September 2008 Archives

Barbara

Send a comment to Barbara

Yay, fall! Not only are the leaves beginning to turn shades of red, yellow and brown, but it's tailgating and football time! I'm more partial to the tailgating aspect of the sport. However, as a native Nebraskan, I've basically been programmed since birth to follow Husker Football . Admittedly, though, I've always been more interested in the marching band  — Go Big Red ! 

Whatever team you're rooting for this fall, be it in football or another sport (or the marching band) you can learn something from their strategy. No team goes into a game without a plan. It takes lots of research, practice and dedication to get the win.

The same can be said of your financial world. It's best to have a game plan, more commonly known as a budget, to ensure you succeed.

For those of you who've just graduated, this is especially important. With your student loan grace period dwindling, the first payments toward your debt aren't far away. There is no time like the present to evaluate your financial obligations and determine the best plan of action.

Just like with sports, you can find resources to coach you through. Here's a great article  to consult when you're making your first budget or evaluating your current budget.

By sticking to the right game plan, you're sure to come out on top. Go team!

Caroline

It's hard to avoid all the bad economic news  these days. College students, I wouldn't blame you if you're nervous about leaving the safe confines of campus. The real world isn't looking too inviting these days.

So with a rough economy, are you considering grad school as — and forgive me as I pull from the headlines here — a bailout plan?

I found a great story  on NPR on this very topic. It pretty much confirms my opinion on the subject: Going to grad school just to ride out the bad economy or because you don't know for sure what you want to do is not such a good idea.

However, if you do know what you want to be when you grow up, and grad school is a means to get there, then certainly, go.

I know it often feels like the smarter choice to stay in school rather than graduate with a bachelor's degree , only to find yourself still working at a coffee shop or taking some other job that doesn't require a $75,000 education.

But the truth is, if grad school is just a chance to bide your time and figure out your goals, then you're better off getting a job — any job — than taking on more debt.

What do you think? Is the state of the economy impacting your choices as you prepare to graduate from college?

Staci

On Sunday I went to the ATM, which I usually do in order to have some cash for the week. After I'd gotten cash, I went to put away my debit card and noticed that I had a check from my best friend Charlie to deposit. So I put my card back in the ATM, completed the deposit, took my receipt, and drove away.

Without my debit card.

Half an hour later — while in the grocery store checkout line — I opened my wallet and realized what I'd done. I paid for my groceries with the cash and flew back to the ATM to see if my card was still there.

It wasn't.

Panicked, I called the Wells Fargo Phone Bank to cancel the card. Fortunately there hadn't been any charges on it, but it was going to take five to seven business days to get a new one. Then I really panicked. How was I going to function for that long without my debit card?

For me, check writing has gone the way of the dinosaur . I'm lucky if I write one check per quarter, and that's usually only for some rare service that doesn't take online payments. But I don't think I'm alone — some new checking accounts no longer come with paper checks. And many retail establishments don't even take checks anymore.

Even if I have become overly dependent on my debit card (is there some sort of twelve-step program  for that?), for the next five to seven business days I will have to be creative, patient, and frugal — or resort to writing a check or two. Barbara would probably argue that this is a good lesson for me: forced thriftiness!

What payment methods do use most often? Are you as addicted to your debit card as I am?

Barbara

It's payday today.

I always know when it's payday. It's the curse of a young professional with financial OCD (and usually a fairly low checking account balance).

A couple Fridays ago, Staci and I were heading out to enjoy some lunch together. I mentioned that I could go somewhere a bit more spendy since my cash flow wasn't as tight thanks to payday. To that, Staci responded, "Oh yeah, I forgot it's payday."

And with that response I mentally put a milestone on my financial roadmap. It's a bunch of financial accomplishments that I'm looking forward to reaching — like buying something at Nebraska Furniture Mart without financing.

The new milestone: Not knowing if it's a payday Friday.

When I reach that point, I'll know that my money isn't as tight and I won't worry as much about little things throwing a kink in my budget.

Reaching those financial milestones, even though they may seem tiny, can really boost your confidence in your financial future. If you're like me, hitting those places on your financial roadmap can be just the motivation you need to keep on truckin' toward the next goal.

