First Person: I Repaid My Student Loans While Still in College (ContributorNetwork)

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The first two years of my college experience was spent at a community college. My tuition was covered, but I took out a loan for $20,000 to cover living expenses. Upon transferring to a costly four-year university I received a hefty scholarship, which covered most of my expenses. Still, my loans were at $11,500 per year. The day of my graduation, I received the coveted diploma and a not-so-coveted array of bills for my student loans.

However, the difference between other students and myself was the large sum of money lingering my savings account that I started four years prior. Let me explain how I managed to pay off my bills on the same day that I graduated from college:

Federal Loans Only

The first goal during my college career was to stay away from private student loans because they are nightmares. Trust me, I know. I took out a $5,000 private student loan in my first year of college and watched it as it was passed around from lender to lender and the interest rate jumped around, ranging from 8% to 20%. Not to mention the compounding of interest that increased the loan nearly $1,500 in eight months. Needless to say, I paid that off with every dime that I had to give to it by taking on a job. Please, if you can avoid them, do not take out alternative loans.

The government offers student loans at wonderful interest rates and the government will pay the interest of the loan while you are pursuing your education.

Monthly Payments While in School

Let's evaluate my loans. During years one and two, I took out $7,500 for each year. My plan was to get a job that I could take the money that I would need to pay off the loan in one year and pay it into a high-interest savings account. That meant that for years one and two, I paid $625 into my savings account each month. During years three and four, I took out $11,500 per year, which meant that I had to contribute $960 each month to the savings account. This may seem like a lot of money, but at the time I was single and still didn't have my daughter (until the fourth year), so it was easy to have all of my expenses paid, get a job on the side and contribute all of that money into a savings account.

At the end of the four years, I had contributed $43,000 to my savings account and earned about $1,000 in interest on the money.

On the day of my graduation I was able to pay off my student loans and never had to pay a cent of interest. If you are financially capable to do this, then I suggest that you do it. All it takes is finding extra income through a part time job or funding. You will save thousands of dollars in interest if you can manage this. If you cannot afford to pay the monthly payment, then pay half of it or pay what the interest would be on the loan. That way you can make a lump sum payment at the end of your college education.

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Wells sues JPMorgan over 800 mortgage loans (Reuters)

(Reuters) – JPMorgan Chase & Co (JPM.N) was sued by Wells Fargo & Co (WFC.N), which seeks to force it to buy back more than 800 soured mortgage loans that it oversees as trustee.

In a complaint made public on Wednesday in the Delaware Chancery Court, Wells Fargo accused JPMorgan's EMC Mortgage LLC unit of refusing its demands that EMC buy back the loans, which were contained in Bear Stearns Mortgage Funding Trust 2007-AR2.

JPMorgan bought Bear Stearns and its EMC unit in 2008.

In the complaint, Wells Fargo said EMC and its affiliates routinely approved mortgage loans despite "clear defects" in loan applications, including faulty appraisals and inflated borrower incomes.

It also said a forensic review showed that EMC breached representations and warranties on 89 percent of a sample of 948 of mortgage loans.

"The loans have been plagued by an alarming rate of defaults and foreclosures," Wells Fargo said.

JPMorgan spokesman Patrick Linehan declined to comment.

Trustees such as Wells Fargo act on behalf of investors in securities backed by underlying loans.

Some such as Wells Fargo and US Bancorp (USB.N), which sued Bank of America Corp (BAC.N) last month, have taken legal action against other banks when they believe misrepresentations have been made regarding the securities.

JPMorgan is the nation's second-largest bank by assets, while Wells Fargo is the fourth-largest. Wells Fargo is also the largest U.S. mortgage lender.

The case is Bear Stearns Mortgage Funding Trust 2007-AR2 by Wells Fargo Bank NA as Trustee v. EMC Mortgage LLC, Delaware Chancery Court, No. CA6861.

(Reporting by Jonathan Stempel in New York; Editing by Steve Orlofsky)

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Discover buying $2.5B in student loans from Citi (AP)

NEW YORK – Discover Financial Services on Thursday said it is buying another $2.5 billion in private student loans from Citigroup.

The deal, disclosed in a regulatory filing, comes nine months after Discover bought Citi's private student loan business, The Student Loan Corp., and a portfolio of loans and other assets totaling $4.2 billion.

The price for the latest deal is roughly 99 percent of the face value of the loans, which translates to about $2.48 billion. The purchase is expected to close by Sept. 30.

