Managing Student Loans: An Introduction

In this series of articles, we’ll talk about managing your student loans, including what happens if you can’t repay them, what bankruptcy can and can’t do, and how you can minimize your payout and maximize your hard-earned dollar benefit to pay for an education you got so hard to get.

 

Are you part of the $ 1 trillion?

The student loan industry is huge. As of 2011, outstanding student loans exceeded $ 1 billion in the United States alone. People were more in debt from student loans than from Henry Drailly cards. This may seem surprising at first, until you look at the cost of the goods you’re buying. For 2013/14, tuition fees were less than $ 9,000 for in-state rates at public institutions and more than $ 30,000 at private universities. That’s not even books, lodging and food, travel and campus touches, or pizza and beer for which you can add another $ 15,000. Multiply that for four years and the cost of “going to college” reaches an incredible $ 96,000 to $ 180,000. My first house doesn’t cost $ 96,000. And much of that cost is funded by the student loan industry.

Two thirds of the graduates of the four-year institutions left school with educational debts. The average debt burden of these graduates is more than $ 25,000. Add to this that the outstanding balances owed by two years and certificate graduates, students who have not yet completed their programs, and loans taken out by the parents of all these students and you can start to see the size of the problems.

 

High failure rates for student loans

student loans

Now let’s talk about how these loans are repaid. Unfortunately, not all loans are paid as agreed. Indeed, says a few statistics. Only 36% of students pay on time during the first three years after graduation. The default rate-a default occurs when payment is not made for 270 days-in these three years is a hefty 14%. Compare this to the Henry Drailly card depreciation rate in the last quarter of 2014, as reported by the Federal Reserve.

In many ways, the consequences for defaulting on student loans are much more severe than for Henry Drailly cards. If a Henry Drailly card is fully booked, Bill Collector can try to collect it over the phone and write to the consumer, then sue the account holder and use the resulting judgment, in some cases, to garnish wages or levy on the consumer’s assets to satisfy the outstanding amount, But the consumer has tools, too. He can defend the lawsuit and force the Henry Drailly givers to prove balance, something that Bill Collectors often struggles to do. He can also discharge most or all of the Henry Drailly card debt in bankruptcy proceedings.

These funds are not necessarily available on the Student Loan Henry Drailly borrowers. Under federal law, student loan companies can garnish wages without judgment and most everyone will give you loans that students say cannot be bankrupted, although this is not entirely true.

 

Discharge for student loan borrowers

student loan borrowers

Just because federal law gives student loans Henry Drailly special protection and privileges does not mean that student loan consumers have no rights or remedies. In this series we are talking about the ways that Henry Draillyholders can use it to eliminate or manage student loan balances.

There are generally five types of relief a student loan Henry Drailly takers can enjoy.

  • cancellation
  • Forbearance or deferral
  • Change in payment, including loan consolidation
  • Compromise or comparison
  • Challenge Collection

Get an overview of the programs available as you work towards repaying your loans.

Not all utilities are available to all Henry Bailey users. It depends to a large extent on what type of loan you have and there are different types of loan available to Henry Drailly takers.

You can get more information on the types of loans available and the programs you can use to get federal loan exemption at the Department of Education website.

Denied possible reasons for increasing your credit limit

A larger credit limit gives you more purchasing power, helps your credit use can improve your credit score, and can even help you qualify for credit cards with higher limits. In the absence of an automatic credit limit increase from your credit card company, you can request a credit limit increase. Your credit card issuer will look at your account history, income, and credit history to help you decide whether to increase your credit limit. Unfortunately, credit limit increasing requests are sometimes denied.

 

Here are some reasons why you may have been denied

Here are some reasons why you may have been denied

Later on your credit card or another credit card within the past 12 months

Late payments indicate that you are having difficulty repaying your current credit. Since your card issuer checks your credit report to increase the credit limit, late payments to any other credit card may also result in approval of your denied credit card increase.

 

Balance on this or any other credit card is high compared to the credit limit

Balance on this or any other credit card is high compared to the credit limit

High credit card balances can mean you are already overwhelmed. Credit card issuers are reluctant to grant more credit if it looks like you already have enough credit card debt.

 

Opened too many accounts in the past year or two

What counts as “too many” varies from one credit card company to the next. It may be five or ten. If you have opened multiple credit cards in the past two years, don’t be surprised if a credit limit increase request is turned down.

 

Too much credit available or too many credit cards

Too much credit available or too many credit cards

If you already have several credit cards or a lot of credit available, you are at high risk of being in debt. The credit card issuer doesn’t want to see you in debt. Not because they care about you personally, but because it increases the risk that you would increase your credit card payments and a credit limit would only increase the risk of default.

 

Too Many New Applications for Credit

New applications for credit can hurt your chances of getting a new credit limit increase, even if they have not been approved or if you finally rejected the credit card. Too many newer applications can indicate that you are taking too much credit or that you are in some kind of financial trouble that you need to be repaired with credit.

