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Student loan relief isn’t enough to calm recent graduates’ repayment stress | National

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By Seni Tienabeso, Lindsey Griswold, and Anthony Rivas, ABC News

(NEW YORK) — By his account, Elie Kirkland shouldn’t have been at Morehouse College’s commencement last year, when billionaire Robert Smith pledged to the class of 2019 to “put a little fuel in your bus” by paying off millions of dollars in their student loans.

Kirkland was one of 396 graduating from the historically black college. The senior was supposed to graduate in 2018 but didn’t because of financial aid issues. Kirkland had fallen behind on credit card payments and his parents had taken out loans to help him graduate. Before Smith announced his promise, Kirkland was ready to walk away with over $100,000 in debt.

Instead, he owes nothing.

“When that happened, my credit score, first of all, went up tremendously,” Kirkland told ABC News. “I just have so much more freedom. I’m not handicapped to that bad credit monster.”

Jordan Randle, part of the class of 2020, wasn’t as lucky. With the coronavirus pandemic in full effect, his commencement was canceled; his family came together for a small socially distant gathering in his backyard. His student loan debt now stands around $30,000.

“I almost feel bad saying that,” he told ABC News, “because I’ve literally said that and some students have laughed, like, ‘I wish I had your case,’ which is sad. … Moving [out], getting my new car, trying to apply for another credit card — just doing those typical adult things have been a lot harder.”

Now entering the workforce, both Randle and Kirkland said that with the cost of higher education so high, the system needs to be re-examined — that as student loan payments loom, some people may not be able to find an adequately paying job to pay them off.

“There are a lot of people who are struggling or who have that degree and can’t find work. … They’re using every penny to pay off that debt — basically just going to school just to pay off that debt,” Kirkland said.

“A lot of people are stuck in so much debt that they can’t even do what they studied for,” Randle added. “So what’s the point?”

Federal student loans have been suspended and their interest waived since President Donald Trump signed the Coronavirus Aid, Relief and Economic Security (CARES) Act in March. Through an executive order, he extended the suspension for some federal student loans to the end of the year.

But when payments resume, many people still won’t have jobs that allow them to pay off their student loans, which total $1.7 trillion nationwide.

Lowell Ricketts, lead analyst for the St. Louis Federal Reserve’s Center for Household Financial Stability, said a degree is still worth getting but that the payoff isn’t nearly as guaranteed as it was a generation ago.

“[Student loans have] outpaced inflation and other growth in prices and wages for many, many Americans, and so, it gives us a sense of crisis,” Ricketts told ABC News. “The returns, relative to the generations that came before, are starting to weaken when it comes to wealth.”

For graduates of color, the center’s data shows the returns are even weaker. For Black Americans born as early as the 1960s, having a college or postgraduate degree was statistically insignificant to their wealth. On average, they essentially broke even.

“It points to some of the fundamental wealth gap sources as being deeply entrenched in our history, and shows how difficult it is for any one family or individual to escape from some of the systemic gaps in wealth accumulation that we see based on race and ethnicity,” Ricketts said.

Nick Ducoff is the founder of Edmit, a company that helps students navigate the financial aid process to get the maximum benefit. He says a college degree “is still worth it,” but that it’s important to know the financial responsibility you’re signing up for ahead of time.

“The average college graduate earns nearly $1 million more over the course of their lifetime than a comparable high school graduate without a degree,” Ducoff said. “So, generally speaking, it’s worth it. But the devil is always in the details.”

Since 1998, the average price of college tuition has risen 183%. <>> From 1989 to 2016, the collective balance of outstanding student loan debt for U.S. families rose from 8.9% to 22.4%. <<>>

Nearly 7 out of 10 students from the class of 2019 signed up for some form of student loan, graduating with an average debt of nearly $30,000. These graduates joined 44 million Americans with student debt, 11% of whom have loans that are at least 90 days delinquent or in default.

For some former students, the debt is too much to handle. Katrina Williams said she was working at a Starbucks, a call center and delivering mail on Saturdays, and she still couldn’t afford to pay a $700 monthly payment.

