Congress Prevents Student Loan Rate From Doubling

Friday, Jun. 29th 2012

New subsidized Stafford loans for college undergraduate were scheduled to double (from 3.4% to 6.8%) on July 1st. But last Friday, June 29, Congress approved a bill that will extend the 3.4% interest rates on student loans for another year. The House passed the bill 373 to 52 and the Senate 74 to 19 (NY Times). All the opposing votes were by Republicans. President Obama is set to sign the bill in the up coming weeks.

7.4 million students expecting to get educational loans this up coming year can rest easy for another year. If the bill had not been approved, the student loan participants would have been looking at an extra $1,000 to the average cost of each loan.

Recent college grads are already having financial issues paying off their loans as it is. Currently, the average college student is graduating with over $20,000 of debt.

Certain city communities are beginning to see student debts as opportunities to attract young, college graduates to become residents.  Rural counties such as Niagra Falls, NY are offering to pay off debts of recent grads who move to their location. To be eligible, residents must hold either an associate’s, bachelor’s or post-graduate degree, have an outstanding student loan balance and establish residency in a participating county (CNBC article)

 

 

 

 

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The Enlightened Borrower’s Loan Agreement Series: Episode 3 – How To Structure A Loan To Protect And Enhance Your Relationship

Friday, Jun. 8th 2012

Episode 3: How To Structure A Loan To Protect And Enhance Your Relationship



A successful loan can strengthen the bond between the lender and borrower simply because the experience builds trust and appreciation for one another. Here are simple guidelines to make sure the results of your experience are pleasant and constructive.

Timely Payments:

  • Take this loan seriously and execute the loan agreement with timely payments.
  • If anything prevents an on-time payment, immediately inform your lender.
  • Set an alarm in your phone, pencil it in your planner, and maybe even have a close friend help remind you (If you decide to use LendingKarma, you will have the advantage of  receiving friendly email reminders).
  • Keep track of your repayment history. (LendingKarma has a versatile payment tracker that can adjust to expedited payments, underpayments, or late payments. LendingKarma’s payment tracker will help keep things on track with a high level of transparency for both parties).

Communication:

  • If a complication arises, be sure to immediately communicate the details of the situation to the lender. Do not wait for the lender to find out on his/her own.
  • Make sure you are not flooding the lender with emails and phone calls, especially if you know that he or she is a busy individual.

Post Loan Communication:

  • When the loan is repaid, be sure to send a follow-up message to the lender about  the overall experience. If anything went wrong, address what you could have done better. If everything went as planned, make sure the lender knows you are appreciative.

Our users tell us that one of the main reasons they use LendingKarma is for the exact reason of preserving/enhancing the relationship between their lender or borrower. LendingKarma knows drawing up and executing a loan agreement can be a burden on a relationship. You can think of LendingKarma as the knowledgeable mutual friend of the lender and borrower that helps keeps track of all the details, so the loan runs smoothly for both parties.

Thanks for being a responsible borrower. Pat yourself on the back for taking the initiative to expand your knowledge about loans. We, here at LendingKarma, hope you feel more “enlightened” and confident in all your future loan endeavors.

Best of luck!

“Real knowledge is to know the extent of one’s ignorance.”- Confucius

 

 

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The Enlightened Borrower’s Loan Agreement Series: Episode 2 – How To Ask For A Loan

Friday, Jun. 1st 2012

Episode 2: How To Ask For A Loan


There are various approaches to successfully asking for a loan. LendingKarma offers a rather effective one: a friendly loan proposal document that can be presented in person or via email. LendingKarma’s loan proposal document introduces the reason for the loan, provides the loan proposal summary, and offers a potential payment schedule.

It is recommended to stray away from impersonal types of communication (i.e text messaging). One great advantage about communicating over the phone or in person is that it allows immediate feedback and assessment on how willing the person is.

