June 2007 Archives

Barbara

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After July 1, you'll have an even bigger reason to apply for federal aid—increased Federal Stafford Loan  limits.

In case you need a couple of reminders why it's a good idea to max out your federal funding before turning to private loans, check out some discussions we've had earlier on this blog.

• They're guaranteed: What's so special about federal loans?
• Almost everyone qualifies for some kind of aid: Is financial aid for you?
• They can be consolidated: Raising my hand with consolidation questions

I know you're wondering how much you could be able to borrow. So, see the chart below with the new Stafford Loan limits for dependent and independent students.

Remember two things:

1. An independent student is someone who meets one of these criteria:

• A graduate or professional student
• A married person
• An individual with legal dependent(s) other than a spouse
• A veteran of the U.S. Armed Forces
• An orphan or a ward of the court
• At least 24 years old by December 31 of the award year
• Deemed independent by the school's Financial Aid Office due to special circumstances

2. A subsidized Stafford Loan:

• Is need based
• Means any interest that accrues during school or deferment paid by the government

Caroline

On Monday, Staci posted about an article on "College Selection Hysteria."

I've heard a lot about this since I started working in the student loan industry, and it's fascinated me. When I chose my college—some 18 years ago—not only was there no hysteria, there wasn't even mild anxiety. I wasn't agonizing over "brand name" schools, nor was I fussing about which one had the best journalism program . My criteria were quite simple: I wanted a college that was affordable, familiar and a comfortable fit for me. Iowa State University  was kind of a no-brainer for me based on those standards:

• State school. Check affordable.
  
  
• Three of my older siblings had attended ISU, and I had been visiting them there since I was 10 years old. Check familiar.
  
  
• Three close friends from high school were also heading to ISU. Check comfortable.

I admit, these aren't the best standards  to use when choosing a college, but they're not the worst either. I didn't doubt the quality of education I'd get, and I knew I wasn't going to feel homesick or hopelessly out of place. It was important to me (and my pocketbook) to finish college in four years—so I wasn't in the mood to try anything too risky.

Looking back, I don't regret my decision, and I'm certainly glad I didn't get wrapped up in College Selection Hysteria. But I think there is a happy medium to be found between following your siblings and friends to the nearest state school and becoming an anxiety-ridden senior with an "Ivy League  or bust" mentality.

I would certainly encourage my own kids to explore beyond their comfort zone when it comes to choosing a college—and to base their decision on facts, rather than assumptions. Personally, I eliminated any small, private schools from radar because I thought they were too expensive. It was a bad assumption . What I didn't know is that some private schools can give you enough financial aid to make themselves competitive with public schools. It kept me from even considering the benefits I might have found in a small school–a closer relationship with professors, a greater opportunity to get involved in activities, etc.

And I do believe that no matter where you go to school, your college experience will be what you make of it. You can have a great experience and get a fabulous education at a "no-name" school if you choose to work hard, get involved, make friends, and get to know your professors and other mentors.

What do you think? Tell us about your college choice—past, present or future.

Staci

Calling all soon-to-be high school juniors and their parents!

Last week I came across a great article  about College Selection Hysteria—also known as CSH—in the Annapolis Capital. Here's what the author (and licensed clinical psychologist) Dr. Scott E. Smith had to say:

“While it is not yet an ‘official' psychological diagnosis, CSH is an often-observed phenomenon that starts to grip many adolescents and their parents around the beginning of their junior year of high school. This amplified form of anxiety is based in concern or worry about finding, being admitted to and paying for the ‘right' college.”

Unofficial diagnosis aside, CSH is very real for some folks. I know I experienced it to some extent when I was searching for colleges almost 20 years ago (gasp!), and there seems to be even more pressure today. Dr. Smith discounts some of the college selection myths out there with his own brand of tongue-in-cheek realism.

Oh, one last thing: I'm by no means a licensed clinical psychologist . But in my opinion, a little humor mixed with useful information goes a long way.

