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Verizon bent on TracFone buy even as prepaid brand loses subs

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Verizon remains adamant that its nearly $7 billion acquisition of TracFone will close before the end of the year, yet lawmakers and consumer groups continue to push for conditions on a transaction they deem harmful to consumers.

This is all happening as the object of Verizon’s desire is losing subscribers. During its second-quarter earnings, TracFone owner América Móvil reported a loss of 549,000 prepaid customers at TracFone, which ended the quarter with 20.3 million subscribers compared with 20.9 million at the end of the first quarter.

TracFone’s Lifeline brand, called SafeLink, accounted for the majority of the losses, at 378,000. It’s also the brand most at the center of controversy. TracFone’s largest single brand, Straight Talk, reported losses of 106,000 for the quarter.

According to Wave7 Research, TracFone’s loss is a bad sign for the prepaid sector. Granted, AT&T reported a stellar second quarter, with 174,000 prepaid additions. At Verizon, second-quarter prepaid subscribership increased by 18,000 net adds.

But the management at América Móvil sees consumer activity swinging away from prepaid and toward postpaid, in part due to more Covid vaccinations and the expected changes in spending patterns.

“Contrary to what happened at the peak of the pandemic where wireless subscribers felt more comfortable taking prepaid plans, we are now seeing stronger demand for postpaid which has intensified due to the strong commercial activity and promotions in that segment,” América Móvil stated in its second-quarter report, noting that handset supply limitations was a contributing factor.

RELATED: Verizon ends big 5G upgrade promo

During Verizon’s second-quarter earnings call on Wednesday, Verizon CEO Hans Vestberg reiterated that the company expects to close its acquisition of TracFone by the end of this year. Under an MVNO agreement, Verizon’s network powers the majority of TracFone users, but TracFone uses other networks as well.

On Wednesday, a group of lawmakers sent a letter to FCC Acting Chairwoman Jessica Rosenworcel asking that the transaction, if approved, include conditions that ensure Lifeline subscribers still have a chance to get affordable service under the proposed new ownership. It’s a familiar ask, and Verizon repeated plans to serve those customers.

“The proposed Tracfone acquisition will bring value and benefits to value-conscious consumers in a myriad of ways,” Verizon said in a statement Wednesday after the lawmakers’ letter to the FCC. “As we continue to work through the regulatory review process, Verizon looks forward to providing current and potential TracFone customers with more choices, better plans at flexible prices, and access to our 5G network, all while we expand our offerings to value-conscious and low-income consumers. Lifeline is foundational to the acquisition, and in response to calls for time commitments, Verizon has committed to the Lifeline program for at least three years.”

Looking for growth 

Considering TracFone’s lower subscriber numbers and Verizon’s historically negative stance on prepaid, one has to wonder why Verizon is so intent on buying TracFone. Traditionally, Verizon has not only shied away from prepaid, it’s practically shunned it.  

Like any acquisition, the hopeful owners think they can do a better job making the company profitable. And part of it has to do with the changing of the guard in Verizon’s leadership, said Bill Ho, principal at 556 Ventures. Both CEO Vestberg and Ronan Dunne, EVP and Group CEO of Verizon Consumer, started their careers in Europe, where operators led the prepaid industry.  

Indeed, in talking about TracFone at an investor event last year, Dunne noted his experience in the U.K. market, where he was CEO of Telefónica UK (O2) before joining Verizon in 2016. The U.K. market was more than 70% prepaid when he first started in the business. Eventually, that swung to about 30% prepaid as consumers migrated to postpaid.

RELATED: Verizon gives a few more clues about Tracfone acquisition

Historically, U.S. prepaid plans were targeted at those with no credit or bad credit, and churn was notoriously high. That’s in contrast to postpaid, where operators like having the customer put their monthly bill on autopay; churn goes down because it’s automatically linked to that account or credit card.  

