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Home Sales Drop Could It Be Due to Student Debt Crisis?

October 31, 2018

An eager young couple working together to afford their first home, a young family moving back in with the in-laws, or a recent college grad moving back home after school. These are the stories that have become oh so common in the United States. As the student loan debt crisis in America continues to grow, the homeownership rate has fallen specifically in younger generations. Student loan debt has increased to $1.5 Trillion in 2018 according to the Federal Reserve Bank.  The sales for homes continues to decline hitting its’ lowest number since 2015 according to a study by National Association of Realtors. According to the survey, more than seven in ten student loan borrowers believe that student loan debt has impacted their ability to purchase a home or take a vacation.

 

Many adult children have had to move home and put off their own dreams to pay down education costs like student loan debt. The daydream of one day buying their first home is becoming just that, a dream. Due to the immense amount of debt acquired during college, it just doesn’t seem possible for people to own their own homes. Let’s take a look at factors affecting borrowers and how they are dealing with housing due to student loan debt.

 

The Feds

Is it possible that student loan borrowers have been placed in tough financial situations in part because of the Federal government’s model for the loans they provided during the 90s and 2000s? The Federal Government provided Stafford and Perkins loans to everyone at the same rate regardless of credit history. If you took out a loan with a private borrower, that lender would evaluate your ability to pay that loan back and would provide you with an amount they saw as acceptable. When providing loans to everybody regardless of credit history, the risk to the borrower is increased. Private institutions operate under guidelines and regulations that require they have “some skin in the game” to prevent risky lending.

 

Many borrowers see public service and not-for-profit jobs as a promising opportunity. Borrowers accept jobs in the public and nonprofit sector hoping to have their Federal student loans forgiven, not realizing the stringent requirement for eligibility to the Public Loan Forgiveness Program.  A recent report released on Septembers 19, 2018 by the Federal Student Aid a Department of the U.S. showed that 99% of borrowers have been rejected for the program. News of the rejection has borrowers feeling helpless with a lack of financial literacy.

 

Transparency

Only one in five borrowers understood all the costs including tuition, fees, and housing according to the NAR survey. Borrowers were using loans for tuitions costs and did not fully understand the amount in which they were borrowing. The lack of responsibility on the borrower can be on part due to the lack of financial understanding and education. Financial literacy continues to become a recurring theme throughout the student loan debt crisis. Many borrowers lack the financial know-how for the most efficient ways to pay down student loan debt. The financial knowledge needed to handle debt, and the rising cost of college tuition has not worked to the advantage of student loan debt borrowers. According to the survey, 32% of student loan borrowers had defaulted or entered into forbearance on their student loan debt.

 

Financial Literacy

Forbearance, deferment, Income-Based Repayment, and student loan grace period are commonly used when paying down student loan debt. What most borrowers don’t know is that unless you have a specific type of federal student loan debt, interest is accruing during this time period. The interest that accrues on your loan during these repayment periods can really end up costing you in the long run. In addition to the lack of knowledge on how to handle the debt, borrowers are unaware of opportunities like student loan refinancing.

 

Paying Down Debt & Housing

Now that we understand a bit more about how student loan debt has gotten to where it is now let’s see how borrowers are dealing with the debt and what their housing situations look like.

 

Moving Back Home

We all know at least one or maybe two young people who have moved back in with a family member after graduating from college. It has become fairly common for college graduates to move back home due to the vast amount of debt and “empty nest” syndrome parents often face. What can differ between households is whether the graduate pay rent to the family or friend in which they have moved in with.

 

Renting

According to the National Center for Education Statistics student loan debt has grown from 5% to 30% of all household debt. Since 2008 the cost of college has risen. This increase in debt has caused an increase in renting. Equifax surveyed millennial renters asking why they didn’t buy a home and 55.7% of respondents listed “student loan debt/not enough money saved” as their reason for renting.  If a student loan debt holder can afford a mortgage payment typically they cannot save for the down payment that is required.

