The Senate passed the bipartisan compromise student loan legislation yesterday, Target introduced a You Tube shopping experiment, and auto insurers have been found to link rates with job and education.
Whether the college-bound have a bull’s eye decorating their T-shirt or not, they are easy targets for sophisticated marketing techniques and racking up huge debt.
Parents can help their students become savvy consumers and avert potential financial disaster.
The Senate legislation would temporarily reduce current interest rates from 6.8 percent to 3.86 percent for both subsidized and unsubsidized federal Stafford student loans. On July 1, the sub rate jumped from 3.4 percent but the unsub rate rate was already at 6.8 percent.
As the economy improves, interest rates will rise, being tied to market prices. There are caps on how high rates can go, “(b)ut the caps are at levels much higher than current rates. Undergraduates would pay a maximum of 8.25 percent, while graduate students would pay 9.5 percent. Parents who take out loans for their children could see rates as high as 10.5 percent,” according to First Read on NBC.com.
A prior Examiner article, Student loan deal is a double-edged sword (Video) explains the past, present and future of student loan rates.
Many families turn to student loans to help pay for the high cost of college which has become an up to six year learning experience for the 58 percent who attend college and graduate, according to the National Center for Education Statistics (NCES). The rest either take longer or leave without a diploma. The Senate legislation will make loans cheaper for about two school years and more costly thereafter for new loans, according to government officials and consumer experts.
Variable mortgage rates have caused huge consumer injury and there is substantial financial risk in not knowing college costs before assuming them. Most students pay their loan back in ten years but there are repayment options that can double or triple that time period. Raising interest rates by a fraction can easily add hundreds or thousands to the overall cost of earning a diploma.
Parents can help their student borrowers estimate their costs, project future earnings and lifestyles, and understand how to pay off their debt.
Print and media ads add to peer pressure when it comes to teen buying and social media is next. Facebook has advertisements and companies have Twitter feeds. Now Target is experimenting with YouTube and calling its commercial reality show Bullseye University.
According to the San Jose Mercury News Business Headlines, “For four days last week, Target live-streamed five YouTube personalities as they mused, joked, ate, slept and generally passed the time in makeshift dorm rooms outfitted with products sold by the Minneapolis-based retailer.”
A credit card may seem like an easy way to have it all for unsavvy student consumers. Parents can help their students set up a budget and distinguish between need and want.
College graduates not only earn more and get jobs easier than their less educated peers, but they pay less for certain expenses. A new study shows grads pay a lower rate on their car insurance. Time Business and Money reported today, “In some cases, this means less educated customers get overcharged to the tune of an extra $300 per year.”
The article described the Consumer Federation of America (CFA) July 22 report which cited GEICO, Progressive, Liberty Farmers and American Family, for charging higher annual premiums to the less educated based on location, education level, and job status. The overage was steep ranging from over 45 percent to under 10 percent, depending on the company.
For example, “GEICO often charges a factory worker with a high school degree far higher annual premiums than a plant supervisor with a college degree 45% more in Seattle ($870 vs.
$599), 40% more in Hartford ($1299 vs. $926)…,” according to the study.
The report also mentioned the other half of the top ten auto insurers. “State Farm, Allstate, USAA, Nationwide, and Travelers apparently do not use education or occupation in their rate making, at least in the ten states studied.”
Parents can help their college-bound shop around for best rates.
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