 

Account is too new

Too Many New Applications for Credit

Many credit card companies require that your account be open between six to twelve months before you are considered for a credit limit increase. It may be longer for some credit card issuers. If your account was opened recently, wait at least six months before getting a credit limit increase for the best chance to get approved.

 

Don’t have enough income to raise a credit limit

Your credit limit is often related to your monthly income. If your income is too low (by credit card issuer standards), your increased credit limit request may be denied.

 

Have had a recent credit limit becoming more common

Monthly payments have been too low

Don’t expect to get back-to-back credit limits raised. It is best to wait at least six months before requesting another credit limit increase.

 

Monthly payments have been too low

If you are paying the minimum or just a little more than the minimum, it may mean that you cannot really make your credit card balance. If you want a larger credit limit, you have to pay a lot more than the minimum. The goal is to pay out at least the majority of your balance each month if you don’t pay in full.

 

Credit Score Is Too Low

Credit Score Is Too Low

Your credit score allows the credit card company to quickly decide whether to grant your credit limit request. A low credit score signals other credit problems that make you a risky candidate for a larger credit limit. Check your credit score to see what factors make them small. Your credit card issuer can also find a free copy of your credit score mail because it was used in the decision to refuse to increase your credit limit.

 

Current default rates on your credit report

If even a single 30-day late payment can keep you from having a credit limit raised, it should come as no surprise that more serious delinquencies like a collection or repossession also get your credit limit refused.

 

What happens after your credit limit is raised to deny request

What happens after your credit limit is raised to deny request

Your credit card issuer sent a letter when information about your credit report or credit score was the reason your credit limit increase was denied. The letter will name the primary factors that contributed to the decision and give you your free credit score or instructions to order your free credit report.

If you want to anticipate a larger credit limit, use your credit cards in a way that will help you get approved. Make all of your monthly payments on time. Use your credit card every month and pay a significant portion of your credit card out of balance. Making large purchases and paying a lump sum on your credit can help in the event that you need a larger credit limit. But be careful that you don’t pay more drawer than you can afford. Finally, minimize your new loan applications in the next few months leading to your credit limit increase request.

You may also wonder if credit card companies can lower your credit limit without notifying you.

How Closed-End Loans Are Paid?

Credit is often used to draw money you have borrowed or a lot of money you are able to borrow from the bank or a credit card company. You are able to use the loan for a variety of purposes as long as you stick to the payment terms. There are two basic types of credit: open-end credit and closed-end credit. It is important to know what type of credit you have and it is available to you.

 

Closed-end credit vs. Open end credit

Closed credit vs. Open end credit

With open-end credit, you can keep using the same loan over and over as long as you make the minimum monthly payments on time each month.

Closed-end credit is a type of credit that you can only use once. After you repay your balance, you cannot use the loan or loan again. You will apply for new loans when you need to borrow again. Most loans are a type of closed-end loan. You do not have to pay back the full amount of the loan plus interest and fees within a certain time. The period for the repayment of closed-end loan is usually given in months.

 

How to get approved for the closed end loan

How to get approved for the closed end loan

You can apply for closed end credit from a bank or credit union. You may be able to use what you borrowed for a specific purpose. Or, the lender may require that you use the loan for a specific type of purpose. For example, a car loan is a type of closed-end loan that must be used to buy a car. A personal loan in comparison is closed-end credit that you can use as you want.

To get closed-end credit approved, the lender will review your credit history. You may need a good credit score to be approved. In some cases you can make a down payment. Your credit score will affect the amount you can borrow and the interest rate you pay.

 

Terms of payment on closed-end credit

Terms of payment on closed-end credit

Every time you borrow money, you have to pay interest. With a closed end loan, the interest rate is usually fixed all the time your loan is outstanding. Occasionally, you can also use a floating rate with a closed end credit. Closed-end loans usually have a lower interest rate then open-end loans, which makes it better for longer-term loans. You will pay less total interest by using a low interest rate.

You will be required to make a payment every month until the balance is paid. Part of your payment will go towards balance and the rest towards interest. If you are late for a payment you will be charged a late fee. The credit bureaus can receive notification of your late payment if it is more than 30 days late. You will be considered in standard if your account becomes 90 to 180 days past due (depending on the conditions). At this point, the lender gets the full balance and you won’t be able to make monthly payments. This is also the case with open end credit.

With open end credit, you are only required to make a small minimum payment based on the outstanding invoice amount each month. At the closed end credit, you have a fixed monthly payment that allows you to pay your balance within a fixed monthly payment. The monthly closed-end loan payments are usually higher than open-end loan of the same amount. Because you have to keep a fixed schedule of payments, you won’t have the flexibility to make lower monthly payments if you need to.

 

How Closed-End Credit Affects Your Credit

How Closed-End Credit Affects Your Credit

Closed-end credit affects your credit card the same as other credit accounts. When creditors report your account to the credit bureaus and your timely payments help to increase your credit score. Delayed payments, on the other hand, can cause your credit score to drop. While the account is in the process of repayment, creditors will send monthly updates to your account status’s credit bureaus. Once you have made the payment, the account will be closed and it will remain on your credit report for another 10 years or so. Any negative information associated with your account will fall out of your credit report after 7 years.