It would be smart to answer the following questions when creating your loan:
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  • What will the loan be used for?
  • How much money is needed?
  • *How much money can I afford to borrow? (look at you DTI-debt to income ratio; discussed more below)
  • How will the loan be paid back?
  • What will the repayment schedule look like?
  • Will collateral be used for the loan?
  • Who pays for fees related to documenting and servicing the loan?
*DTI = amount of money coming in vs. money going out

EXAMPLE:

$1,000/month in bills
$4,000/month in net income
$1,000/$4,000 * 100 = 25%

Guidelines for DTI:

36% DTI or less is considered good financial shape.

42% DTI or above is considered poor financial shape.

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Carefully address these issues and you will be better prepared when asking for a loan.

Best of luck!

 

“You can make more friends in two months by becoming interested in other people than you can in two years by trying to get other people interested in you” -Dale Carnegie

Check out episode 3: How To Structure A Loan To Protect Your Relationship

 

 

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A Balanced Approach On How To Successfully Execute A Loan Agreement

Friday, May. 11th 2012

Welcome borrower!

LendingKarma has helped with over $100,000,000 in loans, and as a result, we’ve compiled some helpful insights from both our observations as well as customer feedback.

If you happen to be a lender, it may be wise to send this series to your borrower just as friendly advice.

The Enlightened Borrower’s Loan Agreement Series:

Part 1)   4 Things To Consider Before Asking For A Loan
Part 2)   How To Ask For A Loan
Part 3)   How To Structure A Loan To Protect Your Relationship

 

Part 1:  4 Things To Consider Before Asking For A Loan

Take the following 4 tips into consideration before asking for a loan:

Assess the Individual:

  • Will your offer be received positively by this individual?
  • Take the time to examine the person who you are considering to borrow money from. Here are some of the desirable characteristics we suggest to look for in the ideal lender: patience, flexibility, easy to reach, and understanding of your situation.

Assess Yourself:

  • Is it realistic for you to borrow the desired amount of money and responsibly pay it back to the lender in a timely manner?”

Assess the Relationship:

  • Do you have a history of unresolved arguments or sour confrontations with this individual?
  • Loan agreements can be an extremely delicate subject matter so, make sure you choose someone who you have worked with successfully in the past or someone you can see yourself successfully working with in the future. If any unexpected ‘speed bumps’ occur, you want your lender to be calm, flexible, and able to collaborate with you to sort out a realistic solution.

Example: “I borrowed money from my neighbor to pay for a car. I chose my neighbor because he has known me since I was young and completely understands my financial situation. I was prompt with all my monthly payments until I ended up injuring myself playing basketball at the park. The incident required a hospital visit and left me with a hefty hospital bill. I was unable to make payments to my neighbor that month. Fortunately, my neighbor was very understanding and flexible. Together, we created a new loan schedule which delayed repayment so, I  had time to get back on my feet.”

Seek Opinions:

  • Do not be afraid to ask for outside opinions on a potential lender. Outsiders can provide valuable information about an individual and offer a different perspective. Maybe, someone you know already had a good/bad experience with this individual about money. It never hurts to ask.

Example: “I was thinking about asking my Aunt for money. She seemed like the ideal lender because she was quite wealthy and I had a cordial relationship with her. I sought my mom’s input, and she revealed to me unpleasant stories about my Aunt’s financial situation. She affirmed her wealth but also brought up her trials and tribulations with gambling and inter-family drama dealing with money. I realized she was a risky source so, I decided it would be best to search for a different lender.”

Overall, use your judgement and do not be too anxious to finalize any decisions. Do some research on the individual before you ask for the loan. It is also smart to take the time to assess yourself, your ability to pay off loans, and your ability to handle delicate money situations.

Best of luck!

Knowing others is intelligence; knowing yourself is true wisdom. Mastering others is strength; mastering yourself is true power. -Tao Te Ching

check out part 2: How To Ask For A Loan

 

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Lending – the stepping stone to “Giving”

Friday, Apr. 27th 2012

We all know the amazing feeling that comes from ‘giving’ but, I will always be the first to admit I do not have the most impressive philanthropy record. Only one occasion sticks out in my mind where I willingly gave my time, energy, and money and expected nothing in return:

In high school, I gave private basketball lessons to local elementary school children for an hourly fee. One day, I received an inquiry about providing lessons for a church youth group made up of underprivileged children . They offered my going rate but I jumped on the opportunity to give back to the community and do it for free. I became submersed in a community of 15 eager boys and girls that did not know the basic rules of basketball. I was introduced to their rusty basketball hoop with a crooked rim and 4 old basketballs that were in every shape but a sphere. Throughout the 5 week endeavor, I witnessed an eager but clueless bunch transform into young basketball players who were able to conduct structured drills and play in organized games. It was humbling to see the reactions of the children when I bought new basketballs for them; most of them played with extremely lopsided balls all their life.