Nowadays, prepaid churn is more manageable and for Verizon, it can be a source of growth. “From a business standpoint, Verizon, which is really conservative, is going on a limb, going into prepaid,” where there’s lower ARPU than they’re used to, and they’re inheriting the Lifeline program, Ho said.

Surely, Verizon management believes they can make TracFone more profitable than the existing owners, leaning on their own “owner’s economics” to lower costs. Verizon often talks about its Networks as a Service platform, where it can drive down costs and therefore make a profit as the number of subscribers on its network grows.

RELATED: Verizon’s Dunne argues for TracFone purchase to FCC’s Rosenworcel

“The question is, can they drop the cost down to serve those customers and then make a decent profit,” Ho said. TracFone’s success historically has been in Straight Talk, the brand sold at Walmart and elsewhere, with attractive ARPUs in the mid-$30s. The other brands will need to contribute as well.

Broadly speaking, the demand for prepaid has gone back and forth over the years, and the line between postpaid and prepaid certainly has blurred. “To some extent, the blurring is the plan,” he said, referring to increasingly similar monthly plans offered to both post and prepaid customers.

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Are Sallie Mae Student Loans Federal or Private?

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When you hear the name Sallie Mae, you probably think of student loans. There’s a good reason for that; Sallie Mae has a long history, during which time it has provided both federal and private student loans.

However, as of 2014, all of Sallie Mae’s student loans are private, and its federal loans have been sold to another servicer. Here’s what to know if you have a Sallie Mae loan or are considering taking one out.

What is Sallie Mae?

Sallie Mae is a company that currently offers private student loans. But it has taken a few forms over the years.

In 1972, Congress first created the Student Loan Marketing Association (SLMA) as a private, for-profit corporation. Congress gave SLMA, commonly called “Sallie Mae,” the status of a government-sponsored enterprise (GSE) to support the company in its mission to provide stability and liquidity to the student loan market as a warehouse for student loans.

However, in 2004, the structure and purpose of the company began to change. SLMA dissolved in late December of that year, and the SLM Corporation, or “Sallie Mae,” was formed in its place as a fully private-sector company without GSE status.

In 2014, the company underwent another big adjustment when Sallie Mae split to form Navient and Sallie Mae. Navient is a federal student loan servicer that manages existing student loan accounts. Meanwhile, Sallie Mae continues to offer private student loans and other financial products to consumers. If you took out a student loan with Sallie Mae prior to 2014, there’s a chance that it was a federal student loan under the now-defunct Federal Family Education Loan Program (FFELP).

At present, Sallie Mae owns 1.4 percent of student loans in the United States. In addition to private student loans, the bank also offers credit cards, personal loans and savings accounts to its customers, many of whom are college students.

What is the difference between private and federal student loans?

When you’re seeking financing to pay for college, you’ll have a big choice to make: federal versus private student loans. Both types of loans offer some benefits and drawbacks.

Federal student loans are educational loans that come from the U.S. government. Under the William D. Ford Federal Direct Loan Program, there are four types of federal student loans available to qualified borrowers.

With federal student loans, you typically do not need a co-signer or even a credit check. The loans also come with numerous benefits, such as the ability to adjust your repayment plan based on your income. You may also be able to pause payments with a forbearance or deferment and perhaps even qualify for some level of student loan forgiveness.

On the negative side, most federal student loans feature borrowing limits, so you might need to find supplemental funding or scholarships if your educational costs exceed federal loan maximums.

Private student loans are educational loans you can access from private lenders, such as banks, credit unions and online lenders. On the plus side, private student loans often feature higher loan amounts than you can access through federal funding. And if you or your co-signer has excellent credit, you may be able to secure a competitive interest rate as well.

As for drawbacks, private student loans don’t offer the valuable benefits that federal student borrowers can enjoy. You may also face higher interest rates or have a harder time qualifying for financing if you have bad credit.

Are Sallie Mae loans better than federal student loans?

