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Game of Loans: Refinancing Student Debt

Brendan Coughlin, who runs the student loan refinancing unit for a major bank, is very upfront about this: some young adults should not refinance their loans.

One example is a graduate new to the labor force who doesn’t feel stable yet in his or her job. Refinancing a federal student loan with a high interest rate can make sense and saves money. But one reason not to refinance federal loans is that they have a major advantage over loans refinanced by private lenders: flexible repayment options for those who might have difficulty meeting their monthly payments later.

Another reason not to refinance is that the government forgives the debt after five or 10 years for certain types of teachers and public service workers.

Understanding whether to refinance is so important that Coughlin, as president of Citizens Bank’s consumer lending unit, instructs the bank’s loan officers to talk prospective customers through the pros and cons three or four times – to make sure they’re clear about what’s at stake.

“We really don’t want to have a customer swap out their loans and have a surprise. We want to make sure they’re making the right decision,” he said.

If you clear the hurdles, however, it might be time to refinance into bank loans with lower interest rates than the steep 6.8 percent currently charged for some federal student loans – and the double-digit rates on some private loans. Citizens Bank estimates that more than 40 percent of the $1.3 trillion in student loan debt outstanding is both held by someone who could qualify for refinancing and has interest rates high enough to potentially make it worthwhile. …Learn More

401ks: an Employer-Employee Disconnect

Chart: How Their Views Diverge

A survey throws a new spotlight on the employer-employee disconnect over 401(k)s that has also been well-documented in research studies.

The survey of 1,000 employees reveals that workers lack confidence in their ability to navigate basic aspects of their retirement plans, while the 200 employers also surveyed have a more optimistic view of how workers are doing.

Consider the most basic question of how much to put away for retirement. Two-thirds of employers believe their workers know how much to save, while only one-third of employees feel they know, according to BlackRock. And while nearly two-thirds of employers believe the majority of workers save enough, a minority of workers does.

Most employers also believe their workers understand their investment options. Yet less than half of the workers say they do – and only 30 percent feel like they’ve made the right investment choices, according to the BlackRock survey. (Full disclosure: BlackRock is a corporate partner of the Center for Retirement Research at Boston College, which supports this blog).

Squared Away has written numerous blogs over the years about what academic research and other data reveal about the employer-employee relationship. Summaries of past articles continue on the next page, with links to the specific blogs mentioned: …Learn More

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Private Student Loans: Borrower Beware

Privately financed college loans were less than 10 percent of the $1.3 trillion in unpaid student debt last year, according to the Consumer Financial Protection Bureau. The bulk of student loans are funded by the federal government. But the minority who borrow from private financial institutions often learn painful lessons after graduation: it is much more difficult to negotiate affordable repayment plans with private lenders. Private loans are unlike federal student loans, which have standardized repayment options and procedures.

This blog is intended to help parents and future college students avoid getting into difficult situations in the first place with private loans. Squared Away interviewed two student loan experts at Clearpoint Credit Counseling, an Atlanta non-profit: Terrence Banks, a counselor who works directly with borrowers, and Thomas Bright, a blogger.

Question: Graduates trying to renegotiate their private loans conveyed some harrowing stories in Clearpoint’s 2013 blog post. Have things improved since then?

Terrence: The complaints are still valid and still rampant. But some – not all – private lenders have stepped up to the plate to make private loans a bit more financially feasible.

Q. What would you advise parents and matriculating students do when making their first borrowing decisions?

Terrence: Exhausting the federal loan option is paramount before you go to the private loans. If you find yourself in trouble where you can’t make a payment, you have more options under the federal than the private loans. Also try to find out the potential income for your future profession before going down this road and borrowing at all. And then look for grants – there’s a slew of grants that are untapped each year because people don’t take the time to access them because student loans are so readily available.

Q. How do borrowers get themselves into the situations like this one, described on your blog? “I am able to consolidate my federal loans (big help on the monthly payments) but not my private loans.” Borrowers also talk about inflexible private lenders and being harassed with phone calls from these lenders. … Learn More

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Home Equity: a Retirement Resource

The National Council on Aging (NCOA) has redesigned its website providing information for “house rich but cash poor” older people who want to think about tapping their home equity.

Home equity – the house’s market value minus the amount owed on the mortgage – remains a largely unused source of income that many older Americans could be putting toward their medical care or to improve their lives.

wagesHome equity held by Americans age 62 and over reached $5.76 trillion last year – an increase of nearly 30 percent since 2013. A marker of how much of this retirement resource remains untapped is the small number of federally insured reverse mortgages – about 50,000 – that seniors take out every year against the value of their home equity. Reverse mortgages, which are available to homeowners at age 62, are equity loans that do not have to be repaid until the senior permanently leaves their home. …Learn More

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8 College Repay Plans – and Counting

This was going to be a quick blog post about the new student loan repayment program rolled out by the federal government in January. But the differences between it and the seven plans that preceded it were too confusing to figure out on a tight deadline.

This isn’t just the view of one cranky blog writer. Craig Lemoine, a financial planning professor and student loan expert at the American College of Financial Services, which trains financial planners, also admits to being confused about the repayment options, which keep increasing in number.

If Lemoine were a student, he asked, “How on earth would I know which one to pick?”

His confusion pales in comparison with that of a lovely and loved young member of my family. She’s vague on the details of how her own student loans work. Here’s a rough approximation of our recent telephone conversation: …Learn More

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Could Social Security Statement Do More?

Two out of three working Americans grade their retirement readiness at no better than a “C.”

So how about using the Social Security Statement that lands in their mailboxes, grabbing their attention, to spur them to action?

The statement is already valued by millions of Americans. A survey funded by the U.S. Social Security Administration (SSA) found that people who received statements were “dramatically” more knowledgeable about their basic pension benefits than people who had already retired when SSA started mailing them out in the mid-1990s.

Social Security is the nation’s most important source of retirement income, and the information in the statements is essential to most workers’ retirement planning. Mailed out before every fifth birthday – 25, 30, 35, etc. – and annually at age 60, the statement provides estimates of each worker’s future benefits at three different claiming ages: 62, when they have access to their smallest monthly benefit; the “full retirement age”; and 70, when workers receive their highest monthly benefit. It clearly lays out how much workers can increase their monthly retirement income by delaying when they start collecting their benefits. …Learn More

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How Melanie Paid Off Her Student Debt

Sitting at her computer in the oversized studio apartment she shares with her boyfriend in Portland, Oregon, Melanie Lockert received confirmation on Dec. 10 that her ordeal was over: $81,000 in college and graduate school loans were finally paid off.

She had two reactions. The first was an existential panic. “Who am I without debt?” the 31-year-old asked herself. Then a grin spread across her face. “I started dancing and screaming in my apartment. It was such an amazing moment, and I felt incredibly happy to be done with this,” she said.

Recent college graduates might despair that their day of liberation is far away or might never come. But Lockert’s single-minded focus on demolishing her debt, particularly by accelerating her payments recently, provides a roadmap – and some hard lessons – for those facing a seemingly endless string of monthly payments.

Melanie Lockert

Lockert’s path followed a zigzag pattern, which she documented in a Dear Debt blog that she started writing in 2013. Being debt-free was not her first priority when she packed up her undergraduate loans and moved from California to New York in 2010 to attend graduate school – a decision that would more than triple her total student debt. Paying off her loans required a lot of patience and sacrifice, some risk-taking, and brutal self-honesty. She concluded that she couldn’t accomplish her financial goal if she pursued a career in the field she had studied in college. … Learn More

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