accounting course, I never took it. My first formal personal finance education happened during my final semester of college, when I enrolled in an elective personal finance course. It didn’t count toward my major, and I didn’t take it for a grade. I admit that I skipped several class sessions and was a bit drowsy throughout the whole experience (the class was at 9 a.m.). Yet, I’d still call it one of the most useful classes I took in college.
The professor (who also worked as a financial adviser) was famous on campus for the lecture he gave the first class of the semester — a lecture that highlighted in frightening detail the real world consequences for ostensibly wealthy clients who had failed to save. There was the attorney who “had less sense than a squirrel because at least a squirrel knows how to hoard nuts for the winter.” And then there was the client who failed to get long-term disability insurance and exhausted his entire savings within the first year of becoming disabled.
I still struggle with the math and calculations that come with financial planning (it was a wise choice not to take that class for a grade). But thanks to the course my school offered, I had the basics of good money habits scared into me — and am now able to polish my financial future with the help of my own financial adviser.
With continuing financial education in mind, here are some of the best money blog posts of the week:
Wise Bread shares the secrets of self-motivation.
Good Financial Cents has some scary stats about retirement savings.
Girls Just Wanna Have Funds gives the lowdown on 529 Plans.
Bargaineering walks you through reading your Social Security statement.
The Dough Roller describes how to plan for your dream home’s down payment.
One Cent at a Time explains how to stick to a budget, even if you’re not good at it.
Banking Industry Worried About Mounting Student Loan Debt
In FICO’s latest quarterly survey of bank risk professionals, 67 percent of respondents said they are seriously concerned about the debt loads students in this country are carrying and that they expected delinquencies to rise. That number was up 19 percentage points from the previous quarter. Only 8 percent of respondents expected a decline in student loan delinquencies.
Trouble in the student loan area has implications far beyond students.
“Evidence is mounting that student loans could be the next trouble spot for lenders,” said Andrew Jennings, chief analytics officer at FICO and head of FICO Labs, in a statement. “A significant rise in defaults on student loans would impact lenders as well as taxpayers, who could be facing big losses due to these defaults.”
Private lenders and the federal government are expecting this money back with interest, and it’s an increasingly sizable chunk of Americans’ debt. In 2011, student loans beat credit card debts, topping $1 trillion, according to Federal Reserve data.
At the same time, salaries are decreasing, and college costs — along with living expenses — are soaring.
Full-time undergraduate students borrowed an average $4,963 in 2010, up 63 percent from a decade earlier after adjusting for inflation, the College Board reports. That’s no surprise, with the climbing costs of higher education. An increasing number of colleges are charging more than what the average American earns in a year.
College Board data show the number of colleges and universities with tuition and fees totaling more than $50,000 for one year rose to 123 for the 2011-2012 school year — up from 100 in the previous year. The national average wage for an American worker is less than $42,000, according to the Social Security Administration.
Accumulating loan debt may keep students from wanting to make major purchases, such as a home or even a car, and may result in them putting off life stages such as marriage and building families — all of which have implications for the economy as a whole.
Worse yet, those debts follow a student through life. Unlike some other debts that can be discharged through bankruptcy, student loan debt can’t be wiped clean.
At least interest rates linked to those loans won’t be bumped up soon. The Federal Reserve has said it will keep its benchmark lending rate low through at least 2013, which means borrowing costs as a whole should stay reasonable.
Never Too Early When Researching Student Credit Cards
As another semester ends on college campuses there are two groups of people that when it comes to their credit foundation are on opposite ends of the spectrum. On one side, over the last few weeks and for weeks to come these students have or will receive their diplomas and will be heading out into the work force. For many of these graduates, it will now be the time for them to continue building on the credit foundation that they may have started years prior. On the other side it is quite different as they have begun preparing for the newest chapter in their life which is entering the college or university of their choice.
With those getting ready to start college, millions will choose a credit card to help make payments for university related purchases as well as others. While it will be a couple of months before classes start it is never too early to start researching student credit cards as they may not all be right for you. When looking at student cards in detail a great article entitled, “7 Tips for Applying for Student Credit Cards” can help you get understand what to look for. Some of the tips include the following:
- Be wary of 0% balance transfer offers
- Find cards with purchase APRs
- Think rewards credit cards
- Never fall behind on payments
- The lower the balance the better
Within this article there are many great tips to help students (and those that may be co-signers) know and understand what to look for when looking for plastic. In all there are plenty of great cards available that can help those under the age of 21 start off on the right foot when starting a credit history. When looking for cards you will see that many are quite and offer unique features that are geared for multiple finances and lifestyles.
The Reality of Getting a Student Credit Card
As controversy continues to build since the CARD Act was implemented, it now seems that the focus is that of student credit cards. While it appears that it would be harder to get plastic if you are a student, it looks like that is not quite the case. That is because of a small loophole that has been revealed that could have those that would generally be protected from accruing card debt at an early age getting plastic without having the appropriate funds or a co-signer.
According to an article entitled "The Real New Student Credit Card Rules", a simple lapse in judgment whether accidental or intentional has created a loophole which allows some that would not qualify to get plastic to apply and be approved. That lapse deals directly with both evaluating the amount of income needed to be extended credit as well as the verification of such income. As it stands now issuers are allowed to include other sources of incomes besides wages earned such as scholarships, grants and parental contributions when deciding if one qualifies to get a card without having a co-signer. When it comes to verifying that such income exist it is solely based on the issuer to take the applicant’s word on the application at face value or follow up to see if the stated income truly exist.
