Student Loans: Think Before You Borrow

The total amount of outstanding student loan debt in the United States now tops $1 trillion. To make matters worse, recent graduates have been emerging from colleges and universities, with diplomas in hand, into one of the worst job markets in living memory.

Yes, we have had higher unemployment rates in years past: It reached 12 percent during the height of the 1981-82 recession. But that recession was over relatively quickly. And we have never had the combination of stubborn unemployment, underemployment and high student loan debt that we have today.

College costs have been outpacing incomes for a generation, fueled in no small part by the easy access to credit for college costs. The federal government has sought for years to make college more accessible for middle and working-class families. It routinely provides generous guarantees against default for student loans. However, the more money that’s available for any commodity, the higher consumers will bid up the prices for it, and education is no different.

Many of today’s students are having difficulty in making the payments on their student loans once they’ve graduated or left college. This is particularly true of humanities and arts graduates, who could wind up working low-skill service jobs that pay wages that are not designed to support a hefty student loan payment and the raising of a family.

As a result, the rates of default on student loans are soaring. An October 2012 report from the U.S. Department of Education notes that 13.1 percent of student loan borrowers have defaulted within three years of graduating. The Bureau of Labor Statistics is reporting that over 14 percent of Americans aged 20 to 24 are unemployed. That figure drops to 7.9 percent for 25-34 year-olds – but a large number of them are underemployed.

Bankruptcy is Not an Option
Most people who get into debt over their heads can seek refuge in America’s generous bankruptcy laws. Low-income individuals who can’t pay credit card debt or consumer loans, for example, can file a Chapter 7 personal bankruptcy and discharge some or all of the debt. They are allowed to keep a limited amount of assets with which to start over.

But federally-guaranteed student loan debt is not normally dischargeable through bankruptcy. The courts only discharge federally-guaranteed student loan debt in the event of extreme hardship.

How You Can Protect Yourself
Consider your employability after graduating. Some fields, such as psychology for example, tend not to pay well until you have a master’s degree. Here are a few additional tips to consider:

• Lean towards STEM majors. That is, science, technology, engineering and math. These fields provide students with hard skills that are more marketable to employers.
• Don’t co-sign student loans for your children if you cannot afford the risk of default – especially if they won’t be obtaining a marketable degree, or one that is not from a recognized, accredited institution.

Scholarships

A scholarship can make a big difference in the costs of your schooling. A $10,000 Cal Grant can pay $2,500 in tuition annually. That is $10,000 that does not have to come out of your pocket or borrow in a student loan and pay interest on! Also, many credit unions offer scholarships and student cash awards. Meriwest Credit Union has an annual Essay Competition that offers up to a $1,000 cash award for winning entries. We are preparing to announce the winners of our 2013 Essay Contest in February.

If you know a high school student or are one currently and wish to participate in our contest next year, put a mark on your calendar in September and watch our Meriwest Messenger Newsletter and emailed announcements for details.

• Make maximum use of scholarships and the Post 9/11 GI Bill. Tip: Some veterans with the Post 9/11 GI Bill are able to transfer unused GI Bill benefits to family members. If you have a veteran in your family, explore this option.
• Here is a great site for scholarships: http://www.collegescholarships.org/

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Have you made your IRA contribution yet? Yes, it is that time of year. Our Financial Service Representatives are ready to assist you in making your annual contribution. 

This is also a good time to do an annual review your investment portfolio. Meriwest Credit Union can connect you with licensed Financial Consultants* who are available to help you and share a second opinion on your personal and retirement investments. 

Comprehensive financial planning, long-term and short-term investment strategies and retirement planning are available to all of our members on a confidential basis. They can also help with your education planning. How much will it cost to send your child to college in ten years? Our Financial Consultants can help with those answers.

You can discover your options by meeting with one of the registered representatives in the convenience of any of our Meriwest financial centers or by calling (408) 866-1002.

