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Financial Benefits of Getting a College Degree

Posted by banker.ng on May 18, 2012

It’s time for you to head off to college but you’ve found a job that you would like to take instead. After all, why go to college when you can go to work and start making money? Before you make the ill-advised decision to skip college altogether, consider some of the great rewards that are available to those with a college degree. College, unlike most investments, almost always pays off big time. Here are some of the great benefits to earning a college degree:

• Greater earnings over your lifetime. Depending upon your degree, as a college graduate, you can expect to earn from several hundred thousand to more than a million dollars more than a non-college grad over a lifetime. Life is often long and can seem much, much longer if you aren’t earning a decent salary.

• More career choices. By earning a college degree, you are dramatically increasing your potential job opportunities. The higher your degree, the more opportunities you will have. With the current unstable job market, it pays to have every possible advantage before entering the workforce.

• Valuable network contacts. During your college years, you will make a number of important contacts that can help open doors to you that would otherwise remain closed. When you add in the contacts you will make while working in internships, you are expanding your network even further.

• Ability to make better choices. Whether you are comparing mortgage and interest rates, shopping for a car loan, making investments, or planning for retirement, the knowledge and life skills you gain in college will pay off big for you in every area of your financial life. In addition, the time management, organizational, and decision-making skills you gain in college will help you be more productive in your business and personal life and to make the most of the money you have available to you.

• Better employment benefits. A good benefits package can be worth thousands of dollars every year. The jobs with the best benefits packages are reserved for those with a college degree. Depending upon your degree and your field, you may find yourself landing a job that offers full insurance coverage, retirement matching, healthcare savings plans, stipends for childcare, travel reimbursement, continuing education reimbursement, and more.

• Indirect benefits. While it is true that simply earning a college degree won’t give you a great credit rating, it can lead you to a better job with a higher salary. That provides you with the means for building good credit. Getting your degree will also lead to other indirect benefits, such as having the knowledge to build an excellent investment portfolio, to budget your money wisely, and to plan for a better future.

Although you may be tempted to skip college for an immediate salary, be aware that doing so will cost you as much as millions of dollars over the span of your working life. It is a much better choice to live as a poor college student for a few years than to struggle financially for the rest of your life.

Why You Must Start Budgeting Now?

Posted by banker.ng on May 18, 2012

Financial health is almost as important as physical and mental health. In order to reach optimal financial health, creating a budget is mandatory. A budget shows you where your money goes and how much expendable income you truly have. Since the numbers never lie, a budget is the best way to seek financial truth. Even if you are not a frivolous spender, a budget can help you plan for future purchases such as a home, a new vehicle or a family vacation. Creating a budget might be easier than you think.

Find Out Where the Money Goes

The first step in creating a budget is to find out exactly where your money goes. There are a number of ways to determine this depending on your lifestyle and what works for you. Some people use computer software or smart phone apps to do the tracking for them. Others track spending by storing receipts in categorized envelopes and tallying them at the end of the month. You might consider using one debit or credit card for all expenses and reconciling all your receipts to one monthly statement. The old-fashioned method works too: every time you spend, document the amount and spending category in a notebook.

Evaluate Spending

Now that you know where every penny is going, it’s time to evaluate. If you are coming up short each month, consider those areas where you might be able to cut back. Prioritize your expenses; begin with bills that must be paid each month and end with expenses that are not necessary for your family’s survival. You might be surprised at the amount of money you can save simply by cutting out your daily coffee run or weekly trip to the mall.

Dedicate Yourself

Once you have determined what you can and cannot afford, stick to it. Just because all of your kids’ friends have cell phones doesn’t mean yours need them too. Avoid comparing yourself to others because you can never truly know another’s financial situation. All that matters is that you are living within the means you can afford, and your goal is financial freedom. Don’t beat yourself up for an occasional splurge, but try hard to stick to a monthly budget that is not going to put you in the red month after month.