“Whoa, it bounces super straight,” I remember one of the kids saying after dribbling one of the new basketballs.

Walking away from each lesson gave me an insatiable “high” for life that is truly hard to describe. To put simply, it felt really good.

Years have passed since then and my schedule has become cluttered. I have resorted to what the bulk of my peers have been doing as charitable action: donating to food drives, donating old clothes, adding a dollar to whatever cause the local grocery store is supporting (partially because it is hard to refuse donating a dollar when the cashier asks you in front of a line of people).

All these actions were numb and unfulfilling compared to my past experience with the kids. I realized that the majority of these charitable deeds required a sense of optimism and imagination. We have to paint our own sanguine picture that our donated clothes are ending up on the backs of cold, needy children and our dollar is one of millions that are funding new homes. Regarding our clothing donations, the truth is quite deflating. ABC news wrote an article a couple year ago revealing that the clothing donations of the best quality (about 10% of all donations) end up at your local thrift shops where many of the customers end up being people like me and you: upper to middle class citizens scrounging for some good deals. The remaining 90 percent of what we give away is actually sold to textile recycling firms. Sad.

I have come to the understanding that in order to reignite the indescribable “high” from giving, I must see something through from beginning to end. I felt good about giving lessons because I witnessed it first hand and watched the children blossom over 5 weeks from start to finish. Unfortunately, busy schedules and a rocky economy make it difficult to dedicate time to a hands-on project or fund a project from start to finish but, I have been able to distinguish a form of compassionate action that is realistic for many individuals to do that can change lives: lending.

Lending opens the doors for individuals to pay for education, transportation, housing, the list goes on…

Financial blogger Craig Ford wrote

“I have one outstanding debt – a house loan. But, I didn’t get my loan through a regular financial institution.  Living overseas, I would have been looking at a 10+% loan to buy a home. Seven families I know banded together and offered my family a loan to buy a home.  I viewed and still view that loan as an act of kindness…That loan is a blessing to my family.”

The beautiful thing is the lender(s) can witness all the positives of their loan first hand.

Lending can be the vehicle we use to transition into ‘giving’ when we are financially ready.

People should not be intimidated by the loan experience. Sites like LendingKarma make it easy for lenders and borrowers to set up a loan agreement and help execute the loan step by step. LendingKarma provides the online, legally binding paperwork and tracks payments from beginning to end.

Best of Luck!

“I have found that among its other benefits, giving liberates the soul of the giver.” Maya Angelou

 

Jay is a marketing intern for LendingKarma. He is passionate about writing to share knowledge, inspire, and entertain

 

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5 Things Students Do In College To Kill Their Momentum When They Graduate

Friday, Apr. 20th 2012

Too many recent college graduates find themselves in a standstill dealing with financial troubles, confused by career direction, and intimidated by their empty résumé.

Here are the 5 most common ‘No No’s’ that lead recent college graduates into the dreadful stalemate. Avoid the following and you will have a great chance of ‘hitting the ground running’ the moment you throw your graduation cap in the air.

1. Choosing convenience over being thrifty 

College students are guilty of being lazy and have all the excuses in the world not to go the extra mile in order to save a couple dollars. But the money you can save really adds up and can set you up with a more favorable financial outlook once you graduate.

The campus bookstore is SO convenient but avoid it at all costs (no pun intended). The average student is spending $1000 on textbooks every year mainly because a large percentage of the student population is shopping at their campus bookstores. Save money buying/renting used books online (I used eCampus.com). You can easily save up to 50% on your textbook expenses. Just about everything in the campus bookstore can be found cheaper online or at an off-campus store. You can even find college apparel. You would be surprised how many outside vendors sell your university’s shirts, shorts, hoodies, etc.

