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

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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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Bad Credit

If You Want Consumers to Lose, Network Regulation is a Must – Digital Transactions

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After the current U.S. Congress was sworn in, a predictable chorus of merchants, lobbyists, and lawmakers demanded new interchange price caps and other government mandates to decrease credit card interchange fees for merchants. The tired attacks on credit cards are an easy narrative that focuses almost exclusively on the cost side of the ledger, while completely ignoring the cards’ important role in the economy and the regressive effects of interchange regulation. 

To lawmakers blindly acting on behalf of retailers, regulation is a brilliant idea—regardless of how it affects their constituents. For decades, they have promised these interventions would eventually benefit consumers. But the lessons from the Durbin Amendment in the United States and price cap regulation in Australia is clear. Although some policymakers bemoan the current economic model, arbitrarily “cutting” rates for the sake of cuts completely ignores the economic reality that as billions of dollars move to merchants, billions are lost by consumers. 

For the uninitiated, let’s break down what credit interchange funds: 1) the cost of fraud; 2) more than $40 billion in consumers rewards; 3) the cost of nonpayment by consumers, which is typically 4% of revolving credit; 4) more than $300 billion in credit floats to U.S. consumers; and 5) drastically higher “ticket lift” for merchants. 

Johnson: “To lawmakers blindly acting on behalf of retailers, regulation is a brilliant idea—regardless of how it affects their constituents.”

These are just some of the benefits. If costs were all that mattered, American Express wouldn’t exist. Until recently, it was by far the most expensive U.S. network. Yet, merchants still took AmEx because they knew the average AmEx “swipe” was around $140, far more than Visa and Mastercard. 

Put simply, for a few basis points, interchange functions as a small insurance policy to safeguard retailers from the threat of fraud and nonpayment by consumers. Consider the amount of ink spilled on interchange when no one mentions that the chargeoff rate for issuing banks on bad credit card debt exceeds credit interchange.

Looking abroad, interchange opponents cite Australia, which halved interchange fees nearly 20 years ago, as a glowing example of how to regulate credit cards. In truth, Australia’s regulations have harmed consumers, reduced their options, and forced Australians to pay more for less appealing credit card products. 

First, the cost of a basic credit card is $60 USD in many Australian banks. How many millions of Americans would lose access to credit if the annual cost went from $0 to $60? Can you imagine the consumer outrage? 

In a two-sided market like credit cards, any regulated shift to one side acts a massive tax on the other. For Australians, the new tax fell on cardholders. There, annual fees for standard cards rose by nearly 25%, according to an analysis by global consulting firm CRA International. Fees for rewards cards skyrocketed by as much as 77%.

Many no-fee credit cards were no longer financially viable. As a result, they were pulled from the market, leaving lower income Australians, as well as young people working to establish credit, with few viable options in the credit card market.

Even the benefits that lead many people to sign up for credit cards in the first place have been substantially diluted in Australia because of the reduction of interchange fees. In fact, the value of rewards points fell by approximately 23% after the country cut interchange fees.

Efforts to add interchange price caps would have a similar effect here in the U.S. A 50% cut would amount to a $40 billion to $50 billion wealth transfer from consumers and issuers to merchants. For the 20 million or so financially marginalized Americans, what will their access to credit be when issuers find a $50 billion hole in their balance sheets? 

The average American generates $167 per year in rewards, according to the Consumer Financial Protection Bureau. Perks like airline miles, hotel points, and cashback rewards would be decimated and would likely be just the province of the rich after regulation. Many middle-class consumers could say goodbye to family vacations booked at almost no cost thanks to credit card rewards.

As the travel industry and retailers fight to bounce back from the impact of the pandemic, slashing consumer rewards and reducing the attractiveness of already-fragile businesses is the last thing lawmakers and regulators in Washington should undertake.

Proposals to follow Australia’s misguided lead in capping interchange may allow retailers to snatch a few extra basis points, but the consequences would be disastrous for consumers. Cards would simply be less valuable and more expensive for Americans, and millions of consumers would lose access to credit. University of Pennsylvania Professor Natasha Sarin estimates debit price caps alone cost consumers $3 billion. How much more would consumers have to pay under Durbin 2.0?

Members of Congress and other leaders should learn from Australia and Durbin 1.0 to avoid making the same mistake twice.

—Drew Johnson is a senior fellow at the National Center for Public Policy Research, Washington, D.C.

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Increase Your Credit Score With Michael Carrington

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More than ever before, your debt and credit records can negatively impact you or your family’s life if left unmanaged. Sadly, many Americans feel entirely helpless about their credit score’s present state and the steps they need to take to fix a less-than-perfect score. This is where Michael Carrington, founder of Tier 1 Credit Specialist, comes in. Michael is determined to offer thousands of Americans an educated, informed approach towards credit restoration.

Michael understands the plight that having a bad credit score can bring into your life. His first financial industry job was working as a home mortgage loan analyst for one of the nation’s largest lenders. Early on, he had to work a grueling schedule which included several jobs seven days a week while putting in almost 12-hour days to make $5,000 monthly to get by barely.

“I was tired of living a mediocre life and was determined to increase the value that I can offer others through my knowledge of the finance industry – I started reading all of the necessary books, networking with industry professionals, and investing in mentorship,” shares Michael Carrington. “I got my break when I was able to grow a seven-figure credit repair and funding organization that is flexible enough to address the financial needs of thousands of Americans.”

