President Obama’s Student Loan Plan – Thanks for Nothing
October 31, 2011
By Nicole Mayer:
Americans struggling with student loan debt got a dose of “hope” from President Obama, when he announced his new plan to help ease student loan debt. Unfortunately, it seems to be more false “hope,” than true relief.
There’s no doubt the problem is significant and needs attention. Student loan debt reached $1 trillion this year, which now exceeds Americans’ credit card debt.
The administration says that the President’s plan does not need congressional approval. Critics deem the President’s plan politically motivated to attract young voters and members of the Occupy Wall Street Movement.
The critics’ description of the President’s plan as “more of the same,” and a political nod to key voting demographics, may not be too far from the truth.
The White House Press Secretary’s release about the President’s plan led with the title “We Can’t Wait.” Yet it seems like waiting is exactly what struggling student loan borrowers will be doing before they see any meaningful relief.
The plan announced by the President, touts decreasing student loan payments, allowing students to consolidate their loans for ease of payment, and helping students make better borrowing decisions. We’ll analyze the various aspects of the plan so you can decide whether you think Americans are seeing the change they’ve been hoping for.
Lower loan payments (but not for everyone)
One of two seemingly tangible forms of relief under the President’s plan is decreasing federal student loan payments for people who qualify for a special Income Based Repayment, or “IBR” plan. Borrowers were first introduced to the IBR plan in 2010. In the President’s recent announcement, he refers to the IBR Plan as the “Pay As You Earn Plan.”
Under the IBR plan, eligible borrowers currently pay a maximum federal student loan payment of 15% of their adjusted gross income minus 150% of the poverty level for their family size. Under the plan just announced, that percentage changes to 10%.
This 10% cap isn’t exactly new. It was part of a law passed in 2010, but the President bumped up its effective date from 2014 to 2012.
However, to get this reduction, a borrower needs to have taken out a student loan after 2012. So, if you’ve already graduated, this “relief” does not help you. It will only help the people taking out loans in 2012 after they graduate and go into repayment. Because federal student loan payments are not due until six months after graduation, it will be some time before this program provides any large-scale benefits.
The White House estimates that approximately 1.6 million borrowers could benefit from this proposed change, while the number of student loan borrowers is currently estimated to be over 36 million.
Currently, borrowers who participate in the IBR plan and other payment programs on their federal student loans are eligible for loan forgiveness after 25 years. Under the President’s new plan, forgiveness would occur after 20 years. While five years without loan payments sounds wonderful, it is two decades too far into the future to have any impact on those currently struggling with student loan debt.
Consolidate student loans (and maybe save $5 per year)
The President’s plan also touted the opportunity for borrowers to consolidate several student loans into one loan. The borrower benefits by now only having to make one monthly payment to a single lender. But loan consolidation is nothing new; it’s been around for years. And, making payments to separate lenders is not the reason for the continued increase in student loan defaults.
Direct Loan Consolidation, combining separate federal loans into one loan, has been available for years. The beginning interest rate for a Direct Consolidation Loan, was, and still will be, the weighted average of borrower’s federal student loan interest rates.
Now what about the 0.5% interest rate deduction we’ve heard so much about? Don’t get too excited too quickly. First, Direct Loan Consolidation already had a 0.25% interest rate reduction for borrowers willing to make their payments through the Department of Education’s automatic debt system. That benefit is simply sticking around for new Direct Loan Consolidation borrowers.
Surely, the additional 0.25% reduction is where the real savings come in; right? Not so fast. The additional 0.25% reduction is only available to people who qualify for a “Special Direct Consolidation.”
To qualify for a Special Direct Consolidation Loan, you must have at least one federal loan owned by the Department of Education and at least one federal loan owned by a commercial lender, also known as a FFELP lender, such as Sallie Mae; Nelnet; or ACS. Borrowers may get confused here because they may have a loan owned by the Department that is serviced by a commercial lender. Such a loan will not count as a loan owned by a commercial lender. In the past three years, many commercial lenders sold their federal loans back to the government under the Ensuring Continued Access to Student Loans Act of 2008, further lessening the number of students who will fall into this category.
