Saturday, January 20, 2007

Student Loan Corporation Doesn't Know Jack

Last week, a representative from the Student Loan Corporation came to our school to give a seminar on financial aid and budgeting, and since they offered free lunch - who am I to turn down free food? - I went. I wasn't anticipating much, but their presentation turned out to be far worse than I expected. Some of their key mistakes:

1. "Begin saving a part of your loan and put it into a savings account."
Now there's nothing wrong with placing your money in a savings account instead of your underwear drawer, as I mentioned in a previous post. However, there is something wrong with saving a part of your loan. If you don't use up all your loan money, you should immediately return it, so you're not being charged interest (more on this in #3). In fact, it's almost better to underbudget, and end up needing to borrow more later, at least if you're in grad school since they'll loan you as much money as you want whenever you want it. The less time you have the money, the less interest you are paying.

2. "There are some high yield savings accounts such as ING and I think it's called HCBC?"
Half-way there lady. If you can't remember four letter words, you must have a hard time finding something to say when you want to yell in frustration. Try HSBC.

3. "If you put your money in a high yield savings account like ING, you end up making money."
This was a comment made by a student when we were talking about savings. This was one case where audience participation resulted in the lowering of the financial IQ of the audience. Student loan interest rates are at 6.8%. Currently, the leading savings account offers 5.61% APY, but that's for balances above $25K. Even if you did have that much, it's less than 6.8%, and you'll be getting a nice tax on that at the end of the year, making it even less. I had to respond to this demonstration of ignorance, and I corrected him, but I don't think he believed me.

Beyond that misinformation, they basically talked about how to budget, but all I could think about then is that budgeting comes down to personal discipline. If you need to go to Starbucks for a quad venti mocha latte every morning to perk you up, then you should know that that costs you a couple grand every year. If you are "too busy" to cook for yourself and choose to eat out every night of the week, then you should know that if you saved up that money, you could easily buy a nice new HDTV. It all comes down to priorities and discipline.
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4 Comments:

Anonymous Anonymous said...

An excellent contribution to the lack of knowledge in our age group.

The only way it makes sense to put your extra loan money into a high-yield account is if you're actaully going to use it all during the semester for school-related expenses. But just putting extra in a savings account and leaving it there? What? Argh... Simple math appears to escape people these days.

January 21, 2007 at 12:36 AM  
Anonymous Anonymous said...

An excellent contribution to the lack of knowledge in our age group.

The only way it makes sense to put your extra loan money into a high-yield account is if you're actaully going to use it all during the semester for school-related expenses. But just putting extra in a savings account and leaving it there? What? Argh... Simple math appears to escape people these days.

January 21, 2007 at 12:37 AM  
Anonymous Anonymous said...

Classic. THis shows why Student Loan Corp (which is really Citibank in disguise) and other big banks on preferred lender lists should face more competition from specialty lenders who often give better rates. The entire student loan industry suffers from such idiots...

January 22, 2007 at 12:57 PM  
Anonymous Stingy Student said...

I wouldn't go as far to say that the entire industry is full of idiots, but you're right, a little more competition might make things more interesting.

January 22, 2007 at 3:32 PM  

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