Tag Archives: loan

We Don’t Talk About Money

We don’t talk about money.  And that kind of makes sense.  Money is one of those things that you don’t want to boast about if you have it, and you don’t want others to suspect if you don’t have it.  There’s a cultural stigma attached to talking about money. It can bring up negative emotions.  Those who have more money seem to come out on top in power dynamics.  Those who have less money can be looked down upon.  And rather than inflict that into our everyday lives, we just don’t talk about it.

Unfortunately, money isn’t a topic that can just be avoided in life.  Having money is a necessity to survive.  You have to learn about how to manage it.  How to earn it.  How to save it. How to spend it wisely. How to insure against losing it.  Perhaps things have changed since I was a kid, but this is not information I was taught in school.

My parents were always very secretive about how much money they made.  I guess they thought that would give me some sort of protection against societal stratification at school.  It really didn’t….but the thought was nice.

Luckily my parents did actually teach me some things about money.  They taught me about how loans work when I borrowed some of the money I needed to add a tiny black and white television to my bedroom.  They taught me about budgeting by giving me an allowance.  They taught me about saving by setting up a savings account for me and encouraging me to add to it regularly.  When I started my first minimum wage job at the local grocery store, they taught me how to use a checking account (and how to write a check, which is quickly becoming a lost art).  When I started my first full time job, my father taught me the importance of contributing to the retirement account (at least enough to get the employer match) right away.  And I’m sure there were many more examples over the years.

I count myself as lucky that my parents were able to teach me a bit about money.  I count myself as very lucky that I was intrigued enough by the topic to become a lifelong student and teacher of personal finance.  There is always more to learn.  But we don’t talk about money. I honestly believe that if talking about money were less taboo, more people would have a better understanding of personal finance and would become better managers of their own money.  Unfortunately, that isn’t the world we live in.

We don’t talk about money.

What’s Up With My Student Loans?

Federal student loans are in a bit of a state of chaos right now.  After a three year pause, interest started accruing again on September 1st, and payments are starting this month for anyone who was in repayment before the pandemic, and also for anyone who stopped attending school from March 2020 through April 2023.  That is a LOT of student loan borrowers.  All going into repayment at exactly the same time.

To keep things extra confusing, a lot of borrowers have had their loans shuffled around to a different loan servicer (the company that handles the management and collection of the debt) during the pause.  Several of the old familiar loan servicers, including Great Lakes, AES, and Navient (AKA Sallie Mae), have gotten out of the federal loan servicing business.  There are several new players in the federal loan servicing space including Maximus, Aspire, Ascendium, and bunch of other companies I hadn’t heard of before recently.  So we have new servicers at a time when millions of borrowers are entering repayment for the first time.

I’ve heard from several currently enrolled students that their in-school deferments have not yet processed for this year.  And that doesn’t surprise me at all.  The loan servicers are without question overwhelmed.  And the in-school deferments are not their top priority right now.  But I do have confidence that the servicers will eventually get these deferments processed retroactively to the start of the fall semester.  So if you are in school and receive notice that you have a payment due, what should you do?  I can’t believe I’m saying this, but you should ignore it.  The school has sent your enrollment verification.  The loan servicer has access to it.  And the deferment will eventually be processed.  If there is a mis-labeled missed payment jammed in there, there are protections in place so you will not suffer any consequences for this “missed payment.”  So, believe it or not, you should ignore it.

I’ve heard reports that wait times to get through to a loan servicer on the phone are hours long.  And nobody wants to be on hold for that long.  So what can you do to make sure everything is in order?  There are several things you can do that don’t involve calling the loan servicer.

  1. First you should make sure you know who your loan servicer is, just in case it changed during the pause.  You can always find this information at http://studentaid.gov in the “My Aid” section.
  2. If you have not yet established an online account with your loan servicer’s web portal, you should do so.  This portal should be able to provide the most up-to-date information about your student loan account.  This will be much more efficient than trying to get through to a human on the phone.
  3. If you have general questions about repayment plan options or repayment strategies, there are options outside your loan servicer.  You can reach out to the financial aid office at your school.  If you are a law school graduate, you can also get help from AccessConnex.
  4. If you have specific questions about your student loan, you may be doomed to wait on hold to talk to your loan servicer, but this should be a last resort after you try to work through options on their web portal.

This is a less than ideal time to be a student loan borrower.  The system is not working at its best.  But your school’s financial aid office will always be your ally in working through the process.

Lessons from My Father

I’ve been away a lot lately.  I haven’t really been in my office and I haven’t written a Moneywise Tip in quite a while.  Sometimes family responsibilities have to take priority over other things. And that has been my situation as my father arrived at the final weeks of a long illness and then passed away.

