Personal Finance First-Aid Kit - It’s Budget Time

January 28, 2008

A few of us at the Student Loan Network have been throwing around the idea of building a simple budget plan that our audience could use. Given that we’ve all gone through the post-graduation money crisis to some extent, we know what it’s like to get thrown into the real world with empty pockets. So, we built the Personal Finance First-Aid Kit - a simple to use guide that outlines how to build a simple monthly budget. We also added a page of tips and suggestions to help save extra cash. Each month we will be adding more tips to the guide - some of which will be from user feedback.

So check it out and send your feedback in - and if you have any tips of your own, I will be sure to get them on the next installment.

Personal Finance First-Aid Kit

PAYDAY LOANS AND THE MIDDLECLASS

January 28, 2008

It is often considered that payday loans are for the blue-collar workers, military as well as for the poor and those with low-income jobs. Not anymore, now even the middle class workers are looking for payday loans to cover their short-term problems. Middle class America have basically been the front port for traditional loans, mortgages, credit cards and many more and are now stepping into the payday loan sector where hundreds have already been and many more are joining. Payday loans offer middle class workers with a very attractive chance that they are cashing in for. Now they can take out a payday loan and still have money later on to buy things that are needed. For most of them the payday loan will be used probably to pay off those immediate bills that need attention or to cover some medical bill before it becomes too much.

FAP724: Massachusetts College Goal Sunday 2008 In Review

January 28, 2008

FAP724: Massachusetts College Goal Sunday 2008 In Review

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Massachusetts College Goal Sunday, the day when students, parents, and families can gather to receive help completing the FAFSA, has come and gone. I was proud to again be part of the Framingham site under team leaders Beth Feinberg and Iris Godes. This year, much to our surprise, we more than doubled attendance from last year to the site to 165 families, which is a tribute to the marketing that the Massachusetts College Goal Sunday committee has done throughout the state.

As I did last year, I’ve put together some reflections and thoughts about the event.

Having that many people show up for FAFSA help was fantastic. I know I was certainly busy, answering questions ranging from “How do I report my parents on the FAFSA if they’re both dead?” to “How does an early 401(k) withdrawal impact financial aid eligibility?”. The day literally flew by with questions and answers. I didn’t even get one of the free cookies.

I’d suggest for other College Goal Sunday sites, and this was confirmed by others on the team, that some way should be made to distinguish between FAFSA experts and support volunteers. At MCGS, we all wore the same color shirt, so it was assumed by many that we all had equal levels of expertise. Out of 26 volunteers at our site, 5 of us were self-designated FAFSA experts ready to answer questions in detail about complex financial situations. Perhaps for other states and for Massachusetts next year, FAFSA experts can wear armbands or something to alleviate any frustration on the part of attendees.

Second, to the folks at the Department of Education, if you read or hear this - one of the main issues with the FAFSA on the Web application is inconsistency in its user interface. At the bottom of a lot of the tables as you go through the FAFSA there are buttons. Typically, the button just below a table, centered, fulfills the role of a submit button elsewhere on the Web, but on the FAFSA, it usually does something else. The previous and next buttons aren’t big, huge, or easily noticed, and you should put up a warning sign right on the front page of the FAFSA on the Web application to NOT use the Back button at any point or your application will blow up and start spitting out errors.

At the end of the process, all the actions are crammed into one small toolbar. Instead of doing that, I think it might be worthwhile to move the “Submit your FAFSA for processing” to a completely different line, and maybe make it glowing red or something so it’s obvious to the user what the next step is.

Speaking of unclear, there were several families looking for the 2008-2009 renewal FAFSA. There isn’t one anywhere on the FAFSA site or in the initial application. Thankfully, Carla Berg of Bentley College mentioned that the FAFSA renewal option was gone. Apparently, when you go to file a FAFSA as a returning student, the application pre-populates with last year’s data, but that’s not obvious anywhere on the site. Even if it did the same thing as the new application option, putting the Renewal option in the drop down box would solve a LOT of confusion.

The school code finder in the FAFSA web site is still less than ideal, especially if a school is generally known as one thing, but the Department of Education has a different canonical name. For example, three students said they couldn’t find their school in the school code finder, Mass Bay Community College. When I pulled up the list from FAFSAonline.com, we were able to find it easily - the FAFSA application didn’t understand that the canonical name, Massachusetts Bay Community College, is not how the school is generally known, even by the school itself (their web site is MassBay.edu). It might be helpful to have a browseable list of FAFSA school codes by state as a supplement to the search tool.

(Disclosure: the Student Loan Network operates FAFSAonline.com as an educational resource site. When you click the File a FAFSA Now button, you are taken to the Department of Education’s official FAFSA site, FAFSA.ed.gov)

I was alarmed by some of the comments by attendees. On a macroeconomic scale, it’s clear the economy is in a lot of trouble. Last year, questions from middle and upper middle class attendees tended towards questions about how to report various types of assets on the FAFSA. I heard a good number of times today from parents who were upside down on their mortgages that their mortgage debt was choking their finances, so much so that they showed up for the FAFSA for the first time because they weren’t sure their kids could go to school any more. One gentleman reported having had to cash out over $60,000 from his 401(k) to make ends meet. Times are not good, and despite what the politicians say, there’s definitely hurting on Main Street.

Another gentleman commented that he stopped by the get a second opinion about the FAFSA for his child before paying $100. When he said that, I asked him what he was talking about - he’d been on a paid FAFSA filing service that was going to charge him $100 to file his FAFSA. When we sat down to go through his FAFSA, there was absolutely nothing in his finances that warranted any kind of fee. Beware - except for a rare few individuals who have extremely complicated finances, there is no reason to pay to have your FAFSA filed; those rare few individuals likely already have a CPA and CFA on retainer.

