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financial planning

Avoid Student Loan Mistakes

Avoid Student Loan Mistakes

The biggest mistake when getting a student loan is not starting to pay it back as soon as possible. Once your loan arrives, there is usually a bit extra that makes it into your bank account. Resisting the temptation to use that on living expenses and paying it right back to the loan company will help you in the long-term.

 

When you see what your tuition costs are from your course schedule in the next semester, you will know what the cost of courses and books will be. Federal loans come in bulk amounts based on your year in school, so you know what money is possible to borrow. You can borrow that entire amount or less than that amount, but not more. Private loans can make up a difference if you can get them.

 

Federal loans are possibly going to have stable and lower interest rates than private loans. You most likely will not need a cosigner for those loans. Private loans might end up costing you more in the long run. If in the future you have severe financial problems, federal debt may not be forgiven in a bankruptcy, but you might be able to discharge a private loan.

 

Lenders look at your current status at school. You will need to be taking a certain amount of credits to get a certain amount of loan money. If you are in graduate school you get more potential money offered than if you are in undergraduate classes.

 

Consolidating your loans while you are in school might not be the smartest plan. If your loan package comes with smaller loans that you can pay off separately, you would be better off doing that as soon as you graduate than consolidating them together for a lower monthly payment. If you can’t make your monthly payment when you graduate, consolidation can lower your overall monthly payment.

The best kind of loan is the one with the lowest interest or that can be forgiven if you are going into a job that will pay your loans back. Federal loans around 6.8% are a good standard to see if private loans can match or beat that rate.

 

Life happens to all of us. Deferment is natural and loan companies are prepared to allow you to miss some payments as long as you communicate with them ahead of time. Deferment is very common, and for subsidized loans, interest is not charged while you are in school. Once you graduate, its time to start paying back as soon as you can so that the amount of the loan does not increase. Miss too many payments and you go into forbearance. The companies will still be expecting their money, but there are programs and help from the loan companies that can help you even if you can’t pay. Federal programs like income-based payments seem to be coming in the near future. Other countries are already doing this very successfully.

 

Some careers will allow you to not have to pay back your loans if you work for a certain amount of years in a certain location. I graduated as a social worker, and I could have worked for seven years in a rural county somewhere or in a low income area and my loans would have been wiped away by the government. Teaching in certain schools offers a similar deal. Those decisions are worth thinking about if you are committed to a certain area and can handle the work.

 

The best advice I can give is that loans are not the worst thing, but delaying to pay on them makes them the monster you hear about. Interest on unsubsidized loans grows from the second you take the loan out, so be aware of the details with your loans and try to pay them back as fast as you can.

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What are the Financial Pitfalls for College Students?

What are the Financial Pitfalls for College Students?

As a counselor for high school students and their families, I am often warning about the hazards for not providing some financial sense to students before they leave for university. Sending a child on their own with little experience managing their own budget is setting them up for failure. An 18-year-old is not expected to have the same priorities as an adult with a full time job and bills to pay, but every student must deal with appropriate choice making and the consequences that come from mismanaging their money.

I imagine that the largest risk for college students is the access to consumer credit. Having a credit card is a safety blanket for some parents as their child goes away, but that is more like a gateway drug for poor management in the future. Credit card companies rely on students spending more than they can pay back, and many college students are happy to oblige. Students should try to use cash only if possible, or only use their debit card.

Student loans cover the cost of tuition and fees, and there is often some leftover amount that goes to the student account. That money can be sent directly to the loan company, but instead the student can misspend it.

Students are buying poor food choices, alcohol, vacations, games, accessories for the dorm or apartment, and clothes. College offers much more freedom during the day than a high school schedule. When we get bored, we think of ways to entertain ourselves. If we have money, sometimes that will be spent without thinking long-term. 

Students can eliminate unnecessary spending by not accepting any more funds for their classes then they need. They can put any potential extra money in a savings account at a bank that has withdrawal restrictions. Students can try to cook more as a group in the dorm kitchens and in their apartments to avoid higher costs of eating out alone or at restaurants.