What are your financial milestones? Paying off loans? Savings goals?

Barbara

We've talked in the past how valuable internships can be. This summer I got the chance to meet a super-cool student who got a head start when it comes to internships — in high school.

Jacob Jackson is now a senior in high school here in Sioux Falls, and he was an intern at Wells Fargo this summer. An internship in high school...how awesome is that?

Jacob is in a program through his school called the Academy of Finance . Students in the program take classes throughout their junior and senior years that deal with business and finance. Then, during the summer they apply for paid internships that put their knowledge to use.

Plus, they get college credit! When he's done with the whole program, Jacob will have around 16 credits to take with him to college.

Before Jacob left to head back for his senior year of high school, I got the chance to talk with him about his experience and what he was taking away from his internship and the program.

At first, he told me he wasn't very keen on the idea of participating in the program. His aspirations were leaning more toward the literary world than the financial realm in becoming a writer or novelist. Jacob didn't think that the experience would change his plans, and it may not have, but he definitely gained some perspective on his different options, like one day running his own business.

And his internship offered more perspective. In addition to his daily work, Jacob got see how the business ran from start to finish. He spent time with each group learning what they do and how it affects the business. Particularly, he found himself interested in Marketing and is considering that as a college major.

Another benefit of his work at Wells Fargo: learning about student loans. Before starting work here, Jacob had no idea about how student loans worked. Obviously this isn't a perk of all early internships, but it's helpful nonetheless.

Have any of you readers participated in or heard about similar programs? I'm curious what you learned or how the experience changed or affirmed your future plans.

Caroline

I was listening to NPR  the other day and heard this story  about students downloading their textbooks from the Internet. It's not legal — similar to downloading music from unauthorized places — you can't just take copyrighted material without paying for it.

Downloading books is something that never occurred to my 37-year-old self, but I can understand the temptation. I've written before about the expense of college textbooks. And again this semester, my stepdaughter spent about $540 on her books.

Making textbooks available electronically makes sense to me. It would save trips to the bookstore, reduce paper waste, and relieve students of having to lug around (and store) heavy books.

Based on the article, it sounds like some publishers are beginning to offer digital versions of their textbooks at discounted prices.

Is this something you would consider instead of purchasing books the traditional way?

Staci

Not long ago I read an article that made me cringe: A graduate student at California State University, Northridge  decided to put her tuition on a credit card.

On her credit card? With all the other options out there? [Gasp.]

Although Jennifer didn't put her tuition on her credit card, she did charge some of her living expenses, which left her in a bit of a bind. Here's the final part of her story.

Mistake #3. Living on Credit — Not Taking out Enough Money in Loans to Cover Living Expenses

When I went away to college, my mother made a deal with me. She would give me an allowance of $200 every two weeks for living expenses (basically all she could afford). She also got me a credit card. Six years later, we still have the same deal and the same credit card.

When I took out loans, I only borrowed enough money to cover tuition costs and my rent. As it turns out, that $200 every two weeks hasn't been enough to live on, and I now have a standing balance on my credit card that I can't pay off.. Very recently a wise financial advisor pointed out to me that the nearly 18% interest rate that I pay on my credit card balance exceeds the interest rate of my student loans. Neither my mother nor I thought that it might be a good idea to budget living expenses into my student loans even though she's encouraged me to keep putting the larger, unusual purchases on my credit card.

Now that we've learned out lesson, my credit card will be paid off this fall before I start my new grad program. I've taken out extra money for my living expenses and I'm going to try something new once I'm established at school: My credit card is going in the pencil box that I bury in the bottom of my desk drawer, and I plan to withdraw a budgeted amount of cash every week.  The objective will be to live “cash to mouth,” or to make the cash last the whole week, without running out — groceries, coffee, everything. Any extra cash will go into a reward fund that I will utilize at graduation, one year from this September.

While the economy is increasingly digital, and more merchants can handle small $2.00 coffee transactions digitally, stick to cash because it's tangible. It's easier to see how the coffee adds up when you're making change and not just handing over a thin slab of plastic.