* Security and advisory services offered through Cetera Advisors LLC (doing insurance business in CA as CFGA Insurance Agency), member FINRA/SIPC. Cetera is under separate ownership from any other named entity. The products offered are not insured by the NCUA, NCUSIF or any other regulatory agency, are not deposits or obligations of, nor guaranteed by the credit union or any affiliated entity, and may lose value.

5 Behaviors of Highly Effective Savers

Today's blog is a guest blog from the team at Debt.Org. Special thanks to the writer, Alanna Ritchie.

Managing personal finances successfully requires more than understanding numbers and having good accounting skills. In order for debt management solutions to be effective in helping you get out of debt and stay that way, they must be supported by changes in behavior.

Adopting five behaviors of highly effective savers can help to ensure that once you gain control over your debt and finances, you'll be able to keep that control in the long-term. Try incorporating these behaviors into the way you operate your personal finances, as well as your life in general, and you'll be sure to see positive results:

Set Incremental Goals

Setting a huge, generalized goal may end up overwhelming you, rather than moving you forward. Take that big goal – to get out of debt, perhaps – and break it into smaller, very specific steps with a workable, realistic time schedule. For example, when preparing for an upcoming big expense, set a weekly goal for saving for it.

Be a Good Record Keeper

Keeping track of what comes in and what goes out assists you in understanding the effects of your financial choices. When you are working to regain control of your finances, being a good record keeper will show you the positive results of your efforts, supplying even more motivation to keep up the good work.

3.       Own Your Situation and Your Choices

If creditors are pressing you or your credit card interest rates have skyrocketed, the bottom line is that such things are a natural consequence of your past behavior. Accept it, own it and deal with it, rather than being angry at the people calling or your credit card company. It will reduce the stress in your life and help you to be more focused on what has to be done. Maybe think of joining a credit union. They normally have fewer fees, lower interest rates on loans, more services and higher dividends on deposits than banks.

4.       Prioritize Properly

Place long-term well-being over instant gratification. Expand your vision beyond what you want in the moment to what you hope for and really need in the future by putting money in savings before you spend any for pleasure. Apply this concept to credit card use. Make financial choices—like putting money in savings or making a credit card purchase only if you know you will be able to handle payments—with the future in 

mind.

5.       Evaluate and Adjust as Needed

Effective savers are good at evaluating their own behaviors and situations and making the necessary improvements. They strive to be honest about their weaknesses and work hard to improve them. That is because they keep their goals and the big picture clearly in mind.

When you make these behaviors a part of how you manage your life and your finances, you'll be able to make the most out of the opportunity that debt settlement or other debt-related solutions offer you. All the work you do to eliminate debt will be wasted if you don't supplement the effort by developing behaviors that will keep you from returning to that position again.

Alanna Ritchie is a content writer for Debt.org, where she writes about personal finance and little smart ways to spend (and save) money. Alanna has an English degree from Rollins College.

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Our next Free Financial Education Workshop is this Wednesday. Credit Myths and Repair will explain the top ten myths of managing credit. We will address balances, payments, collections, and judgments.  The workshop is fun and informative. You will learn more about credit than you had ever imagined!

Credit Myths and Repair

6:30 PM - Wednesday, August 28th. 

5615 Chesbro Ave, San Jose CA 95123

To RSVP, please contact gmeyer@meriwest.com or call 408-365-6328

Child Identity Theft

We do a lot to protect our identities. We buy software for our computers to protect us from hackers. We change our passwords on our accounts regularly (or at least we should!). We write “Ask for Identification” on the back of our debit and credit cards. We do all this in an effort to protect our credit and our assets from criminals. We worked hard to build these things and will work equally hard to keep hold of them and guard them from those who would take them from us. How much time do you spend protecting your kids’ identities?

That’s right, I asked about your kids’ identities. Your kids have Social Security numbers and identities just like you do. Sure, they don’t have all the financial baggage that your personal data comes with, but they are just as vulnerable. I hear you thinking, “But they’re just kids! Why do we need to worry about their identities?”