Students can earn money in a variety of ways. They can work on campus or off campus. Weekends and afternoons are often potential free time for students. There are also options for volunteering during those times. Community centers are places that hire younger people; mall stores in college towns are often flexible with work shifts. During summer, people can stay in town to work, or return home and save money for the next semester.

University students can set up their own investment accounts and IRA’s, but they might not come to that decision on their own. Even having some savings for when they graduate and are in that in-between moment before they find a job can be something a student should think about before its too late. Students should be aware of what a mutual fund is, the concepts around debt repayment and the concept of interest rates.

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5 Habits of Successful People

5 Habits of Successful People

When we look at who is most successful in life, we tend to see the examples in media of wealthy CEO’s, athletes, or celebrities that seem to have the world at their fingertips. For us regular people looking at them thinking about what their life might be like, we see the outcome, but rarely consider the grind that these folks must go through (or went through) to get to the status that they earned. The blue collar worker that puts in a hard day at work and relaxes when they get home might be just as tired as the white collar worker, but the most successful people at all economic levels have something in common; they do more.

We all want to be successful at the things we do, and we as humans strive to stay occupied. For some, just maintaining a life with comfort is enough. The barriers to mega success might be too much, or the ambition to achieve might not be there for those that are fine with things the way they are. For the most driven if life, the motivation to achieve whatever is possible keeps them going beyond when most people would quit. Everyone in the world shares some universal truths.

The day is only 24 hours. The maximizers have found a way to use as much of that time as needed to achieve their next goal. Brian Tracy, author of Eat That Frog, states that people should tackle their hardest objective first, then set off on their less time consuming tasks. When we practice successful time management, we can see the day open up to us, allowing us to add goals for new projects to advance our lives however we see fit.

Ambitious people are driven and able to sacrifice some comfort for their other goals. Waking up early is important if we are manipulating our day to fit our needs. Those that seek one form of success will often want to match that in other aspects of life.

Fitness to help the body stay regulated and capable of achieving the goals a person has for themselves. Without that workout, the required energy might not exist for the individual. Working out is a time sucker, and sometimes literally a pain, so knocking it out at a regimented time early in the day saves the time later and activates the body to be ready for a full day.

I know some writers that set an early alarm and force themselves to write 1000 words before they can start their day. This dedication and sacrifice is what propels the people most of us envy as we watch TV or read for entertainment.

To truly be maximizing our potential or reach our ambitions, we have to neglect other aspects of our life that might be safe, relaxing, or help build a stronger family and friendships.

This was a pitch written for GoBankingRates, the final article can be found here. My words didn't make it, but some of my ideas did.

 

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Five steps to reducing family debt

Five steps to reducing family debt

Define the new normal; assess the damage

If we look at a family, whether that is just a couple or including children, we can look at their baseline normal behavior and consider that homeostasis. The normal routine and emotional stability that a family seeks to create is what helps move us through the days emotionally secure, and physically healthy as a family unit. When there are outside events that start to change the balance for our family situation, our basic psychological desire is to return things to normal. Of course, reality is always giving options to choose that will create positive and negative outcomes for others and us. Will we sacrifice a short-term desire for the well being of our family long-term? Will the things that bring us into debt create a better life and a return to homeostasis for the family? These are questions that make or break financial freedom for families. When debt becomes overwhelming to the current conditions a family finds themselves, it is a fork in the road moment. Extreme debt can bring out sides of our personalities that may have been hidden from our partners when things were more balanced. When blame is introduced into the relationship the debt becomes the runaway train that a couple can’t jump from as it heads for a cliff.