Pam

To this day I can remember getting my first credit card as a freshman in college! I ripped open the envelope and thought—EUREKA!—I'm in the dough now. In record speed I was at the local shopping mall  to use that newfound wealth (or so I thought) to buy those must-have jeans, shoes and music. All in all, it probably took me less than 42 seconds to reach my credit limit of $300.

I cannot tell you how wonderful it felt to put on those fabulous new jeans and shoes. I was styling! For the next 24 days I was carefree, not a money worry in the world.

Then reality hit: The credit card bill arrived.

My initial thought was, no problem—I'll call my parents, share the good news of the nice clothes I'd bought myself, and ask them to help me pay the credit card bill. My Dad did not skip a beat in his reply: “You charged it, you pay for it.” Although I attempted every reasonable angle and even a few tears, they did not cave. I had to find the dollars to pay for my shopping spree.

Oh well. I reviewed the statement and saw I only had to make a minimum monthly payment of $15. No problem—I could handle that. But then I looked a little more closely and did some quick math. With minimum payments (and interest) it would take me longer to pay off the bill than my new shoes would last!

In the end, I had to give up more than a few fun weekends each month—four months to be exact—before the bill was paid in full. I can definitely say sacrificing my time with friends to save money and work extra hours at my campus job was not a highlight of my college experience.

Yep, I got my credit education the hard way. In the coming weeks, we'll be discussing credit education in more detail. I'm sure you have your own credit dilemma or fun story. Please, share your experience!

Caroline

No, this is not the story of how I ate 10 Big Macs® . This is a cautionary tale for anyone with a bank account. My stepdaughter learned a critical banking lesson—the hard way—a couple weeks ago.

She generally keeps a pretty close eye on her checking account, and she knew her balance was little bit low. However, she's been busy lately—she just finished up her sophomore year in college and was in the midst of moving into a new place. Therefore, she didn't have convenient computer access, and she didn't take the time to find an ATM to transfer money into her account.

She'd also written a $220 check for her rent deposit about a month ago, but the landlord hadn't cashed it. She knew that check was out there and could clear anytime, but still …

You can imagine what happened next. Bingo. The landlord cashed the rent check and her balance plummeted. Down to less than nothing.

Unaware, she headed to McDonald's®  for the most expensive Chicken McNuggets® she would ever eat. Allow me to illuminate:

Spend $3.95 at McDonald's + overdraft charge of $34 = $37.95

Ouch. That's an Unhappy Meal.

Needless to say, after a panicked call home, she stopped in to talk with a local banker ASAP, and she now has overdraft protection.

You definitely don't want to make a habit of overdrawing your bank account, but these things happen—I know I bounced a check or two myself in college. Anyone can make a mistake, so to avoid learning an expensive lesson, think about getting overdraft protection for yourself!

Barbara

One adjustment students need to make at this time of year is mastering a food budget. When you're living on campus with a meal plan, food might not cross your mind. But when you're on your own completing a summer internship—or if you've graduated and are starting out in the working world—food costs can add up quick if you don't get a handle on them.

One of my favorite personal finance bloggers, Madame X at My Open Wallet , has a collection of inexpensive recipes from other PF bloggers : pretty cheap and still tasty. A winning combination for those on a budget!

UPDATE (June 28, 2007): I was checking out some other PF blogs and found that English Major  did a frugal food series . Very good stuff there, too.

Staci

When your friends are at different life stages—or different economic stages—than you are, sometimes it’s a bit of a struggle.

Twelve and a half years separate me and Barbara (it’s true—I could’ve been her babysitter). So I’m a little older, a little more established career wise, and a little less nervous about my mortgage payment. Basically, I have more disposable income  than she does. I’m always suggesting stuff for us to do, and that stuff—shoe shopping, a concert, a weekend in Des Moines to visit Caroline—usually costs money.