With his vast experience in the business world, establishing himself as a well-respected business leader, Michael Carrington felt he had the power to help millions of Americas in restoring their credit. Michael learned the FICO system, stayed up to date on the Fair Credit Reporting Act (FCRA), found ways to improve his credit score, and started showing others.

The Tier 1 Credit Specialist uses a tested and proven approach to educate their clients on everything credit scores. Michael is leveraging his experience as a home mortgage professional, marketing executive, and global business coach to inform his clients. He and his team take their time to carefully go through their client’s credit records as they try to find the root of their problem and find suitable financial solutions.

The company is changing lives all over America as it helps families and individuals to repair their credit scores, gain access to lower interest rates on loans and get better jobs. What Tier 1 Credit Specialists is offering many Americans is a chance at financial freedom.

Michael Carrington has repaired over $8 million in debt write-ups and has helped fund American’s with over $4 million through thousands of fixed reports. “I credit our success to being people-focused,” he often says. “The amount of success that we create is going to be in direct proportion to the amount of value that we provide people – not just our customers – people.”

Because of its ‘people-focused goals, the Tier 1 Credit Specialist is determined to help millions of Americans achieve financial literacy. It is currently receiving raving reviews from clients who are completely happy with the credit repair solutions that the company has provided them.

Today, Michael Carrington is continuing with a new initiative to serve more Americans who suffer from bad credit due to little or no access to affordable resources for repair.

The Tier 1 Credit Socialist brand is changing the outlook of many families across America. To do this, the company has created an affiliate system that will provide more people with ways of earning during these tough economic times.

As a well-respected international business leader and entrepreneur with numerous achievements to his name Michael Carrington aims to help millions of Americans achieve the financial freedom, he is experiencing today. Tier 1 Credit Socialist is one of the most effective credit repair brands on the market right now, and they have no plans for slowing down in 2021!

Learn more about Michael Carrington by visiting his Instagram account or checking out the Tier 1 Credit Specialist website.

Published April 17th, 2021



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Does Having a Bank Account With an Issuer Make Credit Card Approval Easier?

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Better the risk you know than the one you don’t.

When it comes to personal finance, nothing is guaranteed. That goes double for credit. That’s why, no matter how perfect your credit or how many times you’ve applied for a new credit card, there’s always that moment of doubt while you wait for a decision.

Issuing banks look at a wide range of factors when making a decision — and your credit score is only one of them. They look at your entire credit history, and consider things like your income and even your history with the bank itself.

For example, if you defaulted on a credit card with a given bank 15 years ago, that mistake is likely long gone from your credit reports. To you and the three major credit bureaus, it is ancient history. But banks are like elephants — they never forget. And that mistake could be enough to stop your approval.

But does it go the other way, too? Does having a bank account that’s in good standing with an issuer make you more likely to get approved? While there’s no clear-cut answer, there are a few cases when it could help.

A good relationship may weigh in your favor

Credit card issuers rarely come right out and say much about their approval processes, so we often have to rely on anecdotal evidence to get an idea of what works. That said, you can find a number of stories of folks who have been approved for a credit card they were previously denied for after they opened a savings or checking account with the issuer.

These types of stories are more common at the extreme ends of the card range. If you have a borderline bad credit score, for instance, having a long, positive banking history with the issuer — like no overdrafts or other problems — may weigh in your favor when applying for a credit card. That’s because the bank is able to see that you have regular income and don’t overspend.

Similarly, a healthy savings or investment account with a bank could be a helpful factor when applying for a high-end rewards credit card. This allows the bank to see that you can afford its product and that you have the type of funds required to put some serious spend on it.

Having a good banking relationship with an issuer can be particularly helpful when the economy is questionable and banks are tightening their proverbial pursestrings. When trying to minimize risk, going with applicants you’ve known for years simply makes more sense than starting fresh with a stranger.

Some banks provide targeted offers

Another way having a previous banking relationship with an issuer can help is when you can receive targeted credit card offers. These are sort of like invitations to apply for a card that the bank thinks will be a good fit for you. While approval for targeted offers is still not guaranteed, some types of targeted offers can be almost as good.

For example, the only confirmed way to get around Chase’s 5/24 rule (which is that any card application will be automatically denied if you’ve opened five or more cards in the last 24 months) is to receive a special “just for you” offer through your online Chase account. When these offers show up — they’re marked with a special black star — they will generally lead to an approval, no matter what your current 5/24 status.

Credit unions require membership

For the most part, you aren’t usually required to have a bank account with a particular issuer to get a credit card with that bank. However, there is one big exception: credit unions. Due to the different structure of a credit union vs. a bank, credit unions only offer their products to current members of the credit union.

To become a member, you need to actually have a stake in that credit union. In most cases, this is done by opening a savings account and maintaining a small balance — $5 is a common minimum.

You can only apply for a credit union credit card once you’ve joined, so a bank account is an actual requirement in this case. That said, your chances of being approved once you’re a member aren’t necessarily impacted by how much money you have in the account.

In general, while having a bank account with an issuer may be helpful in some cases, it’s not a cure-all for bad credit. Your credit history will always have more impact than your banking history when it comes to getting approved for a credit card.

For more information on bad credit, check out our guide to learn how to rebuild your credit.

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