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10/9/2017 0 Comments

Why Are Student Loan Debtors Falling Behind on Their Payments

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Although the economy has improved and unemployment is low, more student debtors are falling behind on their federal student loans.  After three years of declines in late payments and with no clear explanation, experts are not sure why especially since millions of these borrowers are enrolled in generous income-based repayment plans.

As of June 30, 18.8% of Americans are at least 31 days late on their student loan payment according to the U.S. Department of Education ticked up to percent .  Approximately 3.3 million Americans have gone more than a month without making a required payment on their Education Department loans.

This rise in borrowers falling behind on their student loan payment have economists and government officials scratching their heads.  It is difficult for them to explain this rise in late payments since normally when the U.S. economy has improved, it means richer borrowers that can afford their bills.

Under income-based repayment plans, that were created to help borrowers who can’t afford the typical monthly payment, debtors can remain in good standing as long as they annually document their earnings even if that number is 0.  Today, 4.8 million student borrowers take advantage of these plans which makes the rise in delinquency rates more surprising.

There are two possible explanations, according to the Education Department officials.  The first is that the delinquency rate could simply be leveling off after years of steady declines or it’s due to the number of borrowers that couldn’t afford their new monthly payments.  Income-based repayment plans are only good for one year and then borrowers are required to annually submit updated earnings information by the deadline.  Many of these borrowers effectively fell out of income-based plans over the past year.  The borrowers that fall out of income plans often become delinquent on their debt because they are no longer making payments based on their earnings.

Many find there is a simpler reason: many Americans just can’t afford their monthly payments.

There are some warnings signs that a growing share of consumers are struggling to pay their bills.  Despite a strengthening economy, there’s no question that millions of student loan borrowers continue to struggle.
Another issue is the increase in parents taking out Parent PLUS loans to pay for their child’s education.  For more than 30 years, the federal Parent PLUS Loan for undergraduate students has helped parents bridge the gap between the financial aid their children receive and the total cost to attend college.  Once a relatively small program, Parent PLUS loans have grown steadily over the years as college costs have increased and home prices trended downwards.

Many American parents turned to home equity loans, which was a prime competitor to Parent PLUS loans.  However, as home prices sank during the last recession and many families found themselves upside down on their mortgages, many parents could not get a home equity loan and turned to Parent PLUS loans for their child’s education. The National Center for Education Statistics reports that 20 percent of parents took out Parent PLUS loans and around 3.3 million parents are repaying more than $75 billion in outstanding Parent PLUS loans.

Due to the fact that many Generation Xers are sending their children to college while still paying back their own student loans, the need for Parent PLUS loans are on the rise.  In fact, 35% of the education debt belong to Americans over 40 years old.  In some of these situations, parents are still paying off their own student loans when taking out loans for their children.

The federal Parent PLUS loan  can be contributing to the rise in falling behind on student loan payments.  For years, controversy has swirled over whether the Parent PLUS loan is actually unfair to the borrower.  These loans are not need-based and parent qualify regardless of the amount as long as the parent doesn’t have adverse credit.  The parent’s ability to pay or debt-to-income ratio are not taken into account when applying for the loans that can cover all of your child’s college expenses minus any other loans or grants their child receives.

Parent PLUS loans can be a lifeline for low- and middle-income families who have no other way to afford college, while others argue that the loans have become a debt trap for too many that can be impacting borrowers falling behind on their student loan payments.  Further, Parent PLUS loans have higher interest rates and less generous repayment terms than federal student loans.  Some even think that the colleges’ access to an unlimited supply of federal Parent PLUS funds allows them to drive up tuition.

Due to private loans having tougher credit criteria, Parent PLUS loans became many American parents only option to help provide the ability for their children to have a higher education.  However, many believe that credit counseling and information for parent borrowers before they borrow, and borrowing caps on Parent PLUS loans will help parents borrow less and be more capable of making their student loan payment without falling behind.

Although the economy is improving and unemployment rates are low, borrowers need to know what they are getting themselves into before choosing to take out student loans.  Apply for an income-based repayment plan to minimize your payments.  Parents should also know exactly what their payments will look like before turning to Parent PLUS loans and not borrow more than what they can afford.  This may mean your child has to work while attending college or attending a more inexpensive college, but make sure you can repay the loan before you commit to it.  With college prices on the rise, many students are turning towards community colleges for their first few years old college.  Often, it is not their first choice, but it helps avoid borrowing more money than you can afford to repay.
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10/2/2017 0 Comments

Your Zip Code Can Impact Your Job Opportunities

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The Distressed Communities Index (DCI) combines seven complementary metrics into a broad-based assessment of community economic well-being in the United States.

-Adults without a high school diploma

-Poverty rate
-Prime-age adults not in work
-Housing vacancy rate
-Median Income Ratio
-Change in employment
-Change in Establishments

From 2011 to 2015, Census Bureau data has been the source to determine the number of seats each state has in the U.S. House of Representatives and the allocation of federal funding for education programs in states and communities.  The DCI covers over 26,000 zip codes and 99.9 percent of the U.S. population (244 million Americans over the age of 16) as well as cities, counties and congressional districts, enabling Americans to understand how their local well-being stacks up at every scale of life. The DCI groups places evenly into five different tiers based on their performance on the index: Prosperous, comfortable, mid-tier, at risk, and distressed.

The DCI a customized dataset examining economic distress was created by the Economic Innovation Group (EIG) that came together because members felt the recovery from the Great Recession was not as strong as it should be.  The EIG’s goal is to foster broad-based economic growth and revitalization through new public policy solutions.  EIG brings entrepreneurs, policy experts and investors to the table to generate new solutions, and then works alongside policymakers to identify opportunities for bipartisan cooperation, build coalitions, engage private sector allies, and turn good ideas into successful legislation.

