September 18, 2018
Scam Alert: Student Debt ‘Relief’
Despite numerous state efforts to crack down on fly-by-night firms falsely claiming to reduce or eliminate young adults’ student loans, new firms keep popping up.
Their social media pitches and websites promise borrowers things the companies can’t possibly deliver on. They appeal to potential customers struggling to pay student loans with slogans like “Get Rid of Your Student Loans Today!” or “$17,500 in Up Front Forgiveness” – “100 percent guaranteed!”
In a high-stakes game of Whac-a-Mole, attorneys general in numerous states have repeatedly brought legal actions against these so-called “debt relief” companies in cases going back at least four years. Massachusetts resolved one case this past summer, and Pennsylvania filed a lawsuit last fall. Florida has aggressively pursued several debt relief companies recently. The Federal Trade Commission and the Consumer Financial Protection Bureau have also gotten involved.
Student loan borrowers “are desperate for help, which is how these companies are able to grab them,” said Betsy Mayotte, founder of the Institute of Student Loan Advisors, a Boston-area non-profit she founded to provide free help to people wrestling with college loan payments.
Mayotte described egregious fraud against a client who came to her organization and had been paying her student loans for years, whittling down the amount she owed to $5,000 – but it ballooned to $12,000 after she got involved with a debt-relief firm that took over her loan payments. The company put the loan into the federal government’s forbearance program, where it went unpaid while accruing interest for two years. After the forbearance period expired, the debt relief company neglected to resume the loan payments, despite continuing to collect its monthly fee. The customer defaulted on her debt unwittingly – but never got a notice because her contact information on the loans had been changed. … Learn More
September 13, 2018
College Debt Can Limit 401(k) Saving
The share of students borrowing money to pay for college increases year after year, and they’re borrowing more every year. Total student debt, adjusted for inflation, has tripled in just over a decade.
The loan payments, which can be a few hundred dollars a month, take a big bite out of young adults’ still-low levels of disposable income. The debt makes them more prone to bankruptcy and lower homeownership rates.
A key question is whether this pressing financial obligation might affect their preparation for a retirement that is several decades away. Here’s what researchers Matt Rutledge, Geoff Sanzenbacher, and Francis Vitagliano of the Center for Retirement Research learned about student debt:
- By age 30, the college graduates who are loan-free have saved two times more in their retirement plans than the graduates who are paying off debt. (Perhaps surprisingly, the presence of student loans do not seem to affect the amount saved by students who didn’t graduate, though they do have substantially less in their 401(k)s than the graduates.)
- The amount owed by college graduates with loans does not matter. The mere existence of the debt is enough to constrain saving. …
September 6, 2018
Personal Finance Videos for Young Adults
PBS Digital Studios is producing an excellent video series to guide 20-somethings who are starting their careers and want to get a handle on their finances.
In “Two Cents,” financial planners Julia Lorenz-Olson and her husband, Philip Olson, will make you laugh as they convey their very solid advice about personal finance. “How to Ask for a Raise” is perhaps the most relevant video to young adults – especially the ladies. Only one in three women believe that their pay is negotiable. Nearly half of all men do.
The potential for pay raises is highest for employees when they are in their late 20s and early 30s. But the boss isn’t likely to volunteer to increase anyone’s pay, the hosts explain – you have to ask. This is a scary thing to do, and the couple eliminates some of the anxiety by explaining how to prepare for that meeting with the boss.
The “Love and Money” episode asks the questions that are crucial to a successful partnership: how much does he or she earn and how much does this person owe? In “How Cars Can Keep You Poor,” the Olsons advise against buying a new car, which depreciates 63 percent in just five years – they compare it to investing in an ice cream cone on a hot day. A used car is a much better deal and the only sensible option for someone who’s already juggling rent and student loan payments. And the answer to “Should I Buy Bitcoin?” is, uh, no. Nearly half of all bitcoin transactions are illegal, Olson says.
For future-minded young adults, “How Do You Actually Buy a House?” walks through the entire process, explaining why it’s critical to get preapproved for a mortgage, how to choose a realtor, and what to expect in the closing. “Insta-Everything lays out the few pros and many cons of paying for on-demand services such as Grub Hub, InstaCart, and Task Rabbit.
Lorenzo-Olsen explains that the goal of their “Two Cents” videos is not to help young adults get more money (though a raise would be nice), “but to be happy with the money you have.”Learn More
August 21, 2018
2 in 5 Millennials Have Used Payday Loans
Millennials are big users of payday loans, which have steep interest rates that can really mess up their finances.
Remarkably, two out of five people in their mid-20s to mid-30s have used a payday loan, which is more than double the frequency for people in their late 30s, says Melody Harvey at the Pardee RAND public policy school. Generation-Xers and baby boomers use them even less, other surveys have shown.