Finally, a few thoughts on the event as a whole and its meaning. College Goal Sunday is more than just an afternoon of volunteer service. For employees of lenders like the Student Loan Network, it’s a great way to interact with your core audience in a non-transactional environment, to get a feel for the real concerns and issues that are on the minds of the people we aim to serve, as opposed to sitting in meetings trying to guess what students and families are thinking. For financial aid administrators, it’s an opportunity to work with students and populations outside that which your institution serves, and make a hard-hitting, nearly instant impact on many lives in one day above and beyond the service you already provide to your own students every day.

I salute the Lumina Foundation, NASFAA, and MASFAA for working together to create the opportunity for me.

Yes, me.

As much as I may have been able to help others, College Goal Sunday is a way for me to put myself to the ultimate test, working face to face with families, knowing that one mistake could keep someone from attending college, but one FAFSA filed that might not have been could open the doors to a brighter future for a student that might have remained closed forever. That’s an opportunity that doesn’t come along very often, the chance to make a direct, concrete, positive difference in many lives in just a few hours, so when it comes around, I’m happy to step up and see just what I can do.

I always leave College Goal Sunday with a renewed sense of optimism and energy about being in the financial aid world. The past year wasn’t necessarily a great one for financial aid professionals in the media, but just one afternoon can brush all of that away and remind you that our profession is a worthy one, and the work that we do can immediately change lives for the better.

See you next year.

Find out if your state is having a College Goal Sunday at the College Goal Sunday USA site.

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Jumbo Loan Limit Increase and other ways to revive the patient.

January 26, 2008

It's always nice to take a step back every once in a while and try to see the bigger picture of what has happened in the past, and where we are right now. In my mind, when I do this I see so much stimulus injected into US economy and institutions and we aren't even in a recession yet, at least not in the minds of the organization that will ultimately declare it; the NBER. On a positive note, with the latest stimulus package there will be a temporary increase in the Jumbo loan limit for homebuyers; a positive incentive for those who both intend to purchase and can afford to purchase a home, especially here in Southern California where 50% of all jumbo loans are found.

Lets just list what stimulus we have seen since late 2007:

a) 175 basis points of cuts to fed funds rate; 1.75%

b) Cash injections into Merrill & Citigroup

c) Buyout of Countrywide Financial; whose stock price today is trading below the buyout price

d) Mortgage Rate Freeze Plan

e) Talks of Bond Insurer Bailout Plan; $15 Billion to cover Hundreds of Billions in potential losses, think of the failed Super SIV rescue plan that also boosted banks when announced

f) In Europe, bond bailout of Northern Rock by gov't to incentivize private takeover

g) Economic Stimulus Plan For Housing; make mortgages easier to get & cheaper

h) Economic Stimulus Plan For Biz; tax breaks

i) Economic Stimulus Plan For Tax Payers; checks to 117 million Americans

I'm sure I am missing a bunch of other cash injections to individual banks/brokerages, but am I missing any other major stimulus thus far? I think I got most of it. Now, again, there is still a debate about whether we are in a recession or not right now as chances are we won't find out until later on anyway. But forget that for a moment. Look at that list above! Are we really to believe that the economy is in fine shape with all this stimulus going on? How could we simply ignore the reasons for all this stimulus in the first place!

It's encouraging to see things happening, but will it all work? Will it stop defaults from rising? Will it cause more bubbles? Will it encourage a moral hazard and future reckless behavior? Will it stop housing from falling? Will it fix the credit markets? Will it fix the toxic waste holdings held on the books of financials? Will it really save the bond insurers? Will it stimulate consumer spending and consumption? Will it bail out those who made awful decisions? So many questions. So little answers!

With all this stimulus, it's not surprising that equity markets are bouncing here; but what I'm interested in is will this fix the problems we face without causing any future bubbles/inflation problems? Is this delaying the inevitable washout? All open for discussion as I wont give any predictions with so much uncertainty out there.

On a side note, the jumbo loan limit increase moves the limit from $417,00 up to $730,000 until December 31st! The number varies per area based on 125% of median home values. The median in Los Angeles for example is just south of 500k. I think this is overall a good thing for client's but it does come with some question marks. Here are my thoughts:

POSITIVES: cheaper jumbo loan mortgages & cheaper fees for those serious buyers who have every intention of buying a new home. May increase purchase price budgets a bit with savings from taking on non-jumbo loan; hopefully with caution by the buyer not to exceed affordability. The experience of all the foreclosed families may prevent reckless buyers who decide to purchase based on this incentive alone but cant really afford it.

NEGATIVES: incentivizing homebuying by cheaper loans, how is this any different than what got us into this mess to begin with (no doc loans, option ARM's)? What happens if someone who is on the cusp of affording to buy, gets convinced to purchase due to this temporary offer? Will this setup future problems of distressed sellers should we indeed enter a recession? Will it really bring MORE buyers into our marketplace OR convince prospective buyers to increase their budgets dramatically thus rendering the investment unaffordable?

Overall, I would have think this is a positive for our marketplace. Since most people put max 20% down, and most condo buyers like to put only 10% down, we are looking at a target group of sub $785,000 for single family homes, and $695,000 or so for condos.
It will help those that have every intention of buying to 'pull the trigger'; hopefully without upping their budget too much! That's the only downfall I can see; over leveraging via a higher loan amount due to the projected 1% savings on the rate of the new jumbo loan limit increase.
Where are we at in the real estate cycle and overall credit cycle?