And for those very few lucky individuals who do qualify for Special Direct Consolidation, that 0.25% extra interest rate reduction only applies to the FFELP loan portion of your loans. Calls to the federal student aid hotline confirmed that the details on how this reduction will work are not clear. However, in a traditional Direct Loan Consolidation, the consolidated loan’s interest rate is calculated based on the weighted interest rate of your loans.
For example, if you had $10,000 in Direct Loans with a 6% interest rate, and $10,000 in FFELP loans with a 6.8% interest rate, using the Federal Direct Consolidation Loans Online Calculator, you’re consolidated loan interest rate would be 6.4% on a $20,000 loan. But with the Special Consolidation Loan, your FFELP loans would likely be calculated at a rate of 6.55% (6.8% minus 0.25%), making your Special Direct Consolidation interest rate 6.375% on a $20,000 loan. Wow! This means that on your $20,000 Super Special Consolidated Loan, you are saving FIVE DOLLARS A YEAR!
Don’t Call Us, We’ll Call You
Those who may be fortunate enough to qualify for the Special Direct Loan Consolidation are being warned not to begin any applications for Direct Loan Consolidation at this point. If they do, they will not be eligible for the special consolidation. Instead, borrowers should patiently wait to see if they are notified of their eligibility in January 2012.
Help borrowers make better decisions
The President also stressed the importance of students making informed borrowing decisions. He specifically referenced the “Know Before You Owe, initiative” a joint action underway by the Department of Education and the new Consumer Financial Protection Bureau. “Know Before You Owe” is aimed at helping students better understand the risks, benefits and costs of student loans. It is unlikely that this initiative will provide any benefit to people already struggling with student loan debt.
Who exactly benefits? (besides just about no one)
Aside from the obvious answer, which is that almost no one benefits from the programs announced by the President, those who certainly don’t benefit are people already in default on their loans and those struggling with private student loans.
True private student loans are the kind that are not backed by the government; feature high interest rates; and that have nearly across the board refusal by lenders to modify payments. No current legislation or proposal addresses any relief for these borrowers.
Additionally, for those who already defaulted on their federal student loans, the plan does not offer a helping hand. With defaulted loans, lenders can still threaten, and carry out, garnishment of up to 15% of your disposable income and interception of your tax returns.
It may look politically smart to dangle the carrot of financial help to students struggling with overwhelming debt, but hollow promises will backfire in the end, when students realize it’s more talk than tangible help. Haven’t we been down this road before?
Kindle Fire vs. iPad Comparison
September 29, 2011
Visit msnbc.com for breaking news, world news, and news about the economy
Finally, a less expensive alternative to the ever popular Apple iPad in the very crowded electronic tablet market. The Amazon Kindle Fire premiered to much anticipation but also skepticism. Many tout the Kindle Fire’s ability to play Adobe Flash Video, while Apple has refused to include this feature. Kindle Fire’s lower price point of $199 also makes it an attractive alternative to the iPad, which starts at $499. So, is the Kindle Fire an iPad killer? Click here to watch a comparison and decide for yourself.
You’re Paying A LOT More Out-of-pocket for Health Care
May 31, 2011
It’s not your imagination. You’re paying alot more out-of-pocket for health care. The average out-of-pocket health care costs for a family of four with insurance have ballooned from $3,634 in 2002 to $8,008, this year. The statistics come as part of a new study released this month by the industry consulting firm Milliman.
And that’s for families who get coverage from their employers. If you’re paying COBRA premiums like Schaub, or buying on the individual market, the costs are often much higher.
Click here to read more in this article from the St. Pete Times.
Fight Foreclosure – Make ‘Em “Produce the Note”
April 1, 2011
Fight Foreclosure: Make ‘Em Produce The Note!
Using the “produce the note” strategy is something all homeowners facing foreclosure can do. If you believe you’ve been treated unfairly, fight back. We have created templates for a legal request, a letter to your lender and a motion to compel to help you through the process. Read the step by step “how to” under the videos.
Special note: In some states, a lender can foreclose on your home without going to court. These are called non-judicial foreclosure states. You can still use the “Produce the Note” strategy in these states, but it takes a few more steps on your part.
