Saturday, August 23, 2008

Shopping for Back-to-School Loans

AFTER WORKING AND TAKING COLLEGE CLASSES when she could for about 20 years, Nicole King decided she wanted to focus on her degree. So she quit her job at Barnes & Noble and headed back to academe full-time. “I would have been 80 by the time I graduated if I’d kept going to school part-time,” she laughs. The single-mom now finds herself in an unusual situation: She and her daughter will be attending—and paying for—college simultaneously.

After consulting with the financial aid office at her school, San Diego State University, Nicole put together a package of grants, merit awards, and loans to help her finance her accelerated education program. Her daughter, who will be attending San Diego’s Mesa College, also qualified for scholarships, and is rounding out her financing with loans.

Nicole had taken out education loans back when she first started going to college in the late 1980s and faithfully paid them all off and therefore was able to secure a new line of credit without too much trouble. She and her daughter both qualify for federally subsidized loans, which is a plus now that nearly 100 banks, most recently Wachovia, have stopped financing private undergraduate student loans.

SLM, OR SALLIE MAE, A MAJOR
provider of college-savings and loan programs, has itself had a tough time amid the recent credit crunch. The lender, which oversees about $172 billion in loans for 10 million students and their parents, saw its earnings drop 72% in the second quarter. After the first quarter, it had warned that it would have trouble lending profitably as the capital markets seized up.

In spite of that, Sallie Mae’s Website (http://www.salliemae.com), remains a great resource for education-cost calculations and other metrics for borrowers. You can also sign up there for Upromise, which links spending at roughly 40,000 participating retailers and services like J.C. Penney and Bed Bath & Beyond, to a rebate program. The rebates accumulate and are deposited in a college savings plan, which can also be used to repay student loans.

The credit crunch has not completely turned off the federal student-loan tap for those who qualify, but private loans are becoming more difficult to find. More banks are insisting on the student’s having a co-signer for the loan, and there are higher rates and fees being assessed. Because of rising defaults and the increasing number of students declaring personal bankruptcy post-college, the banks have become more cautious about these loans, particularly for those whose creditworthiness doesn’t match Nicole’s.

SO WHAT’S A STUDENT to do if loans are a key component of financing his or her education, and that financing hasn’t yet been nailed down? Search the Web.

Your first stop should be the university’s own Website, where you can look for financial-aid information that is focused on that particular school. For instance, my younger daughter is a sophomore at the University of Washington and its Office of Financial Aid publishes a Student Loan Program Chart that spells out the differences among the loans available, at http://www.washington.edu/students/osfa/ ugaid/student.loan.program.chart.html. Another good clearinghouse of information is at the National Student Loan Data System, which is the U.S. Department of Education’s central database for student aid. It receives data from schools, agencies that guarantee loans, the Direct Loan program, and other U.S. Department of Education programs. Check it out at http://www.nslds.ed.gov/.

A site that provides a variety of loan possibilities, based on the student’s needs, residence, and co-signer status, is Simple Tuition (http://www.simpletuition.com). When I made up a scenario of a freshman at the University of California, with a co-signer, who needed to borrow $25,000 without a federal guarantee, the site presented me with nine possible loans. The results screen lets you sort the possibilities by variables such as interest rate, grace period, monthly payment or the loan’s total cost.

In the case of my fictional scenario, the loan that would cost me the least overall was proposed by Discover Student Loans, the college-lending affiliate of the credit-card outfit, at $41,137.67. The most expensive loan proposed came from bank SunTrust, at $52,321.53. These totals are based on a borrower with excellent credit, though—the small-print disclosures indicate that a less creditworthy borrower could end up paying well over $150,000 over the life of the loan to borrow $25,000.

Most banks now generate floating-rate loans, based on either the U.S. prime rate or Libor (the London InterBank Overnight Rate), and the borrower’s credit rating. A grace period begins when the student leaves school, either through graduating or dropping out, after which the borrower is required to start repaying .

Social networking has hit the student-loan market with the recent launch of GreenNote (http://www.greennote.com). This site is set up to allow students to connect with their social network—friends, family, friends of family, community leaders and others—to ask for small student loans. GreenNote helps formalize everything into legally binding loans and handles everything from loan documentation through repayment.

Those desiring a loan set up a profile, then enter e-mail addresses for friends and family, asking them to visit GreenNote and help fund their education. You can also register as a lender and search through those seeking funding, and choose whether or not to help. You can sort through students by various affinities, such as school attended, sports played, educational major and gender. The minimum pledge is $100.

THE INTEREST RATE IS CURRENTLY
set at 6.8%, and lenders are assessed a 1% administration fee annually. GreenNote does not require that the student find a co-signer, though interest is accumulated and added to the total cost of the loan while payments are deferred. (Most programs don’t require repayments begin during college years or in the immediate months afterward.)

