Monday, July 27, 2015

Facing the bear: student loan default (HELP!)

Student loans have been a hot button topic for some time now. According to estimates by the Consumer Financial Protection Bureau (CFPB), existing student loan debt is around $1.2 trillion and is continuing to grow at alarming rates due to the increasing cost of higher education. Unfortunately, as the cost of education is increasing, earnings aren’t increasing as quickly.

Still, that shouldn’t stop anyone from going to college. Statistics show that those who have a college degree on average earn approximately 114% more than those without a high school diploma and 50% more than high school graduates. But, it is still a problem as many graduates are struggling to pay their student loan debt.

There are options, such as Income-Driven Repayment plans, but for many the information available is difficult to understand and can be much more difficult to navigate. Or, for many like my younger self, the whole situation is so overwhelming that they just bury their head in the ground and ignore it all. That’s what I did, and the consequences were even more difficult than if I would have faced my student loans head on. Here’s my story –

I started at Trident Technical College to get some of my general credits out of the way in a less expensive manner than starting at a four year college or university. So, I started off on the right foot with my higher education.

In 2005, I transferred to the College of Charleston. I lived at home and commuted to school, which also helped to keep my education costs lower than average. However, while applying for my first student loans, I found out that I qualified for $10,000 for the year. I was 20 and wasn’t very financially savvy at the time, so, of course, I took it… ALL.

I could use that money for tuition, books, lab fees, a brand new laptop, and of course new clothes (because those were obviously needed school supplies, right?). Really, I had no need for that much money since I was still living with my parents and working part-time while in school, but I took it all anyway. I didn’t qualify for as much for the following years I was in school, and even had to take a semester off due to not being able to hammer down financial aid in time to register for classes.

In my senior year, I got pregnant. I took another semester off right before my last semester of college, but did go back and graduated the summer of 2009. It was not a good year to graduate from college as it was during the recession; however, all of my finance classes were extremely interesting with everything that was happening. Now I had graduated college with a shiny new Bachelors of Science in Business Administration and about $27,000 worth of student loan debt, so now what?

As I graduated right smack in the middle of a recession, I couldn’t find any jobs where I could use my degree, so I kept waiting tables as I had since high school. Money was pretty tight as tips weren’t great during the recession and I had a 1 year old at the time. His father was working, but had some personal issues and lost his job soon after I graduated. We had very limited income and my student loans were last on the list of things we needed to pay. I didn’t pay any attention to them and basically pretended they didn’t exist. I’m pretty sure they were calling me for payment, but I had other creditors calling as well and just didn’t answer the phone. I think I knew that I could probably call and try to get on a deferment or forbearance, but I felt like I was already so far behind and didn’t want to make the embarrassing phone call. Looking back now, I wish I had.

In 2010, things looked up and I was hired as a temp here at Family Services, Inc.; although, soon after I became a single mother with a toddler. Again, I had very limited income and was just trying to make ends meet. I still played the ostrich and kept my head buried in the ground when it came to my student loans. In the beginning of 2011, my HR manager came to me with a name and a phone number and said that I really needed to call this person because they were threatening to garnish my wages. That’s when I woke up and realized that my student loans were in default.

At this point, I hadn’t paid my student loans EVER, so they had defaulted and my credit score was around 435. The collection agency had also added penalty fees, so it wasn’t pretty. I called the collection agency and was offered a rehabilitation program. With the rehabilitation program, I would have to pay nine on-time payments in a 10 month period. Once I did that, all of the penalty fees would be wiped away and my loans would be reported as current. Another benefit, which wasn’t explained at the time but I know now because of research and training have done since then, was that all of the default would be removed from my credit report. That all sounded great, however, in a rehabilitation program, the borrower doesn’t get to receive the benefit of Income-Driven Repayment plans—so my payment was quite high compared to what I was making at the time.

I was still a single mother trying to live on my own on a $28,000/year salary. I made too much to qualify for public assistance like SNAP (food stamps) and Medicaid, so the $245/month payment was really hard for me to manage.  I knew the benefits were significant, so I stuck with it. Unfortunately for me, the Department of Education was going through a transition, so my 10 month rehabilitation period turned into about 14 months. Eventually though, my loans were sent to a servicer, placed in current status, and I was able to enter into an Income-Based Repayment plan to lower my monthly payment to $21.

If I hadn’t called the collection agency, my wages could have been garnished, along with my tax refunds. Even in South Carolina, the federal government can garnish wages and tax refunds, so I would have not been protected. Fortunately for me, I manned up, pushed away my pride, and faced the problem that I created for myself. It was a difficult road, and, as they say, hindsight is 20/20. Knowing what I do now, I would have done everything much differently and not caused myself the unnecessary hardship I had to endure.