Produce the Note – Steps To Follow:
How Health Care Reform Affects You NOW
March 23, 2011
It’s been one year since health care reform was passed, but few of us are any closer to understanding all the things that it actually does or will do. Confusion has probably been the number one result of the legislation to date. So what exactly does the bill do? Several measures have already taken effect. MSNBC put together an in depth look at all the controversies brewing over whether to repeal it or leave it alone, but first, let’s see what exactly it’s doing for Americans right now:
- Insurance companies no longer allowed to discriminate against children with pre-existing conditions
- Insurance companies barred from placing lifetime caps on benefits
- Insurance companies barred from dropping patients’ coverage when they get sick
- Children allowed to stay on their parents’ health insurance plans until their 26th birthday
- A 10% tax on indoor tanning services
- Insurance companies must prove they spend 80% to 85% of premium revenue on medical services
- Insurance companies required to disclose rate increases (and the reason) of 10% or more
- Government-run insurance plan set up for adults with preexisting conditions who are denied coverage
- Seniors receive a $250 rebate to help cover the so-called “donut hole” in Medicare drug coverage
- Free preventative care covered by Medicare and private plans.
- Nursing mothers to be allowed lactation breaks
- Government-run long-term care program set up. For those who participate, people pay premiums for five years and then will receive benefits if they need them
- Small businesses (with fewer than 50 employees) begin receiving tax credits covering 35% of premiums to help them buy coverage. (This credit jumps to 50% in 2014.)
- States receive billions in funding for community health centers
- Drug companies face $2.5 billion in fees (rises in later years)
- Creation of a government research institute created in to examine the effectiveness of medical treatments
- Establishment of a Medicare Independent Advisory Board, which will be tasked with trying to keep Medicare spending down and submitting legislative proposals to do so. It will first submit recommendations in 2016.
Okay, what happens next. Republicans argue the bill was front-loaded with postive stuff, but then launches the rub. Here are some of the measures that take effect in the coming years:
- In 2013, new taxes and fees go into effect for:
- individuals making more than $200,000 a year (and families making more than $250,000 a year)
- on dividends and interest
- on sales of medical devices
- By 2014, the individual mandate goes into effect — if you don’t have insurance, you have to buy it or face a fee.
- By 2016, that fee will be 2.5% of your income or $695 a year, whichever is more.
Click here to read more on MSNBC’s First Read.
What States Have the Most Expensive Car Insurance?
March 15, 2011
You know that accidents, traffic tickets, and even your credit score can determine your auto insurance rates. But so can the state where you live. According to a just-released ranking of state-by-state costs from the web site Insure.com, average rates in the most expensive state — Michigan — are two and half times as high as in the cheapest state, Vermont.
Here are the top ten most expensive states:
1. Michigan, $2,541
2. Louisiana, $2,453
3. Oklahoma, $2,197
4. Montana, $2,190
5. Washington, D.C., $2,146
6. California, $1,991
7. Mississippi, $1,896
8. New Mexico, $1,896
9. Arkansas, $1,836
10. Maryland, $1,807
Click here to see the full list and read more on CBS MoneyWatch.com.
Beware Gold Coin Rip-off
January 4, 2011
Gold coins are touted as a good hedge against impending financial doom. Now, a recent television ad by “National Collector’s Mint” offers consumers coins with “pure gold,” specifically the “2011 Buffalo Tribute Proof.” But how good a deal are these “gold coins”?
Gold has shown an increase in value over the past year, going from about $1,100 per troy ounce (31.1035 grams) to over $1,400 per troy ounce, an increase of over 27%. Popular commentators such as Glenn Beck have touted the purchase of gold coins as a safe haven against our troubled economy.
The ad describes the historic $50 Buffalo Gold Coin, the first 24 karat gold coin minted by the United States, and offers this “tribute copy” of the popular collector’s and investment item. The ad states that the gold in the coins for sale is 0.9999 percent pure gold, and “your own copy of the $50 Gold Buffalo” can be bought for only $9.95. A year ago, the earlier version of the same coin by “National Collector’s Mint” sold for $19.95, so this is an even better deal, right? No wonder purchases are limited to five per caller.
A very careful review of the new gold coin ads, however, reveals that the advertised “Buffalo Tribute Proofs” are actually “gold-clad coins.” Rather than pure gold coins, they are actually what amounts to gold-plated coins. Listen carefully and you will and you will learn that the actual content of gold in each coin is 14 milligrams. That’s 14/1000th of a gram!