The strength of any relationship is in the way a couple is able to communicate and handle issues that threaten their security.  Often we bring our personal habits into our relationships and if we are not able to create new blended beliefs with our partners, we might have the urge to break away instead of sticking together with our partner when an issue as heavy as extreme debt affects us. Parents must be able to devise a plan for financial recovery together that both partners will buy into. When one or both people are on the brink of bankruptcy or foreclosure, or buried by student loans and consumer debt, the couple may need to bring in professionals to guide them through even the smallest financial decisions. Couples that want to Couples need to draw that line in the sand together, and if one partner can not bear to make the changes in their lifestyle to recover financially, then that might spell the end for that relationship.

Come together as a team

When we decide to join our lives together with another person and maybe even bring children into that family, we are accepting that person for their strengths and their weaknesses. We might have some hope that they will adjust any part of their behavior over time, but once the cow is bought, we better get comfortable with the taste of the milk.  For couples that co-habitate before marriage, they might get a clearer picture of how their partners spend. Of course families don’t have to include a wedding, but financially, once you are bound legally, you are on the hook for the actions of your partner in many cases. For a family utilizing a joint account as the only pool of funds, everyone is hurt by the actions of an over spender or a large debt burden for both partners. When people get together they think until death do us part, but maybe one or both of the couple is in poor financial health from the beginning. If the old normal for the partners created a debt monster, it will take both partners to slay the beast to create a new normal. Family should be looked at as an “all-in” situation. If one partner resents the need to make cutbacks and changes to their lifestyle because the partner created the issue, it will lead to conflicts and potentially sabotage of the financial recovery. If the debt comes from an outside source like an accident or treatment of illness, it might be easier to swallow the need to emotionally accept the need to make changes. When the debt is man-made in nature, it is natural to want to escape blame or not confront the source of the issue.  However the debt originated, it will only benefit the family unit to address it together. If one person is left with the burden to pay, not only will it take longer to pay down the debt, more interest will accumulate. With any family or relationship issue, united we stand, divided we fall. Going back to the debt as a child metaphor, if a couple does not have a united front when disciplining the child, the inconsistency will create more conflict. With debt, there is no good cop bad cop, and no going it alone. A life built together is going to be full of compromises. For the creator of the most debt, they should be aware that they have put a great strain on the unit. The other partner should be empathetic and not make them feel worse than they do already.  When we support our partners we are rewarded in many ways. A stringent financial plan can keep both partners accountable and take some of the animosity out of lifestyle changes that might hurt one partner more than the other.

Don't blame one another

Having open communication about the debt lingering over the family is not the easiest habit to become accustomed to. It is natural that when habits are changing and major transitions from one kind of lifestyle to a more frugal kind of living occur that negativity will arise. Both adults should be honest with one another when the feelings become stressful. The couple can help each other through the moment. If the negativity is too much, seeking psychotherapy or confiding in a close friend can make the difference for people feeling stuck in a bad situation. The partner that carries guilt for the problem will be looking for signs of resentment to justify their guilty feelings. If that is fulfilled, it is that seed for conflict. Part of facing a debt monster is recognizing how it came to be in the first place. If partners look within to recognize their behaviors that created the issue, and are able to communicate these moments to their partner, the team building and understanding gained can be the energy that helps break bad habits and the reinforcing of better behaviors by the partners will keep the debt monster isolated as a source of conflict for the family.

Whatever it takes

The ideal way to start facing a debt monster is to be ready to do anything possible. This is a major step towards a higher quality of life for a family in the long run, but it may require some short-term pain to get back to homeostasis.  This is a make or break moment for a family, and they will need all hands on deck to steer the ship. Building a plan that includes every kind of debt that the couple has, along with all the possible ways to avoid taking on new debts need to be addressed. This family will need to look at all aspects of their life and maybe even need to do some emotional work together to stay in alignment as they plan their fiscal future. The plan should build solutions in the order of which the problems present the most harm to the family. Sacrifice is the key word for crating a new standard of living while the debt is decreased.  Downsizing in many ways is going to be an obvious start, and that kind of behavior should be well thought out, especially if children are involved. You shouldn’t run a marathon without training, in the same way; you should have a training regimen devised for financial health. Humility will be a must during this restructuring of the family lifestyle. Once the plan is in place that has short-term and long-term goals, a couple can gather strength from one another and even seek support from their close friends and extended family as they transition. This planning may be the most important step in any debt situation. Blindly throwing money at debts might leave not enough money to live a minimal lifestyle. Not feeding the kids is not an option, so following the six P’s will be a constant aspect of any debt plan. Prior planning prevents piss poor performance.   