With any regulations set forth on an industry especially in such a short period of time there will always be things that get overlooked. In this case it could very well be the one thing that would keep some cardholders who are not qualified from receiving cards without the income to support potential purchases. Even with such loopholes regulating the credit card industry, on many accounts is up to the student on whether or not they are willing to use their plastic wisely. When used correctly, especially at a younger age, credit cards can be a powerful tool when it comes to building a strong credit foundation. Hopefully before applying for plastic the student will do their homework as it is something that could a major impact on their financial future both positively and negatively.
The Good, Bad, and Ugly of Co-Signing Student Credit Cards
When it comes to co-signing for any loan what is the first thing that comes to mind? As the answer will be different for everyone, since the implementation of the CARD Act millions of people have to rethink their position as a parentís signatures is now one of few ways that those under 21 can get a credit card. Whereas some parents have been through co-signing before, now many have no other choice than to discuss this with their child. While stating the good, bad and the ugly may be a bit of an overstatement with co-signing your childís student credit card, there are some pros and cons that exist and should be considered before putting your signature on that dotted line.
When looking at the pros and cons we look at an article entitled none other than, “Pros and Cons of Co-Signing Student Credit Cards“. When it comes to the benefits and drawbacks we see that they include the following:
- Comfort of knowing
- Building a strong credit history base
- Opportunity to help educate child
- Liability for unpaid balances
- Potential negative reports on unpaid or late payments
- Difficulty of removing name from account
As we have moved away from the days where those under 21 could receive plastic without any knowledge of essentially how credit works, we have now found ourselves in a place where for the most part parents have a more active role in the decision process of getting a credit card. Because of this greater role many issuers have decided to target parents for marketing and demonstrating how getting their card would be more beneficial to both parents and students.
With the new law in place concerning your child and credit cards, have you decided to become a co-signer or have you and your child opted to go without a card at all?
Credit Cards for Students Become Family Choice
With the new law in place putting requirements on the ability to get a credit card for those under the age of 21, today many American families are finding themselves at the dinner table for a much different discussion than in times past. Today many are finding themselves discussing credit cards and whether or not one is needed, as well as parents discussing between themselves whether or not they should be co-signers or get their child a card that is linked to their account.
Unlike in the past where someone under the age of 21 (student or otherwise) could simply sign up for a student credit card and get approved, today under the requirements of the Credit CARD Act things have changed dramatically. Instead of getting a card on their own, those looking for a card must either have proof that they can repay the lender or have a co-signer in order to get approved for their newest plastic.
Because issuers now know that parents have as much choice in the matter as the child, many issuers have opted to target them in recent forms of advertising. As written in an earlier post entitled "Student Credit Card’s New Focus: Parents", more parents are getting marketing material directed to having them choose their plastic when their children sign up for a new card. For the most part, studies have shown that the first card that someone gets is generally one that they will not give up in the future if any accounts must be closed.
Student Credit Card’s New Focus: Parents
With the new law in place putting requirements on the ability to get a credit card for those under the age of 21, issuers are now getting creative when it comes to reaching out to students. In the past while they could simply set up booths in and around campus and give incentives for signing up for a card,†in today’s environment†it is the parents that are being highly targeted because they are likely the ones that will determine whether or not their children will get a card (as they will probably be the co-signers).
With one of the restrictions requiring a co-signer it now looks as though card issuers are putting their focus on the parents more than the student themselves. On many accounts, issuers are targeting those whom already have existing accounts with them and are sending promotional material. Others have simply taken the approach of sending marketing material to the students home addressed to the parents in an effort or utilizing the direct mail approach that has worked for credit card issuers for years.
When it comes to student credit cards, stakes are high when it comes to the issuers. On many accounts, issuers focus on students for many several reasons. One of the main reasons is the fact that students are future. Traditionally college students generate some of the highest profits due to the fact that most often they do not pay their balances off in full each month. Not only that, but student tend to hold on to their first credit card longer than any other because it is most likely their longest standing account showing credit.
Secured and Prepaid Cards Still Options for Students
With the CARD Act implementation date looming, many changes will be set on the way issuers are able to do things. Under the new law, those that are under the age of 21 will soon be required to have a co-signer, pass a financial literacy course, or show that they have the ability to re-pay amounts that are borrowed. While many students will be able to get a traditional credit card there will still be others that will not. For those that cannot, it look like an alternative will be needed and such an alternatives may be in the form of either a secured credit card or that of prepaid.
As the type of plastic students would probably migrate toward most, secured credit cards have been labeled as the best alternative. These types of cards for the most part are like any other traditional student credit card with the only difference being that a security deposit must first be put into an account. While these cards may not have the same great features of other cards; they do help build credit history, which above all is considered the most important aspect.
The other option that an increasingly growing number of students seem to enjoy comes in the form of a prepaid card. While it may not have been even considered an option in the past; a growing number of students and parents have now started to utilize it because of their opinions on debt. Not only that but in many cases prepaid cards, now offers some of the features that we see with credit cards. Great examples of this are things such as rewards, which include things such as discounts on purchases, cash back, and more. For students this could be something that is important as they try not to worry too much on their finances and more on their grades.