My method of financing my kids’ education was to start saving when they were very young. Given the complexities of the credit markets, I’m glad I was able to put away enough to get them both through college. Nicole is again facing the same complexities: She has a second daughter starting her junior year in high school.

Published in Barron’s, August 18, 2008

Posted by twcarey on 08/23 at 01:14 PM
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Saturday, August 09, 2008

New Services, New Savingsā€¦Same Old Scams

CHANGE IS ONE CONSTANT AT ONLINE BROKERS; ILLEGAL ATTEMPTS to divert investors’ funds from them is another. So TD Ameritrade, optionsXpress, TradeKing and TradeStation have all recently upgraded parts of their electronic brokerage systems, while the Securities Investor Protection Corp. (SIPC) is on the lookout for criminals who steal clients’ personal information—and then their money.

TD Ameritrade (http://www.tdameritrade.com) has launched Pattern Matcher, now available to customers using the firm’s Command Center 2.0, at no added charge. We were given a demo of this tool last winter, and subsequently access to a test account to give it a spin.

Pattern Matcher lets you browse through a library of 12 candlestick-chart patterns and select one you think might help your investing style. (Candlestick patterns are graphic illustrations of a stock’s open, high, low and closing prices over time, which some believe suggest the shares’ future direction.) The library includes educational materials that tell you what a particular pattern portends. Possibilities: a double top, a major reversal pattern formed after an extended uptrend; or an ascending triangle, which is a bullish formation that usually shows itself during an uptrend (we would like to see this), as a continuation of that trend.

Jay Pestrichelli, managing director of TD Ameritrade’s Trader Group, says, “Specific stock-price patterns can reveal potential opportunities in the markets, but many of us lack the capacity, time or expertise to scan the entire universe of stocks to look for them.” Once you choose a pattern, you launch the tool’s search capability, which will show you stocks that fit the pattern, allowing you to investigate them further. You can also aim the search at one of your watch lists, which will let you know whether any of the stocks you follow match your chosen pattern.

TD Ameritrade (ticker: AMTD) also has launched a new search tool, Bond Wizard, which helps investors narrow their hunt for fixed-income investments. Customers can follow a step-by-step process to find the bonds and certificates of deposit that meet their needs. The tool also helps customers build a bond ladder, which is a strategy of investing and reinvesting in bonds and CDs that mature at regular intervals.

OptionsXpress (http://www.optionsxpress.com) recently acquired futures firm Open E Cry, an Ohio-based direct-access futures broker. OptionsXpress CEO David Fisher says, “This is essentially a new product for optionsXpress—a futures platform specifically tailored for institutional [traders], introducing broker and very active-trader markets.” Open E Cry will operate as a separate company, but most likely integrate some back-end functions.

TradeKing (http://www.tradeking.com) added several heavy hitters to its social-networking platform, the TradeKing Community. Options traders can tap into ideas offered by Jonathan ("Doc") Maher, Ph.D., and Dan Sheridan, who have joined Larry McMillan and TradeKing’s own Brian Overby and Nicole Wachs, all options professionals. Maher has taught options courses, with a specialty in more conservative income strategies. Sheridan is a 22-year Chicago Board Options Exchange market maker who served as senior trader, trainer and risk manager for Mercury Trading.

TradeStation (http://www.tradestation.com) has changed its pricing, adding the ability to choose fixed-rate commissions. In the past, customers paid a per-share fee to place a trade. The commission dropped as volume rose, say from a penny a share for the first 500 shares to less for each additional share. The new flat-fee commissions range from $6.99 to $9.99 and are based on how often a person trades. Those trading bigger blocks frequently will get a better deal.

“Customers value the power and flexibility TradeStation gives them to trade by their rules. Flat-fee commissions can make this power and flexibility available to traders who trade higher volumes or prefer a flat fee per trade,” says Salomon Sredni, CEO of TradeStation Group, TradeStation’s parent.

Gone Phishing...The audacity of online crooks never fails to surprise us. Although it hasn’t stepped in as yet, SIPC, an industry-funded group that works as a trustee to aid investors in broker failures, has been monitoring the activities stemming from the failure of clearing firm North American Clearing (June 9, “Logging On to a Trading Nightmare"). In this case, e-mails supposedly sent by a senior investment adviser claiming to act on behalf of a SIPC member asks clients for personal information that they can, in turn, use to get cash. The bogus e-mail sender even includes a phony SIPC “Beneficiary Information for Automatic Deposit of Payment” form requiring information that could be used to withdraw funds from the investor’s accounts.

To keep your identity safe, never fill out a form that seems the slightest bit off. Call the firm and ask if it needs this information. These are tough times for brokers and investors—don’t make them worse.

Published in Barron’s, August 4, 2008. 

Posted by twcarey on 08/09 at 01:10 PM
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