Tuesday, 9 September 2014

Student loan | Report: 40 Million Consumers Have At Least One Student Loan ...

Student loan | Report: 40 Million Consumers Have At Least One <b>Student Loan</b> <b>...</b>

Report: 40 Million Consumers Have At Least One <b>Student Loan</b> <b>...</b>

Posted: 09 Sep 2014 08:45 AM PDT

Report: 40 Million Consumers Have At Least One Student Loan – Consumerist
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Will a Huge Amount of <b>Student Loan</b> Debt Hurt My Credit Score?

Posted: 08 Sep 2014 12:30 AM PDT

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If you're coping with a mountain of student debt, you have a lot on your mind. Aside from how you're going to make the payments, you're probably also worried about how your loans are affecting your credit score.

Don't worry, the Nerds are here to explain all the important details about the relationship between student loans and your credit.

A big student loan bill won't hurt your credit if you handle it responsibly

First, take a moment to let out a sigh of relief: A huge amount of student loan debt won't necessarily hurt your credit score.

If you've done some preliminary research about the factors that affect your credit, you probably noticed that "amounts owed" accounts for 30% of your score. But this is most heavily influenced by your credit utilization ratio on revolving credit accounts, like credit cards. Since student loans are installment loans, they don't have a big impact on this portion of your score.

In fact, your student loans could potentially help your credit. If you pay your loans on time and in full, you're going to bolster the part of your score that's determined by payment history. Because this makes up 35% of your overall score, you could get a boost from handling your student loans responsibly.

Plus, having an open installment loan may also improve the 10% of your score that comes from the types of credit you have in use. Lenders like to see that you're good at managing different varieties of borrowed money, so having both revolving and installment accounts on your credit report is beneficial.

But you could have trouble getting other loans

Although making your student loan payments on time is a good way to keep your credit score humming, it's worth noting that a heavy student debt burden could still interfere with your ability to get other loans.

This might seem counterintuitive, because you probably know that good credit is key to qualifying for financing on competitive terms. But your student loans will have an impact on another key variable lenders look at when they're deciding whether to extend you credit: your debt-to-income ratio (DTI).

Your DTI is the ratio of your monthly obligations to your gross monthly income. We'll use an example to illustrate this point: Let's say you're making an annual income of $50,000 in your first job out of college. In this case, your gross monthly income would be $4,166.67 ($50,000/12).

Let's assume you're paying $800 per month in rent, $250 on your car payment, and $650 toward your student loans. Your total monthly obligations would be $1,700 ($800+$250+$650).

To figure out your DTI, you'd do a simple division problem:

$1,700 (your total monthly obligations)/
$4,166.67 (your gross monthly income) =
40.8% (your DTI)

Most lenders like to see a DTI of 36% or less; if your student loans are pushing your DTI above that mark, you might have trouble getting another loan.

Tips for managing your student loans

So it turns out that student loans can be helpful or hurtful when you're trying to get financing for a car or a home after college. They could boost your credit score, but there's also the possibility that they'll drive up your DTI.

Luckily, the Nerds have a few tips for successfully managing your student debt so that you'll be well-positioned for a bright financial future:

  • Pay your loans on time every month, no matter what.
  • If your minimum monthly student loan payments are too high, communicate with your lender. You might be able to defer them for a period of time or work out an income-based repayment plan.
  • If you work in public service (as a teacher in a low-income school, for example), look into loan forgiveness programs you might be eligible for.
  • Consider consolidating. This could help you score a lower interest rate on your student loans, and it will help simplify making your monthly payments.
  • Consider paying more than the required monthly minimums. This will help you pay off your student loans faster, which will cause your DTI to drop.

The takeaway: A huge student loan bill won't necessarily hurt your credit score, but it could make getting other loans more difficult. Use the Nerds' tips above to manage your student debt effectively.

Student loans image via Shutterstock

LendIt 2014 <b>Student Loans</b> Panel - LendKey – Cloud-Based <b>...</b>

Posted: 13 Aug 2014 10:37 AM PDT

LendKey was excited to attend the second annual LendIt Conference in early May. We traveled to San Francisco to take part in the leading conference in the global online lending industry. With 950 attendees and 100 presenting companies, we were able to meet and network with many experts and enthusiasts in the online lending space all in one place. There was a strong sense of shared passion at the conference, making it feel less like a work commitment and more like a community meet up. LendKey CEO, Vince Passione, was invited to moderate the Student Loans Panel. The conversation centered on responsible lending and the significance of peer-to-peer lending (P2P) in the student financing sector. The panelists included Mike Cagney of SoFi; David Klein of Commonbond; Brendon McQueen of Tuition.io; and Cameron Stevens of Prodigy Finance.

Vince kicked off the conversation by first demystifying the student loan bubble and some of the concerns around it. With 21 million students enrolled in college, up by 6% from prior years, an estimated $100 billion in federal loans were given with little underwriting. Once students exhausted federal funding, they turned to private lending and received $8 billion worth of private loans, bringing the total private loan debt to $65 billion. The student loan bubble is primarily being driven by the increasing costs of attendance and an increase in the non-underwritten student loans that are available today. A recent study from the Brookings Institute, "Is a Student Loan Crisis on the Horizon?" cited the rising tuition costs account for about one-half of the increase in debt. Students carrying these debt burdens need a refinancing mechanism and the ability to manage that debt.

Vince led the panel through the following key topics of student financing:

Community

The community aspect behind P2P lending was a hot topic during the discussion. There is more emphasis on the community in the student lending ecosystem than any other sector. Community Enforcement is a concept that revolves around the idea that because a borrower acknowledges that an individual investor has essentially vouched for him or her, then the borrower will feel a sense of personal obligation to repay the loan. If a loan goes into default it becomes transparent to the community, enabling the community to act as a tangible risk management tool.

Financial Literacy

Even with strict underwriting requirements, if a borrower does not understand the costs of college and the associated costs of their debt (interest rates, fees, and repayment rates), then the likelihood that everyone involved in the lending process will suffer increases significantly. The panelists agreed everyone involved in the student lending space must take a proactive approach when it comes to financial literacy. Part of lending responsibility is ensuring borrowers and lenders know exactly what they are getting themselves into when this debt is provided.

Scalability

Of the $1.1 trillion of outstanding student loan debt, only 30% of that is in current repayment making it a very tough asset class for lenders to broaden their spectrum of schools. In order for institutions to achieve scalability in terms of capital, many are turning to loan participation networks. From a value proposition standpoint, offering private student loans forges relationships with young consumers and provides the opportunity for lenders to offer other loans in the future.

While these lenders face some challenges, the benefits of offering private student loans are evident as they are strong assets and perform quite well when coupled with rigorous underwriting requirements. To learn more about the private student loan asset class and why your institution should be offering this product, download our free white paper: Understanding Private Student Loans.
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