As featured in The Wall Street Journal, Money Magazine, and more!

June 2012


While all the focus has been on student loan interest rates. Congress has failed to renew one of the most important student loan benefits for undergraduates: the six-month grace period following graduation. With the rate of unemployment being historically high, this couldn’t have come at a worse time.

Federal student loans have a fixed interest rate of 3.4 percent across the board, regardless of degree or income potential. As of July 1, that interest rate was scheduled to double to 6.8 percent if Congress were to let the low rate expire. Both the President and the Republican candidate wanted to see Congress extend the low rate. The politicians obliged, but not without failing to renew other benefits. For undergraduates, there will be no more six-month grace period at graduation. For graduates, interest will not be deferred while in college.

GraduationKeep in mind these changes affect only new loans. If your loan originates on June 30, 2012 or prior, you still have these benefits. Only loans originating July 1, 2012 or later will be subject to the new rules and fewer benefits.

The six-month grace period was an automatic reprieve from needing to worry about finding money for student loans during the time recent graduates are making the transition into real adulthood. This transition involves finding and starting a job, finding a place to live, and possibly managing money for the first time. With the first payment for student loans due right after graduation, pressure is higher .

Parents who are concerned about their kids needing to move home after college rather than living on their own should now be more worried. Monthly student loan repayment may be a higher bill than rent, making it more difficult even for students who do find entry-level jobs in their fields. While mature employees in their fields might joke about recent graduates’ expectations for high salaries and immediate responsibilities, these will now be necessary in order to handle student loan payments right away.

There are, however, ways for recent graduates to avoid student loan bills until they have the financial wherewithal to handle the expenses. Forbearance allows you to stop making payments for a set period of time, although interest on the loans still accrues and is due. If the interest isn’t paid, it will be added to the loan balance. You can apply for forbearance, and the lender can decide whether to extend the benefit or not. Deferment is a benefit which must be granted if you qualify. Interest on subsidized loans will not accrue during deferment. Economic hardship and unemployment will help graduates qualify for deferment.

Deferment is the obvious replacement for the six-month grace period for those who qualify. For those who have jobs but are drowning in student loan bills, another option are income-based repayment plans. You can apply to have your monthly payments lowered, and lenders will generally grant this benefit. You extend the life of your loan and increase the overall interest you must pay, but for recent graduates struggling, selecting an income-based repayment plan now and paying more towards the loan a couple of years down the road when the financial situation improves is a solid option.

The six-month grace period was easy because it was automatic. Now students will need to apply for one of these options before they graduate in order to avoid immediate financial doom at graduation.

The above applies to loans for undergraduates. Loans for students pursuing graduate degrees did not have the six-month grace period, but they did benefit from deferment while in school. This deferment will no longer exist for new loans as of July 1, 2012, so graduate students will need to pay interest while enrolled in their degree programs. The unpaid interest will be capitalized (added to the balance) throughout the year, so borrowers will owe interest on interest, increasing the amount of money needed to pay off the loan overall.

If the only other option had been to increase student loan interest rates, this is a better choice, but Congress’s decision to remove these benefits shows that an affordable college education for every student who wants one is not a major priority. The decision to require students to start repaying student loans right after graduation at a time when college graduates — while still significantly better off than those without college degrees — are struggling to find jobs in their field paying a starting salary high enough to make those loans worthwhile puts the responsibility on the student to apply for deferment, forbearance, or an income-based repayment plan as early as possible. In other words, it’s not the end of the world, but it’s not the ideal solution.

The added financial pressure might be a good thing for some graduates, inspiring them to be creative in their attempt to start earning money in order to pay back their student loans on time. That might be a too optimistic view of the world, though.

Did Congress make a good decision, leaving interest rates the same while eliminating the six-month grace period for undergraduates and in-school deferment for graduate students?

Photo: jdg32373
Chicago Tribune

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The last few years have been nail-biting for anyone saving for retirement with investments in the stock market. The Great Recession and continued gloomy outlooks in the media have investors second-guessing their plans to save for the future. Maybe it’s better to spend more money now and avoid the Wall Street industry, which seems to be designed to benefit institutional investors and their own shareholders.

If you ever intend on leaving your day-to-day work behind in favor of spending years without trading your time and effort for income, retirement saving should still be a priority. Put the negativity aside and use this as an opportunity to move forward towards financial independence.

Coin jar1. Buying stocks when most people are avoiding them could be good timing. Yes, it’s dangerous to think you can time the market. Don’t aim for investing at the market’s bottom, hoping to take advantage of the next bubble, but take a look at stocks when your friends and co-workers are too scared to add to their 401(k) plans. When others are avoiding risk, it’s time to increase your exposure.

Risk in the stock market doesn’t change, but when it appears safer to put money in stocks, more potential investors will buy, boosting the stock values for everyone who was willing to take on risk at the right time. The stock market only appears safer once people have seen the stock market indices increase for some time. By then it’s too late to take advantage of the biggest returns — and if you want to approach the fabled 8 to 10 percent long-term returns of the stock market, you need to be invested when those big increase following declines come around.