Consider an Annual Budget

Many families have implemented a monthly budget, accounting for all monthly expenses such as mortgages, gas, groceries and utilities. However, many expenses occur annually. Auto and life insurance, home and vehicle maintenance costs, medical costs, and annual vacations are expenses for which you should set money aside. If you overestimate these items, then you’ll have a little chunk of money at the end of the year. While you certainly cannot account for every unforeseeable expense throughout an entire year, an annual budget provides a larger, more accurate financial picture.

Thinking About Night Classes? It’s a Good Idea!

Posted by banker.ng on May 18, 2012

For most students, going to school at night is not usually the first choice. If, however, you are an independent student who has to work full time to pay for school, it may provide you with a way to meet your goals for a higher education. If you are fresh out of high school and have the means, it is probably best to go to college full-time during the days. On the other hand, if you are on your own, especially if you have a family to support, night classes are perfect for you. Night classes are not without a challenge, though, so you should carefully consider whether or not this is the right option for you.

Determine Your Major
The first step is to determine your major and check to see if you can take all the required courses at night. Since most schools offer different night classes each semester, you will need to work with your academic advisor to develop a plan for fitting in all the classes you need. Typically, school night class rotations are designed so that every class is offered at least once every two years. In addition, you may have to take prerequisites, which can throw a serious kink into your schedule if you don’t plan ahead. Without proper planning, you may find it impossible to graduate by your goal date.

Commitment
Another important factor in your success with night classes is commitment. Even if you have a family and a full-time job, you will have to find time in your day to study and do class work. Considering that traveling to and from classes will take even more of your precious time, it is vital that you figure out a way to set time aside for school work. Many night students find that they can schedule in some study time two to three nights a week and on weekends and do find. Just make sure you aren’t sacrificing too much sleep for your school work. In the long run, sleep deprivation can destroy your chances of graduating.

Balance
Finally, you must be able to stay organized and find a balance in your life. Although much of your time will be consumed with work, classes, and assignments, you must still find time to spend with your family and to be good to yourself. If not, the stress of all of your responsibilities will seem much heavier and can cause you to burnout. You can avoid this burnout by scheduling breaks to do something you enjoy. Even though meeting all of your duties and getting your degree are of utmost importance, you only get to live once. Taking time to enjoy your life is one way to realize that the sacrifices you are making are well worth your effort.

Night classes should not be the first choice for students who have the means and ability to attend regular college classes. If, however, you feel that the circumstances of your life have made it impossible to get a college degree, night classes offer you the chance of a lifetime.

Student Loan Interest to Double if Congress Doesn’t Act

Posted by banker.ng on May 18, 2012

Students are taking out record amounts of student loans in to pay for college degrees to secure their financial future with a good paying job. Unfortunately, after students earn a degree many are unable to find full-time employment upon graduation. Many people now question the actual value of a college degree. Economists agree that the average college graduate will earn more than a typical high school graduate. However, the amount of debt that students have taken out, coupled with unemployment and economic hardship, has created an increasingly large problem.

To add to the massive debt burden that many students and graduates are currently facing, there is a lot of talk about raising the interest rates on federal student loans currently offered. The present rate of 3.4 percent is set to double to 6.8 percent on July 1st unless Congress takes action. There are many factors that govern student loan interest rates, but Congress has the ability to set whatever rate it chooses and keep these loans affordable.

With the average student today graduating with over $24,000 in student loan debt-the interest rate that they will have to pay back debt at is extremely important. Student loan debt combined with many new graduates’ inability to find full-time work in their preferred field has made it a lot more difficult to make the required minimum monthly payments. An increase of a single percentage point can mean that a former student will pay thousands of dollars more than he or she otherwise would have over the life of their student loan. Because there are so many people who will pay their student loans for decades, even a small increase in the interest rate can affect their finances for the rest of their lives.

Unfortunately, the bad economy has led to record high levels of student loan defaults. It is the fear of many economists that increasing the interest rates on student loans could lead to even more defaults. This is because an increase in rates will force the monthly payment amounts of these student loans to increase.

It should be noted that the interest rate, if Congress approves it, would not affect people who already have student loans. Rather, these rules will apply to people who are taking out new student loans for the upcoming school year. Thus, this rate change will affect current and future students, but not people who have already graduated.