“Even if I worked three jobs until I paid nothing but my student loan debt … I still wouldn’t be able to pay it off within the next 30 years, and that’s why you’re just like, ‘I’m not gonna pay them,'” Williams said.

With over $100,000 in student loan debt, the stress of which she said caused her to constantly break out in hives, Williams moved to Japan to teach and, one day, just stopped paying her student loans. While she was relieved from her decision, she still feels the system doesn’t work.

“The days when I was 18 years old and my eyes were full of stars and I’m like, ‘I’m going away to college’ … I had no idea what all those giant numbers meant when I was a kid,” she said. “People are starting to realize, ‘Oh, those millennials aren’t just eating avocado toast to be lazy. They’re in crippling debt.”

Ducoff said people who see their student loan debt adding up should try to exhaust every repayment option available, like income-driven repayment plans, which can help minimize the burden.

“Make sure you understand what options are available with respect to addressing your student debt,” he said.

He also said that students aren’t alone.

“There’s a lot of, unfortunately, other students that have an awful lot of student debt,” he said, “and there are communities online that they can find and meet others who have been chipping away at that.”

Although he’s already begun working full time to help pay off his loan, Randle still wants to see the system overhauled.

“I think the issue with the student loan system is it is basically combusting. … There needs to be change in our academic system in general,” he said. “Because I think it still benefits people who come from wealth because that’s who it was made for.”

Copyright © 2020, ABC Audio. All rights reserved.

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How to Avoid a Prepayment Penalty When Paying Off a Loan | Pennyhoarder

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Look at you, so responsible. You received a financial windfall — stimulus check, tax refund, work bonus, inheritance, whatever — and you’re using it to pay off one of your debts years ahead of schedule.

Good for you! Except… make sure you don’t get charged a prepayment penalty.

Now wait just a minute, you say. I’m paying the money back early — early! — and my lender thanks me by charging me a fee?

Well, in some cases, yes.

A prepayment penalty is a fee lenders use to recoup the money they’ll lose when you’re no longer paying interest on the loan. That interest is how they make their money.

But you can avoid the trap — or at least a big payout if you’ve already signed the loan contract. We’ll explain.

What Is a Loan Prepayment Penalty?

A prepayment penalty is a fee lenders charge if you pay off all or part of your loan early.

Typically, a prepayment penalty only applies if you pay off the entire balance – for example, because you sold your car or are refinancing your mortgage – within a specific timeframe (usually within three years of when you accepted the loan).

In some cases, a prepayment penalty could apply if you pay off a large amount of your loan all at once.

Prepayment penalties do not normally apply if you pay extra principal in small chunks at a time, but it’s always a good idea to double check with the lender and your loan agreement.

What Loans Have Prepayment Penalties?

Most loans do not include a prepayment penalty. They are typically applied to larger loans, like mortgages and sometimes auto loans — although personal loans can also include this sneaky fee.

Credit unions and banks are your best options for avoiding loans that include prepayment penalties, according to Charles Gallagher, a consumer law attorney in St. Petersburg, Florida.

Unfortunately, if you have bad credit and can’t get a loan from traditional lenders, private loan alternatives are the most likely to include the prepayment penalty.

Pro Tip

If your loan includes a prepayment penalty, the contract should state the time period when it may be imposed, the maximum penalty and the lender’s contact information.

”The more opportunistic and less fair lenders would be the ones who would probably be assessing [prepayment penalties] as part of their loan terms,” he said, “I wouldn’t say loan sharking… but you have to search down the list for a less preferable lender.”

Prepayment Penalties for Mortgages

Although you’ll find prepayment penalties in auto and personal loans, a more common place to find them is in home loans. Why? Because a lender who agrees to a 30-year mortgage term is banking on earning years worth of interest to make money off the amount it’s loaning you.

That prepayment penalty can apply if you want to pay off your loan early, sell your house or even refinance, depending on the terms of your mortgage.

However, if there is a prepayment penalty in the contract for a more recent mortgage, there are rules about how long it can be in effect and how much you can owe.