2. Any investment is an investment in time. You may be able to make more money, but you can’t make more time. Time is a significant financial advantage. The math behind the concept of compounding returns plays out in such a way that a small investment early in life, invested properly, will grow to a larger value than a larger investment later in life.

Review this table. If you invest $2,000 a year from age 20 through 29 with a 12 percent interest rate, and invest nothing more, by the time you’re 60, the investment has grown to over $1 million. If you wait until you’re 30, and invest $2,000 for the next thirty years, your investment will reach only $540,000. A 12 percent interest might be an aggressive assumption, and your investment is not likely to provide consistent returns year-after year until you take advantage of conservative assets, but the numbers are drastic regardless. This table should be a wake-up call. If you don’t add more to your retirement savings now, you’ll never have the opportunity to catch up.

3. Your actions now will prevent you from being a burden on others in the future. In past centuries, families were often larger. Elderly relatives lived with their children and perhaps their grandchildren, who supported their needs. Today, Social Security and Medicare exist to help the elderly manage their increasing expenses, but the future of government programs that benefit society are uncertain. If you don’t want to be a burden on your children, the best way to prevent needing support later in life is to save as much as possible, as soon as possible.

4. It’s not possible to save too much for retirement. I’m aware that I recently wrote that is possible to save too much money. Embedded in the financial media, there is a strong focus on retirement investing. The focus is so strong that many people can easily forget that life is something to live, not to wait for. You can live your life while saving for retirement, however. There’s a balance you need to find, but retirement saving needs to be made a priority in order to have a somewhat comfortable life when and if you decide to stop working. The question of whether one is saving too much is a luxury you can consider once you’ve saved enough.

5. Write down the expenses you’ll have during retirement. If you’re able to retire young, you’ll want to have money available to find activities to replace your job and enjoy the time you have when you’re still healthy. There may be travel plans you’ve been delaying until you have more time and fewer responsibilities, for example. Only delay what you need to delay, but all that you’d like to do could be expensive, so think about those costs. As you age, your health may deteriorate, as well. Think about the expenses you’ll have when and if you need long-term health care services.

Living — and dying, not to be morbid — is expensive. When you think about those expenses and write them down, the numbers become real. Once you’ve written them down, add 3% for every year between now and your planned retirement date to account for inflation. These are going to be big numbers, and perhaps they will be scary enough to motivate you into saving for retirement immediately. Assume you won’t receive any help from the government or from relatives, consider how much bigger your retirement nest egg needs to grow, and increase your savings appropriately.

The initial motivation can be the most difficult part of starting a plan for long-term saving and investing. The first steps can be difficult, though employers have made it easier by offering 401(k) plans. The default 401(k) options are not enough to dramatically increase the possibility a comfortable retirement, though. You may also need motivation when the stock market crashes and the rest of the country seems to abandon their investments. When people are scared, there may be great opportunities for investing in stocks valued fairly.

There is a lot of public angst against Wall Street today, a system designed to benefit the institutional investors with the most money while taking advantage of small-time individual investors, but until proven otherwise, investing in a broad selection of stocks through an index mutual fund is the best way for most people to grow wealth over a long period of time without taking on the risk of buying businesses outright.

Your biggest ally in building wealth is time, and time is the one thing you can’t control. You can’t buy more time. You can’t trade time with your friends. You can’t find time lying in the street. The best chance you’ve had at increasing wealth is to start planning for the future yesterday, but since that’s no longer an option, you need to start today. If you’ve already begin saving, the best time to increase your savings plan, giving you the boost you may need to become financially independent, is right now.

Photo: KrissZPhotography

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Somehow, my name and address found its way on a list of potential suckers. Some company out there thought I would be gullible, falling for an obvious financial scam.

A few days ago, I received a letter and check for almost $3,000 in the mail. I wasn’t expecting this delivery, so my suspicions were high by the time I looked at the letter. The letterhead includes a clip-art image of a shopper and identifies the sender of “Best Mark Interco Mystery Shopping Company Ltd.,” based on Rayne, Louisiana. I signed to be a secret shopper several years ago in order to look into methods of making incremental income with my spare time, and decided early on that it was not the best use of my time. Perhaps one of those legitimate mystery shopping companies made their address lists available to scammers.

There seems to be a legitimate mystery shopping company called Bestmark, but they are based in Minnesota.

The red flags continue. The cover letter is written with bad grammar and punctuation. In today’s linguistic environment of short text messages and Facebook statuses, people are more comfortable with a lackadaisical approach to the English language, even within apparently official documents. I’ve scanned the letter and included it here for review.