Nonetheless, a rate increase has the potential to affect the financial futures of thousands of young people. It will be important to monitor what Congress decides to do.

The Student Loan Debt Bomb: America’s Next Mortgage Economic Crisis

Posted by banker.ng on May 18, 2012

The National Association of Consumer Bankruptcy Attorneys (NACBA) prepared a report regarding the dischargeability of student loans in the bankruptcy court.

According to the NACBA, Americans now owe more on student loans than on credit cards. The amount of student borrowing crossed the $100 billion threshold for the first time in 2010 and total outstanding loans and exceeded $1 trillion for the first time last year. The reason: Students and workers seeking retraining are borrowing extraordinary amounts of money through federal and private loan programs to help cover the rising cost of college and training. In many cases, parents responsible for the student loans are in or near retirement years and facing repayment demands.

How big is the danger to the U.S. economy? “Evidence is mounting that student loans could be the next trouble spot for lenders,” said Dr. Andrew Jennings, chief analytics officer at FICO and head of FICO Labs.

With rising debt comes increased risk, both to borrowers and to the economy in general. Even in the best of economic times when jobs are plentiful, young people with considerable debt burdens end up delaying life-cycle events such as buying a car, purchasing a home, getting married and having children. Piling up student loans in middle age is even more troublesome. Aside from the simple truth that there is less time to earn back the money, it also means facing retirement years still deeply in debt. And, parents who take out loans for children or co-sign loans will find those loans more difficult to pay as they stop working and their incomes decline.

This concern is echoed by bankruptcy attorneys from across the country who report that what they are seeing at the ground level feels too much like what they saw before the foreclosure crisis crashed onto the national scene: more and consumers seeking their help with unmanageable student loan debt, and with no relief available.

Missing just one student loan payment puts a borrower in delinquent status. After nine months of delinquency a borrower is in default. As younger college students, middle aged borrowers and parents all have taken on bigger student loan burdens, the level of defaults has risen. Although the Department of Education’s official default rate for 2009 was 8.8 percent, the figure reflects only those debtors who began repayment in fiscal year 2009 and failed to meet the obligation by September 30, 2010, not all the people who defaulted over time.7

While any default hurts a borrower’s credit, the consequences of a default on a student loan is particularly onerous. Once a default occurs, the full amount of the loan is due immediately. The government also cuts off any future federal financial aid and strips the borrower’s eligibility for loan forgiveness.

For those with federal student loans, the government has collection powers far beyond those of most creditors. The government can garnish a borrower’s wages without a judgment, seize a tax refund (including an earned income tax credit) or portions of federal benefits such as Social Security, and deny eligibility for new education grants or loans. The government can sue the borrower to place liens on bank accounts and property, and can tack on collection fees of 30 percent of the amount due. There is no discharge in bankruptcy for federal loans except in extremely limited circumstances that require a borrower to file a lawsuit that few bankruptcy debtors can afford, especially because student loan servicers aggressively litigate such cases. Unlike any other type of debt, there is no statute of limitations. The government can pursue borrowers to the grave. And, for those with professional licenses, failure to pay student loan debt can result in the loss of the state-issued license.

Student loans are among the few types of debts that generally are not dischargeable in bankruptcy.  It wasn’t always this way. Prior to 1976, all student loan debt was dischargeable in bankruptcy, just as if it were any other type of unsecured debt. That year, Congress added an exception to the bankruptcy discharge by prohibiting the discharge of education loans made by the government or a non-profit college or university, unless those loans had been in repayment for five years. That exception was continued in the 1978 Bankruptcy Act, but debtors who completed a chapter 13 plan, paying all they could afford over three to five years, were not subject to the five year waiting period. Since 1978, there have been three significant legislative changes in the treatment of student loans in bankruptcy.

