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College Students and Recent Grads

MagnifyMoney.com Study: College Students Face High Interest Rates on Student Credit Cards

Paying with credit card

It is that time of year: millions of students will be heading to college. For many students, this will be the first time that they will be the targets of banks’ marketing departments.

While the CARD Act changed how lenders can offer college students credit cards, young adults are still able to acquire these potentially expensive products. A study of college student credit cards by MagnifyMoney.com shows that a student new to credit is likely to pay an average APR of 21.4%. And taking out cash is even more expensive, with an average APR of 24.1%.

  • We reviewed the Top 50 banks in the US by deposits
  • We reviewed credit cards specifically targeting students and actively marketed on the banks’ websites
  • All credit cards, with the exception of Capital One Journey, offer a range of Purchase APRs. CapitalOne offers a single, flat APR of 19.8%
  • For credit cards that offer a range of APRs, the average range is nine percentage points
  • The lowest possible APR is 10.99%, offered by Bank of America on the BankAmericard Credit Card for Students

Note: Bank of America charges higher APRs on student products that earn rewards. A no rewards card has a range of 10.99% – 20.99%. The cash rewards card has a range of 12.99% – 22.99%. The travel rewards card has a range of 14.99% – 22.99%. Remember: rewards can be very expensive!

  • The highest possible APR is 23.99%, offered by Citi (both the ThankYou Preferred for College Students and Dividend Platinum Select Visa for College Students)
  • If your student credit card is your first credit product, then you will likely have no score. No score means you are the highest risk, and it is highly likely that you will receive the highest price point. The average of the highest price points is 21.4%

If a student charges $1,000 on a credit card and only pays the minimum due at the average rate of 21.4%, it will take 7.6 years to pay back the debt. And the total amount repaid would be $1,941.

Noticeably absent from the list of banks offering credit cards that target students are American Express and Chase. Chase recently exited the business, recognizing that earning interest rates more than 20% on students still in college didn’t feel right.

The CARD Act restricted, but certainly did not eliminate, credit cards that target students. In 2012, applications for student credit cards were at 43.5% of 2007 levels. The CARD Act put the following restrictions into place:

  • No pre-approved offers to people under 21, without consent
  • If you are under 21, you need to prove that you have income (a part-time job, for example), or have a cosigner older than 21
  • Credit card companies can no longer give out free gifts on campus to induce people into signing up for a credit card. No more frisbees or beer mugs

However, there are still plenty of student credit card offers out there. While they don’t give out frisbees, they do offer sign-on bonuses. Citi, for example, gives you 2,500 Thank You points if you spend $500 within 3 months of opening the card. We find that worse than the free frisbee. Before, they would incent you to open a card. Now they are incenting you to spend on the card!

While credit cards can be a great way to build your credit while in college, they can turn into expensive traps that send you down a dangerous path.

The only reason you should apply for a student credit card is to build your credit score. And follow these three tips:

1.Your statement balance should never be more than 30% of your limit. High utilization, early in your credit history, can have a meaningful negative impact. So, just make one to two purchases a month on the card.

2.Pay your balance in full. Credit cards are expensive, and you should not use them to borrow.

3.Never use a credit card for a cash advance. It may seem like easy money, but you will be paying for it.

Have questions for us? Get in touch via TwitterFacebook, email info@magnifymoney.com or in the comment section below!

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5 Options for Enlisting in the Military to Pay for College

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Lacey Langford was taking classes at a local community college when she realized she’d rather work full-time to save money for school. “My father was an Army officer, and I decided I wanted to join like him,” says Langford, now 38, who lives in Summerfield, NC. “He convinced me to at least talk to the Air Force recruiter. That was it. I realized it would be better for me and I committed to the Air Force.”

Three years into her active duty, Langford started taking classes at night, using the Air Force’s Tuition Assistance program and the GI Bill. She later separated from the Air Force and completed her degree at the University of North Carolina at Wilmington. She estimates that the GI Bill paid for 100 percent of her tuition, 85 percent of her books, and about 40 percent of her room and board expenses. “I am happy with the way it worked out, walking out of school with zero student loan debt,” says Langford, who today is a financial planner. “I also gained valuable work experience and discipline. The discipline alone has reaped major rewards.”

With the average 2015 graduate coming out of school with more than $35,000 in student loans, being able to get a degree without all the debt is appealing, to say the least. Langford’s path to tuition coverage is one way to do it, but the military offers a variety of ways to pay for schooling or even to pay back student loans. Here are a few options:

1. ROTC Scholarships

Some schools offer the opportunity to apply for a Reserve Officers’ Training Corps (ROTC) program that could pay for nearly all of your tuition, fees and books charges for four years of school, in exchange for a commitment to enter the service as a commissioned officer when you graduate. You generally promise to serve for at least four years post-graduation. There are also two- and three-year scholarships available, depending on how many years you have left in school. Each branch of the military has their own information and program.

2. Montgomery GI Bill

During basic training, recruits get the chance to sign up for this GI Bill plan, paying for it with $100 a month during their first year in the service. Once enrolled, however, eligible members can receive a monthly stipend while attending classes, based on their active duty status and how long they’ve served. For instance, effective October 1, 2015 through September 30, 2016, those who have completed an enlistment of three years or more and enrolled in full-time school qualify for a monthly stipend of $1,789. Rates generally go up every year.

3. 9/11 GI Bill

Any veteran with at least 90 days of active duty after September 11, 2001, with an honorable discharge, is eligible to take advantage of this benefit. The biggest benefit goes to those with at least three years of active duty service. For those with three years of active duty service and attending a public school, the 9/11 GI Bill will pay up to 100% of tuition and fee payments for an in-state student. For private or foreign school attendees, payment is up to $21,970.46 per academic year.