 

Potential homebuyers are having trouble finding homes they can afford according to CNBC. Due to this difficulty, many people are finding themselves renting for longer periods than they would have hoped. National apartment occupancy sits at 95% as of 2017.

 

The Housing Market

As mortgage rates continue to increase so too, does the cost of homes. Both these factors continue to cause a drop in the sales. For example, sales of single-family homes, co-ops, and condominiums have dropped 3.4% from the prior month. Houses have become unaffordable and those with student loan debt cannot find the additional savings for the down payment needed. This drop in home sales could have a strong effect on the market.

 

Looking Forward

 

Employer Benefit Programs

First-time homebuyers should not feel discouraged as there are still many options available. Employers have been stepping up to help employees who are carrying student loan debt by offering benefit student loan debt assistance programs. These programs help borrowers receive resources that they need to pay down debt faster. In addition, the programs give employers the ability to share contributions towards the student loan debt of their employees.

 

Student Loan Refinancing

Borrowers with above 650 credit score and steady income may qualify to refinance their student loan debt. Refinancing student loan debt would allow borrowers to select their repayment terms and could offer a lower interest rate. A lower interest rate on student loans could save thousands over the life of the loan.

 

Education

Secondary institutions and lenders need to better educate borrowers on terms and best practices on paying down debt.  The more resources that can be provided to borrowers the better off that borrower is. In addition, borrowers should not count on qualifying for the Public Student Loan Forgiveness program. Financial literacy also should be addressed to students at young ages. The more we can educate our youth of responsible lending the better off the United States economy can be.

 

Learn More About the State of Student Loan Debt in America Today

 

 

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2019-06-17
Why Do Employees Leave?

Today’s tight labor market and frequent employee turnover are challenging U.S. employers to view company cultures with a critical eye. A report by the Work Institute found that some 42 million (one in four) employees would leave their jobs in 2018. What is the cost of replacing so many experienced people in an organization? According to the report, last year’s “employee churn” costs hovered at $600 billion—a figure that could increase to $680 billion by 2020. Of further concern to companies is the growing realization that young team members are most inclined to move on after a relatively short period of employment. In a recent survey, 59% of respondents felt they should begin looking for a new position after only one to two years on a job. Older employees continuing to work past retirement age or re-entering the workforce are adding stability to many companies, but the turnover trend has serious implications for the long haul. Why are employees leaving and what can employers do to stem the tide? Data gathered by HR organizations and research firms reveal some interesting trends about motivating and retaining current and future employees.  

Top 4 Reasons Employees Leave a Company

The current employee shortage has upended traditional hiring models. Companies are racing to reshape their corporate cultures and embrace the values of a more limited workforce. Although improved pay and benefits packages continue to be important, these four workplace problems are the leading reasons why employees pick up—and move on.  
  • Not enough work-life balance. Team members value their time and don’t want employers to waste it. Their enthusiasm and performance will wane if they are weighed down with busy work and meaningless meetings. Younger employees appreciate flexible schedules, the ability to work from home, and a workload that is challenging without spilling over into personal time.
  • Poor management. Supervisors who are unable to engage their employees or unwilling to help them grow by providing positive feedback are commonly cited as reasons to leave. Today’s professionals respond to personal interaction and appreciate public shout-outs and ancillary rewards like gift cards, tickets, and free meal vouchers.
  • Lack of recognition & career advancement. Employees who excel like to be recognized for their extra effort. They also need to see a clear pathway for furthering their careers. Today’s staff members expect companies to help them grow professionally while providing access to career development and mentorship programs.
  • No company engagement. When a company does not have (or cannot properly communicate) its goals and values, employees lack a shared sense of purpose. Businesses fostering a sense of community are better able to inspire, engage, and retain employees.
 