That’s why I want to tell my story. I want others to know that there are other options, and there are legitimate agencies and people who can help navigate the intricate student loan realm. I am now one of those financial counselors who knows the ins and outs of student loan repayment. I’m here to help with knowledge from personal experience and formal training. Take it from someone who’s been there – it’s a much better route to face your student loans and repayment earlier rather than later.

Need guidance? Contact us at 843.735.7802 or info@fsisc.org.

By Kristin Bastian, Financial Education Manager

Thursday, July 2, 2015

Finance doesn't have to be a dirty word


It's a topic that most parents and kids don't discuss, at least not as often or as in depth as they should. And it's something many teens don't hear enough about in school.

When I was a kid, I remember saving pennies, dimes, nickels, and (oh, joy!) quarters. I'd roll them up and my Dad would take me to the bank to cash it in. Eventually, I had my own "bank" and made deposits in secret stash accounts within my home.

Once I reached high school, I made some cash with my own tutoring and babysitting gigs. I felt that I was pretty responsible with my money, budgeting enough for needs and wants, and eventually opened a checking and savings account to start putting away some $$ for college life.

Hey, I even took accounting as an elective!  Maybe I was genuinely interested in feeling more money conscious. Or maybe it was to avoid the homemaking class, because the idea of cooking, baking, and sewing made me cringe (still does sometimes). Whatever the case, it was in accounting that I learned about personal finance (assets, budgets, cash flow, etc.). It was not in my economics class or any math class, for that matter.

And not much has changed.

I went on to college to make my own financial mistakes and learn from them. And though I was pretty frugal compared to my friends and other college kids, I didn't know things.

I didn't know about credit, or how to pay back student loans, or the importance of an emergency savings. After graduation, I felt so ignorant to these things, as I'm sure a majority of students do.

So, as much as I hope our Money Rocks program will spread like wildfire into the schools and touch thousands of lives, I thought I'd also put together a few tips for the parent (or the teen) preparing for the future.

  1. Have open conversations. Parents and teens need to talk about budgets. Look at how much the parent makes and the monthly expenses, then see how much is left at the end of each month. It's pretty eye-opening!

  2. Open a bank account. Seriously, I wish I would have done it earlier than I did. It's important to have the experience handling both virtual money AND cash AND a debit card before going off to college. It's a great time to experience the feel of a plastic card in the hand, without the threat of going into credit card debt!

  3. Make some money! Anyone at any age can earn money. Help neighbors with yard work, practice saving birthday money, babysit, wash cars, tutor, part-time job at a retail store, or come up with your own business idea! It's so much easier to save money when you don't have responsibilities and a ton of expenses to worry about.

  4. Pay yourself first. 
    You'll hear our staff say this all the time. And it's a tip that REALLY works. Setting money aside early means more money later! Pick a percentage of what you want to put in savings, and stick to it.

  5. Write down needs versus wants and think about goals! Time to prioritize how you want to spend money. Being specific and having a plan makes it easier to save money.

  6. Give. I was taught to give 10% of my income to my church. So whether it's church or charity, it's important to invest in something selfless and meaningful.

  7. Emergency fund - do it. Establish a separate savings account that's just for an emergency. That way when something big happens (car accident, for example), it's handled.

  8. Think about retirement. Well, at least a Roth IRA! These can be used without penalty to help pay for a first home, to pay higher education expenses, and even to pay medical bills. And, guess what? If the account is open for at least five years, there are no penalties for using it before retirement. For a person under 18, a Roth IRA can be opened as a custodial account. There's usually no fee to open one, but there may be a minimum contribution requirement. Definitely check it out! 

  9. Work your butt off in school. I know school can really be a drag and teachers just don't get it, but it's such a small speck in time. Bullied, having relationship issues, family hardship, etc.? Keep your head high, find a support system (outside of school), and be yourself. You will continue on and live an awesome life that only gets better! Believe me, I've been there.

    Work hard now, look to your future, and be smart with your money. Start looking for scholarships and grants early if you plan to go to college. Research student loan options and ask about repayment options BEFORE ever taking out a loan. OR look into an apprenticeship if you want to go straight into the workforce. Some businesses will even pay for you to go to school part-time while you work.

Finance. It's not a dirty word. Talk about it. And take some preventative steps to ensure a secure financial future! If you want some guidance, feel free to contact us for some financial coaching at 843.735.7802 or info@fsisc.org.

By Jenna Johnson, Marketing & Development Director