4. Tuition Assistance

Each branch of the military also offers its own tuition assistance program, in which active duty members can get money toward tuition and fees for qualified programs. The Air Force, Army and Marines offer up to $4,500 per fiscal year with caps on credit hour costs, and the Navy offers up to $250 per semester credit hour or $166 per quarter credit hour. The Coast Guard offers up to $3,375 per fiscal year. This may also be an option for you if you belong to one of the service’s Reserve units.

5. Student Loan Repayment

If you’ve already incurred student loans, you may be able to enlist in the military and have them paid off over time. Each branch offers its own program for this. The Army and Navy, for example, will repay up to $65,000 of a soldier’s qualifying student loans, and the Air Force will repay up to $10,000. Generally, after each year of completed active duty, your service will pay 33-1/3 percent or $1,500, whichever is greater, of your total unpaid balance.

There are other programs that may assist with school costs or loan repayment, depending on your position, active duty status and career field. You can get more information on all programs at military.com/education, or find specific information from the military branch you’re interested in.

A word of caution

Although these are all valid pathways to an education without massive student loan debt—or any debt at all in some cases—experts advise that students shouldn’t join the military for the tuition assistance alone. “There are people for whom the military is great, but for some people, the military is just not for them,” says Ryan Guina, founder of TheMilitaryWallet.com, who used the military’s Tuition Assistance program to get his degree while on active duty with the Air Force. “If you’re going to join for a specific benefit, make sure all the other aspects are in line with your values and what you’re looking for out of life. I encourage people to look at the military as a whole and not just a means to an end.”

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College Students and Recent Grads, Life Events

Financial Accounts You Should Know About After Graduation

Financial Accounts You Should Know About After Graduation

As a new graduate, you may be dealing with a dizzying number of new responsibilities, many of which involve money. There are helpful financial checklists aimed at graduates that recommend money-related habits or management tips. However, to put many of these lessons and ideas into practice, you also need to understand how different types of financial accounts work.

With simple explanations for each, here are several of the financial accounts you may encounter.

Non-Student Checking Accounts

You may have a student checking account that doesn’t have a minimum balance requirement or monthly fee. After graduating, your account could automatically switch to a standard checking account.

With many checking accounts, you’ll need to pay a monthly fee unless you meet a requirement, often a minimum balance or direct deposit each month. You may want to consider switching to a new non-fee checking account if you can’t meet the requirements.

Employer-Sponsored Retirement Accounts

According to the American Benefits Council, most full-time workers at large companies have access to an employer-sponsored retirement account, such as a 401k. If you work for a non-profit, educational institution, or government organization you may have, a 403b or 457 plan rather than a 401k. You can use these accounts to save for retirement, and get tax advantages for doing so.

You can generally choose to contribute a particular dollar amount, or a percentage of your pay, from each paycheck to your 401k account. You also may need to decide where the money gets invested once it’s in the account. You’ll likely be able to choose from a list of different mutual funds, and can ask your 401k manager or look online for guidance.

Your employer’s 401k plan doesn’t necessarily offer the best investment options or lowest fees, but many organizations offer a company match that can significantly increase your savings. The company might match a portion of the amount you contribute, up to a percentage of your annual salary. For example, the company may deposit 50 cents for each $1 you contribute, until they add the equivalent of six percent of your annual pay.

During 2016, you can contribute up to $18,000 ($24,000 for those that are 50 or older) into a 401k, 403b, or 457 plan, not counting the employer’s matching. Your contributions are tax-deferred, meaning you don’t have to pay income taxes on the money this year. In practice, you’ll get a deduction equal to your contribution. You do have to pay income taxes on the money when you withdraw it, unless it’s a Roth account.

You may have to pay a 10-percent penalty for withdrawing money from your 401k before you’re 59 and a half, but there are exceptions to help pay for medical, home, and educational expenses.

Independent Retirement Agreements

If your employer sponsors a retirement account and offers matching, it may be best to start saving for retirement with that account. But, if you don’t have access to an employer-sponsored account, max out your contribution and want to save more, or want more control of where you invest your money you can save money for retirement in an Individual Retirement Agreement (IRA). They’re also often referred to as individual retirement accounts.

There are several types of IRAs, but unless you run your own business, you’ll likely want to use either a Traditional IRA or a Roth IRA. There are differences, but both accounts offers tax advantages.

  • Traditional IRA – Contributions are post-tax, meaning you don’t pay income taxes now (you get a tax deduction), but will need to pay taxes when you withdraw the money. Aside from special circumstances, you’ll pay a penalty for withdrawing the money before you’re 59 and a half.
  • Roth IRA – Contributions are pre-tax, meaning you pay taxes on the money before making contributions (no deduction). You can withdraw your contributions at any time, but a few special circumstances aside you’ll pay a penalty if you withdraw earnings before you’re 59 and a half.

With either IRA, you can contribute up to $5,500 in 2016. Those that are 50 or older can contribute $6,500. As with employer-sponsored retirement accounts, you may need to decide where to invest your money once it’s in an IRA. There are income phase-outs on the tax deductions depending on how much you earn and if you already have access to a retirement plan at work.

myRA Accounts

The government-sponsored myRA account is a type of a Roth IRA. Intended for beginner investors that don’t have access to an employer-sponsored plan, myRA accounts don’t have fees or minimum funding requirements and guarantee a return on your investment without loss of principal.

The return on an investment in a myRA was 1.75-percent APR during April 2016, higher than you’ll get in most checking or savings accounts account but lower than what you might get by making riskier investments. However, if you’re able to just go ahead with a Roth IRA, then it probably makes more sense in many cases.

Brokerage Accounts

If you want to try your hand at investing without using a tax-advantaged retirement account, you can open a brokerage account. There are many brokerage account providers, including major financial services firms such as Fidelity, Merrill Lynch, Charles Schwab, and Vanguard, as well as online discount brokers like TradeKing and RobinHood.