The only exception to the nondischargeability of student loan debt is if the debtor can persuade the bankruptcy court that repayment of the loan would result in “undue hardship.” There is no statutory definition of “undue hardship.” This is a court-defined term, usually satisfied only if the debtor can meet the three-pronged test set forth in Brunner v. New York State Higher Education under which the debtor must demonstrate: (1) she cannot maintain a minimal standard of living for herself or her dependents if forced to repay the loan, (2) circumstances exist indicating this state of affairs is likely to persist for a significant portion of the repayment period, and (3) the debtor has made a good faith effort to repay the loan. In certain courts, a somewhat more flexible “totality of the circumstances” test has been applied.

Spending Rises Despite Flat Incomes

Posted by banker.ng on May 18, 2012

Federal Government Weighs Student Loan Reform

Posted by banker.ng on May 18, 2012

Stafford Loan Options

Posted by banker.ng on May 18, 2012

The Stafford program fields its own set of loan forgiveness options. Provisions exist for those who volunteer with AmeriCorps, the Peace Corps or Volunteers in Service to America, serve in the Military National Guard, teach at the primary or secondary level in schools with low-income students, specialize in teaching math or science at the secondary level or teach special education.

Stafford forgiveness is also available to law school students who work for public interest or non-profit organizations, and medical students who practice as physicians for a certain time in communities that do not have “adequate medical care,” according to the Stafford loan website.

The requirements and eligible amounts for Stafford loan forgiveness vary, depending on your volunteer or teaching service. Also, you’re not eligible for Stafford relief if you already participate in the Public Service Loan Forgiveness program.

Income-based loan relief

The Income-Based Repayment plan allows you to repay your Stafford, Direct and Consolidation Loans based on how you much earn, as long as your loans are not in default. Parent PLUS loans are not eligible for the program.

The yearly amount you pay will equal 15 percent of the difference between your adjusted gross income and 150 percent of the Department of Health and Human Services poverty guideline for your family size and state. The total is then split among 12 monthly payments.

Slowing down the payment of the loan will mean that you accrue more interest than if you paid off the loan under the regular terms, according to Kantrowitz. But if you participate in the plan for 25 years and meet certain requirements, the remainder of your loan will be forgiven.

Tax implications of loan forgiveness

The Public Service Loan Forgiveness program has no tax consequences — the amount of your loan that is absorbed by the government is not considered taxable income, says Kantrowitz.

However, under the Income-Based Repayment plan, the forgiven portion of your loan is taxable. So if the government has forgiven $100,000 of your debt, you will have to pay federal tax on that amount as if it were income. In that scenario, someone in the 25 percent tax bracket could owe $25,000 in taxes, Kantrowitz says.

“The federal government is making payments to itself or lenders,” Kantrowitz says. “The total amount the government is paying to cancel debt is treated as income to you.”

Since the income-based plan just launched in 2009, the 25-year mark is still decades away. According to Kantrowitz, it’s possible that the government will have to address the issue once these bills come due.

“What most likely is going to happen is, 25 years from now, there will be people faced with huge tax bills,” Kantrowitz says. “There will be a hue and cry and Congress will pass something.” Still, borrowers who consider this option should note these potential tax consequences before applying.

Can Your Student Loan Debt be Forgiven?

Posted by banker.ng on May 18, 2012

If you feel trapped under a mountain of student loan debt or worry about interest rates rising in the future, a loan forgiveness program may ease some of your burden.

Federal programs exist that will forgive the remainder of your federal student loan debt if you work in the public sector or for a registered nonprofit for 10 years and keep current with your payments. Others allow you to stretch out your loan payments if your income falls below a certain level and will forgive the remainder of your debt after 25 years.

Which loans are eligible for forgiveness?

Federal student loans that qualify for relief include Stafford loans, Federal Direct PLUS loans and Direct Consolidation loans, according to Mark Kantrowitz, publisher of FinAid.org, a financial aid information site.

Perkins loans are also supposed to have a foregiveness provision for borrowers who become certain types of teachers, but Congress has not funded this provision for several years, according to Kantrowitz. Thus anyone seeking forgiveness for a Perkins loan would have to convert it into a Direct Consolidation loan before applying. No matter the loan or program, money borrowed by parents usually cannot be forgiven, Kantrowitz says.

