Beating Broke

Personal Finance from the Broke Perspective

Paying Down Student Loans with Smarterbank

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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

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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?

Don’t Be A Fool, Focus On School

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The back to school season is upon us, and many newly graduated high school students will head off to college for the first time.  More than ever, college students feel financial pressure.  The cost of college tuition continues to rise, and a student is often forced to decide to go into student loan debt to pay for her education or to work many hours to try to pay for the tuition without going into debt.

As a former college teacher I have a few thoughts on the subject.  If a student is going to college full-time, I cannot stress enough that school should be the main focus.  If a student needs to work, he should work part-time, 10 to 20 hours a week.  Yes, there are plenty of college graduates who brag that they worked full-time and went to school full-time and did just fine.   Yet, what were their grades?

Graduated!

I routinely had students in my class who worked full-time and went to school full-time.  In this scenario, education almost always gets shortchanged.  A student cannot neglect their employment, or they will be fired.  Instead they neglect their school work and get low grades, often not even passing grades.  A good rule of thumb is that for every hour in a credit course, plan to study three hours outside the class for a liberal arts class and four hours for a science or math class.  That means a student taking a 3 credit hour rhetoric course should plan on spending 9 hours outside the classroom doing homework.  If the student is taking a 4 hour anatomy class, he should plan on spending 16 hours outside the classroom on homework.  A full load of classes can range anywhere from 12 to 18 credit hours.  Those hours represent the time spent in the classroom.  Even if all the classes are liberal arts classes, the student should still be putting in 36 to 54 hours on homework a week to obtain optimal grades.  So, be sure to take your degree options into consideration when deciding on a job. Because, unless the student doesn’t plan on sleeping, working a full-time job is too much.

There is nothing wrong with reversing the situation and working full-time to avoid taking on student loan debt.  However, the student should only commit to taking a maximum of 2 classes a semester to obtain optimal grades.

College students should accept that they can’t do it all.  Either go to school full-time and work part-time and accept that you will have to pay off debt when you graduate or work full-time and go to school part-time and accept that you will graduate debt free, but it will take longer.  If a student takes on too much and earns low or failing grades, they have ultimately just wasted their time AND money.

photo credit: ralph and jenny