You can deposit money into your brokerage account and then buy stocks or funds with it. You’ll likely be able to buy the same investments no matter where you open an account, but the fee to make a trade depends on the broker. Funds that aren’t invested often stay in a money market account, a bit like an interest-bearing holding account.

Flexible Spending Accounts

A flexible spending account (FSA) allows you to use tax-free money to pay for some medical expenses. FSA accounts must be set up by your employer, and you can only put up to $2,550 into the account per employer. However, that may be more than enough, because if you don’t use the money within the year, you have to forfeit it. Some employers let you rollover $500 to the following year and/or give you a two-and-a-half-month grace period at the beginning of the next year.

Health Savings Accounts

A health savings account (HSA) is medical savings account that you can have access to if you’re enrolled in an HSA-qualified high-deductible health plan. In some cases, your employer may make contributions to your HSA. Unlike the FSA, your HSA funds never expire. You can invest the funds and use them in retirement if you’d like. In 2016, the contribution limits for HSAs are $3,350 for individuals and $6,750 for families.

Insurance Policies

As a new graduate, there may also be several types of insurance you should consider purchasing.

  • You can stay on a parent’s health insurance policy until you turn 26. If this isn’t an option, you may want to buy coverage because there’s a penalty if you don’t have health insurance. Depending on your income and where you live, you may qualify for assistance paying for health insurance.
  • Auto: If you own a vehicle, you’re required to have auto insurance to drive it. Minimum insurance requirements vary by state, and the price can vary by provider.
  • Renters: Renters insurance can help protect you if your apartment is damaged or destroyed, someone gets hurts while visiting you, or your property is stolen (sometimes even if it’s stolen when you’re outside the home).

There may be discounts on auto or renters insurance that are fairly easy to get. For example, the one-time cost associated with buying a fire extinguisher for your apartment, or an anti-theft device like a steering-wheel lock for your car, could result in lower premium payments. You also may get a discount for buying multiple forms of insurance through the same provider.

What Now?

While the details of each account or insurance policies can be tricky to understand, the basic function is often straightforward. Keep this guide handy as you may have a reason to open, or use, one or more of these accounts or policies in the coming months.

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19 Options to Refinance Student Loans – Get Your Lowest Rate

19 Options to Refinance Student Loans - Get Your Lowest Rate

Updated: April 26, 2016

Are you tired of paying a high interest rate on your student loan debt? Are you looking for ways to refinance student loans at a lower interest rate, but don’t know where to turn?

Below, you’ll find the most complete list of lenders currently willing to refinance student loans. You can also go directly to our comparison tool, which lets you see student loan terms all at once, with no need to give up personal information.

But before you do that read on to see if you are ready to refinance your student loans.

There is good news: in recent years, the student loan refinancing market has started to come back. Not just with traditional banks, credit unions and finance companies, but even the addition of new businesses that specialize in refinancing student loan debt.

Loan approval rules vary by lender. However, all of the lenders will want:

  • Proof that you can afford your payments. That means you have a job with income that is sufficient to cover your student loan and all of your other expenses.
  • Proof that you are a responsible borrower, with a demonstrated record of on-time payments. For some lenders, that means that they use the traditional FICO, requiring a good score. For other lenders, they may just have some basic rules, like no missed payments, or a certain number of on-time payments required to prove that you are responsible.

If you are in financial difficulty and can’t afford your monthly payments, than a refinance is not the solution. Instead, you should look at options to avoid a default on student loan debt.

This is particularly important if you have Federal loans.

Don’t refinance Federal loans unless you are very comfortable with your ability to repay. Think hard about the chances you won’t be able to make payments for a few months. Once you refinance, you may lose flexible Federal payment options that can help you if you genuinely can’t afford the payments you have today. Check the Federal loan repayment estimator to make sure you see all the Federal options you have right now.

If you can afford your monthly payment, but you have been a sloppy payer, than you will likely need to demonstrate responsibility before applying for a refinance.

But, if you can afford your current monthly payment and have been responsible with those payments, then a refinance could be possible and help you pay the debt off sooner.

Is it worth it? 

Like any form of debt, your goal with a student loan should be to pay as low an interest rate as possible. Other than a mortgage, you will likely never have a debt as large as your student loan.

If you are able to reduce the interest rate by re-financing, then you should consider the transaction. However, make sure you include the following in any decision:

Is there an origination fee?

Many lenders have no fee, which is great news. If there is an origination fee, you need to make sure that it is worth paying. If you plan on paying off your loan very quickly, then you may not want to pay a fee. But, if you are going to be paying your loan for a long time, a fee may be worth paying.

Is the interest rate fixed or variable?

Variable interest rates will almost always be lower than fixed interest rates. But there is a reason: you end up taking all of the interest rate risk. We are currently at all-time low interest rates. So, we know that interest rates will go up, we just don’t know when.

This is a judgment call. Just remember, when rates go up, so do your payments. And, in a higher rate environment, you will not be able to refinance to a better option (because all rates will be going up).

We typically recommend fixing the rate as much as possible, unless you know that you can pay off your debt during a short time period. If you think it will take you 20 years to pay off your loan, you don’t want to bet on the next 20 years of interest rates. But, if you think you will pay it off in five years, you may want to take the bet. Some providers with variable rates will cap them, which can help temper some of the risk.

Places to Consider a Refinance

If you go to other sites they may claim to compare several student loan offers in one step. Just beware that they might only show you deals that pay them a referral fee, so you could miss out on lenders ready to give you better terms. Below is what we believe is the most comprehensive list of current student loan refinancing lenders.

You should take the time to shop around. FICO says there is little to no impact on your credit score for rate shopping as many providers as you’d like in a 30 day period. So set aside a day and apply to as many as you feel comfortable with to get a sense of who is ready to give you the best terms.

