Beating Broke

Personal Finance from the Broke Perspective

Oregon Changing Student Loan Repayment?

By 7 Comments

Could the landscape of student loan repayment be changing?  I have to admit, I don’t cover a whole lot of college topics here (because I’m a bit removed from that age group), so I almost missed this altogether.  But, it kept coming through on feeds, and it finally piqued my interest enough to get me to take a look.  I’m glad I did, because it’s actually gaining traction and could be something that becomes normal in the years to come.

What is the Oregon Pay it Forward loan repayment plan?

oregon changing student loan repaymentPay it Forward seems to have had an interesting life cycle. It was originally devised by a class of college students, working with the Economic Opportunity Institute, and then presented to the state legislature.  From there, it appears that the Working Families Party of Oregon, who happen to have been co-founded by the students’ teacher, took it under their wing and started pushing it.  According to this article in the New York Times, the resulting bill passed the Oregon House and Senate earlier this month.

From there, I would imagine that it’s got all kinds of structural work to be done in order to put the systems and processes in place to be fully functional.  But, once that’s done, it should become available to students in a few select universities and colleges sometime around 2015.

The plan, as it’s stated on the Working Families Party of Oregon website, will operate with a dedicated fund from which the tuition will be paid to the school.  After the student graduates, and gets a job, the student will then pay a fixed % of their salary back into the fund for 20 years.  The % that the graduate pays will depend on how much schooling they’ve received.

Under the proposed system, you would pay .75% of your adjusted gross income (AGI) for each year of school, or 45 credits. This means a student who goes for a 2-year degree would pay 1.5% of their AGI per year, while a student seeking a 4-year degree would pay 3%.

That should account, mostly, for the discrepancies of cost in tuition from a two-year degree vs. a full four-year degree.  The website also states that should a graduate be unemployed, there would be no repayment necessary until the graduate attains a job.

Is the Oregon Pay it Forward plan a good idea?

In my opinion, it’s both good and bad.  It all depends on how you look at it, really.  If you’re like me, and intend to work in a profession that basically requires a degree of some sort to even get your foot in the door, it could be a really good deal.  Heck, I’ve been out of college for 7 years.  Almost half way to their repayment period.  I’m not even close to half way to the end of my student loans, yet.

So, in that way, the plan might be a good thing.  It lowers the financial barrier to higher education, and makes less of a burden of the repayment of any tuition bills.  The lowering of barriers is also why I think it could end up being a bad thing.

Part of the reason that I think the higher education system is under so much fire is because it’s already too easy to get a student loan and go to college.  If anyone can do it, suddenly everyone must do it. If you want any sort of foothold in the professional community of your choice, you’ll need that degree.  That causes problems.  Demand for a college education never decreases.  The law of supply and demand says that the supplier (colleges in this case) can charge whatever the market will bear based on the fluctuations of demand.  If demand decreases, so too should supply.  If you want demand to increase, you reduce the cost of whatever you’re selling until demand begins rising again.  But, if demand never decreases, why should the cost of the education?  The supply of college attending students increases, increasing the demand for classrooms to teach them in and professors to teach them with.  School expenses increase due to the new buildings and additional staff.  If the fund for the plan doesn’t keep up, the money has to come from somewhere else.  Know where?  The state.  More specifically, the taxpayers of the state.

It’s too early to pass judgement on whether the plan will work or not.  Heck, the ink is barely dry on the bill itself.  It’s still got all kinds of tape to work it’s way through before it can begin being used.  I doubt that we’ll see any real results aside from an increased enrollment in the schools that pilot the program for at least 5-10 years.  Remembering that repayment likely won’t start for 4 years from the first enrollment.

I think it’s clear that the current state of student loans and their repayment needs to be reworked.  It’s unclear, however, whether this plan is the right answer.  It might be part of the answer though.  Combine something like it with a more rigorous acceptance process, and you might have a winner.

What do you think?  Is Oregon changing student loan payment forever? Is the program the right answer?  What would you change?  Would you have used it if you had the opportunity when you enrolled in college?  (I would have)

 

Paying Down Student Loans with Smarterbank

By 10 Comments

There’s little question that student loans can be one of the more difficult debt burdens that a person can have.  The cost of tuition is rising each year, and the rates seem to be following suit.  Many college graduates are finding themselves with a degree that cost as much as their first house is likely to.  It goes to reason, then, that finding any means available to help pay that debt off is probably a good idea.

What is Smarterbank?

I was recently introduced to a product offering called Smarterbank.  It’s an online checking account that’s run by The Bancorp Bank.  It’s fully FDIC insured to $250,000 and, for most purposes, operates just like any other online checking account.  Much like some other online banks, Smarterbank has some perks attached to their accounts.

In the case of Smarterbank, they give a “cashback” that goes directly to your student loans.  For purchases under $100, they apply .5% of the purchase to your Smarterbucks account.  For purchases over $100, the first $100 gets you the same .5%, and everything over $100 gets you 1%.

Smarterbank Fees

One of the nice perks of Smarterbank is that it’s a relatively fee free account.  There’s a monthly “inactivity” fee if you don’t use the account at least once in a month of $4.50, otherwise, if you’re a smart user, you’ll never hit a fee.  And, by smart user, I mean you don’t overdraft, or do something else silly.  They’ve got fees that are associated with things like statement research, etc, but those are pretty standard and you’re pretty unlikely to ever use those services.  You also get access to over 40,000 ATMs in the STAR ATM network.

