Wednesday, July 7th, 2010
For the millions of parents trying desperately to help their child pay for college—an institution that is becoming increasingly difficult to afford—some hope may be insight. A new law that went into effect last week relegating private lenders to a smaller role in educational loans may make affordable federal loans easier to get, according to a recent article in the Wall Street Journal.
The new student loan legislation, which was signed this spring as an amendment to the health-care overhaul bill, cuts out the private-sector middlemen from offering federal loans as of July 1st, while increasing the federal grant programs.
As a result, borrowers should have a clearer distinction between federal and private loans, especially because many banks previously offered both.
The short term result of this change is more competition among private lenders, which could lead to better terms for borrowers. Wells Fargo demonstrated this when it recently dropped rates on two of its private student loans, including a new loan for parents launched in May.
One long term result may be a much needed break for students. The average debt among college students in 2008 is up to $23,200, nearly $5000 more than students graduating in 2004.
Some key tips to keep in mind if you or your children are planning on applying for students loans in the fall.
Maximize the federal loans first. Federal loans have fixed rates that won’t rise with interest. The fixed rates vary from 4.5% for students with a demonstrated academic need, to 6.8% for those who aren’t need based.
Also, federal loans offer a very flexible repayment plan, which can be important if you or your recent graduate are struggling to find a job that can pay the bills.
There are other kinds of federal student loans that can help save money, when compared with private loans, that you can look into to see if you qualify for.
The other key point to think about is finding the deals on private loans.
Credit unions are increasing their business in the field, with around 150 credit unions joining the Credit Union Student Choice program, a group that helps credit unions offer non-federal student loans with an average rate on existing loans of 6.25% with zero origination fees.
There are also more regulations on the radar for Congress. There is a financial-regulation bill in Congress that calls for the formation of a Consumer Financial Protection Bureau that would have oversight over private student loans and other financial products to give borrowers more protection.
Hopefully these trends continue and allow all the emerging college students to have some freedom and flexibility to merge into careers that they want to, instead of selling their soul to the first job that will pay off their debt and get them out of the house—assuming there are any jobs when they graduate.
Posted in Bankruptcy News and Events, Banks, Student Loans, financial laws, lending | Comments Off
Saturday, June 19th, 2010
In response to consumer complaints about ballooning overdraft fees, the Federal Reserve will soon pass new rules aimed at stopping banks’ misleading overdraft tactics. According to the Los Angeles Times, banks will no longer be allowed to automatically enroll customers in overdraft protection plans for their bank accounts.
At first glance, this seems silly—why wouldn’t consumers want overdraft protection? Well, such “protection” means that banks will allow you to make purchases with a debit card beyond your checking account’s limits, thus allowing your balance to go negative. The bank then charges an overdraft fee, which reportedly can reach as high as $39 per overdraft.
Since many consumers assume that using a debit card prevents them from going over their account limits, this often comes as a surprise. In addition, many consumers would prefer their purchases to be turned down for lack of funds, rather than face overdraft fees. However, automatic overdraft plans do not allow consumers this option.
In defense to such criticism, banks argue that overdraft protection saves consumers the embarrassment of having their cards turned down. Further, it allows consumers to make emergency purchases even if their balance is negative. While some consumers may appreciate these benefits, many account holders are upset with the current rules that automatically enroll consumers in overdraft protection plans.
New Rules
Starting August 1, banks will not be able to automatically enroll customers in overdraft plans. Instead, account holders will be asked to “opt-in” to overdraft protection if they want to avoid having purchases denied due to insufficient funds.
As Nessa Faddis, a spokeswoman for the American Bankers Association explains, “It’s a general opt-in. If you don’t do it, you could have a debit purchase denied.”
While it comes as no surprise that bankers enjoy the fees collected through their overdraft plans, some consumers may prefer to have their debit purchases denied, rather than be charged high fees. The new Federal Reserve rule intends to give consumers this choice.
Exceptions
As with many banking regulations, there are exceptions to the new overdraft rules:
- Banks can still allow “regular” payments and debits to be made, even if they push you past your account balance. Such payments might include automatic withdrawals for services like a gym membership. In addition, banks can still automatically charge fees for these “automatic” overdrafts.
- Banks can also continue their practice of “reordering” your purchases, so that the largest purchases are tallied first. By depleting your account with big purchases first, banks increase the odds that subsequent smaller purchases may trigger several overdraft fees. Remember, each purchase you make while in the red triggers a separate overdraft fee.
Additional Resources
To learn more about the new overdraft rules, visit the Federal Reserve's website.
Posted in Bankruptcy and Predatory Lending, Banks, Loans, fees, overdraft | Comments Off