Below we highlight the student loan refinance companies that offer the lowest interest rates.

  • SoFi*: Fixed interest rates start as low as 3.50%, and variable rates start as low as 2.14%. SoFi offers student loans to borrowers who graduated from a selection of Title IV accredited colleges and universities. You need to be employed, or have a job offer with a start date in 90 days. You also must be able to demonstrate a strong cash flow. To get the lowest rate, you need to sign up for automatic payments.
  • Earnest*: Earnest offers fixed interest rates starting at 3.50% and variable rates starting at 2.13%. Unlike any of the other lenders, you can switch between fixed and variable rates throughout the life of your loan. You can do that one time every six months until the loan is paid off. That means you can take advantage of the low variable interest rates now, and then lock in a higher fixed rate later. You need to have a job or an employment offer. You need an emergency fund of at least one month. You also must have a positive bank account balance and a budget that makes sense. If you have had credit in the past, you need a history of on time payments.
  • CommonBond*: CommonBond offers fixed rates from 3.50% and variable rates from 2.15%. You need a degree, a job and a stable cash flow. They will also review your payment history with other lenders. CommonBond is now available to students with both graduate and undergraduate degrees. There is no maximum loan amount.
  • LendKey*: LendKey works with community banks and credit unions across the country. Although you apply with LendKey, your loan will be with a community bank. They have recently become very competitive on price, introducing a 3.25% fixed-rate 5 year loan. Variable rates start as low as 2.16%.

Below is a listing of all providers we have found so far. This list includes credit unions that may have limited membership. We will continue to update this list as we find more lenders. (If you are counting, there are now more than 19 providers. Our list has continued to expand since we first created this post.)

  • Alliant Credit Union: In order to qualify, you need to have a bachelor’s degree. The minimum credit score is 700, and you need two years of employment and a minimum income of $40,000. They offer variable interest rates, starting at 6%. Anyone can join this credit union by making a $10 donation to Foster Care for Success.
  • Citizens One (Citizens Bank): To get the best deal, you should have at least a bachelor’s degree. They will look at your credit history, and want to make sure that at least the last three payments on your student loans have been made on time. If you don’t have your degree, you need to have made the last 12 payments (principal and interest) on time. You must make at least $24,000 per year. They offer fixed rates starting at 4.74% and variable rates start from 2.19%.
  • CommonBond*: CommonBond was highlighted earlier in this post, with fixed and variable rates available. Variable rates start at 2.15% and fixed rates start at 3.50%.
  • CommonWealth One Federal Credit Union: Variable interest rates start at 3.36%. You can borrow up to $75,000 and need to be a member of the credit union in order to qualify.
  • Purefy (formerly CordiaGrad): Fixed rates range from 3.95% to 6.75% APR and variable from 3.00% to 4.95% APR. The lowest range is only available if you sign up for an automatic payment from a Purefy Checking Account. You must have at least $20,000 of debt.
  • Credit Union Student Choice: This is a tool offered by credit unions. The criteria and pricing vary by credit union. The credit unions have limited membership, but you can find out if you qualify on this site.
  • LendKey*: You will need to have graduated from an eligible school in order to qualify. You need to make at least $2,000 per month, and they will review your credit history. Variable rates are available, starting at 2.16%. You will be matched with a community bank or credit union that anyone can join.
  • DRB Student Loan*: They will refinance undergraduate, Parent PLUS and graduate loans including MBA, Law, Medical/Dental (Post Residency), Physician Assistant, Advanced Degree Nursing, Anesthetist, Pharmacist, Engineering, Computer Science and more degrees. Variable rates as low as 4.17% and 4.74% fixed.
  • Earnest*. They will look at alternative criteria to try and approve you for a lower rate, like your employment history or bank account balances. Variable rates as low as 2.13%.
  • Eastman Credit Union: They don’t share much of their criteria publicly. Fixed rates start at 6.5% and you must be a member of the credit union. Credit union membership is not available to everyone.
  • EdVest: They offer refinancing options for private loans used to finance attendance at a Title IV, degree-granting institution. If the loan balance is below $100,000 you need to make at least $30,000 a year. If your balance is above $100,000 you need to make at least $50,000. Variable rates start at 3.580%, and fixed rates start at 4.40%.
  • Education Success Loans: You must be out of school for at least 30 months, and you must have a degree. You also need a good credit score, with on-time payment behavior. Variable and fixed loan options are available, with rates starting at 4.99%.
  • IHelp: This service will find a community bank. Community banks can actually be expensive. You need to have 2 years of good credit history, with a DTI (debt-to-income) of less than 45% and annual income of at least $24,000. Fixed rates are available, starting at 6.22%.
  • Mayo Employees Credit Union: You need at least $2,000 of monthly income and a good credit history. Variable rates are available, starting at 5.00% and you would need to join the credit union.
  • Navy Federal Credit Union: This credit union offers limited membership. For men and women who serve, the credit union can offer excellent rates and specialized underwriting. Variable interest rates start at 3.87%.
  • RISLA: You need at least a 680 credit score, and can find fixed interest rates starting at 4.49% if you use a co-signer.
  • SoFi*: You must have a bachelor’s or graduate degree in order to apply, and you must have demonstrated on-time payment behavior. Both fixed and variable rates are available, with rates starting at 2.14% and fixed rates starting at 3.50% with auto-pay.
  • Upstart*: You need to have a degree (or be graduating within 6 months). A minimum FICO of 640 is required. Fixed interest rates starting at 4.66%. This is more of a traditional personal loan than a long term student loan refinance.
  • UW Credit Union: $25,000 minimum income required, with at least 5 years of credit history and a good repayment record. Fixed and variable interest rates are available, with variable rates starting at 3.51% and fixed rates starting at 6.74%. You need to join the credit union in order to refinance your loans.
  • Wells Fargo: As a traditional lender, Wells Fargo will look at credit score and debt burden. They offer both fixed and variable loans, with variable rates starting at 3.49% and fixed rates starting at 5.99%. Wells Fargo does not have a tradition of being a low cost lender.