Discover held $52.51 billion in total loans, including credit card balances, as of May 31, the end of its fiscal second quarter. Of that, $4.57 billion was student loans, up from $820 million the year earlier. Most of the increase reflected the Student Loan Corp. buyout.

Income from loan fees is a growing part of Discover's earnings base, rising 16 percent increase from last year in the second quarter, to $81 million.

Student loans tend to be among the most reliable types of lending in terms of payback. Discover wrote off just 0.51 percent of loans on an annualized basis in the second quarter, excluding problem loans that came with the purchase of Student Loan Corp. That compares with a 2.88 percent charge-off rate for personal loans, and a 5.01 percent charge-off rate for its credit cards in the period.

In May, speaking at a conference in London, Harit Talwar, the company's president for U.S. Cards, said the student loan business now exceeds $5 billion a year for Discover, which is based in Riverwoods, Ill.

"We really like this business," he said. "In the U.S., as you know, education costs are increasing much faster than income. And therefore, students need funding for tuition fees."

He noted the business "caters to a student community which is upwardly mobile," and more than 90 percent of student loans are co-signed, which increases the chance that they'll be repaid. Discover expects to be the third-largest originator of private student loans in the country this year.

Discover shares rose 13 cents to $25.29 in midday trading. New York's Citigroup Inc. shares fell 32 cents to $30.73.

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More homeowners refinancing into shorter loans: survey (Reuters)

NEW YORK (Reuters) – More homeowners prefer to pay off their mortgages sooner as interest rates have stayed near rock-bottom and weak labor conditions have caused them to reduce their debt loads, a survey showed on Monday.

The current trend in refinancing into shorter-loan terms is a stark contrast to the one during the height of the housing boom, when families were taking out bigger mortgages against the rising values of their homes.

Of those homeowners who refinanced a 30-year fixed-rate mortgage during the second quarter, 37 percent moved into a 15-year or 20-year fixed-rate loan. This is the highest since the third quarter of 2003, mortgage finance agency Freddie Mac (FMCC.OB) said.

In the second quarter, interest on the 30-year mortgage averaged 4.65 percent, compared with a 3.84 percent average on 15-year mortgages, the company said.

"It's no wonder we continue to see strong refinance activity into fixed-rate loans," Freddie Mac Chief Economist Frank Nothaft said in a statement.

Refinancing has comprised the bulk of U.S. mortgage activity since the housing bust that led to the 2007-2009 global financial crisis.

During the second quarter, the refinance share of mortgage applications, versus the share of applications for loans to buy a home, averaged 70 percent, Freddie Mac said.

(Reporting by Richard Leong; Editing by Dan Grebler)

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Say 'No' to Tax Refund Anticipation Loans, Consumer Groups Advise (ContributorNetwork)

Illinois ' Attorney General Lisa Madigan is the latest consumer advocate to warn the public that refund anticipation loans are a bad deal. Madigan told Illinoisans Tuesday that consumers should not mistake these loans for advances on tax refunds. The high-cost short-term loans typically come packaged with attached fees for tax preparation, tax filing, electronic filing, and even check cashing. RALs previously have been identified as predatory by numerous consumer advocates including the National Consumer Law Center and the Consumer Federation of America.

What is the alternative for taxpayers who say "no" to RALs? Consumer advocates say it's filing a return electronically and getting a tax refund direct deposited from the IRS in as little as 10 days. Some states issue their tax refunds even more quickly.

Changes in the RAL Market

Smart Money looked at the RAL market last month after federal regulators knocked one of the big players- H&R Block- out of the game. The Office of the Comptroller of the Currency ordered H&R Block's banking partner HSBC to cease issuing RALs. Tax preparer Jackson Hewitt is set to assume the lead as the primary RAL issuer as federal tax season goes into full swing.

With the removal of HSBC from the RAL market, Jackson Hewitt's lender Republic BankCorp. Inc is now the only major player left. The Federal Deposit Insurance Corporation warned Republic earlier this month that its RAL practices were "unsafe and unsound," a warning that came to light when the bank made a required disclosure to the Securities and Exchange Commission.

The Advantages and Disadvantages of RALs

The advantages of RALs are legion- for the bank issuing them. The disadvantages are equally legion for consumers who at best obtain some of their tax refund a few weeks early at an excessive cost. Consider:

* Republic's $61.22 fee for a $1500 loan is the equivalent of 149 percent Annual Percentage Rate interest.