Create a Satisfying Workplace to Keep Valuable Team Members

In many ways, today’s workforce is looking for the same type of job satisfaction as high performers of past generations. Respect, appreciation for a job well-done, opportunities for advancement, challenging work, and monetary rewards still lead to employee satisfaction and engagement. According to Gallup research, 34% of employees are engaged at work, but 53% are not engaged and likely to leave a job for another offer. To involve these employees and access their potential, employers are putting greater emphasis on corporate culture assets like these:  
  • Relevant workplaces with a clear mission & shared values
  • New-hires who contribute to the corporate community
  • Greater creative freedom & autonomy for staff when possible
  • Updated technology to support performance
  • Employee input as valuable business partners
 

Learn More About The Act Regarding Student Loans and Employers

 

Student Loan Benefits Appeal to Workers of All Ages

Many young employees begin their careers with a heavy burden of student loan debt. They worry about the monthly toll payments will take on their starting salary. Will they have enough money to travel, buy a home, or start a family? Worries about student debt repayment are not limited to the youngest workers. Some data suggest that these concerns cut across age groups and include professionals over age 55. Older workers may have taken on student loan debt to fund advanced degrees or send a child to college. Widespread student loan debt suggests that companies offering repayment contributions and other related benefits have a distinct advantage in attracting and engaging their workforce.    

Improve Retention With Cutting Edge HR Benefits From ELFI

As an ELFI business partner, you can add value to your benefits package with monthly contributions to student loan debt. You’ll also plug into resources like newsletters, webinars and onsite consultations. Connect with ELFI from your HR portal and discover how significant student loan benefits are to your team members—and how cost-effective they are for your company.  

Tops Ways to Engage Millennials at Work

  NOTICE: Third Party Web Sites Education Loan Finance by SouthEast Bank is not responsible for and has no control over the subject matter, content, information, or graphics of the web sites that have links here. The portal and news features are being provided by an outside source – The bank is not responsible for the content. Please contact us with any concerns or comments.
2019-06-12
Should You Pay Off Student Loans Immediately or Over Time?

When you start your post-college career, you may be tempted to breathe a sigh of relief. Before you do that, you have important decisions to make. You’ll have to stretch your paycheck to cover your new lifestyle and associated expenses: a furnished home or apartment, vehicle, insurance, and hopefully a 401K contribution. If you are like 70% of college graduates, you also have student loans that need to be repaid.   In most situations, it's going to be most beneficial to pay off your loans as quickly as possible so that you are paying less towards interest. The average college graduate's starting salary, however often cannot allow for enough additional income to cover more than the regularly scheduled student loan payments.  Most student loans have a six-month grace period so you can do some budgeting and planning first - if you need to. We don't suggest using the grace period unless you find it necessary to organize your finances. During a deferment such as a grace period, the interest could still be accruing depending on the type of loan that you have.   If you determine that you may be better off establishing sound financial footing and a workable monthly budget before you begin repaying those daunting loans. Keep these tips in mind as you formulate a strategy for debt payoff.  

Student Loans Have Advantages

Varying types of debt are governed by different laws and regulations. Banks often base interest rates for consumer credit loans on your established credit rating. Interest rates for auto loans or credit card debt tend to be higher than a mortgage or student loan interest. As you review your debt load and make a plan, remember: student loan debt comes with a few "advantages" that other types of debt don’t offer.  
  • Preferential tax treatment: With a new job, you will be paying taxes on your income. Student loan interest is deductible up to $2,500 and can be deducted from pre-tax income.
  • Lower interest rates & perks: Federal student loans have lower interest rates and are sometimes subsidized by the government.
  • Lender incentives: Private student loans may come with incentives from the lender that make them a better deal than other credit types. These include fee waivers, lower interest rates, and deferment options.
  • Flexible payment plans: Options for lower payments and longer terms are available for both federal and private student debt.
  • Build your credit score: You can build your credit score with student loan debt. Now, depending on whether you’re making on-time payments or not, you could negatively or positively affect your credit. If you chose to make small payments during deferments, or a grace period, and regular on-time payments you will be more likely to establish a favorable credit record and reduce the amount of interest you pay overall.
 