You can also compare all of these loan options in one chart with our comparison tool. It lists the rates, loan amounts, and kinds of loans each lender is willing to refinance.

Don’t forget to follow us on Twitter @Magnify_Money and on Facebook.

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College Students and Recent Grads, Pay Down My Debt, Student Loan ReFi

Should I Drain My Emergency Fund to Pay Off Student Loans?

Depressed man slumped on the desk with his hands holding credit card and currency

When Michelle Schroeder-Gardner graduated with an MBA in finance in 2012, she had $40,000 in student loan debt. But by the middle of 2013, she was happily debt-free. “To pay it off in that time frame, I side hustled like crazy,” says Schroeder-Gardner, 26, who writes at MakingSenseofCents.com. “I was a freelance writer, mystery shopper, eBay seller, survey taker and more. I was working 100-hour weeks between my day job and my side jobs.”

In her final push to pay off her loans, Schroeder-Gardner and her husband used about $10,000 from their emergency fund—almost all of it—to pay off the balance. “It made us a little nervous, but we knew that we would still be fine due to our low budget and high income,” she says. “I didn’t want my student loans hanging over my head for years to come.”

Although it’s admirable—amazing, even—that Schroeder-Gardner eliminated $40,000 in student loan debt in less than a year, experts might disagree with her technique. Draining your emergency fund under circumstances that aren’t an emergency isn’t something they typically recommend.

When should you do this?

“Some of it has to do with life stage,” says Wes Brown, a financial planner in Knoxville, TN. “If you’re living at home in your parents’ basement, and other liabilities are at a minimum, and there’s a safety net, then I could see supporting this.”

In other words, if you’re not saddled with a variety of fixed expenses that would be at risk if you lost your job or needed to replace your roof, you’re a better candidate for wiping out your emergency fund to pay down debt.

You also may be in the clear if you have access to other kinds of liquidity, such as a home equity line of credit, or the Bank of Mom and Dad. “It could be that you have family members or friends who are willing to lend to you, or that you have good silver you could pawn or sell,” says Larry Luxenberg, a financial planner in New City, NY. “But whatever it is, you may need money in an emergency, so you need to be prepared for all sorts of contingencies.”

James Bryan, a financial planner in Edina, MN, agrees. “This isn’t a bad route in certain situations,” he says. “For example, if you’re 26, you live in an apartment, you have a pretty steady job and you don’t have a big car payment. But you have to make darn sure that you have excellent job security and you’re healthy and not at risk of any disability.”

When shouldn’t you do this?

“If you don’t have any liquidity resources, I would say that’s a bad idea,” Luxenberg says. “A lot of things in your personal finances require patience and balancing things. Too much debt can be a bad thing, but a reasonable amount of debt for the right purposes can be a good thing.”

That’s because of all the debt you could have, student loan debt is one of the more favorable types. It’s typically lower cost than consumer debt, you get a tax break on the interest paid, and there’s often flexibility in payment plans if you fall on hard times. “The worst case scenario is where you use up your emergency fund to pay off student loan debt, and then you find yourself in a bind,” Brown says. “So you have to borrow from another line of credit to cover that, and you’re swapping a more favorable kind of debt for a less favorable kind.”

It’s also not a great plan to wipe out your emergency reserve if you’re carrying a mortgage. You could be one mortgage payment away from owning your home outright, but if you miss it because you lose your job and have no back-up cash, you could still be foreclosed on. And of course, there’s always unexpected maintenance. “A home is a massive responsibility,” Bryan says. “A roof, a new furnace, they cost a lot of money and they don’t give you a 12-month warning.”

What’s the best approach?

For most it will be keep that emergency reserve and address your debt the old-fashioned way—by paying it down paycheck by paycheck. If you have no emergency reserve, consider splitting your discretionary funds between savings and debt every time you get paid. That way you can achieve two goals at once. “You could use a simple equation like 70% toward debt and 30% toward savings,” says Nev Persaud, a financial planner in Atlanta. “You have to be wise in creating a balance.”

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Top 6 Personal Loans & Student Loans for Career Development

Personal Loans & Student Loans

A few years after graduating college you may find yourself in a weird spot. You don’t want to go back to school for another degree in the traditional sense, but you want to pursue certification in an area like coding or UX design to give your resume a boost. Or maybe you want to get formal training in an entirely new field through intensive boot camp programs.

Fortunately, there are options outside of “going back to school” that give us the opportunity to continue learning without committing to an entirely new degree. You can also find funding to help ease the burden of paying completely out-of-pocket for career development.

Check out a few of these loan options:

1. SoFi

Rates starting from 4.74% APR

When considering loans for career development, SoFi should be a loan at the top of your list because of its customer service and loan perks. The application is completely online and once approved funds are wired to your account. It also doesn’t hurt your credit score to see if you’re pre-approved and your rate.

SoFi offers fixed and variable interest loans. You can borrow $5,000 to $100,000. Loan terms are 3, 5 or 7 years. There are no origination fees or prepayment penalties.

One feature of a SoFi loan that makes it stand apart from other loans is the unemployment protection. If you lose your job, there are resources like career coaching to help you find another position. You can also get payments postponed temporarily during your job search.

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2. Earnest

Rates starting from 5.25% APR

Earnest offers personal loans for multiple uses including career development. You can borrow from $2,000 to $50,000. Loan terms are 1, 2 and 3 years long with no hidden fees or prepayment penalties. Earnest does a hard pull to determine if you’re approved, so your credit score will be affected.