To her credit, Barbara’s really good at saying no:

Me: Hey, let’s go to lunch!

Barbara: I can’t—I only have $100 left in my budget for the week. I’m going to go home and eat oatmeal instead.

Me: Seriously?

With only a few weeks to go before she closes on her house, Barbara is committed to her budget—and I applaud her for that. Fortunately, for the sake of our friendship, we’ve managed to compromise. If we go to the movies, we hit the discount matinee or the second-run theatre and smuggle in our own treats (shhh!). Or for lunch, we’ve discovered that we can get a gigantic pizza slice and an even larger soda for less than three bucks at Sam’s Club .

Actually, I can’t complain. This thriftiness is good for my own bottom line. Plus, with the money I’ve saved, I’m more than willing to treat Barbara once in awhile—whether it’s to a real restaurant lunch or something for her new home. When she protests, I just remind her that one day, she’ll be the older, wiser friend and can pay it forward  to someone else.

I hope she will.

Rachel

This week I have been attempting to respond to a recent comment made on my “Oh brother (he’s on his own)” post. Try as I might, the reply continues to lengthen. I really want to give this comment a thorough response so I’m going to turn my reply into a new post. This one’s for you, Julie!

The question raised was regarding Microsoft Money , as compared to other spending tracking tools, such as Wells Fargo’s My Spending Report.

Microsoft Money is an accounting software program designed specifically to help people manage their money. There are a few versions you can purchase (depending on what level of money management you are looking for) and they offer an online tour to help get you started. Having not used Microsoft Money personally, I can't fairly assess the program one way or another. If you have experience with it, let us know.

What I can share, though, are my top five favorite features about My Spending Report—I’m a big fan. In no particular order:

1. It’s free.




2. My Spending Report is already available—no software installation necessary. Just log in to Online Banking at wellsfargo.com and sign up; reports generate right then and there for you.




3. You can access My Spending Report from any computer, anywhere (Mac or PC, internet café, library, etc.).




4. My Spending Report automatically collects and summarizes your Checking Account, Check Card, Credit Card, and Bill Pay spending and organizes it into familiar categories like groceries, gas (yikes), restaurants, and more.




5. You can download your spending report results into an Excel spreadsheet or PDF (which is particularly handy at tax time).

I’m happy to report that organizing your finances this way is kind of a no-brainer. You can ditch the pocket protector and calculator watch and leave the work up to us!

Not convinced? Want more info on My Spending Report? Take a tour, or check out this complete list of frequently asked questions (and answers.)

Barbara

I'm a sucker for breaking the awkward silence. If a professor waited long enough after asking a question in college, I would always pipe up. Well, if I kind of knew the answer.

I asked y'all for questions about student loan consolidation, and so far you haven't asked any! Well, the awkward silence is getting to me—so I'm going to raise my hand and ask (as well as answer) questions that I've been asked in the past.

What exactly is consolidation?

Consolidating means taking out one new student loan that combines your other student loans. Your consolidation loan lender will pay off the loans you are combining, so you'll have one new loan for the total amount. BTW, when people talk about student loan consolidation, they're usually referring to federal loan consolidation. Some lenders also offer options for private loan consolidation.

Am I eligible?

If you have federal student loans—no matter which lender holds them—you can consolidate them with any lender. Here are the federal loans that I'm talking about:

• Federal Family Education Loan Program loans (Stafford, PLUS, SLS, and Consolidation Loans)
• Federal Direct Loan Program loans (Stafford, PLUS, and Consolidation Loans)
• Federal Insured Student Loans (FISL)
• Federal Perkins Loans
• Health Professions Student Loans (HPSL)
• Nursing Student Loans (NSL)

And yes, you read that right. If you already have a federal consolidation loan and take out another federal loan (say you go back to school after a couple years to get a master's degree), you can "reconsolidate" and add more federal loans.

