The Way to Work: Finding Your Financial Footing

You spend the better part of your life at work. Our weekly feature, The Way to Work, offers tips and guidelines to help you succeed in the office. This week, figure out to manage all that money you earn at your job, so that your hard work will pay off for years to come.

A college education is no route to easy street, warns The New York Times. Researchers at MIT found that while college graduates make slightly more than people who don’t go to college, recent college grads don’t immediately start reaping the financial benefits of education. Furthermore, the formula for gaining wealth is a more complicated than “driven kid + bachelor’s degree = cash.” A small percent of the population still holds most of the wealth, and it doesn’t flow easily into the hands of young people.

Although wealth takes work, don’t automatically assume that work should happen in an institution of higher learning. For many, graduate school seems like a logical next step, or at the very least, an escape from the tedium and stress of the so-called “real world.” But unless you plan to be a doctor or lawyer, or want an MBA, the professional school you attend might be an unnecessary financial burden. SmartMoney interviewed one young man who attended grad school, ended up $10,000 in debt and got the same job he would have gotten if he’d remained an intern. Make sure that graduate school is absolutely necessary in your field before you accrue more debt.

Speaking of debt, what makes you feel you’re still in college, but provides no intellectual stimulation, Frisbee or beer? Yes. It’s your student loan bill. It seems pretty horrendous that you’ve got to devote a chunk of that early paycheck to keep paying for school, but it would be even worse if you got scammed into paying even more. Sometimes, student loan consolidation programs that promise to help you get discounts can include something Young Money calls “gotchas.” For example, if you consolidate your credit card debt and student debt into one, you’ll save a bit of headache, but you’ll also lose your low student loan interest rate. On other plans, making a single late payment will disqualify you from your discount. Always read the fine print.

Types of Loans

First you will need to know about the different types of loans you may have. Let's start with the Federal Perkins Loan. This type of loan is generally granted by your college's financial aid office. Since it's a need-based loan, the university's financial aid office must determine who qualifies for the loan and how much they will receive. Universities only have a limited amount of funds to distribute, however, so these loans are awarded on a very selective basis.

The majority of college students have Federal Stafford Loans instead. This is the most common loan available to both undergraduate and graduate students. If a Stafford Loan is subsidized, the federal government pays your accrued interest while you're in school and during the grace period after graduation. If your Stafford is unsubsidized, however, you'll be footing the entire bill.

Lastly, you may have one or several private education loans. There are a variety of lenders that provide private education loans. Most banks and financial institutions offer private student loans to help supplement the costs that other financial aid resources won't cover.

Australian university fees: how student loan scheme works

AS THE debate on university fees reopens, Progressive Democrats leader Senator Ciarán Cannon has suggested the Government examine the merits of an Australian fees system which was introduced in 1989.

Under the system, all students who enter third-level institutions are charged higher education fees, with several measures in place to relieve the costs incurred in their studies.

Most Australian students are Commonwealth supported, which means they are required to pay about 25 per cent of the cost of tuition, called the student contribution, with the government covering the balance.

The majority of students defer payment of the contribution by applying for support under the Commonwealth's Higher Education Loan Programme. But there is the incentive of a 20 per cent reduction for those who can pay the contribution up front.

Under the programme, which is administered by the Department of Education, Science and Training and the Australian Taxation Office, the contribution is paid directly to the course provider by the government on behalf of the student. Upon completing their course the student is given some leeway which allows them to get established and repaying the debt is not compulsory until their income rises above a government set minimum repayment threshold.

The loan does not generate interest, instead all loans are indexed each year to reflect changes in the Consumer Price Index (CPI), which is generally between 2 and 4 per cent.

Mr Cannon said the system is by no means perfect, but is something the Government should examine. He said the requirement to pay no fees upfront removes a major disincentive in entering third level. "It is an inherently fair system with the well qualified and presumably financially secure graduates supporting the cash strapped students of the present," he said.