The loan application process is online as well and you’ll receive a response about your loan application within 2 to 3 business days. Earnest reviews many variables outside of just your credit score to qualify you for a loan. So, if your credit score is impacting the rate you get with other lenders, Earnest is worth checking out.

Earnest will take into account your savings, earning potential, education and your history of on-time payments to find you the best rate. Currently, this loan is not offered in Nevada, Idaho, Louisiana, Mississippi, Alabama, Kentucky, Iowa, Vermont, Montana, North Dakota or South Dakota. Although, plans are in motion to open up lending to these states.

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3. Upstart

Rates starting from 4.66% APR

Upstart offers $1,000 to $50,000 in personal loans for courses or boot camps to further your career. Loan terms of 3 and 5 years are available. One negative of Upstart is it does have an origination fee of 1% to 6%. Similar to SoFi, Upstart does a soft pull of your credit report to determine if you’re pre-approved.

Upstart will accept borrowers with a credit score of 640 and above. If you have a limited credit history you may still be able to qualify. Similar to Earnest, Upstart reviews your credit score among other factors like your education, area of study and job history to determine if you’re eligible for a loan.

Once approved for an Upstart loan, you can agree to terms and get your money within a few days.

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4. LightStream

Rates starting from 5.99% APR

LightStream has loans from $5,000 to $100,000. Loan terms range from 2 to 7 years. There are no fees or prepayment penalties, but it will be a hard pull on your credit report to see if you’re pre-approved. One positive of LightStream is it’s very clear with how it determines interest rates.

You’ll get the most competitive rates with excellent credit. Since the term “excellent” can be subjective, LightStream outlines what’s considered excellent credit based on a profile of past excellent borrowers. These borrowers tend to have:

  • 5 or more years of credit history
  • A mix of credit accounts like various credit cards, auto loans and mortgages
  • Excellent payment history with no delinquencies
  • Proven ability to save
  • Stable income

Now, one important thing to mention, you can’t use a LightStream loan for college or postsecondary education. If you want to take out this loan for career development, contact customer service to double check that whatever course you plan to take is eligible for the loan.

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5. Wells Fargo

Rates starting from 4.54% APR

Wells Fargo has a unique opportunity for students pursuing career training or non-traditional school education. This could be a good option if you’re looking to further your career in the form of certificates and licensing from a university.

There are no application, origination or repayment fees. Wells Fargo offers variable and fixed interest options. Rates include somes discount. You can get a 0.25% discount if you have a previous Wells Fargo student loan or another qualifying account. There’s another 0.25% discount if you set up automatic payment.

You can take out up to $20,000 depending on the type of training you’re getting and from what school you’re getting it from. No payment on the loan is required until 6 months after you leave school, but interest will accrue during any deferment.

Wells Fargo does allow cosigners and cosigner release. Cosigners can be removed from the loan after 24 consecutive, on-time payments are made and you meet other credit requirements.

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6. Sallie Mae

Rates starting from 4.75% APR

Sallie Mae has a program relatively similar to the Wells Fargo career-training program. Sallie Mae will fund up to 100% of the cost to attend school for training.

Both fixed and variable rate loans are available. There are no prepayment penalty or disbursement fees. You can apply with a cosigner and your cosigner can be released after you make 12 on-time payments, pass a credit review and meet other criteria.

Prepayment begins 6 months after you’re finished with classes. One perk of the Sallie Mae loan is while taking classes you have the option to pay interest or you can pay a fixed $25 per month to reduce your repayment schedule in the future.

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How to decide

The world we live in today is constantly evolving, so naturally our skills will have to evolve as we move forward in our careers. Before choosing a personal or student loan for career development, get a good sense of your end goal.

Do you want to simply learn a new skill or do you want to gain a new credential (i.e. certification) from a university for your resume? Deciding your end game will help you choose the loan product that’s best for you.

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4 Benefits of Battling Student Loan Debt

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It was around 2012 that I started wondering if taking out student loans for grad school had been the biggest mistake of my life. I had already borrowed $49,000 in federal loans, with interest rapidly accruing on about half of them. I knew it would be at least three more years before I could finish my degree and begin paying back the debt in earnest. I was filled with so much regret that I seriously considered dropping out of grad school to cut my losses and start paying back the loans earlier. Ultimately, however, I decided to stay and finish my degree, graduating in January 2016 with a total debt of nearly $57,000.

It’s impossible to say whether or not taking out the loans was actually a mistake, since I don’t know what would have happened if I had made different decisions. I admit that there are definitely days when I wish I had no graduate degrees and no debt. However, over the past few months, I’ve also started to realize that the experience of living with debt has had a lot of very positive consequences for me. For example…

1. I’ve become much more conscious about my spending

In the days before I had student loans, I spent very little time thinking about where my money was going. While I didn’t tend to buy a lot of large or expensive items, I did make frequent smaller purchases without much consideration. In a typical weekend, for instance, I could easily pay $18 for a book, $5 for a magazine, $7 for a fancy juice, $9 for a burrito, $20 for a manicure, and $10 for a movie—all while putting nothing at all towards savings or retirement. I accepted the status quo assumption that the amount of money you make is the amount of money you get to spend, and I figured that as long as I could pay off my credit card balance each month, I was being responsible. But knowing that I would soon need to start making student loan payments forced me to reevaluate my entire approach to money. I opened up a spreadsheet, began manually tracking my spending, and was shocked to realize how many mindless, unnecessary purchases I was making. I now spend far less now than I used to because I think carefully about the value of each potential purchase.