The Consumer Financial Protection Bureau ruled that for mortgages made after Jan. 10, 2014, the maximum prepayment penalty a lender can charge is 2% of the loan balance. And prepayment penalties are only allowed in mortgages if all of the following are true:

  1. The loan has a fixed interest rate.
  2. The loan is considered a “qualified mortgage” (meaning it can’t have features like negative amortization or interest-only payments).
  3. The loan’s annual percentage rate can’t be higher than the Average Prime Offer Rate (also known as a higher-priced mortgage).

So suppose you bought a house last year and then wanted to sell your home. If your mortgage meets all of the above criteria and has a prepayment penalty clause in the mortgage contract, you could end up paying a penalty of 2% on the remaining balance — for a loan you still owe $200,000 on, that comes out to an extra $4,000.

Prepayment penalties apply for only the first few years of a mortgage — the CFPB’s rule allows for a maximum of three years. But again, check your mortgage agreement for your exact terms.

The prepayment penalty won’t apply to FHA, VA or USDA loans but can apply to conventional mortgages — although the penalty is much less common than it was before the CFPB’s ruling.

“It’s more of private loans — loans for people who’ve maybe had some struggles and can’t qualify for a Fannie or Freddie loan,” Gallagher said. “That block of lending is the one going to be most hit by this.”

How to Find Out If a Loan Will Have a Prepayment Penalty

The best way to avoid a prepayment penalty is to read your contract — or better yet, have a professional (like an attorney or CPA) who understands the terminology, review it.

“You should read the entirety of the loan, as painful as that sounds, because lenders may try to hide it,” Gallagher said. “Generally, it would be under repayment terms or the language that deals with the payoff of the loan or selling your house.”

Gallagher rattled off a list of alternative terms a lender could use in the contract, including:

  • Sale before a certain timeframe.
  • Refinance before a term.
  • Prepayment prior to maturity.

“They avoid using the word ‘penalty,’ obviously, because that would give a reader of the note, mortgage or the loan some alarm,” he said.

If you’re negotiating the terms — as say, with an auto loan — don’t let a salesperson try to pressure you into signing a contract without agreeing to a simple interest contract with no prepayment penalty. Better yet, start by applying for a pre-approved auto loan so you can get a pro to review any contracts before you sign.

Pro Tip

Do you have less-than-sterling credit? Watch out for pre-computed loans, in which interest is front-loaded, ensuring the lender collects more in interest no matter how quickly you pay off the loan.

If your lender presents you with a contract that includes a prepayment penalty, request a loan that does not include a prepayment penalty. The new contract may have other terms that make that loan less advantageous (like a higher interest rate), but you’ll at least be able to compare your options.

How Can You Find Out if Your Current Loan Has a Prepayment Penalty?

If a loan has a prepayment penalty, the servicer must include information about the penalty on either your monthly statement or in your loan coupon book (the slips of paper you send with your payment every month).

You can also ask your lender about the terms regarding your penalty by calling the number on your monthly billing statement or read the documents you signed when you closed the loan — look for the same terms mentioned above.

What to Do if You’re Stuck in a Loan With Prepayment Penalty

If you do discover that your loan includes a prepayment penalty, you still have some options.

First, check your contract.

If you’ll incur a fee for paying off your loan early within the first few years, consider holding onto the money until the penalty period expires.

Pro Tip

If you don’t have a loan with a prepayment penalty, contact your lender before sending additional money to ensure your payment is going toward principal — not interest or fees.

Additionally, although you may get socked with a penalty for paying off the loan balance early, it’s likely you can still make extra payments toward the balance. Review your contract or ask your lender what amount will trigger the penalty, Gallagher said.

If you’re paying off multiple types of debt, consider paying off the accounts that do not trigger prepayment penalties — credit cards and federal student loans don’t charge prepayment penalties.

Tiffany Wendeln Connors is a staff writer/editor at The Penny Hoarder. Read her bio and other work here, then catch her on Twitter @TiffanyWendeln.

This was originally published on The Penny Hoarder, a personal finance website that empowers millions of readers nationwide to make smart decisions with their money through actionable and inspirational advice, and resources about how to make, save and manage money.