US state sues UBS on student loan auction-rate debt

New Hampshire's securities regulator accused Swiss bank UBS AG on Thursday of defrauding the state's leading issuer of student loans, in a scandal that prevents the agency from raising $70 million to fund 6,500 loans.
New Hampshire Higher Education Loan Corp (NHHELCO) had issued auction-rate securities as a low-cost way to fund its operations, but the $330 billion market collapsed in February.
New Hampshire's Bureau of Securities Regulation said UBS Securities LLC had urged the agency to keep issuing the debt even though it knew the market was on the verge of collapse.
New Hampshire wants UBS to pay an undisclosed fine, costs for the investigation and restitution to NHHELCO, Jeff Spill, the state's deputy director of securities regulation said in a telephone interview.
Because of the market freeze, NHHELCO had to shut down two loan programs in March affecting about 6,500 students, NHHELCO President Rene Drouin said.
"We are sitting here with no liquidity for alternative loans and this is a crisis because many parents won't be able to turn to home equity lines to fund their children's education," he said.
NHHELCO will still be able to make loans funded by the federal government. These loans accounted for the bulk of its $250 million program last year that served 80 percent to 85 percent of New Hampshire students.
UBS said it plans to fight the allegations.
"We will vigorously defend ourselves against this complaint as we believe that we worked in the best interests of our investor and issuer clients," UBS said in a statement.
Switzerland's largest bank has worked with NHHELCO since 1997 and has since underwritten $1.5 billion in NHHELCO auction-rate securities.
A number of U.S. states including Massachusetts and New York began investigating auction-rate securities after the $330 billion market seized up in February as the global credit crisis spread.
In separate deals with New York state, UBS and U.S. bank Citigroup Inc have agreed to buy back billions of dollars of the securities from investors.
The Texas securities commissioner said on Wednesday that U.S. and state regulators were close to settling with other banks accused of mishandling sales of auction-rate securities.
This case is different because it focuses on the student loan agency which issued auction-rate securities in order to raise capital that it then loaned to families. The other probes focused on how UBS targeted investors directly to put their money into these securities.
"This is very dramatic and it will have a reverberating effect on students and their parents," Spill, said explaining that NHHELCO has not been able to make private loans this year and thus left many families unable to raise funds private funds to help pay for college.
For years, rates on auction-rate securities were reset at weekly or monthly auctions, which drew investors looking for returns slightly better than money market funds. But on Feb. 13, auction markets all shut down, as trouble in the credit markets spooked investors and Wall Street's giants all decided to stop supporting the trades.

Making the Most of Your Money

If you’re debating whether you should begin saving money in your 20s, just stop. A little simple math makes it quite clear what you need to do. According to MSN Money, “If you are able to sock away $4,000 a year into a Roth for 40 years, and if it earns 8% annually, you'll be a tax-free millionaire at retirement.” Of course, for some, $4,000 is not a feasible amount. But even if money is tight, think about skipping a few frills and putting $20 or $100 in the bank whenever you have it. But once you’ve piled up a nice chunk of savings, don’t limit yourself to putting all into a savings account or government bonds.

Before you can plan your future, you need to understand your present. Start by asking yourself: How am I doing financially? Money Answers, a blog by financial journalist Jordan E. Goodman, will help you start to answer that question and start making improvements in a section called “Smart Money Strategies: 20s and 30s.” The tips are most useful for those already drawing a steady paycheck as they focus on “establishing your financial foundation.” Get comprehensive answers to questions about taxes, investing, owning vs. renting and how to make the most of what your company offers you.

Wi$eUp targets women in Generations X and Y, but anyone can benefit from the numerous financial planning tutorials on the site. Wi$eUp will teach you how to start thinking about your financial future, analyze your current financial situation and employ tools to help you reach them. Wi$eUp is thorough, interactive and cuts to the chase. Get more help from the site’s financial expert Q &As, seminars and webcasts.

Finally, if you were the kid in college who just scraped by looking up answers from the back of the book or borrowing from friends, never fear. You can be financially successful using the same strategy with Money Smart Life’s “Cheatsheet for Managing Your Money.” Get tips for budgeting, understanding health insurance, managing your loans, investing wisely and choosing the best credit card for you.