Programs to Help You With Student Loan Payments

There are few options for loan forgiveness with regular debt, but student loans offer opportunities to reduce or eliminate your debt. These may come with commitments and tax implications, so be sure you fully understand them if you decide to take advantage of these programs.  
  • Loan forgiveness: Federal student loans may be forgiven, but you'll want to be sure that you're following all of the requirements needed of the program. Be sure before choosing this option that the federal loans you have qualify for the program. Also, keep in mind there could be taxes due on the amount that is forgiven. Some student loan forgiveness programs include PAYE (Pay as You Earn) and REPAYE (Revised Pay as You Earn), Public Service Loan Forgiveness, and Teacher Loan Forgiveness.
  • Loan Consolidation: Multiple student loans can be consolidated into one payment with the interest rate determined by a weighted average of your current loans - interest rates. Combining multiple loans may be easier to manage on a modest starting salary. Consolidating federal loans usually doesn’t require a good credit score, either.
  • Refinance, and you could achieve a lower interest rate: Lenders like Education Loan Finance specialize in student loan refinancing, and have options like variable interest rates and flexible terms. Refinancing your debt could make student loan debt easier to manage than other types of credit.
 

Pay Off High-Interest Debt First

Before you decide to pay off your student loans, think about the financial obligations you’ll be taking on. Instead of carrying a credit card balance or making low payments for an auto loan, it makes sense to continue your low student loan payments and pay off more expensive debt first or debt with a higher interest rate. In the long run, you’ll save money and build your credit score.   If you still have doubts about not paying off student debt first, consult a professional financial advisor for help prioritizing your goals and setting up a budget that lets you achieve them.  

Click Here to Learn More About Student Loan Repayment

   
2019-06-03
How to Build Your Child’s Credit Score When They Don’t Have One Yet

From the 2007 Housing Crisis, 2008 Stock Market Crash, and now the student debt crisis there is no surprise parents nationwide are looking to educate and protect their children on finances. Many people during these national events lacked basic financial know-how and self-discipline. Gen-Xers and millennials, starting to have children of their own, worry that a new generation could be seduced by the allure of instant gratification and the digital disconnect between earning and spending money. What as a parent can you do for a young child to teach them finances and help them learn the basics? Here are some basic tips to help your children build healthy credit and learn to use it responsibly.  

Start With Basic Financial Life Lessons

Whether your child is 2 or 22, financial education is the key to building good credit and financial independence. Erin Lowry, business blogger and author of Broke Millennial: Stop Scraping By and Get Your Financial Life Together, explained in a recent podcast that her parents taught her about delayed gratification early in life. “I was really encouraged from a very young age to start making money, especially if I wanted something," Lowry said.   Saving for discretionary purchases is a lesson many young children can miss. A growing number of young adults also don’t have realistic expectations of their future earning power. Lowry grew up in a different reality. She explains that her first successful enterprise was at age 7, selling doughnuts at a family garage sale. Before she could feel too excited about her earnings, her father adjusted the amount she made by taking out the cost of the doughnuts and wages for her sister. He explained that the money left was her profit. “He actually took the money," she remembers. "That is something that has stuck with me forever."   It’s never too late to teach lessons like these. Resources for financial education are abundant in print and online, and parents can refer adult children to Lowry’s book and her blog, brokemillennial.com. For younger children, check out this post by Dave Baldwin, “The Five Best Apps for Teaching Kids How to Manage Their Money.”  

Three Tips for Establishing Good Credit for Your Children

Parents with good credit and a clear vision of their children’s financial future can take these three actions to ensure a sound credit score for children reaching adulthood.  

TIP 1: Make your child an authorized credit card user.