Forgiveness for public service

The Public Service Loan Forgiveness program is open to students who have Federal Direct loans who become police officers, firefighters, EMT workers or public school teachers, as well as those who take other qualifying positions in the public and non-profit sectors.

“The program is a back-end loan forgiveness program,” Kantrowitz says. “You work for a certain number of years and any remaining debt is forgiven.”

The program requires participants to work in public service for 10 years and make 120 on-time loan payments, after which any remaining undergraduate and graduate debt will be forgiven. The program can identify whether your job makes you eligible when you begin working.

“You don’t have to wait 10 years to find out if your job qualifies,” Kantrowitz says. “There’s a form you can have your employer complete that will say whether your service qualifies.”

Is Student Loan Consolidation Right for You?

Posted by banker.ng on May 18, 2012

College students are facing a harsh reality upon graduation: massive student loans and a feeble labor market. For the first time ever, the amount of loans students took out last year crossed the $100 billion mark, according to the Federal Reserve Bank of New York. Outstanding student loan debt is expected to add up to more than $1 trillion in 2012. Defaulting on a loan can damage a grad’s financial life, before it ever really gets started, making it essential for them to make a plan to pay off their loans.

There are many options for students to repay their student loan debt and some students may choose consolidation, combining their various loan amounts and interest rates into one monthly payment.

The interest rates on student loans vary by the type of loan and date of disbursement. According to Haley Chitty, director of communications for the National Association of Student Financial Aid Administrators, the following loans are currently at these interest rates:

•Unsubsidized Stafford Loans for undergraduate students and Subsidized Stafford Loans for graduate and professional students have a 6.8% interest rate (beginning July 1, 2012, graduate and professional students can no longer get Subsidized Stafford Loans. Subsidized Stafford Loans for undergraduate students have a different interest rate depending on when they were disbursed)

•4.5% for loans disbursed between July 1, 2010 and June 30, 2011

•3.4% for loans disbursed between July 1, 2011 and June 30, 2012 (the current rate)

•The rate is scheduled to increase to 6.8% for Subsidized Stafford Loans disbursed on and after July 1, 2012

•Federal Perkins Loans have a 5% interest rate’

•PLUS Loans have a 7.9% interest rate

To calculate interest for consolidated loans, the weighted average of the interest rate on the loans a student is consolidating is rounded up to the nearest 1/8% and is capped at 8.25%.

Because federal student loan regulations are constantly changing, the terms of students’ loans may depend on when the money was borrowed.

“People who borrowed student loans before 2006 may have gotten some federal student loans that were at very low interest rates,” says student loan expert Heather Jarvis. “The current prevailing rates are going to make a difference—[graduates] could lock in one of those low rates rather than waiting because they’re likely to go up over time.”

It’s important for borrowers to understand whether or not they have variable interest rate loans, which can affect the timing for consolidation, says Jarvis.

“They want to be clear on what their repayment options will be and they also will want to make decisions about which loans to consolidate if they have multiple loans because they can choose to consolidate them all or not,” she says.

For students with private loans, it can be more difficult to get a consolidation loan because not many companies still offer this option. Chitty explains that interest rates on private student loans are based on borrower’s credit score, but if a student’s score has improved significantly since the loan was obtained, that could lead to a lower rate.

Jarvis emphasizes that there are multiple benefits associated with federal student loans that are not available with private loans. Although some private loans may have a lower interest rate, they are usually loaned at variable rates.

“[These rates] are low now, but often have no cap and are very likely to rise over time,” says Jarvis. “Those loans also don’t have the same borrower protections or flexible repayment options that federal student loans have.”

Although students can no longer consolidate their loans while still in school, Jarvis explains that they can take advantage of the “grace period” of their loan repayment–usually six months to a year after graduating.

“If you consolidate your student loans, they do enter repayment status at that point,” she says. “You could end up forgoing some of your grace period and that may or may not be a good idea based on your circumstances.”

Student Loans other blog of Financial Red Nigeria.