2. I’ve discovered the power of reframing

One way of dealing with my student debt—perhaps the easiest way—would be to simply make the minimum payment each month and to heave a deep sigh each time the money left my bank account. But after thinking carefully about my options, I realized that the more money I can put towards the loans each month, the faster I will pay them off, and the less interest I will pay in the long run. My minimum monthly payment is about $350, but because my living expenses are extremely low right now (I live with roommates, I don’t have a car, I don’t have kids), I’ve consistently been able to put $1000-$1200 each month towards the loans. The approach of paying more than I have to has totally reframed the way I view loan repayment. Instead of a depressing obligation or a source of anxiety, debt repayment has become a challenge, a race against myself, a mountain to climb. I’m truly excited each month to pay as much as I can and to watch the remaining balance on the loans drop. I’ve also become motivated to take on extra jobs, like freelancing, tutoring, or teaching, to increase my income and thereby accelerate my repayment even further. I see this as a valuable lesson in the power of reframing a difficult situation—something I may be able to apply to other areas of my life in the future.

3. I’ve learned the power of negotiation

Before I had loans, it never crossed my mind to attempt to negotiate a salary. But since becoming motivated to pay off my loans as quickly as possible, I have negotiated my salary three separate times: twice as a graduate student and once as a professional starting a new job. Each of these negotiations was successful, resulting in a total win of about $7000. Asking for more money is not something that comes naturally to me, but I’m finding that it gets easier with practice, and it’s a valuable skill that may pay off substantially in the future when the stakes are even higher.

4. I’ve met new people and developed new skills

If it weren’t for my loans, I never would have discovered the online personal finance community and the wealth of resources and support that it offers. Reading articles and blogs about personal finance inspired me to start my own blog about debt repayment, which has allowed me to gain a great deal of writing experience and connect with other bloggers and writers from around the world.

Are you working on paying off student loans?

Here’s a checklist of possibilities that may be helpful to you in managing your payments:

  1. Are your monthly payments more than you can handle? If you have federal loans, you might be eligible to lower your monthly payments through income-driven repayment. More information about this program is available here.
  2. Alternatively, are you in a place where you might be able to pay back more than your minimum monthly payments? If so, this will save you money in the loan run because less interest will accrue. Consider carefully reevaluating your spending habits to see if there are expenses you could cut, with the goal of putting more money towards your loans each month.
  3. Check your eligibility for loan forgiveness. The federal government offers partial or total debt forgiveness to individuals who have worked at certain types of public service jobs. More information can be found here.
  4. Look into options for refinancing. There are a variety of lenders that you may be able to work with to secure a lower interest rate on your loans. However, be aware that if you refinance your federal loans, you will no longer be eligible for government-sponsored options such as income-driven repayment or loan forgiveness.

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6 Ways to Spot a Student Loan Scam

Student Loan

Student loan debt has taken a staggering shape, with almost $1.3 trillion in outstanding debt at last count, according to the Consumer Financial Protection Bureau. In fact, the average 2015 college grad left school with more than $35,000 in student loans.

With that much debt hanging over their heads, it’s no wonder student loan borrowers are being targeted by an increasing number of scammers. “Problems with student loan servicing can leave distressed borrowers without the tools to help avoid default,” says a CFPB spokesperson. “Student debt relief scams prey on these consumers, charging upfront fees while promising to enroll borrowers in free federal consumer protections.”

In Illinois, for the first time, student loan scams are now in the top 10 consumer scams in the state. “Students who are saddled with crushing debt and who have been misled from achieving their goals submit regular complaints to my office,” Attorney General Madigan said in a press release.

Many borrowers run into scams when they try to consolidate loans, get lower payments or even have debt canceled. To protect yourself, it pays to know which tactics are on the shady side. Here are a few warning signs:

1. They push you to pay big up-front fees

You shouldn’t have to pay to get student loan advice or counseling, and you definitely shouldn’t owe fees before a debt relief company provides any help. The CFPB recently took action to stop one company, Student Aid Institute, Inc. which was doing just that. Fees for loan services should be reasonable and come after services rendered.

2. They claim they can make your debt disappear

A debt relief company can’t make your federal loans go away, either with loan forgiveness or debt cancellation. In most cases, federal loans can’t be discharged unless there are special circumstances—you’re permanently disabled, for instance, or you work in a teaching job or other public service profession that results in loan forgiveness after several years.

3. They say they can shrink your payments significantly

This may be possible, but you can do it, too, by working directly with your loan holder. Various federal loan repayment plans are available, although you must be eligible for them. The Department of Education offers this handy Repayment Estimator that allows you to explore your options.

4. They’re imitating another company—or the government

Take a close look at the name and logo of the firm. If it seems very similar to another well-known student loan company you know, or they seem affiliated with the federal government, do your homework. Try searching the Internet and the Better Business Bureau for complaints and reviews. In 2014, the CFPB took action against Irvine Web Works, which ran the websites StudentLoanProcessing.us and StudentLoanProcessing.org, claiming among other things that the company implied that it was affiliated with the Department of Education.

5. They ask for a third party authorization

This kind of agreement—along with a power of attorney (which you also shouldn’t sign)—gives the debt relief company permission to deal with your student loan servicer on your behalf. That’s a bad idea, especially if they suggest that you pay them instead of your student loan servicer.

6. They ask for your Federal Student Aid PIN

If a company asks for this piece of information, proceed with caution. Giving it away is like giving away your signature, which means a company can do things on your behalf with your student loans. A legitimate company shouldn’t need this info to work with you. 

If you’re in trouble and need some basic information on paying off your student loans, start with the CFPB’s site on repaying student debt.

Have a complaint about a private lender or scammer? You can file that, too.

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9 Employers That Help Pay Off Student Loans

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Companies looking to attract talented employees have long been offering attractive benefits packages, including health insurance, vacation days, a 401(k) with an employer match, and sometimes even stock options or equity in the company. Recently, however, a new item is starting to appear on some of these lists: student loan repayment. A small but growing list of private companies is now offering to pay back a portion of employees’ federal student loans, in addition to the more traditional benefits.