Sustain good habits

My psychological perspective is based in behaviorism, that rewards, consequences, and incentives can make a change in behavior sustainable. Anyone can choose to make changes, but it becomes harder to maintain a new habit without any positive feedback or consequence for non-compliance. A family that is doing their best to reduce an extreme debt can be in the process for years or even decade or more. Without recognizing their strength as a family to keep the faith in one another as well as to stay on target for the long-term plan, the habits may start to break. Encouragement from the partners is obviously important. Another way to feel good about a very difficult process is to gamify the process. Set up a reward for the family when milestones are reached. They don’t have to cost money. A special moment to celebrate together is all it takes to help a couple reconnect and stay motivated to keep moving in a positive direction. It could be a meal out of the house, a visit to relatives, or something sentimental to the family. Without reward and consequences change becomes difficult to sustain. If things go negative and there are mistakes that increase the debt along the way, then a consequence can be created as part of the plan.

What to tell the kids

When children are affected by the lifestyle change, it doesn’t do a family any good to ignore that issue. Parents should be introducing children old enough to ask for stuff about how things come to be in the home and how money works. Games like Monopoly and LIFE are good introductions to buying and spending for children. When a family needs to change the current standards that the children are used to, parents can explain the importance of paying what we owe and what might happen when we do not pay back or give back things we borrow. Obviously we don’t want our children to think that they are being punished as we tighten our belts, so setting our children up with an understanding that sometimes we can not have what we want immediately, we have to work towards things we want, to earn good things. Parents can be creative in the way they transition their family to more frugal living. If they can make eating at home fun and try to make mealtime full of fun and teachable moments, kids might forget about eating out back in the day and the desire to go places that cost. Having a positive attitude, as parents will be contagious for children. Hit the libraries and find free sources of media instead of going to the movies. Introduce more family time at home and once consequence of having a debt monster might be a stronger family bond once you come out the other side.  Major transitions like moving homes and downsizing cars might be a reality, and in those cases kids don’t need to know everything, just that we as a family found a place that will make our lives better after a while, and we want to be as happy as possible.   

This was the follow up to an article written for

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Interview with GoodCall

Interview with GoodCall

Last week I had a phone interview with a writer at Goodcall.com, a scholarship and university guidance website regarding discounted/Free tuition universities and colleges.

Good Call: What do you call yourself?

Dr. G: Well right now I'm a trainer of college counselors. Although I'm a guidance counselor along with the other jobs I've done before. My current job is working in China in one of the provinces training Chinese counselors to do university counseling, high school counseling and that type of work.

GoodCall: Wow.

Dr. G: Yeah it's a fun job.

GoodCall: Okay. How much experience do you have counseling that kind of thing?

Dr. G: I've been in international college counseling since 2008.

GoodCall: What is your doctorate in?

Dr. G: It's an educational doctorate in counseling psychology. My dissertation was not related to university counseling but comparing Japan and America, mate selection techniques, how we chose our partners and so on. With the counseling psychology doctorate, training counselors is one of the roles most people go into, if not university teaching or counseling supervision.

GoodCall: So your degree is in counseling psychology. For goodcall.com, I saw a brief list of free tuition colleges on Fox News and then I saw this study by the National Association of College and University Business Officers and they are saying that tuition discounts are reaching an all time high. So I wanted to get the perspective of people who are familiar with this issue. Obviously free tuition is great, but what are the caveats around that? It seems to me that the tuition discount is only for the freshman year and then it goes back up. So what would you say to students who are considering both of these options?