You can also consolidate a single Federal Stafford or Federal PLUS loan if you want to lock in the rate.

Why should I consolidate?

Consolidation offers a couple key benefits:

• You might see a lower payment each month—which can help when you're trying to manage other monthly payments while paying back your loan.
  
  
• Instead of making several payments, you'll only have to make one.
  
  
• Your loan will have a fixed interest rate—this is a big one, especially if you have variable-rate federal loans. The next questions tell you why.

What kind of rate will I get?

For federal loan consolidation the rate is an average of the rates on all the loans you are consolidating, rounded to the nearest one-eighth of a percent. But it won't get higher than 8.25%. Speaking of rates …

When should I consolidate?

This is an important question right now because students with variable-rate federal loans will see an interest-rate increase on July 1, 2007. If you have a federal loan that was issued before July 1, 2006, you're in this boat. These loans also increase by 0.60% when your grace period ends, so it's better to consolidate while in grace.

Why shouldn't I consolidate?

In some situations, there may be a better option to ease your loan repayment—like different payment options.

Also, you need to be aware of the disadvantages of consolidation. Since you might be extending your repayment term, you could end up paying more interest in the long run. And, it's possible you might lose any borrower benefits you've been reaping on your loans.

Here's a good checklist  that walks you through your decision.

What else should I know about consolidation?

• You can't "unconsolidate" your loans. Once you consolidate, your old loans don't exist anymore—your consolidation lender paid them off.
  
  
• Until your lender tells you your consolidation is complete, you need to continue making payments on all your separate loans.

OK, now that the silence is broken, is there anything else that you're wondering? If so, raise your hand.

Barbara

Remember the self-absorbed, spoiled Veruca Salt from "Willy Wonka and the Chocolate Factory" ? In the first film adaptation of Roald Dahl's book (which I was a wee bit obsessed with in my youth), Veruca sang my favorite song, "I Want It Now!" 

(Note: The following links to a video from a non-Wells Fargo website )

While I doubt anyone has golden egg-laying geese or Oompa-Loompas  on their wish list, there are a lot of things that we want NOW—like a car, a home, or an education. But unlike young Veruca, we don't all have a rich father willing to pay whatever price for whatever we want.

Enter the lending industry: entities that will pay for what you want NOW, if you pay them back later—plus some. Sometimes that "plus some" (we're talking money in interest here, not your first-born child) can be pretty hard to swallow.

Take my home purchase. Each month, I'll be paying an average of $370 in interest on my mortgage. If I actually had my loan for the entire 30-year term without paying more than what's required toward the principal, that's almost $120,000 in interest.

Bleh. Just typing that number makes me a little sick.

But here's the deal: I'm choosing to pay the interest because, like Veruca, I want it NOW! I don't want to wait until I've saved enough to simply write a check for a house—I'd be waiting a long, long time. Instead, I'm relying on a lender to help me, and I'm willing to pay for it.

Sometimes I get frustrated by people—myself included—complaining about the debt they've taken on and the amount of interest they owe. When I become one of the complainers, two reminders help put things into perspective:

1. Borrowing to get things NOW is a privilege—not a right, and
2. Had I not taken on debt, I'd still be saving for many of the things I enjoy NOW.

My fellow Verucas, what frustrations do you have with borrowing to get what you want NOW?

Rachel

Yesterday we asked: What does your first car say about you? Well, if you are what you eat, and you are what you read, one could make the assumption that you are what you drive. The only problem with this logic is that it's much easier to choose what we eat and what we read. And what we drive, especially for those just starting out, may just be a matter of happenstance.

I'd like to give a quick shout-out to my fellow drivers who rock their hand-me-down Hondas and Volvos with names like "The Beast." Your car—regardless of year, make or model—may not define who you are, but it will help build your character.

The great news is this year Wells Fargo will be giving one lucky student an opportunity to make a statement of their own—with a chance to win a 2007 Honda Civic Hybrid!