The Bad Guys out there don’t discriminate when it comes to age. The social security number of a fourteen year old is just as good as one from a forty year old; often better as there is no past history. When a minor’s social security number is used to access a credit report, the reports are usually squeaky clean. There is not even a date of birth attached to the record. It is a beautiful clean canvas that a criminal will use to create their false identity.

Every year I meet several high school students who have had calls from collection agencies or have discovered through other means that their personal information was compromised. These students are all under the age of 18 and have credit problems caused by someone else. Sometimes they learn of it when they go to order their first cell phone and discover that a relative who had a previous account cancelled for nonpayment had used the youngster’s personal info to access a new phone and a new cell account. Some do not learn of the identity theft until they have graduated high school and are denied student loans due to a person’s misuse of their personal data. Often, relatives are involved. Each case is its own tragedy.

These students who have had their information compromised have a lot of work to do before they can access credit for themselves. They have to get started on their own credit repair process. In some cases it involves turning in relatives or family friends to the authorities for investigation of identity theft.  

But what about your children’s personal data? How safe is it?

What have you done to protect them? Who has access to your child’s social security number? Have you ever talked to your kids about sharing information? You need to protect your children’s personal data just as you would your own. Medical, school and banking documents that have your child’s social security numbers on them need to be locked up and eventually shredded properly. Ensure that going forward the only people with access to your son or daughter’s personal info is you and your spouse. When the kids are old enough, have that talk with them about what information about them is secret and should never be shared with strangers.

Far too many parents don’t talk about money and credit with their kids and their kids suffer because of it. Don’t be that parent! Prepare your kids for life after school.

Teach your Children to Save! (They will thank you when they are older.)

One thing we can rely on in our lives is change. Many important financial issues come about due to change. Life changes such as marriage, divorce, and death force us to deal with finances in different ways. One of the biggest changes you will experience is having a child. Let’s talk about children’s savings plans.

To start a savings plan for your new bundle of joy you need to have the child’s Social Security number to start their account. I am a little prejudice (I am the Credit Union Guy!) so I would go to a credit union and start a savings account with the minimum balance. Typically, credit unions have very low minimums; often in the vicinity of $20 or less to open a savings account that will have no fees. This makes it easy for young parents to get started.

An important aspect is the vesting or ownership of the account. Whose name should be on it? It is a good idea for you to act as a custodian for your child’s money. A custodial account uses your child’s social security or Tax ID to establish the account rather than your own. As custodian, you have full control of the funds. Any interest earnings will be reported under your child’s name and social security. Your child cannot access the money until you decide to place the funds in their name alone.

If you are banking in the same institution as the one where you opened the child’s account, you can have an automatic transfer of funds from your checking or savings to the child’s account. But you should not start it and forget it. You need to place the dollar amount of that transfer in your budget as if it were a bill and pay it religiously as if it were one of their most important bills. This is because it is important. Studies show that children who have a college savings account from the time they are young are more likely to attend college. It serves as a college incentive to the children and to the parents.

Saving in a savings account is a good idea, but the interest rates on savings are rather low right now. Once a certain dollar amount goal has been reached in the savings account, often $100 is a good target as that is what it takes to initially fund a 529 College Savings Plan. You can transfer the $100 into a 529 and have a much wider selection of investments. You should work with your investment representative to determine your personal level of risk tolerance and select the appropriate investments. If you have younger kids you can accept a bit more risk as time is on your side. You have time to be aggressive with the investments to achieve higher yields and grow the funds. As the child ages, it is a good idea to reduce the amount of money that is at high risk and move it to investments that offer more safety (less risk). As the child gets closer to college age it is important to consider principal preservation in the investment. Moving most of the investment into a money market account at that time would be a good move so you can prevent any investment losses while the student is in college. You will need that money to pay tuition!

For more information on accounts for young people, check out the Meriwest Flow Card Page at https://www.meriwest.com/flow/ . The Flow Card is a debit card for kids that is managed with a parent.

This week's featured article: Meriwest Credit Union: Thinking Globally, Acting Locally, Making a Difference!

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