Dr. G: In general the schools that have been offering free tuition or very reduced tuition usually do it with the caveat that there is going to be some kind of pay back service to the school or in the philanthropy that's done. So maybe a list of Christian universities have a service component to come in for free or very reduced tuition, although the tuition part is severely reduced or free, you're usually giving back in a way that the campus itself is saving money on labor. For instance, at Deep Springs College in rural California there is a ranch and there are only 25 to 30 kids, all men. They are all working on the ranch and they are doing all the house chores and doing all the janitorial work and that's an extreme example. Others are using them for janitorial work up to service learning or working over the summer committing to working 80 hours a week and you that at US News and World Report, a deeper list of schools that are offering discounted or free tuition.

Although that part is free you still have to pay for your room and board or other academic and administrative fees. That has been established and going on for many years at those specific universities. Then there's what's coming up more often in the news how the president has the policy to make community colleges specifically free, or at least two years of college. So the attention is being put on to community colleges in America. The way that that works to my understanding is that you'll be able to go to your first two years of college and hopefully get an associate’s degree and the government within that state will support the learning. Or through federal aid you'll be granted money so that you won’t have to pay back for those first two years with the intent that you'll hopefully go on to a bachelors degree at a four year college or if your two year college is also a four year college you can have that taken care of.

That runs into issues or could run into issues depending on where you're living if you're a high school senior and you're looking to where you might apply. If your state is not doing so well financially, there is a very good chance they are going to have a have a hard time sustaining two years of not paying for your college if you go to a community college and your family can’t help put either, because of the way the budget situation is now. Some states are very close to being bankrupt or barely breaking even year by year and the way that college admissions in general has being going they are trying to admit more and more freshmen at every school. Most schools are having larger freshmen classes because they need more payers to come to their school even if they are offering a certain amount of financial aid to those that need it.

GoodCall: Right, so in other words it's subject to the whims of the state budget possibly.

Dr. G: Potentially yes. Unless the federal government is going to somehow kick in the difference for each of the states or do an ear mark policy that will give you this much money if you're going to support these schools as long as we know that this money is going to go to the first two years of community colleges.

GoodCall: Okay. So it's like seniors listening to the government shut down and possibly endangering their social security payments and that sort of thing.

Dr. G: Yeah, that's one way to look at it, if the federal government needs to shut down for a bit what happens to those federal funds? If it happens in December what happens to that money that's supposed to start for the next semester of community college in January?

GoodCall: That's the uncertainties of government budgeting and that's a good point. What about the tuition discounts, is it worth it? I mean it looks like you get your freshman year discounted but then you go back up to the prevailing rate for the 3 other years, what about that?

Dr. G: Well, depending on if we're talking about a family that could afford 4 years of university at about $25,000 to $35,000 a year in state or if it's a private college or out of states somewhere where the tuition is going to be between $40,000 and $60,000 a year. They are deciding, maybe we could pay this but rather not pay that much money if we can get some type of aid even for just one year and we're going to look at those schools that are offering those programs. Those families that are looking at the universities with the potential to pay but are hoping to not have to are usually the same families that are concerned about ranking and what their degrees will be worth after university time is over. That's going to be hopefully in four years or less or maybe five or six years as the trend is going nowadays. 

Families are thinking about a one year tuition discount which on the surface is a brand new car or potential down payment on a house, but you're looking at a an expensive school, that's a lot of money to be saved if you're also looking at schools on the list that you've seen that typically offer discounts. Those aren't necessary the same schools that people are putting as their dream school they wanted to attend or they're not as well known. Some of the ones that are offering a year discount or free tuition often have strange policies about local admissions only or denominational learning. So for families that are looking at a specific discount, those tend to be the families that aren't also looking at the schools where money is a necessity. If you are a family that has an economic need, then that need is more important than potentially paying out of pocket with student loans and having to pay those back afterwards. If that's not a possibility then any discount is a great discount in any school that's offering free tuition and quality education in the majors that students want to go into. That should probably be looked at.