How many times have I heard that little gem of wisdom before? Lots. But there's no teacher like experience.

Jennifer's right — there's no teacher like experience. But perhaps the mistakes she made (or almost made) can help you avoid some financial pitfalls of your own.

Want to tell your student loan story? Have any wisdom to share about your own financial experiences? Send us an email — we'd love to hear from you!

Staci

Generally, Wells Fargo recommends that students exhaust all of their "free money" (such as grants and scholarships) first, then borrow federal student loans, and if they need additional funds, consider private student loans .

Graduate student Jennifer weighs the pros and cons of that borrowing strategy in her next segment.

Mistake #2: Not Considering a Private Loan over a Federal PLUS Loan for Graduate Students

When taking out my loan for grad school, I decided that I had better do my research this time. As a grad student, I now qualify for federally subsidized loans. Stafford loans only go so far, and to finance the shortfall, my options are either a Federal PLUS Loan for graduate students or a private loan. A Federal PLUS Loan for graduate students has a fixed interest rate, so of course, this is the best option. But is it really?

The terms for the two loans differ: PLUS loans have a ten-year repayment term, which can be extended with broad deferment options (including one that covers insufficient salary), and a fixed government rate of 8.5%. Private loans have a longer repayment term — up to 25 years depending upon the lender — and relatively narrower deferment options. The interest rate on private loans is based on the Prime Rate  (which is the federal funds rate plus 300 basis points, or 3%), plus a margin (one or more percentage points) based on your credit history.

Now, here's the kicker: for a private loan, the Prime Rate, plus a percentage point or two, may yield an interest rate lower than the Federal PLUS Loan if you have a good credit history. However, choosing a private loan is a gamble. The economy is currently in pretty bad shape, and the Fed has been keeping interest rates low, but inflation is also a risk — it may lead to the Fed raising interest rates in the future. The Prime Rate has ranged from 4 to 9.5% since 2000 and currently sits at 5%. Banks calculate the applicable Prime Rate differently. For example, banks can use the monthly average, yearly average, or the rate on the final day of each month. If you're going to go with the private loan, make certain that you know how your lender will calculate the interest rate.

A private loan may be the way to go if your career path is more certain and you have a good idea of what your salary will be upon graduation — i.e., you don't actually need the longer repayment term, and you can repay the loan sooner before economic conditions change too drastically and take advantage of a relatively certain lower rate of interest. But again, this is a gamble. It might be smarter to go with a Federal PLUS loan if you tend to procrastinate or think that you'll need to utilize the relatively broader repayment deferment options.

Ultimately, it comes down to this: You have to do what's best for your own financial situation, and what might work for one student might be completely wrong for another. So do as Jennifer did — if you need to take out a student loan, weigh your options, weigh your individual tolerance for risk, and after educating yourself, borrow accordingly.

We'll have Jennifer's last piece of advice on Thursday.

Staci

As we commemorate the second anniversary of the Student LoanDown — how can it be two years already? — I'm reminded of why we started blogging in the first place: To have a conversation about education financing.

Although we bloggers tell you about our experiences, it's really your experiences that resonate loudly and clearly with this community. And recently we were fortunate enough to get some great real-life experience from Jennifer, an American student about to begin graduate work at the the School of Oriental and African Studies  in London.

So for the next couple of days, I thought I'd share Jennifer's advice with all of you. It's a slightly different perspective from ours, which is what blogging's all about.

My parents were fantastic financial planners. They saved enough money to almost entirely pay for my entire undergraduate education, which was fortunate because they also made too much money for me to qualify for federal loans.

I did have to take out a couple of private education loans as an undergraduate for the summer course I took in Geneva and the month I spent doing volunteer work in Brazil. When I began to apply for loans, having already taken Intro to Microeconomics , I figured that the student loan market was probably homogenous because every bank offers student loans. How different can they be?

Plenty different, let me tell you. Thus, I would like to offer "The Three Mistakes I Made (or Almost Made) Financing My Education."