Please do the math, dear consumer. At $1,400 per ounce, that means the gold in these coins is actually worth 63 cents! At $9.95 per coin, that’s quite a markup.
The ads state that because “supplies are limited,” purchases will be limited to only five per customer, and the price can be guaranteed for only seven days. So those unfortunate enough to snatch up five of these coins will get $3.15 worth of gold for “only” $49.75! Interestingly, a year ago when pure gold sold at a lower price, this same company sold the same “Buffalo Tribute Proof” for $19.95. That earlier coin had a whopping 31 milligrams, worth $1.10 back then, about the same comparatively poor deal.
An actual “$50 Buffalo Gold Proof” coin is priced by the U.S. Mint at $11,060.
Buying gold can be a sensible investment for some people. Like anything else, it is an investment with risk. If you buy gold now at the current high of $1,400, and it dips back down to 2009 levels, you could lose your shirt. During a span of several months in 2008, gold went from $1,000 to $700. Just as many learned from the real estate bubble, gold prices (like real estate) don’t always go up.
If you are considering buying gold as an investment, be sure to watch out for common scams in this market. Here are the top five:
- Grade – True gold coins are graded, and prices can fluctuate greatly based on the grade assigned. A “mint condition” Gold Eagle coin can sell for $2,850, whereas the price of the same coin graded “very clean” (indiscernible to the amateur eye) can be $1,650. How honest is the assigned grade?
- Presentation – Be wary of gold coins encased in nice looking packages or coatings that prevent you from actually examining the coin. The seller might be hiding something.
- Gold Indexes – Some gold indexes cannot be trusted. The investment bank Salomon Brothers used to compile a gold index showing huge annual appreciation figures for gold coins, but these were based on a set of very rare coins, not the type commonly sold.
- Gold held in escrow – Afraid of losing your precious gold to robbers? Don’t worry, the helpful seller will hold the gold for you. Are you sure it even exists?
- Government seizure – In 1933, the government seized gold held in bank deposits, paying $20.67 per ounce per executive order. It is highly unlikely, but not impossible, that future circumstances could result in similar action.
Now we can add yet another potential scam to this list. Listen carefully, be sure to read all of the fine print, and do the simple calculation yourself. How much are you really paying for the actual gold in the coin?
Sneaky Credit Card Company Tricks
October 6, 2010
Credit card companies are supposed to follow new consumer friendly rules these days, but just when you thought the people won a little protection, here come some fancy new tricks. Look out for funky new ways to nail you for extra fee. Things like:
Weekend charging: The new rules say if a due date falls on a weekend or holiday when the bank is closed, you can pay your bill on the next business day and not be hit with a late fee. But banks are keeping a few branches open on weekends, just so they can charge that fee.
College gotchas: The new rules say that if you’re under 21, you can’t get a credit card unless you have a parent co-sign or can show proof of a job that would allow you to pay your bills. But card companies seem to be looking the other way when classmates act as co-signers.
And there’s much more. Click here to read the full report on CBS MoneyWatch.
Groupon: The New Coupon Craze
September 25, 2010
By Terry Smiljanich:
Looking for a bargain, but tired of all those paper coupons in your desk that expire before you remember to use them? Looking for fine wines at half price rather than just 50 cents off a tube of toothpaste? Welcome to Groupon, one of the fastest growing internet fads of the past few years.
Groupon, an internet group coupon site, is less than two years old and has already grown to become the latest dot.com fad, with $350 million in revenues, making its founder and CEO Andrew Mason a 29 year old multimillionaire. In fact, recent estimates of the company’s value range as high as $1.2 billion. With more than a million members, and people signing up every day, what has made Groupon so popular? Is it a great way to great deals, or is it just another trendy gimmick to suck dollars out of well intended shoppers who never end up using the coupon dollars they set a side?
Mortgage Company Halts Foreclosures in 23 States
September 22, 2010
One of the nation’s largest mortgage lenders has ordered the halt of evictions in foreclosure cases in 23 states. Homeowners are being given a reprieve because a former employee of Ally, formerly GMAC, admitted he failed to read or properly notorize foreclosure documents while processing them. It now it appears hundreds of other companies, including mortgage giants Fannie Mae and Freddie Mac, may also be affected because they use Ally to service their loans. Click here to read the full story in the Washington Post.
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