Paying for college may get tougher
Debt Consolidation to Pay For College?
As reported by CNNMoney, paying for college may get tougher for both students and parents as lenders crunch down on higher rates. Student loans are now being affected by the credit crisis, which happened last year with mortgages and is now affecting other areas. In addition to the rising interest rates, lenders are scrutinizing their procedure to applicants, which now makes it even harder to apply. This will force some to boost interest rates on private loans by up to 1 percentage point, raise minimum credit scores to 650 and require parents to co-sign the loans.
“If lenders are not able to securitize, they are not getting the capital to make new loans,” said Mark Kantrowitz, who runs FinAid.org, a college funding Website based in Cranberry Township, Pa. “It’s an issue of liquidity and cost of capital.”
With little incentive for small private lenders in the federal loan arena, many are exiting the business.
San Diego-based College Loan Corp., the eighth largest federal loan originator in 2006, recently announced it would stop making these loans as of March 1, though it will continue originating private loans. Lincoln, Neb.-based Nelnet Inc. (NNI) last month issued a statement saying it would “be more selective” in the loans it originates as it lays off 300 people, or 10 percent of its workforce. And on Tuesday, the Michigan Higher Education Student Loan Authority said it would stop making private loans, known as MI-LOAN.
As college costs skyrocket, a growing number of parents and students rely on private loans to cover the gap between tuition and federal loans, which are limited to between $3,500 and $5,500 a year. Private loans made up 24% of education borrowing in 2006-07, up from 6% a decade earlier, according to the College Board, a New York City-based nonprofit higher education access group.
These loans, however, are much more expensive than their government-backed peers and will become even more so. For 2008-09, students will pay a fixed 6.0% on a subsidized federal loan, while the rates on private loans are as high as 13%, depending on the borrower’s credit profile, and are inching upward, according to Kantrowitz. Rates on private loans change quarterly or annually, and two-thirds of borrowers pay the highest rate, he said.
“Most students will be able to get them, but they will have to be careful,” said Sandy Baum, senior policy analyst at the College Board. “There will be an even greater risk of high interest rates and unfavorable terms.”
Students and Parents alike are in for a rude awakening come spring as many are now applying for the new semester or quarter loan credit. As lenders are crunching down on their return, students and parents may find it harder to enter the loan arena and will find paying back the higher interest rates unpleasantly difficult. Debt consolidation will likely be necessary.
BMW dealer issues loan to Low Income Disabled Woman
According to Mortgage News, a BMW dealer falsified the loan documents necessary to give a woman a $100k BMW she couldn’t afford. From the article:
Vivian Snyder has strong credit and is not classified as subprime, but she is one of many consumers who can’t afford the car she leased. Snyder drives a brand new convertible BMW with a MSRP listed at approximately $100,000.
Most consumers can’t afford it, and neither can Vivian. That’s because the monthly lease payment is $1,300. It eats up half her income which is a $2,500 disability check.
Yet, she got it at BMW of Fremont without showing a drivers license, pay stub, or any proof of income.
How did this happen? Apparently, her income was inflated by nearly 150%.
According to consumer advocate Rosemary Shahan with Consumers for Auto Reliability and Safety the practice is common.
Unfortunately for her, she stands to lose her life savings if the car is repossessed. It’s no surprise that this nation has problems with debt consolidation, when one considers instances such as this.
Bank Reserves Plummet
A surprising occasion, given that the US federal reserve was instituted as a means of forcing banks to maintain strict reserves, it would appear that reserves have plummeted this week.
As one can see from the graph above, reserves are in trouble. The St Louis Fed has additional details on this plummet.
Banks failing to succeed in their efforts at debt consolidation will effect consumers, by passing their hurt onto customers.
Several banks recently announced that they would be kicking ATM fees up to $3 in an effort to restrain their debt’s growth.
The Foreclosures Keep Coming
Records continue to be set nationwide as more and more Americans find themselves choosing foreclosure, over holding an upside down property.
JSonline is reporting on Milwaukee’s predicament:
After a record year for foreclosures, a stunning 1,000 Milwaukee County properties already have been scheduled for sheriff’s sales in the first nine weeks of 2008, with a record 200 put up for sale in just one day earlier this month, records show.
With home mortgage foreclosures becoming a drag on the national economy, local officials now say they are worried that the high tide of foreclosure sales - more than 2,800 properties were scheduled for sheriff’s sales in 2007, a 60% increase over the previous year - could easily become a tsunami in 2008.
“When I started in 1998, there were fewer than 800 for the entire year, maybe 20 or 30 a week,” said Eileen Carlson, a civilian employee of the Sheriff’s Office who helps supervise the weekly sale of foreclosed property.
Barring a clear method of debt consolidation, it’s likely the stream of foreclosures is going to continue unabated.
Americans hate being upside down in debt, and due to relaxed penalties, many are finding it cheaper to accept foreclosure than to struggle to pay off a home they cannot afford.
Market Rally Sputters Then Fails
Fresh from news that Countrywide may face bankruptcy, the whole market took a fair beating. The Wallstreetexaminer reports:
The S&P 500 also started the session higher but was recently down 1 point at 1389. Similarly, the Nasdaq Composite was lower by 7 points, or 0.3%, at 2433.