Secondly, do not buy a meal plan. Go grocery shopping, cook at home, and treat yourself to a good restaurant meal every now and then. Colleges are guilty of over-charging on bulk-made/ordered foods and only provide the option to purchase expensive meal plans. Take for example the University of San Francisco. USF has thousands of students purchasing their $2,005 standard meal plan per semester. That works out to $401/month in their 5 month semester. In college, I got away with spending $150/month towards groceries and another $50 towards restaurants.  I was spending half the money as the USF cafeteria patron, and arguably eating healthier and tastier food (my girlfriend could cook).

2. Taking out student loans from the government and bank without searching for an alternative

Two third of all students come out of college with outstanding debt. On average, the U.S college graduate walks across the stage with about $25,000 in debt.

Today,  the student loan option is looking even more grim. Student loan rates are expected to double from 3.4% to 6.8% (more info in this Fox Business News Article)

The best alternative may only be a phone call/email away. More and more students have found the value of asking friends and family for student loans at incredibly affordable interest rates. Working with a close friend/family member to customize a loan is simple using a peer-to-peer lending site like LendingKarma. LendingKarma helps lenders and borrowers set up loan agreements, makes the loan legally binding, and sends out reminders of payments every step of the way.

3. Picking a ‘dead’ major

Choose your major wisely. Look for a major that is in high demand by employers today. Avoid picking dead majors like Latin, horticulture, or religion because the job market is not too promising in those fields (20 most useless college degrees).

Take a look a today’s trendiest degrees that are in high demand in today’s job market: Best Degrees For Growing Careers

4. Focusing on only getting good grades

There is nothing wrong with racking up straight A’s on the report card but too many college graduates get caught up with the letter grade rather than learning, exploring, and focusing on a subject that they could build a career upon. It is important to be proactive and learns skills that you feel will help you in future. So, take classes you are actually interested and don’t just study for the sake of the grade. Let your dream job serve as your motivation.

5. Ignoring your résumé till after graduation

Many college students do not start drafting their résumé until they graduate. Many times, it is not until college students begin writing their résumé do they find out how blank their résumé looks. Start NOW, if you haven’t already. Of course, job experience is a key component of a résumé so make an effort to find a part time position. Search for internships in industries you are interested in and gain hands on experience (internships.com is a great site to begin your search). Even if you end up serving food at a restaurant or folding clothes in a department store, you are learning about time management, teamwork, responsibility, independence, and the list goes on. No matter what job you land, employers can see the traits you possess to facilitate a job while being a full-time student.

Lastly, attend the free college résumé writing workshops offered at your college to hone your résumé writing craft. My college offered numerous résumé workshops that covered all the basics and revealed countless tips; some were even headed by top industry employers.

Best of Luck!

“Success occurs when preparation meets opportunity” – Henry Hartman

 

Jay is a marketing intern for LendingKarma. He is passionate about writing to share knowledge, inspire, and entertain. 

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LendingKarma Loan Agreements and Taxes

Monday, Apr. 9th 2012

Tax time is right around the corner which means that for lenders it’s time to tally up the amount of interest received throughout last year’s loan repayment because Uncle Sam wants his share of the profits. The interest you’re charging on your loan is considered investment income by the IRS. If you’re not charging interest on your loan agreement you should be careful as the IRS may calculate the interest amount for you and consider it taxable income. This is called imputed interest. Gift tax also enters into the equation with larger interest-free loans. There’s a good overview of imputed interest here. LendingKarma can help you to document your loan payments and interest to help you to avoid this situation.

He needs his cut of your profits

Assuming you’ve properly documented your loan, either on your own or with our “karma builder” custom loan agreement creator or our blank loan forms, the next step is to gather all of your check stubs or receipts for all the payment received throughout the last tax year. Once you’ve done that you add up all of the interest portion of each payment until you get a final amount for the year. That amount ends up being reported on a Schedule B form. If you’ve been tracking repayment using LendingKarma Premium you can simply sign in to your LendingKarma account and download your tax report that contains your interest totals for the year.

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