* Banks issuing RALs took $600 million from 7.2 million taxpayer refunds in 2009 (a decrease from 2008 when they took $738 million from 8.4 million taxpayers.)

* Not only is the charge for RAL issuance typically excessive, it is paid upfront before the remainder of the refund is released to the taxpayer. Wisconsin 's Dept. of Revenue warns that state's consumers that if the tax refund falls short of the expected amount, the consumer is on the hook for the balance of the loan.

* Banks may cite checking account costs as reasons a consumer should agree to an RAL rather than simply open an account and have a tax refund direct deposited. However, government agencies say that free bank accounts are widely available. Simply typing "free checking no minimum balance account" into a search engine will turn up a variety of potential free bank account options.

The Internal Revenue Service is considering a ban on RALs. But unsurprisingly, the IRS's concern is not abuse of taxpayers by predatory lenders. Instead, the IRS is concerned that the potential for receiving an RAL may encourage fraud, either by the taxpayer himself or unscrupulous tax preparers.

Carol Bengle Gilbert writes about consumer issues for the Yahoo! Contributor Network.

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Wells Fargo rolls out fixed-rate student loans (AP)

By CANDICE CHOI, AP Personal Finance Writer Candice Choi, Ap Personal Finance Writer – Wed Jun 8, 2:56 pm ET

NEW YORK – Wells Fargo is hoping to make its student loans more attractive to families.

The San Francisco-based bank says it is now offering fixed-rate student loans, which is a departure from the industry practice. Unlike federal student loans, the private student loans issued by banks typically come with variable interest rates that are tied to a benchmark rate.

Wells Fargo says its fixed rates will range from 7.75 percent to 14.25 percent, depending on the credit background of the applicant or co-signer, who is often a parent.

Even on the low end, however, Wells Fargo's fixed rates are higher than the 6.8 percent fixed rate on most federal student loans. Federal loans also offer safeguards that do not come with private student loans. For example, students who earn very modest salaries can enroll in programs that cap their monthly federal loan payments to a percentage of their income. Remaining balances are forgiven after 25 years of payments.

Federal loans also give borrowers the option to defer payments for set periods if they run into financial hardships, such as unemployment. With private loans, it's up to the lender to decide whether to grant deferment. And the deferment periods granted are typically shorter than the time permitted under federal student loans.

As a result, private student loans are widely regarded as a last resort after federal aid has been exhausted. Still, private lenders note that their loans can help bridge the gap in covering college costs after other resources have been tapped out.

Wells Fargo also said this week that it will give existing customers who take out new student loans a 1 percent discount on interest rates. If approved, all loan applicants will now be offered the option of either a fixed or variable rate. Variable rates range from 3.5 percent to 9.99 percent.

The announcement from Wells Fargo & Co. comes ahead of the peak season for private student lenders, when families are looking to bridge financing gaps leading into the fall semester.

The private student loan industry has nevertheless been shrinking in the past few years. After peaking at 25 percent of total loan volume between 2006 and 2008, private student loans declined to 8 percent of total loan volume in the 2009-2010 academic year, according to The College Board. Several factors, including higher federal loan limits and tightened liquidity in the private loan market, contributed to the decline.

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Home Sellers Provide Last-Resort Loans (BusinessWeek)

Sue and Douglas Reed knew no bank would give them a mortgage -- not with a bankruptcy and two foreclosures fresh in their credit history. They turned to Hilarie Walters, whose childhood home on 15 acres in Marshall, Mich., had been on the market since 2009, a year after she inherited it. Walters agreed in December to sell the property to the Reeds for $105,000. She also consented to a risky payment plan that in effect makes her the couple's mortgage lender. "They're paying me interest every month, but I'd rather have the money and be done with it," says Walters, an unemployed single mother who is using their payments to cover the mortgage on her Battle Creek (Mich.) residence. "It does make me nervous."

Financing provided by sellers, popular in the 1980s when mortgage rates reached 18 percent, is making a comeback in markets such as Michigan that have been hit hard by foreclosures and where tightening lending standards and years of economic distress have drained the pool of creditworthy buyers. For a small but growing number of people, it's the only way to get a deal done. "Anytime the market is in this much trouble, people have to find ways to get it to function," says Dennis Capozza, a professor of finance at the University of Michigan in Ann Arbor. Capozza has direct experience with seller financing: He purchased a friend's foreclosed home a couple of years ago and then allowed him to buy it back in installments.