A 2015 research report produced by the Society of Human Resource Management revealed that only 3% of companies (among the 450 surveyed) currently offer employees assistance with student loan repayment. However, this number may likely increase in the coming months and years as more companies begin to recognize that highly competent, educated employees often have a substantial amount of student debt.

If you’re dealing with student loans and in the process of considering a job transition or getting ready to graduate from college, then you might want to put these nine companies on your radar:

1. Fidelity Investments

The financial services corporation is offering to pay up to $2,000 per year towards student loans, up to a maximum of $10,000 over five years, for any employee who has worked there for at least six months.

2. PricewaterhouseCoopers

Starting in July 2016, the professional services network will contribute up to $1,200 per year towards the student loans of eligible employees, for up to six years.

3. Natixis Global Asset Management

Natixis will contribute a lump sum of $5,000 towards repayment of Federal Stafford or Perkins loans for full-time employees who have been with the company for five years, followed by an additional $1,000 each year for up to five years, for a total of up to $10,000.

4. Nvidia

Employees of the technology company who graduated within the past three years may be eligible for student loan repayment of up to $6,000 each year, for a total of up to $30,000.

5. LendEDU

The student loan education and refinancing company will contribute $200 per month, or up to $2,400 per year, towards employees’ outstanding student debt.

6. CommonBond

This marketplace lender will contribute up to $100 per month, or $1,200 a year, towards employees’ student loans, for as long as the employee continues to be employed at CommonBond.

7.SoFi

This marketplace lender will contribute $200 per month towards student debt repayment for eligible employees.

8. Chegg

The social education platform is rolling out a plan to contribute $1,000 per year towards an employee’s student loan repayment, for as long as the employee is employed by Chegg.

9. ChowNow

The restaurant marketing company will put $1,000 per year towards student debt repayment for employees who have recently graduated.

Not working for a company offering student loan payments as a perk? Then refinancing your loans to a lower interest rate or going on an income-driven repayment plans for federal loans may ease your student loan burden.

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What Should I Do With My 401(k) When I Change Jobs?

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When you leave a job where you previously had an employer retirement plan, you have decide what to do with the money in your account.

Option 1: Leave Your Retirement Account with Your Employer

Reasons to leave your money in the current account

You don’t have to do anything: Leaving your money with your previous employer’s plan means that you take no action, so it’s easy and you can’t mess anything up.

Might have lower price point: Your 401(k) is institutionally priced, meaning it has access to institutional funds, which are usually cheaper (compared to an IRA).

Help from a financial expert: You have access to a money manager with your 401(k), which may help you if you’re inexperienced and want guidance with your investments.

Reasons why it may be best to rollover your 401(k)

Hassle of tracking multiple accounts: If you leave your money in your old plan and open a new plan with your new employer, it may become cumbersome to keep track of all your accounts. It would be easier to have all your accounts in one place.

Keep your goals in mind: If you are rebalancing your overall retirement portfolio for a certain asset allocation, it may become difficult to make sure all of the investments align and are allocated consistently with several accounts.

Risk forgetting an account: You may lose interest and forget about managing this account after you leave the company.

You might not have an option: You have to make sure this is an option because some plans won’t allow you to stay after you leave (it costs them money to administer your account). Typically, you have to have a minimum amount invested in order to remain in the plan.

Option 2: Rollover Your Account to an IRA

The perks of doing a rollover

You can directly transfer money in your old 401(k) to an IRA: This will give you control over your funds in your own personal, individual account. With a direct transfer, the funds move directly from the 401(k) to the IRA, without you touching the money. This is a great way to move your money from an old 401(k) and have control over the account and actively manage your retirement funds.

You may have access to a wider range of investment options: It’s possible your IRA may have more to offer as many 401(k)s have limited investment options compared to an IRA.

You continue to grow your retirement savings: on a tax-deferred basis (just like you were doing in your 401(k)).

IRAs have more flexible withdrawal options: You can access your funds more easily with an IRA compared to 401(k)s (not that you should). For example, you can withdraw up to $10,000 from your IRA for a first-time home purchase.

Reasons a rollover might not be right for you

You need to be proactive: You have to take action to get a rollover completed, which may be a turnoff. You have to know where you want to open an IRA, and you have to be willing to choose your investments. This may feel intimidating and may require more diligence than you’re interested in having.

Consequences of an indirect transfer: If you do an indirect transfer (as opposed to a direct transfer), you will receive a check for 80% of the funds in your account but be required to deposit 100% of the balance. This is because of a 20% withholding requirement for the employer. So, unless you have the additional 20% to make up in cash, you will be in big trouble if you take an indirect transfer.

If bankruptcy is a potential issue: Generally, there is greater protection against creditors for assets in an employer sponsored retirement account than in an IRA (this is not always the case, so read your state law). So, if bankruptcy is an issue, then an employer sponsored plan may be better.

Option 3: Rollover Your Account to a New Employer 401(k)

Reasons to rollover to a new 401(k)

Simplify your life: The benefit to moving your old 401(k) funds to a new employer 401(k) is that it keeps your investments organized and in one place. It will be easier for you to keep track of and manage with one retirement account.

Defer distributions: You may be able to defer taking required minimum distributions if you are still working at your job at age 70 ½. You don’t have the option to defer RMDs with an IRA or old 401(k) (you’re required to take them).

Reasons to keep your old 401(k) separate from your new 401(k)

You might not have a choice: This may not be an option because not all employers accept rollovers from an old plan.

New 401(k) may be limited: You may have more limited investment options with in your new 401(k) than in an IRA. If you want the most flexibility with investment options, then you may want to stick with an IRA.

Limited flexibility: There isn’t much flexibility with respect to withdrawal exceptions, which you have in an IRA.

Strategize before making your decision

Consider your long term investment strategy when making these decisions. If you have many years to save for retirement, you want to do what’s best for you in the long run.

 

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