Harvey’s new research has produced some evidence that something can be done to protect vulnerable young adults in the future: require them to take money management classes while they’re still in high school.
The use of payday loans is part of a broader trend among Millennials, she said. They also turn to desperation financing such as pawn shops to raise quick cash or rent-to-own schemes that, in the end, require them to pay much more for consumer products like furniture and computers.
Many young adults probably gravitate to high-cost forms of financing, because they’re strapped for cash after paying their rent and student loans every month. They also start their careers at relatively low wages and haven’t established the strong credit histories required to qualify for traditional, lower-cost debt.
But while poor people are often forced to use payday loans to solve an impossible financial problem, young adults could be using them partly to fund profligate spending. …Learn More
August 7, 2018
Game Show Pays Off Student Loans
The student loan problem has gotten under our collective skin – so much so that a new game show revolves around it.
“Paid Off,” on TruTV, promises to pay off a share of the winning contestant’s student debt – 20 percent, 50 percent, or 100 percent – depending on how many answers he or she gets right in the final round of questioning.
“Paid Off” is as inane as any television game show. The format is more “Family Feud” than “Jeopardy,” with softball questions designed to spark as much faux competition as possible among the former students who compete. One example: name the most romantic date costing under $10: picnic, walk, Netflix movie, etc.
The show’s host, Michael Torpey, who also plays a corrections officer in “Orange is the New Black,” explains in the first episode of “Paid Off” that he created it because he and his wife struggled with student loans. He was only able to pay them off because he landed a long-shot acting job for a television commercial.
Torpey says his goal is to help debt-laden students “achieve their dreams by paying off their student loans.” He’s right that college debt is, indeed, standing between many Millennials and the adult milestones of buying a house, saving some money, or getting married.
The average amount of debt owed by college graduates increased again last year, to more than $39,000, according to Student Loan Hero.
Unfortunately, the weekly show won’t make a dent in this growing problem. …
July 31, 2018
Financial Data Brokers Have You Pegged
In the world of Big Data, do you fall into the industry’s Extra Needy category, or are you viewed as American Royalty? Perhaps Ethnic Second City Struggler or Small Town Shallow Pockets is a more apt description of you? Or how about Eager Senior Buyer or Tough Start: Young Single Parent?
While the media are focused on Facebook’s privacy breaches, a growing multibillion-dollar industry of data brokers is mining personal information online in order to sell our data dossiers to financial and other companies – sometimes to the detriment of our personal finances.
Big Data collection also can be innocuous, when it is used for marketing. In this form, it’s just the high-tech version of snail mail solicitations for credit cards, retail catalogs, or the services of a neighborhood real estate agent.
But Pam Dixon, the executive director of the World Privacy Forum, said evidence is growing that some consumers are being exploited by the unfettered sharing of personal data. Further, individuals generally do not have a legal right to see their dossiers, which are proprietary – “and we don’t know what they’re being used for,” she said.
In one egregious case, brokers sold data on an elderly veteran, who was then victimized by a scam that stripped him of his life savings. Some brokers compile lists of people living in trailer parks to sell to companies making “predatory offers to those in financial trouble,” Dixon testified before the Senate. …Learn More
July 26, 2018
Book Review: the Middle-class Squeeze
Marketplace recently estimated that a family’s common expenses have increased 30 percent since the 1990s. This was based on the inflation-adjusted prices for 11 necessities and small luxuries, from food, housing, college, and medical care to movie tickets and air fare.
On the income side of the household ledger, one well-known study estimates that the lifetime, inflation-adjusted income of a typical 60-year-old man today is substantially less than it was for a man who turned 60 back in 2002. Women, who have benefitted from getting more education, are earning more, but they started out at much lower pay levels and still trail men.
These trends – rising expenses and shrinking paychecks – get to the essence of the middle-class struggle described in Alissa Quart’s new book, “Squeezed: Why Our Families Can’t Afford America.”
Putting faces to the numbers, she had no trouble finding workers who feel they are losing their tentative grip on the middle class. Her focus is the 51 percent of U.S. households earning between $40,000 and $125,000.
That’s not to say that Americans’ quality of life hasn’t improved in some ways. Consider the dramatic increase in the square footage of U.S. houses over the past 30 years or the enormous strides in medical technology. In today’s strengthening economy, the Federal Reserve Board reports that a majority of adults say they are doing okay or even living comfortably, and they are feeling more optimistic. Yet this doesn’t entirely square with another of the Fed’s findings: a large majority of adults would not be able to cover an unexpected $400 expense without selling something or borrowing money. …Learn More