In general, federal loans are the best first choice for student borrowers. Federal student loans offer numerous benefits that private loans do not. You’ll generally want to complete the Free Application for Federal Student Aid (FAFSA) and review federal funding options before applying for any type of private student loan — Sallie Mae loans included.

However, private student loans, like those offered by Sallie Mae, do have their place. In some cases, federal student aid, grants, scholarships, work-study programs and savings might not be enough to cover educational expenses. In these situations, private student loans may provide you with another way to pay for college.

If you do need to take out private student loans, Sallie Mae is a lender worth considering. It offers loans for a variety of needs, including undergrad, MBA school, medical school, dental school and law school. Its loans also feature 100 percent coverage, so you can find funding for all of your certified school expenses.

With that said, it’s always best to compare a few lenders before committing. All lenders evaluate income and credit score differently, so it’s possible that another lender could give you lower interest rates or more favorable terms.

The bottom line

Sallie Mae may be a good choice if you’re in the market for private student loans and other financial products. Just be sure to do your research upfront, as you should before you take out any form of financing. Comparing multiple offers always gives you the best chance of saving money.

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Tips to do some fall cleaning on your finances

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Wealth manager, Harry Abrahamsen, has five simple ways to stay on top of the big financial picture.

PORTLAND, Maine — Keeping track of our financial stability is something we can all do, whether we have IRAs or 401ks or just a checking account. Harry J. Abrahamsen is the Founder of Abrahamsen Financial Group. He works with clients to create and grow their own wealth. Abrahamsen shares five financial tips, starting with knowing what you have. 

1. Analyze Your Finances Quarterly or Biannually

You want to make sure that your long-term strategy is congruent with your short-term strategy. If the short-term is not working out, you may need to adjust what you are doing to make sure your outcome produces the desired results you are looking to accomplish. It is just like setting sail on a voyage across the Atlantic Ocean. You know where you want to go and plot your course, but there are many factors that need to be considered to actually get you across and across safely. Your finances behave the exact same way. Check your current situation and make sure you are taking into consideration all of the various wealth-eroding factors that can take you completely off course.

With interest rates very low, now might be a good time to consider refinancing student loans or mortgages, or consolidating credit card debt. However, do so only if you need to or if you can create a positive cash flow. To ensure that you are saving the most by doing so, you must look at current payments, excluding taxes and insurance costs. This way you can do an apples-to-apples comparison.

The most important things to look for when reviewing your credit report is accuracy. Make sure the reporting agencies are reporting things actuary. If it doesn’t appear to be reporting correct and accurate information, you should consult with a reputable credit repair company to help you fix the incorrect information.

4. Savings and Retirement Accounts

The most important thing to consider when reviewing your savings and retirement accounts is to make sure the strategies match your short-term and long-term investment objectives. All too often people end up making decisions one at a time, at different times in their lives, with different people, under different circumstances. Having a sound strategy in place will allow you to view your finances with a macro-economic lens vs a micro-economic view. Stay the course and adjust accordingly from a risk and tax standpoint.

RELATED: Financial lessons learned through the pandemic

A great tip for lowering utility bills or car insurance premiums: Simply ask! There may be things you are not aware of that could save you hundreds of dollars every month. You just need to call all of the companies that you do business with to find out about cost-cutting strategies. 

RELATED: Overcome your fear of finances

To learn more about Abrahamsen Financial, click here

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How to Get a Loan Even with Bad Credit

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Sana pwedeng mabura ang bad credit history as quickly and easily as paying off your utility bills, ‘no? Unfortunately, it takes time. And bago mo pa maayos ang bad credit mo, more often than not, kailangan mo na namang mag-avail ng panibagong loan. 

Good thing you can still get a loan even with bad credit, kahit na medyo limited ang options. How do you get a loan if you have bad credit? Alamin sa short guide na ito. 

For more finance tips, visit Moneymax.

 

 

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