April 26, 2016
Delaying Motherhood Boosts Earnings
Economists have landed on two primary reasons for why women working full-time earn less than their male co-workers. First, their research detects an element of discrimination.
The second reason stems from motherhood, which can make it extremely difficult to simultaneously complete an education or get a firm footing in a career.
But America is changing. Over the past half-century, the typical age at which women have their first baby has risen markedly, from 20 to 25.
This societal shift toward later motherhood has, in turn, dramatically improved women’s financial prospects, concluded a study featured in a book about the financial impact of changing employment, family and health trends.
University of Virginia economist Amalia Miller found that each one-year delay in when women start a family has increased their lifetime earnings by 3 percent. Since first motherhood now comes five years later, she estimates that translates to a 14 percent increase since the 1960s in the typical woman’s lifetime earnings.
Women who wait to become mothers also accumulate more wealth: each one-year delay increases their wealth at age 50 by between $12,000 and $20,000 – or potentially $100,000 more for waiting five years.
Although women who earn more money spend more, “their consumption does not increase proportionately, leaving them with greater accumulated wealth at older ages,” Miller said. “The effects of motherhood timing especially are substantial and significant for decades after the age at first birth and well into retirement years.”
Education plays a large role in the improvement in women’s ability to build up their financial resources. For example, there was a much smaller increase in women’s incomes due to delay when Miller controlled for education.
There is another way to think about her findings: it’s becoming clear to many young women that there are fairly large financial rewards from delaying their first child. …Learn More
April 21, 2016
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
March 15, 2016
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
March 8, 2016
Study: College Debt Hurts Retirement
College graduates learn very quickly that paying hundreds of dollars toward student loans each month makes it difficult to afford things like a nice apartment or a car.
But they might not appreciate the long-term consequences of their record levels of borrowing: college debt is an added threat to their retirement security, according to a new study by the Center for Retirement Research.
The researchers gauged the debt’s impact by looking down the road to retirement and projecting what would happen if working people of all ages had started out with the same profile as young adults: 55 percent of today’s 20-something households have student debt, and they owe $31,000, on average.
College debt has a bearing on retirement security through two avenues. First, money going into loan payments is not available for a retirement savings plan. Second, lenders place limits on how much total debt a homebuyer can have, forcing many borrowers to delay home purchases; and getting a home loan would be very hard for the 17 percent of student loan borrowers delinquent on their debt.
Based on these assumptions and using 2013 data, the Center’s National Retirement Risk Index shows that those at risk of a lower standard of living when they retire would increase sharply to about 56 percent of working U.S. households – compared with 52 percent at risk when the student loan projection isn’t figured into the NRRI calculation.
This “represents a substantial increase in the already alarming rate of households at risk,” said the Center, which supports this blog. …Learn More
February 23, 2016
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
February 18, 2016
U.S. Workers Got a Raise Last Year
It probably doesn’t feel like it, but workers got a decent pay raise in 2015.
Inflation last year was an improbably low 0.7 percent, and the fairly strong job market helped, too, by pushing up average hourly wages by 2.6 percent. Together, these translate to nearly a 2 percentage point increase in workers’ pay. Wages rose again in January by one-half percent, which was the second-best monthly increase in the current economic expansion. Minimum wages are also going up in many states.
It gets even better, based on an analysis by the American Institute of Economic Research (AIER) in western Massachusetts. An inflation measure designed by AIER that it calls the everyday price index, or EPI, actually declined last year. As its name implies, the EPI gauges changes in prices for things that are necessary for daily living, such as utilities and groceries, and excludes infrequent big-ticket items such as cars, homes, appliances, and even clothing. For this reason, it also weights gasoline more heavily than the standard consumer price index (CPI). The EPI declined 1.4 percent for the 12-month period ending in November, the latest data available, compared with the 0.7 percent increase for the CPI. …Learn More
January 26, 2016
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.
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