The same way students are taking AP classes or if they are in an international Baccalaureate program or if they are taking international A levels. Those are also discounts on tuition if they go to a school that gives them credit at the level that they scored at. If you have an AP test and you get three where I went, Florida State University they offer at the level of three out of five on a AP test. You get semesters off that English or that history or that biology so you can come in with your credits ahead of time. That's essentially tuition discount, and that's how any family whether they need tuition discounts or not should be looking at where they choose their university. What is that university is going to be giving me to help me graduate as a student earlier or to pursue more experiences while I'm there? And by getting those credits that's a way that the school can advertise to the student that it's worthwhile to come there because you can do more with your money and not just with a tuition discount.

GoodCall: Okay like credits for AP scores of three or higher, that kind of thing.

Dr. G: Exactly if we're talking about sophomores in high school and I had a chance to speak to the parents, I would highly recommend them taking any possible advanced courses within the students' potential to actually do well on these courses. If the AP’s were available any college would prefer to have the college level course instead of the high school standard level course. But if the family is concerned about financial need coming up in the next few years as their students move through high school or even from junior year to senior year and there are some opportunities to take those AP tests that would be a way for them to find that discount. You're going to pay a hundred or so dollars for the test in senior year for each of those tests instead of paying three or five thousand dollars for each course at the college level.

GoodCall: That seems to be a good trade off.

Dr. G: That would be a great trade off and a lot of families they may just think we're going to have the AP courses and we're going to apply to say a school like Harvard or just a really rigorous school that is really difficult to get in, those schools will give you credit but they don't give the credit of giving you a tuition discount because they expect all of their students to be doing the AP classes at a five level. You won’t be able to go there if you don't take those AP’s. If you went to those well regarded state schools you have the opportunity to go to with your APs or other advanced type courses you're taking. You're going to get a year off in tuition anyway because they are welcoming those students because they know you have the quality of education and you'll be able to perform and not drop out. Now universities are looking for students that are going to remain at school for the four years or more while they are looking at their high school senior transcripts.

GoodCall: Okay, so when you talk to kids or training your counselors earlier in your career about college funding, I guess the free tuition/tuition discounts have come up. So you say to them it’s worth investigating. You mentioned US News and World Report are there other places that student can go to investigate other tuition discounts or free tuition and what that involves?

Dr. G: I would actually recommend a student not go to US News & World Report because their whole business model is based on the rankings. As an international counselor and just a college counselor in general I would really dissuade a family from using rankings from their number one priority of why they should go to a university or not. But that doesn't mean you can go read an article, it depends on what else you're going to see while you're there. You can go to 2plus2.org a great site for community colleges.GoodCall: I got the gist; don't use the rankings as the reason to choose a school and the sites 2plus2.org and another one...

Dr. G: Yeah 2plus2.org, unigo, that's a site that is so full of college information there is no doubt that there are places to find discounted tuition schools and information about them. If you haven't checked out Ivory Tower the CNN documentary it was really informative about how colleges have to compete and where their money goes, it might help you in your article writing.

GoodCall: That's great I'll see if I can get it on Netflix

Dr. G: I don't think it’s on Netflix yet but maybe you can find a free copy somewhere.

GoodCall: It's okay, I really appreciate your thoughts. To me, this looks like it's a good deal for some students like the free tuition but you have to be looking at the specialized field and will it suit your career goals and education goals too.

Dr. G: Exactly, if you need the money then you need to spend the time looking at schools that might offer it to you or at least allow you to come without spending your own. I'll give you another link real quick, it is a policy site, its called freecollegenow.org. They are listing press about the different schools that are offering these things, how to find schools, what type of scholarships exist, loan reform, etc. Check out that site as well, it seems to be pretty informative.

GoodCall; Alright this has been great I really appreciate your comments and I will be wrapping some of them into the article when I get it finished.

Dr. G: Great! Thank you for choosing me.

GoodCall: Thank you.

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