We call it the MPG3 Sweepstakes:

MPG = Miles per gallon
MP3 = iPod®

Here's the deal. When you open a Wells Fargo College Checking® account, you're automatically entered to win:

• Grand Prize: 2007 Honda Civic Hybrid with an 80 GB video iPod loaded with the top 25 college albums of 2007.
  
  
• First Runner-Up Prizes: Five winners will be awarded an 80 GB video iPod loaded with the top 25 college albums of 2007.
  
  
• Second Runner-Up Prizes: 20 winners will receive free music for one year to be awarded via 30 free downloads per month from eMusic.com .

You can also go straight to http://backstage.wellsfargo.com and enter on your own. (Maximum of two entries per person; see the complete rules here.)

So keep reading your choice of books (or those selected by your professors), eat well at your dining commons, and enter the Wells Fargo MPG3 Sweepstakes for a chance to win!

Staci

The Student LoanDown wants to know: What does your first car say about you?

My first car was a 1981 Honda Accord hatchback, pretty close to this . Turquoise blue with a racing stripe and an AM radio—hot. My mom bought it for me after my sophomore year in high school, but I had to wait until I completed Driver's Ed that summer before I could drive it. Twenty years later, I'm still driving a sensible Honda.

Pam's first car was far cooler than mine—a yellow and black 1956 Ford convertible with rolled leather interior. It was a 16th birthday present from her parents in 1963 . Gas cost 27 cents a gallon, so her weekly gas budget was all of $3.00. Once a convertible gal, always a convertible gal—Pam tools around in a Mercedes now.

Arriving during her sophomore year of college, Caroline's first car was a 1976 Caprice Classic in a lovely powder blue. According to Wikipedia , her car was 19½ ft (5.9 m) long—longer even than many modern full-size pickup  trucks, which probably explains why to this day she still pulls WAAAY too far into the garage and parking spaces.

Rachel's first car, which she shared with her mom, was really more of a bus: a 1987 Volkswagen Vanagon Westfalia. She'll never forget the look on the DMV guy's face when she showed up for her California driver's exam. But it was functional—it even had a kitchenette and slept four people. The family in "Little Miss Sunshine"  should've been so lucky!

A 1987 Oldsmobile Regency was Barbara's first set of wheels. She and two friends christened their boat-sized automobiles the Nina, the Pinta, and the Santa Maria  (Barbara's pretty sure she was the Pinta). Unfortunately, the Pinta had some health issues—fading paint and rust—so she didn't last long.

Why do we ask? Tomorrow we'll fill you in.

Staci

Have you noticed that there's been a lot of scrutiny surrounding the student loan industry lately? We certainly have—and as a result, Wells Fargo decided it was time to make our student loan business policies public. Earlier this week, on May 29, we announced our Responsible Lending Principles and Marketing Practices for Education Financing.

What do we mean by these principles and practices, exactly? Well, essentially it's our commitment to our customers—both our borrowers and our schools.

As part of our own lending principles for borrowers, Wells Fargo will:

• Promote responsible borrowing by encouraging students to consider all education financing options available to them and borrow only what they need.
  
  
• Offer attractive financing solutions, which include competitive interest rates and other incentives.
  
  
• Provide consumers with full disclosures about loan options and costs on our website.
  
  
• Provide superior customer service to students and families.
  
  
• Use our best efforts to ensure that borrower benefits offered during loan origination continue even if the loan is transferred, purchased, sold, or the servicer is changed.
  
  
• Disclose to a borrower any agreement to sell a loan if Wells Fargo will no longer service the loan. Wells Fargo wants to establish long-term relationships with our customers and has only rarely sold its loans in the past.

I know it probably goes without saying, but we're very proud of our record of following responsible business practices and our history of providing high-quality educational loan products and customer service to the schools, students and families we serve.

We welcome the recent changes in the student lending industry because we believe it's important that all lenders follow the same set of rules.