Volatility has been the norm in the market for some time, with the major averages fluctuating almost daily between positive and negative, sometimes multiple times in a session, and it was the story again through the first half of the day.
Sadly, it seems that even a fed rate cut is not enough to fix all of the nation’s economic troubles. Better bank management and regulation, as well as managed debt consolidation would accomplish this.
US Fed Continues To Battle Housing Decline
The Fed is continuing its struggle to help the housing market, particularly the many troubled lenders, get themselves back into the green. This awkward debt consolidation is mentioned in the latest minutes from the Fed’s meeting as reported by Bloomberg:
Concerns about credit risk and the pressures on banks’ balance sheet capacity appeared to be contributing to diminished liquidity in interbank markets and to a pronounced widening in term spreads for periods extending through year-end. A number of participants noted some potential for the Federal Reserve’s new Term Auction Facility and accompanying actions by other central banks to ameliorate pressures in term funding markets. Participants recognized, however, that uncertainties about values of mortgage-related assets and related losses, and consequently strains in financial markets, could persist for quite some time. Some participants cited more-positive aspects of recent financial developments. A number of large financial intermediaries had been able to raise substantial amounts of new capital. Moreover, credit losses and asset write-downs at regional and community banks had generally been modest; these institutions typically were not facing balance sheet pressures and reportedly had not tightened lending standards appreciably, except for those on real estate loans.
Hopefully the government will get lucky and actually do something right this time. Everyone can get lucky sometimes.
Debt Consolidation For Christmas Debt?
A Mortgage Checking Account can be a useful method of controlling the debt that accumulates from holiday spending. Like most shoppers, we find it’s easy to accumulate debt during December. Everyone enjoys shopping, and during this unique month, one feels as if they are shopping for all their loved ones.
Debt consolidation is a simple method of consolidating all expenditures into one interest rate. One can do so by combining the debt into a HELOC.
Debt under a set interest rate, rather than a ballooning Credit Card rate can serve to greatly ease the worries debtors feel, as it allows one to manage debt and easily gauge it’s accumulation.
Getting out of debt feels good, and helps one to learn to be financially independent.
People Stop Paying Auto Loans, What’s Next?
America continues to struggle with it’s easy credit problem, as auto loan defaults have started to skyrocket. So much for debt consolidation! The WSJ writes:
First came housing loans and the subprime-mortgage crisis.
Now, signs of stress are creeping into another key consumer area: auto loans.
Delinquencies in the auto-loan market are ticking up to their highest level in several years. Lenders are tightening terms in some cases, and interest rates have risen from the rock-bottom levels of a few years ago. About $575 billion in loans for new and used cars are made annually, according to the National Automotive Finance Association.
About 4.5% of auto loans made in 2006 to top-rated borrowers were at least 30 days delinquent as of the end of September, up from 2.9% the previous month, according to a Lehman Brothers survey of companies servicing these loans. That is the biggest one-month jump in at least eight years. Lehman says 12% of subprime borrowers, who have poorer credit records, were delinquent on their 2006 auto loans as of September. That is the highest level since 2002 and up from 11.1% the previous month.
While one can easily write these defaults off as a symptom of homeowners unable to afford their home payments, it seems that there may be a deeper problem within our economy.
Alliance Title Bites The Dust
Another company has failed to accomplish simple debt consolidation as a result of the housing crisis. News10 reports:
Sources told News10 Alliance Title Company is shutting down operations in the Sacramento area effective immediately.
At one time, Alliance was the number one title company in Sacramento based on market share according to one longtime employee.
According to the company’s Web site, Alliance Title was founded in 1996 and at its peak operated nearly 200 branches in 34 California counties with 2,000 employees.
It’s unclear what other Alliance offices in the state, if any, are also affected.
One employee who was laid off Monday said she was told there’s not enough work to continue supporting office operations.
“I’ve never seen it this bad,” she said.
A receptionist at the company’s headquarters in Campbell said no one was available to offer additional information.
“They’re all out in the field right now,” she said.
So many companies closing up shop is going to have a severe effect on the housing market, and hurt the economy as well.
Bush Outlining 5-Year Rate Freeze
Seems we’re about to get another Federal intervention aimed at helping those who deserve help the lease. Reuters is reporting:
Treasury Secretary Henry Paulson has worked closely with the investor trade group - the American Securitization Forum - as well as mortgage servicers and lenders to hammer out a comprehensive plan to modify troubled loans.
On Wednesday morning, Paulson outlined to a closed-door meeting of Republican lawmakers his efforts to broker a rescue plan for troubled borrowers.
“It was all broad-picture,” said Ed Royce, a California lawmaker who sits on the House Financial Services Committee and who attended the briefing. “He was upbeat about the way those negotiations are going.”
House Republican Leader John Boehner of Ohio said “I think the proposal being outlined is a good one.”
While I welcome personal responsibility in debt consolidation, the US government seems hellbent on bailing out those who acted most irresponsibly, and in the end, helping rather than punishing the lenders that got everyone into this mess in the first place.