Last year 52,991 U.S. homes were purchased with owner financing, up 56 percent from 2008, according to Realtors Property Resource, citing data collected from county record offices. Such deals accounted for 1.5 percent of all transactions in 2010. Michigan, which has a 10.3 percent unemployment rate, leads the nation with about 1,600 home listings that advertise seller financing, followed by Florida, Ohio, California, Wisconsin, Minnesota, and Texas, according to property website Trulia.

The risks in such deals are significant for both buyer and seller, says Jason P. Hoffman, a Faribault (Minn.) real estate attorney. "Each of them is seeking an advantage in an otherwise difficult situation, and they're hoping everything will work out as envisioned," Hoffman says. "It's an act of faith."

The Reeds, who put $25,000 down, make monthly payments of $565, reflecting a 7 percent interest rate, with the full balance due in five years. "This is the American dream, and we're going for it no matter what," says Sue, 56, who sells snacks from a trailer at estate auctions and going-out-of-business sales. "We'll either make it or it will break us."

The riskiest deals involve sellers who have bank loans on the properties, Hoffman says. Most mortgages contain a "due on sale clause," meaning the lender can call the loan if the home is transferred. While community banks sometimes grant exceptions, many homeowners take their chances, hoping lenders won't ask questions as long as the payments stream in, he says.

Some investors see seller financing as a marketing tool. Mark Cook, 30, a real estate agent in Lake City, Fla., says he sees an untapped market in people who have had their credit ruined by a foreclosure or short sale. Cook is working with a Canadian investor who bought and renovated four homes in Florida's Cape Coral and Fort Myers areas since September, selling them to buyers who needed financing. One more is for sale now, another is under renovation, and they have contracts to buy another handful of homes.

Cook markets homes to buyers with foreclosures in their credit history, as well as second-home purchasers and self-employed borrowers who don't show enough income on their tax returns to qualify for traditional financing, he says. He offers an interest rate of 9.95 percent and a balloon payment after seven years to buyers who can put down 20 percent in cash. "We are advertising in markets that are cheap, and we're satisfying the consumer's appetite for a bargain," Cook says. "Assuming you're not creditworthy and have cash, we are your avenue for buying a home."

Rebecca Hill, a 33-year-old high school science teacher, and her fiance, Nicholas Lehman, bought an almost 2,000-square-foot house in Cape Coral through Cook for $107,000 on May 4. Her credit was damaged a year ago when her ex-husband lost a home they had purchased together in foreclosure, according to Hill. While they paid a premium for a seller-financed home, the monthly mortgage costs are $175 less than the rent they previously paid for a unit half the size, she says. "If I wait for my credit to be restored and then purchase, I'm not going to get a $107,000 four-bedroom home," Hill says. "That's not going to exist anymore."

The bottom line: In 2010, almost 53,000 homes were purchased in the U.S. with owner financing -- sales that might not have happened otherwise.

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Consumers borrow more for student loans, new cars (AP)

By MARTIN CRUTSINGER, AP Economics Writer Martin Crutsinger, Ap Economics Writer – Thu Apr 7, 4:49 pm ET

WASHINGTON – U.S. consumers borrowed more money in February to buy new cars and attend school, but they cut back on using their credit cards to make purchases.

Borrowing increased by $7.6 billion, or 3.8 percent, in February, the Federal Reserve said Thursday. It was the fifth consecutive monthly gain.

All of the strength in February came in the category that includes car loans and student loans. That increased 7.7 percent. Borrowing in the category that covers credit cards fell 4.1 percent. That has risen only once in the more than two years since the 2008 financial crisis peaked, a cautionary sign for an economy in which consumer spending drives 70 percent of growth.

Still, Mark Zandi, chief economist at Moody's Analytics, said it may actually be a good thing that fewer Americans are charging goods on their plastic.

"I think households have done a good job of getting their financial books in order and that will lay the foundation for more prudent borrowing going forward," Zandi said.

The gains pushed total borrowing up to a seasonally adjusted annual rate of $2.42 trillion in February. That's 1 percent from the three-year low hit in September.

Households began borrowing less and saving more as they struggled to cope with the severe 2007-2009 recession. But economists expect that the period of belt-tightening is ending. They see consumer spending being supported this year by increased borrowing, rising employment and the Social Security tax cut that is giving households more after-tax income to spend.

The Fed's monthly consumer credit report covers auto loans, student loans and credit card financing but excludes loans secured by real estate such as mortgages and home equity loans.

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