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10 things you didn’t know will help you get a mortgage

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Anyone who wants to apply for a mortgage right now will know that it’s not easy. Coronavirus has made the process of applying longer, while lenders are now more careful than ever about who they will lend to. You probably already know that having a healthy credit score is essential to a successful mortgage application, but how can it be achieved? Personal finance experts from Ocean Finance  weigh in with the top tips for making sure your application is a success – that you may not have heard about. 

1. Make sure your name is on all household bills

If you share a rental, it can be tempting to let someone else put their name down on the utility bills and just pay them back. If you want a mortgage, avoid doing this: bills with your name and address on them are proof that you pay them on time. This especially applies to the rent itself – never move into a house share without your name being on the contract. Before applying for a mortgage, ask your landlord for a letter confirming that you pay on time. 

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How Can I Prequalify for a Personal Loan? A Guide

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When you are in need of money quickly, you very likely don’t want to sit around pondering a bunch of different options. You want to find the option that works best for you and utilise it. Unfortunately for so many people around the country, it can be difficult to get their hands on the money they need due to them having a bad credit score, or even no credit score at all.

How Can I Prequalify for a Personal Loan?

Photo, Varun Gaba.

Your credit score is thought of as being pretty important, as it shows your financial trustworthiness to financial institutions like banks, credit card companies, lenders, and more. Your credit score is one thing that will usually be considered by just about any company you apply for a loan through, so keeping a close eye on your credit score is imperative for your financial life.

No matter what your credit score looks like, knowing how you can prequalify for a personal loan can be a comforting feeling when you are in need of quick cash. After all, when you are eligible for personal loan prequalification, you feel a little better going into the loan process knowing you won’t have to wait around for a loan decision.

How is Pre-qualification Decided? Prequalifying for a personal loan can depend on several different factors that you will have to keep in mind, and it will vary greatly depending on the lender you are applying through. Here are two of the things you will need to keep in mind when it comes to your loan that could affect whether or not you prequalify for the loan.

— Your credit score; Yes, this is always going to be something you are going to need to think about. Depending on the financial institution or lender you are going through, you can bet that your credit history and score will play a huge part in whether or not you prequalify.

— The amount of your loan; How much money you plan on borrowing from the lender or bank is also going to play a part in deciding whether or not you prequalify.

To get the most out of your search for a lender that you could prequalify with, think about applying with more than just one lender. This way, you might get several pre-qualification offers, and this will allow you to sort through the lenders and decide which one works best for you.

How Can I Prequalify for a Personal Loan?

Photo, Christina @ wocintechchat.com.

The Pre-qualification Process: No matter where you are trying to prequalify for your loan through, you will find the process to be pretty simple and largely similar across most lending platforms. You will need to provide some information to the lender that will help them decide whether or not to prequalify you.

How Can I Prequalify for a Personal Loan?

Photo, Windows.

Some of the information you will need to provide includes:

— Your full name; You will want to make sure you provide your full legal name so you can make the process simple for yourself and the lender. Depending on the lender, you might also be asked to provide images of your government issued ID or driver’s license to validate your identity.

— Your income and information on your job; Your income and employment status are often considered over your credit score when it comes to pre-qualification for loans, especially if you are applying for a personal loan through a lender who deals with customers with bad credit or no credit.

— The loan amount you want; Of course, you will have to include the amount of money you would like to borrow. Make sure it is something reasonable, and something that you can realistically pay back on time.

What Will the Lender Do? If you are trying to prequalify through a lender who specialises in bad credit clients, then you won’t have to worry about your credit score being negatively affected by taking out your loan. However, if the lender reports to the credit bureaus, your payments could still make an impact on your credit score.

If not working with a specialised lender, you might find that the lender will do a soft inquiry on your credit when going through the pre-qualification process. No worries here, as this doesn’t put any dents in your score. If you prequalify for the loan you are looking for, you should get an alert via email from the lender of your choice.

The Money You Need: Hopefully, you will have prequalified for the loan you are looking for so you can ensure you have access to the money you need, when you need it. Whether you’re going through some unexpected circumstance in life or just need money to pay something off quickly, knowing you are prequalified for the loan you need is a comforting feeling, allowing you access to the cash you need for whatever you need it for.



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