Mistake #1: Not Reading the Fine Print

Know the details of your loan. Before you sign the loan, read the fine print. I'll bet you're thinking, "Oh brilliant advice, everyone knows that you're supposed to read over the details of a loan before you sign it!" But seriously, how many people actually read the fine print, those tiny little details in seven-point font that appear in a new PDF window and go on for about six pages?

I didn't. Brilliant financial planner that I am, I was usually applying for loans after classes started, in an hour between classes, after I'd received the notice from Student Financial Services telling me that I owed the school money. I chose my lender based upon the lender my roommate at the time was using. I hate filling out loan applications because it feels as though the amount is always large and relatively abstract — while I theoretically know the value of $49,000 (the cost of 1 Masters of Science degree , also a year's salary, the cost of a luxury car, etc.), the reality of that large an amount of money remains relatively unfathomable. The possibility that I will ever earn a salary high enough to pay it back seems unreal. Even the meager $10,000s I needed sporadically as an undergrad felt relatively daunting and thus, I avoided loan applications until they became absolutely pressing.

The reality of the situation is that taking out loans requires comparative research. The first undergraduate loan I took out required repayment upon completion of my BA, regardless of whether or not I was continuing my education at the graduate level — something that I was in no position to do.

Select your private loan company carefully. Some loans allow repayment to begin before graduation, some charge an "origination fee," others do neither. It is a good idea to check the student loan options at the bank you keep a checking account with, as some banks offer post-graduation interest rate reductions for current customers. Consider opening a checking account with a bank just for the interest rate reduction; a lot of students relocate to a new city and have to open a checking account anyway, so check out which banks operate where you go to school. Many banks offer checking account applications over the internet, so you can apply before you leave home with plenty of time to apply for an education loan.

For a helpful guide to the different types of loans and their terms, check out Mapping Your Future , and for extra financial planning fun, click on the "play Show Me the Future" link on the left side of the screen.

Next week we'll be back with Parts 2 and 3 of Jennifer's financial aid life lessons. Stay tuned!

Kathy

To me, there's almost no bigger financial fear than the thought of bouncing a check or overdrawing an account. On top of potential embarrassment, there are also usually fees that go along with having insufficient funds. I normally try to keep plenty of money in my checking account to avoid any such concerns, but recently I've had more bills to pay than usual — I just finished grad school and began paying my student loans — so my checking account balance has gotten uncomfortably low. Adding to this stressful situation, my husband and I recently decided to move, which is an always unpleasant and expensive undertaking.

We spent a few weeks looking at apartments and finally found the one. It had the right mixture of price, amenities and location for our budget and lifestyle, so after speaking to the owner we were ready to submit an application.

As my fellow renters out there may be aware, most landlords require a security deposit to hold an apartment, and in our area that deposit was equal to an entire month's rent (that's a lot of money in Northern California!!) I had my checkbook with me and was halfway through writing out the check when the thought struck me: Do I have enough money in my checking account to clear this check?!

Just when I was about to panic, I remembered that I had signed up for Wells Fargo Mobile^SM Banking. so my balance and account activity are always at my fingertips. I pulled out my phone and texted "bal" (for balance) to "93557" (that's "WELLS" in mobile speak). Within 10 seconds — I kid you not — I had a text message response from Wells Fargo giving me my available balance.

Thankfully, I had plenty of money in my checking account to clear the check, so I let out a sigh of relief and finished filling it out.

I've played with the Wells Fargo Mobile Banking service a bunch since then, and I think it's actually pretty cool! There are a number of pieces of information you can get via text message, and there's a mobile browser option as well which lets you transfer money and find nearby Wells Fargo ATMs. I've used Mobile Banking everywhere I go — at the grocery store and even at the mall — to keep me on top of my money and under control.

BTW, I'm happy to report that we got the apartment thanks to the security deposit and my strong credit history...more on that topic later!

Mobile Banking works for me — does it fit into your lifestyle?

Caroline

You're probably starting school soon, if you haven't already. So let us know how your funding came together for fall semester.

How are you paying for school?  Scholarships, loans, grants, Work-Study?  All of the above?

Did you hit any bumps on the road in figuring out your financing? Got any questions?

Let us know how it went!