The Smarterbucks Program

As I mentioned above, the “cashback” goes into your Smarterbucks account.  So, you’re probably wondering what the heck that is.  Smarterbucks is a rewards program.  Not unlike programs like Swagbucks, it rewards you for certain actions.  Things like shopping through their portal (“Smarterbucks Marketplace”) earn you cash back that is credited to your account.  You can also ask others to contribute to your account.  That option could be pretty cool to use as an alternative for people to give to you for birthdays, Christmas, or special events.

Once your Smarterbucks account reaches $15, they send a payment for that amount to your student loan.  At first, that might not seem like much, and, really, it isn’t.  But, every little bit helps.  And every $1 you pay off early is $1 that you aren’t accruing interest on for the life of the loan.  And that can add up in a hurry.

Would you switch to an account like Smarterbank for an offer like this?  Is the offer strong enough to make it worth the time?  What other offers have you seen that help with student loan payback?

See all the details on Smarterbank.

How Higher Education is Ruining the Economy

By 20 Comments

The last thing you probably expected, today, was a post about how higher education is ruining the economy. After all, aren’t personal-finance bloggers supposed to be all about advancing yourself, spending wisely, and earning all that you can? Perhaps, but I’m of the personal belief that one can still advance yourself, spend wisely, and earn all that your worth without having to go to college. Before I get off on a tangent let me explain just what it is that I mean. Higher education has its place. If you want to be an engineer, a doctor, social worker, or even a teacher, you’ll likely need to have a college degree. For those professions that require a college degree there simply isn’t any other way around it. But, that doesn’t mean you need to go to a college whose tuition costs exceed several years worth of the expected salary for the profession that you wish to have. After all, the idea is to learn a profession so that we can earn more money, not learn a profession so that we can spend more money.

Higher Student Loan Debt is Burdensome.

How does all that relate to the economy? The effects of the high cost of tuition are far-reaching. The added debt of college loans can create a cyclical debt treadmill. A recently graduated student may have a small window of time to get his or her affairs in order, but is quickly saddled with a student loan payment. Newly minted professional usually work extra hours to make extra money to pay off the large student loans they’ve accumulated. The combination of less free time with higher debt repayment figures creates a vacuum whereby the money earned never gets a chance to enter into the economy. And everyone knows that the quickest way for money to enter into the economy is through consumer spending.

Exaggerated Educational Requirements are Exaggerated.

But, the added debt isn’t the only reason that higher education is ruining the economy.  Heck, it isn’t even the student loan interest rates.  Our economy has always had an informal hierarchical system.  When I say that, I don’t mean that the people with the degrees got the better jobs, either.  Not so very long ago, the people who got the better jobs were the people who were best suited to it.  For many positions, that meant that the people getting the better jobs were the people with the most experience, and the most aptitude for the position.  Somewhere along the way, the people in charge of hiring decided that a higher education degree could replace some level of experience.  More and more companies decided that this was a good thing.  And now, many job openings require that you have a degree of some sort.  Real world experience in a position has been surpassed by classroom experience.  Entry level jobs that could just as easily be done excellently by a person with a high-school diploma are suddenly closed off to anyone without a degree.  Anyone that aspires to hold such a position is thereby required to attend college for a minimum of two years rather than spend those two years gaining experience and job skills for the position.  Worse, for the economy anyways, is that that person is then effectively taken out of the economy for at least two more years.  Instead of earning money, paying taxes, and contributing to the economy, that person is racking up the debt while taking so many credits that they can’t even afford the time to take on a part-time job.

How do we fix higher education?

College Fund © by Tax Credits

I think, first and foremost, we need to stop pretending that a degree is a “requirement”.  Stop pushing our children to attain a degree, and instead push them to get the minimal required training to attain the job/position that they desire.  Kids will be kids and they’ll do what they please, but they shouldn’t feel like their being pushed into a college education because their parents want them to get one.

We need to stop requiring degrees for positions that clearly don’t really need one.  In my particular field (IT for those curious among you), very little of what I learned in college has been applied in my work experience.  And yet, each of the positions I’ve had (with the exception of my most recent part-time job) has required a four year degree in the field.  Let me tell you, anyone with an aptitude for IT, and a willingness to learn on the job could have easily fulfilled all of the duties that I performed.  It’s a fact. How many other positions are there that are the same way?  Lots and lots, I’d wager.

From a strictly financial perspective, we have to do a better job of educating our children about how to go about getting a degree if that’s what they choose to do.  There are numerous tools that can help us out, in this internet age.  Our own government has a plethora of information to help, and there are plenty of other resources, like Big Future, that have lots of information too.

We also have to properly express what a fiscally responsible adult should do.  I can’t count the number of my fellow students (myself included) who took the maximum allowable student loans out, despite not needing that amount, so that they would have the extra funds available to do what they pleased with.  Yes, it’s some of the cheapest money you will ever borrow, but unless you’re planning on investing in a guaranteed rate account while you attend college, it’s still debt.  And every penny of it will make your financial life harder once you graduate.

Finally, we have to stop this idea that we are all entitled to a college education.  We aren’t.   It’s a privilege that we pay grandly for.  Just because you can spend $50,000 a year to get your library sciences degree, doesn’t mean you are entitled to, or should.

Do you have a degree?  Was it required for your position?  Should it have been?  How would you fix higher education?