There is no minimum age to most credit cards, so you can add your child as an authorized user as early as you like. The best part is you do not have to give the child access to the card, just keep it in a safe place. It’s imperative that you use the credit card wisely and are able to pay the minimum monthly balance on the card. If you are unable to make payments on the card that could negatively affect your child’s credit history too. Try to only use the card for reoccurring balances like gas or food shopping.   When your child comes of age to have their first credit card in adulthood, they will benefit from your history of timely payments and reasonable use of credit. It will also benefit them if they need a loan to attend college and you as a parent may not need to be a cosigner.  

TIP 2: Add a FREE credit freeze to your child’s credit report until they reach age 18.

Contact each of the three reporting agencies, Equifax, Experian, and TransUnion, to request a freeze in your child’s name. In some states, the freeze may need to be renewed every seven years. A credit freeze is fairly simple to implement and will protect your child from identity theft, which in turn will protect their credit history and credit score. You can also lift credit freezes when your child is ready to apply for credit.   It may seem like an extreme to put a credit freeze on your two months old credit but it will only protect them in the long run. Identity theft to children is an unfortunate reality in the United States. According to CNBC, more than 1 million minors were victims of identity theft or fraud in 2017. What may be even more surprising is that data breaches are just as much a problem for minors as for adults, if not more. According to CNBC, only 19% of adults were fraud victims compared to a staggering 39% of minors due to data breaches. This can happen to your child, but it can be prevented. You have the power to protect your children from falling victim to fraud. Not to mention a credit freeze is free thanks to recent laws passed by the federal government, so it won’t even cost you or your family a dime.   To learn more about protecting your child’s credit and preventing identity theft, visit the Federal Trade Commission’s Consumer Information site.  

TIP 3: Set up a secure credit card account for your child to use.

A secure credit card is similar to an unsecured or the “normal” type of credit card. The only major difference is that a deposit is used to open a secured credit card account. The amount of secured credit card deposit is usually the credit limit of that secured credit card. Now, as long as all payments are made on time and in full at the end of the designated period you’ll receive your deposit back. Additionally, that fact that all payments were made on time and in full means that you should see that reflected in your credit report and you may even see that reflected in your credit score. If your child fails to make on-time payments or fails to pay the full amount of the card this could hurt your child’s credit instead of helping it.   If you choose to give your teenager a secured credit card you should be certain that you discuss the responsibilities of card with them. Make sure your child is committed to paying on time, staying within the credit limit, and using the card for only appropriate expenses you have discussed in advance. This is a great responsibility to provide a teenager because it really gives them the ability to start developing good financial habits. Whether that is putting an alert in their cell phone when the payment is due or if that is handwriting it on a calendar. Additionally, your child will have the opportunity to really learn to budget and live within their means. These are fundamental finance lessons and habits that will help to lay the groundwork of what could be a very financially responsible young person.  

Financial Outlook

  Regardless of what ways you choose to teach your child about credit or build their credit, know that your outlook on finances can easily become your child’s. If you find yourself scared of money, it’s likely your child will too. So often children learn relationships based on what they see their parents doing, so be sure that you’re laying the right framework for them to be successful. It doesn’t have to be an overly complex and if you aren’t sure that what you are teaching them is correct try looking locally for classes or programs. You should be able to find some financial literacy courses either online or within your local community. These can really help your child to familiarize themselves with common financial terms and create good financial habits. Good financial habits include how to save money, charitable giving, and even what taxes are.  No one knows your child better than you and no one wants them to succeed more than you, so be sure to give them the right tools and resources to do so.  

Ask These 10 Questions When Hiring a Financial Advisor

    NOTICE: Third Party Web Sites Education Loan Finance by SouthEast Bank is not responsible for and has no control over the subject matter, content, information, or graphics of the websites that have links here. The portal and news features are being provided by an outside source – The bank is not responsible for the content. Please contact us with any concerns or comments.