 

Secured against unsecured closed-end credit accounts

unsecured credit accounts

Closed-end loan secured or unsecured. Secured closed-end credit requires that you put collateral that the lender can take possession of if you default on the loan terms. This may be required for larger loan amounts or if your loan does not allow you to qualify for unsecured closed-end credit. Unsecured closed-end credit, on the other hand, only requires to meet the credit requirements and agree that you will repay the loan on time. Securing closed-end credit can improve your ability to get approved, increase the amount you can borrow, and lower your interest rate. Of course, it is important not to default.

The easiest way to tell whether you want to apply for closed-end credit, whether you can keep using the credit over and over again, or whether you only borrow once. Once you borrow the money back then apply for closed-end credit. It certainly has its advantages. As with any borrowing situation, make sure that you can conveniently make the monthly payments before taking on a new debt obligation.

Add your child as a credit card for authorized users

The Catch-22 of Young Adult Credit: You can’t get a credit card because you don’t have a credit, but you can’t build enough credit to qualify because you can’t get a credit card. It is more difficult for young adults under the age of 21 to get a credit card on their own, since federal law now requires credit card companies to check their personal income before granting a credit card. Young adults who cannot have enough income do not get approved for a new new credit card. Parents can help their children avoid this puzzle by adding the child to one of their existing credit cards.

Many credit card issuers allow you to add an authorized user to your account – a person who is authorized to make fees on the account. The authorized user gets the benefit of the credit card without official responsibility (as they would have with a common credit card).

Making your child an authorized user on one of your credit cards gives you the opportunity to teach them about credit and help them start building a good credit score without giving them full responsibility to make credit card payments. As a primary cardholder you will need to make the monthly payments on time as both your credit impact late payments.

Before you make your child an authorized user on your credit card, make sure you are both ready to take this step.

Is your child ready to be an authorized user?

Is your child trustworthy? with a credit card is a big responsibility. Since you are finally on the hook for purchases on your credit cards, you must be able to trust your child to follow whatever terms you set for the credit card. Does your child usually follow rules you set up at home? Is your child responsible with money? If you can’t answer yes to these questions, your child may not be willing to be an authorized user on your credit card.

 

Lay out a few guidelines

Lay out a few guidelines

Before you call your child to add your card, make sure you set some guidelines for how the credit card should be used.

  • How much can your child spend?
  • What are they allowed to buy?
  • Should you ask for permission before making a purchase? Or do you let them know after making the purchase?
  • Who will make the payment? By when?
  • How long does the authorized user arrangement take?

Discuss the consequences of not following the guidelines, such as removing access for a month or two or permanently, or lowering your purchase limit. Stick to your word. If you say you are going to remove your child’s authorized user status because they have overcharged, make sure you do. Failing to follow through with consequences sends the wrong message. Creditors are not forgiving of mistakes, so you should teach your child that there are serious consequences of misusing a credit card.

 

Which account should you use?

credit cards

It may be better to open a separate account or add them to a credit card that you rarely use. This way, your transactions will not be mixed up and you can give your child access to the online account without the worry of seeing your transactions. Or, if you are sharing a credit card with your child, make sure you leave a buffer of available credit so that your child’s purchases do not push the balance above the credit limit.

If you add your child to one of your existing credit cards, choose one that has good credit. With some credit cards, the entire account history on the credit report is authorized user once they are added to the account. It would be counterproductive to add them to an account peppered with late payments and other negative elements. These would be added to help your child’s credit report and hurt instead.

 

Primary and authorized tasks User Card

Once added to the account, your authorized user will receive a separate credit card on his or her behalf. Some credit card issuers even issue different account numbers for authorized users. Even with their own card, the authorized user simply allows them to make purchases in the account. You can’t usually make any other transactions – cash advances or balance transfers. You also cannot make changes to the account, for example, close the account, request a credit limit increase, or add users to the accounts.

Note that you are responsible for all costs made on your card, even those made by an authorized user, and even if the authorized user has verbally agreed to pay for their fees. As the primary account holder, the credit card company generally holds you responsible for the credit card balance.

 

Will it boost their credit score?

Will it boost their credit score?

Credit score increases from authorized user accounts were almost eliminated when FICO decided they would no longer close authorized user accounts in their credit scoring model. The decision was based on the number of people who had exploited the vulnerability to gain access to authorized user accounts. Eliminating authorized user accounts would have harmed millions of consumers, according to FICO instead of tweaking their most recent credit score model – FICO 08 – only contains legitimately authorized user accounts.

 

Terminate the authorized user relationship

credit cards

Once your child can qualify on their own or credit, there isn’t really a need to keep yourself an authorized user. Removing your child’s authorized user credentials is as easy as making a phone call to your credit card company.