Guv backs student loan plan

We are the largest urban state that doesn't have these loans, the only large state in the union that doesn't have them, the only state in the Northeast that doesn't have them," Paterson said. With the economic downturn, "this is the kind of remedy that we're going to need during this crisis."
The loan program, a version of which was approved by the State Senate last month, is among the recommendations from the state Commission on Higher Education, which delivered its report yesterday. Paterson endorsed those, including the loans, that would cost the state little, such as giving SUNY and CUNY more flexibility to lease property.
Others, including hiring 2,000 faculty and creating a $3-billion science research grant program, are unlikely to get far, given the state's budget crisis.
There are obviously some proposals that would be of high cost," Paterson said. "There are many we won't be able to do, but a lot that we're going to have to consider doing." He said he would introduce legislation for the loans as part of next year's budget plan.
The loan program would be funded by tax-exempt bonds, and could cut interest rates by as much as half, according to Sen. Kenneth P. LaValle (R-Port Jefferson), chairman of the Higher Education Committee. "The savings for parents on this would be huge," said LaValle, sponsor of the "I Live New York" student loan bill passed by the Senate in June.
He called on Paterson to push the Assembly to return to Albany this summer and approve his bill. A spokeswoman for Paterson, Marissa Shorenstein, said the governor's plan differs slightly from LaValle's, including which agency would administer the loans and the structure of the bonds.
In its final report, the state panel, created by former Gov. Eliot Spitzer, sidestepped a controversial proposal advanced by Spitzer: designating Stony Brook University and the State University at Buffalo as SUNY's flagship campuses. They are the only SUNY schools in the Association of American Universities, a group of top research schools.
Still, the panel's intention was for the state to invest most heavily in the four university centers, said its chairman, Hunter Rawlings, president emeritus of Cornell University.
"Flagship, schmagship," Rawlings said. "We're not using the word 'flagship' because it's just a hot-button word [but] when you address the questions 'Where are you going to focus your resources and your money and your top talent,' I think we're pretty clear on those matters."

Benefits of Consolidating

What are the benefits of consolidating your loans? The main benefit of consolidation is that it allows you to lock in a low fixed interest rate for the life of the loan. Understand though, that not everyone gets the lowest rate on consolidation. While some can lock in a very low rate close to 3.5%, others may pay slightly more depending on the original loan rates. So check with your lenders (or one of the Web sites listed on page 34) for information on how much your rate will decrease. Each Web site has online calculators, and you can even apply for a consolidation loan online. Note also that there is no fee for you, the borrower, to consolidate.

Another benefit to consolidation is that now you only have to make one monthly payment and to only one lender-saving you a headache each month from sorting out to whom and what you owe. There are also added bonuses, for instance, many lenders offer interest rate and payment reductions if you pay on time over a period of months and/or have your monthly payments automatically withdrawn from your checking or savings account.

Check out the Web sites, do a little homework and in the end you'll save yourself a nice sum of cash for consolidating your loans. Start the process now, so you can relax, get some sleep and focus on what's really important, your first real job!

Consolidating Your Loans

Now that you better understand what kind of loans you have, you're probably wondering what's next. Pay off time! It may sound daunting to have to payback all of those loans, but don't even think about attempting to dodge your bills.

Not paying your loans back will cause your credit rating to plummet. And remember, declaring bankruptcy is not an option. Student loans are immune to bankruptcy. You may also face IRS penalties and possible garnishment of wages if you hold off on payment--so make those monthly payments on time.

So what's a good plan-of-action when beginning to repay your loans? A smart move is to look into consolidating your existing loans now while interest rates are still low.

Consolidation involves refinancing one or more of your student loans. The original balance is paid in full, and a new loan is originated for the combined amount and for a new term--all with a low fixed interest rate. Consolidation loans often reduce the size of your monthly payment by extending the term of your loan beyond the 10-year repayment plan that is standard with federal loans.
Depending on the loan amount, the term of the loan can be extended from 12 to 30 years. The reduced monthly payment may make the loan easier to repay. However, by extending the term of a loan the total amount of interest paid is increased. You can always make more than the minimum payment each month to cut the repayment period down and reduce the amount of interest paid.

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Get a Head Start

For those of you that haven't graduated yet, there's something new this year. Under a new interpretation of the rules, students don't have to wait until they graduate to consolidate. Students still in school can consolidate existing loans. If you subsequently take on more student loans, then you can consolidate those loans either separately from the initial low-rate consolidation, or as part of a blended package. If you've just graduated and are in your six month grace period, you can get an extra one-half of one percent cut off the consolidation rate if you consolidate within the first six months after graduation. And by consolidating during the grace period, you may also be able to retain the entire grace period. If the lender delays disbursing the consolidation loan until the end of the grace period, you get the benefit of the grace period and are also able to lock in current interest rates. Not too shabby!

Which loans should you consolidate? You can consolidate Perkins, Stafford and PLUS loans (parent loans for students) and even some previously consolidated loans. Unfortunately, you cannot consolidate private loans that are not federally guaranteed. Also, most lenders will only consolidate loans for students with loan balances of at least $7,500. For most of you, this threshold won't be a problem. According to a recent Nellie Mae study, the average student upon graduation owes an average of $18,900 in student loans.