My father was a teacher by trade (German and French), and he was always teaching something to someone, whether in the classroom or not.  While he never succeeded in teaching me to speak German (much to his dismay), he did manage to teach me quite a bit about money over the years.

My dad grew up poor.  He was born during the Great Depression, and after his parents divorced he lived with his father in a one room cabin without electricity.  Because he knew what it was like not to have money, he was very careful with it once he actually had some (after 4 years in the U.S. Navy and working his way through college on the G.I. Bill).

I remember always receiving an allowance as a child.  That is how I learned about how to receive a regular paycheck and that more money didn’t come around until the next payday.  My dad was paid every two weeks, so my allowance came every two weeks.  So I had to get used to saving and budgeting.  As I grew older and took on more responsibilities in the house, my allowance grew to reflect that.  I learned that more work yields more money.

My dad helped me start a savings account when I was young.  I remember a program in my elementary school where students all started savings accounts together and brought deposits to school for regular savings.  But I didn’t participate because I already had my savings account, and it was growing whenever I had some extra allowance or some birthday or Christmas money.  Over the years I learned the value of having some extra cash stashed away in case of emergency or for a purchase that required saving ahead.  And now I still have an automatic transfer to savings set up right after every pay day.

My dad also taught me about loans.  My sister and I were desperate to have a television in the bedroom we shared.  But the 12 inch black and white TV we dreamed of was more than $40, which may as well have been a million dollars for two elementary age kids in the 1970’s.  But my dad loaned us the money.  He kept a ledger of the amount we owed, and we paid it back over time, in dribs and drabs.  I remember at one point handing my dad a small box full of pennies to pay on that account.  And he accepted that and subtracted it from my balance due.  I’m not quite sure how long we took to pay off that TV, but I’ll always remember my first loan.

My dad was quite the master of budgeting as well.  He didn’t have spreadsheets, but he worked out his budget extraordinarily well using the envelope system (which I understand made a recent comeback thanks to TikTok). Every payday he would go to the bank and get a certain amount of cash to fill the envelopes.  He had a list of exactly how many of each denomination bill he needed.  Then he would lay it all out on his desk like a Monopoly banker and would fill each envelope with the budgeted amount.  Each regular expense had its own envelope.  Then when the bill came due, he would go to that envelope and get the money to pay that bill.  If the amount in the envelope wasn’t enough, he would rework the budget and would have to figure out which category could spare a little to cover the difference that month.  It seemed incredibly complicated at the time.  But it was amazingly effective.

My dad taught me so many things I am grateful for.  The lessons weren’t always easy at the time.  (Especially the time he taught me how to stop going up hill without drifting backward in a manual transmission car.  That lesson came with a LOT of tears.)  But I will forever be grateful for the many things he taught me.  I hope I am able to have anywhere close to that kind of a positive impact on other people’s lives.  Thank you, Pops!

This Pause Is Giving Me Pause

In March of 2020 everything changed in the world as we knew it.  Everything closed down.  Masks were pervasive.  Toilet paper was a hard-to-find commodity.  And my least favorite task was bathing the groceries.  But as the pandemic moved forward, we learned more about the virus.  Treatments and preventative vaccines were created.  And now everything feels a lot more like normal.  Well….almost everything.  Student loan repayment seems even more up in the air now than it did at the beginning of the pandemic.

In March 2020 the President announced a pause on federal student loan repayment, as well as setting the interest rate on all Federal Direct Student Loans to 0%.  This was supposed to last for a few months, until the public health emergency had passed.  But we all know now that the public health emergency did not end after a few months.  And neither did the loan repayment pause.  The pause has been extended several times.  It really looked like repayment (and the accrual of interest) was going to resume in January 2023.  It was supposed to coincide with the processing of loan relief in the form of up to $20,000 in forgiveness for qualifying borrowers.  But that loan forgiveness program got all tangled up in law suits and we’re really not sure when that will be resolved.  So the pause was extended yet again.  And this time the end date is a moving target.

Last week the U.S. Department of Education announced that the payment pause would end sixty days after a) they are allowed to implement the debt relief program, or b) the litigation is resolved.  If neither of these things happens by June 30, 2023, then repayment (and the accrual of interest) will resume 60 days after that.

Clear as mud?  Yep.  I have long thought that the federal student loan programs are too complicated for the average borrower to understand thoroughly.  There are too many different repayment plans.  There are origination fees deducted from loan amounts that make borrowing less transparent than it ought to be.  Loan servicers have a known history of not being up front with borrowers when they call with questions.  Loans come with something called a “variable fixed” interest rate, so each year brings a new loan with a different interest rate from prior loans.  And these interest rates are much higher than rates on car loans or home mortgages, which is very discouraging. It’s hard for me to keep up with all of the details, and I spend my whole life living in the student loan world.  I can’t imagine how intimidating it must be to a brand new college freshman.