The “salary” for the first mystery shopping assignment offered is significantly higher than what mystery shoppers should expect. Legitimate mystery shopping companies pay $5 to $20 per assignment, though some professional mystery shoppers, later in their “career,” can receive difficult assignments commanding a higher fee, perhaps $100. This company is trying to entice me with a starting gig paying $400 after completing two assignments. If it sounds too good to be true…

The core of the first assignment is the classic Western Union scam. The letter instructs me to take the money I receive from the check — minus my $400 salary and minus $100 for my second mystery shopping assignment — to any Western Union location to transfer the funds to a receiver named Emilien Wiscome based in Seattle, Washington. This would require me to cash the check at a bank first (or, as most targets would likely do, take it to a check-cashing storefront where the validity of the check would be harder to verify). This is to completed as a secret review of the Western Union branch, with a very short evaluation form. The form is included on the reverse side of the letter, and the completed form must be faxed back to the number provided.

My second assignment is to use the remaining $100 to shop at one of a large variety of stores, evaluate the experience, and fax the completed evaluation form. The letter informs me I can keep whatever I buy — how generous! This is primarily how secret shopping works, except for the fact that legitimate secret shopping assignments target one particular store. it’s not the shoppers’ responsibility to choose from a list of stores that includes Wal-Mart, Sears, Costco, Best Buy, and The Home Depot, among others.

It’s sad that scams like these take time and money away from unsuspecting people. If people are stuck in difficult financial conditions, following job losses in a bad economy or through health problems with insurmountable hospital bills, receiving a check for almost $3,000 in the mail is certainly a happy turn of events. Even some who fall for this scam have a strong feeling that the letter is not legitimate, but their life situation drives them to take a chance, anyway.

Please don’t fall for this scam. You could be on the hook for the money. If you receive a letter and check from “Best Mark Interco Mystery Shopping Company Ltd.,” just ignore it and shred the check.

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For one to be an aficionado of Apple’s line of computers, it might be fair to generalize that one is willing to spend more money than necessary for perceived superior form — as a device that carries the same function, just on the more common technology modeled after the IBM personal computer costs considerably less. Orbitz has measured this tendency. Mac users pay more for hotel rooms than travelers using Microsoft Windows, and in order to take advantage of that, Orbitz shows different results to shoppers depending on their computer technology according to the Wall Street Journal.

To clarify, Orbitz is not repricing the same rooms higher and showing different prices based on technology. The website is apparently showing different results, emphasizing the higher-priced rooms to Mac users, perhaps hiding some of the low-cost rooms that they predict Mac users would ignore anyway. If Orbitz has found that Mac users almost always ignore Howard Johnson in favor of Hilton or Wyndham, showing options for lodging at Howard Johnson in the search results just creates an obstacle in presenting the information most relevant to the user.

Hotel RoomI’ve never used Orbitz to find a hotel room — call me old-fashioned. I usually use Google Maps, visit the websites for hotels in which I’d consider staying, read reviews of that location on Travelocity, which seems to have the most comprehensive reviews, and use the hotel’s own website or call to make the reservation. Although I generally ignore one- or two-star hotels today, that was not always the case. When I didn’t have as much cash available for vacations or travel, I would stay in Motel 6 or an equivalent hotel when unable to stay with friends or family. I just looked for the cheapest option that didn’t involve camping.

The discovery that Mac users see filtered results is not too much of a big deal. I would have liked to see the filter as an option available to everyone. The option to ignore “budget” hotels should be a switch one can turn on or off regardless of technology used to visit Orbitz. I’m not sure if the algorithm is as simple as filtering out one- or two-star hotels, but if it is, that’s simple enough to replicate for Windows users or to include all results for Mac users. But it doesn’t seem to be that simple. The default setting for search results is to sort by “Best Value,” which is some kind of algorithm that adjusts which results are shown first. A search for hotel rooms Gaithersburg, Maryland presents the best value for me as being Wyndham Garden Gaithersburg at $117 a night, a three-star hotel. This might be listed first because it is located more conveniently than all other options, but my third result is a four-star hotel, Crowne Plaza, for only $90 a night. I’m not sure why Orbitz would consider the Wyndham a better value than the Crowne Plaza, but Mac users might see these results differently and might be unable to replicate the result order.

I performed the same search on my iPad, and the results were wildly different. The first result was a sponsored listing from La Quinta, without a price listed. The next listing was the Gaithersburg Marriott for $149 a night. So the first price listed for my search with an iPad was $32 a night more expensive than the first result when searching with my Windows computer.

Search engines like Orbitz are not neutral parties just delivering facts. They are salespeople intent on making the most money by providing hotel listings designed in such a way to get customers to spend as much as possible. The advice should be obvious.

  • More than ever, it’s important to shop around.
  • Don’t limit your search to one aggregation website.
  • Once you select a hotel, always call before booking online to ensure you’re getting the lowest price possible.
  • Check Google Maps to make sure you haven’t overlooked a possibility excluded from aggregation websites.

What do you think about Orbitz prioritizing more expensive hotels in search results just for using an Apple device?

Photo: zevhonith
Wall Street Journal

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Summer Internship: Career Opportunity or Cheap Labor?

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World's Best Band Director mug

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Cash

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Teddy Bear

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Graduation

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Skydiving

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High school graduate

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