But here we are.  Student loans were complicated enough before our country started using student loan borrowers as political punching bags.  Borrowers are now caught in the crossfire of arguments about many different policies.  I’m still not sure how I feel about the proposed debt relief program currently tied up in the courts.  But I feel very strongly that student loan borrowers shouldn’t be made to suffer because of the political battles of others.  And I guess that’s why the payment pause was extended yet again.

Will this be the last extension of the pandemic payment pause?  Only time will tell.  But if there is something to know, you can be sure I’ll share it here when that time comes.

Things We Have No Control Over

Sometimes you have to deal with things that you have no control over. This has been more than clear this week to anyone living in the Carolinas. And it really hit home for me yesterday.

Anyone who has visited me in my office this semester had a chance to see the wrist brace that I’ve been wearing all summer.  And yesterday I finally had surgery to repair that injury.  The surgery went well and now I’m recovering at home for a couple of days. And while I’ve dealt with the aftermath of anesthesia before, this was my first experience with a nerve blocker.  The up side of the nerve block was that I had no pain for 20 hours after my surgery.  The down side was that my left arm was completely numb for that same time.  I had no control whatsoever over its movement.  It was actually fascinating to me.  My left arm was just dead weight (which was MUCH heavier than I would have expected!).  I wore a sling to support it and just had to live without my left arm for the day.  (Teeth and feet become very useful tools when you only have one arm).  I just had to find ways to work around the thing I had no control over.

Sometimes you’ll face financial challenges that you can’t control.  The unexpected auto repair.  The annual tuition increase. The rising price of gasoline.  A medical situation.  The cost of the bar exam.  Air travel for a family emergency.  Financial stress can come in any number of forms that you can’t control.  But what you can control is how you prepare for and react to these things.  A budget.  An emergency fund in savings.  Insurance.  These are all preventative measures to deal with the things you can’t control.  Loans. Credit cards. Side jobs. Selling things you don’t need.  These are all reactive measures you can take to relieve your financial stress.

We will all face things that we have no control over.  But we all have control of how we prepare for and react to these things.

My First Loan

Do you remember your first loan you borrowed?  Perhaps it was a student loan.  Maybe it was a department store credit card.  But more likely it was a loan from your parents.

1970s-tv

My first loan from my parents is still amazingly vivid in my mind. My sister and I shared a bedroom and we really wanted to have a small black and white television in our room.  (It was the 1970’s. TV technology has come a long way since then!)  I think I was about eight years old and my sister was about eleven.  My parents agreed that we could have the TV, but we had to pay for it ourselves. It was my very first purchase on credit.  I don’t remember exactly how much the TV cost, but I think I had to repay somewhere in the neighborhood of $30 for my half of the TV.  Quite a lot for an eight year old in the 1970’s.  My father was very legitimate about the whole thing.  He had ledger sheets where he tracked the balance due.  I would save my change and make payments from my allowance and birthday and Christmas gifts.  And within a year I had paid my debt.

While my father did not charge me interest on this loan, he did teach me some very valuable lessons about purchasing on credit.  I learned the importance of making regular payments.  I learned the joy of watching my debt amount decrease.  I learned the pride of having successfully made a fairly major purchase.  I learned that sometimes you have to sacrifice the things you want to make payments on debt.  Debt is an obligation.  Credit allows you to buy things without having the money on hand in advance, which is very helpful for expensive things like houses and cars and higher education.  But paying it off…that’s freedom!

The Hidden Cost of Bad Credit (a classic tip from 11/8/2010)

Do you pay your bills on time?  Every time?  If not, you really should.  Not just because it’s the right thing to do.  Pay your bills on time every time because that is the easiest way to establish good credit.  And good credit not only makes your life easier…it makes things less expensive.

For example, Sally and Betty are each buying a new (to them) used car.  Sally has great credit.  She heads off to the dealership pre-approved for a loan at 4% interest.  She borrows $15,000 at 4% and will pay $276.25 a month for 5 years for a total of $16,574.87 for that loan.  Total interest paid=$1,574.87.  Betty, on the other hand has bad credit.  She is lucky that the dealership is able to offer her financing at all, since she doesn’t have a co-signer.  But she is thankful to get the loan at 8% interest.  She borrows $15,000 at 8% and will pay $304.15 a month for 5 years for a total of $18,248.75.  Total interest paid=$3,248.75.  Betty will pay more than twice as much for the convenience of financing her used car because she has bad credit.

The cost of credit is only one of the many ways that bad credit will cost you more.  Want a cell phone?  You may have to pay a security deposit to get a contract.  Need to set up utilities in a new apartment?  You’ll likely have to pay a security deposit.  Need to find a new apartment?  You may need a cosigner to get a lease.  Have a car?  You’ll likely pay more for your insurance premiums.

Do you pay your bills on time?  Every time?  You really should!