The 2017 DCI that EIG created found that 52.3 million Americans live in economically distressed communities.  This means that one-fifth of zip codes scored low on the DCI which represents one in six Americans, or 17% of the U.S. population.  However, 84.8 million Americans or 27% of the country’s population live in prosperous communities.

What does this mean for America's job opportunities?
It means in America's elite zip codes the economy is growing and job opportunities are available. Since 2011-2015, 57% of the national rise in business establishments and 52% of employment growth were in prosperous areas.  This means that jobs are going the most prosperous cities in the country.  The new businesses that are forming are often open in thriving communities where educated workers live.  These new job opportunities are almost exclusively going to people with education beyond high school thriving.  In fact, the fastest growing zip codes are in the western cities (such as Gilbert, Ariz., and Plano, Texas) and "tech hubs" (Seattle, San Francisco, Austin) which dominate the list with growing economies.

On the other side, the economic stability of the distressed communities is rapidly deteriorating.  Therefore, your economic opportunity is more tied to your location.  New jobs are available in the economy's best-off places forcing talented people to leave places with little economic opportunity, even if they have personal and family reasons to stay, and move to communities where there is opportunity.

A large portion of the country is being left behind by today's economy, according to the research only one of every four new jobs for the bottom 60% of zip codes.  Cities that were once industrial powerhouses in the Midwest and Northeast are now more likely to be on the distressed end of the spectrum, like Cleveland , Detroit and Newark.  These distressed communities have seen zero net gains in employment and business establishment since 2000. In fact, more than half have the communities have net losses on both fronts.

With less new companies forming than ever before, it further impacts distressed communities.   There are a huge number of people and places being left out living in distressed zip codes while attempting to find gainful employment with only a high school education.  While business growth in elite zip codes seems to be especially strong compared to the rest of the country, startup advocates are urging investors to look outside of California, New York and Massachusetts, the three states that get more than two-thirds of venture capital funding.  They are encouraging them look at areas that are suffering economically to help rebuild these communities.

The challenge for our policymakers is rebuild how these distressed communities.  This matter is urgent and complex, but needs to be addressed immediately in many areas especially in the south which seems to be hit the hardest.  In many of these distressed communitiess, hard work, ingenuity, entrepreneurial energy and the desire to get ahead can be found in the people that live there.  However, the job opportunities are not.  In order for America to have a solid economy, we cannot continue to leave these distressed communities behind.  Policymakers need to create ways to entice investors to look at these distressed communities to build employment opportunities with new business establishments.

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9/26/2017 0 Comments

What You Should Know About the Financial Industry Before You Invest

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In order to become wealthy, you need to do more than simply earn money.  You need to grow your money.  In order to grow your money, you need to invest your money.

When you are ready to invest your money, you need to find the right financial professional for your specific needs.  This may leave you wondering where to start or what qualities and credentials are important for your financial advisor to have.

When you start to research your financial advisor choices, it can lead you to become even more confused because they are so many options available.  In order to make the best decision for your financial needs, you need to have the right information to navigate the financial industry  and understand what you want from your financial advisor.

Your financial advisor choice can determine financial success. Below are some things you need to know when choosing the right financial advisor.

  1. Before you meet with a financial advisor, take the time to understand and determine your financial goals.  You want to make sure that your financial advisor is in line with your financial needs and does not talk you into investments you do not want or need.
  2. Not all financial professionals are financial advisors.  You want to find a financial advisor that will help you manage your finances by providing advice on money issues such as investments, insurance, mortgages, college savings, estate planning, taxes and retirement, based on your specific requests.
  3. The plan that your financial advisor creates is the most powerful indicator of your financial success.  You need to make sure that the financial plan your financial advisor provides is specific to your financial goals.
  4. No financial professional can promise returns or guarantee they can beat the market.  If they do, walk away.  There is no such thing as zero risk.  An honest financial advisor with assess the risks and benefits of your investments.
  5. The way a financial professional is compensated reveals conflicts of interest.  A fee-only fiduciary advisor is paid only by providing you a service that puts your best interests first.  A commission based financial advisor is compensated by the products they sell and may not have your best interest.
  6. Insurance is an important tool for your financial life.  A financial advisor can help seek the best options for you.
  7. Tax planning goes hand-in-hand with your long-term financial plan.  A financial advisor can assist arranging your affairs in ways that postpone or avoid taxes. By employing effective tax planning strategies, you can have more money to save and invest.
  8. You won’t know how good your financial advisor is until the markets take a tumble. When the markets are doing well, your financial advisor will look good.  However, when the markets tumble, how effective your financial advisor’s strategy performs against an economic downturn will determine your financial advisor’s strength.  Ask how he/she handled past economic downfalls.
  9. Your financial advisor should make sure that you understand that it will take time to obtaining financial independence.  You will need to start saving early and reap the benefits of compounding interest in order to have enough time for your money to grow to what you need in retirement.
  10. Seek a financial professional who educates their clients. You will want a financial professional that will help educate you so that you can make more informed financial decisions.  A financial advisor should assist you to make smart money decisions to  help you succeed.
  11. Find a financial professional that practices what he/she preaches.  If your financial professional doesn’t invest in what he/she recommends for you, RUN!  Ask your financial professional if he/she is investing in the investments he/she is recommending for you.
  12. Choose a financial advisor that recommends that you do not invest all of your money.  Your financial advisor should have you prepare for the unexpected.  There is always a chance that something bad or unexpected can happen that will impact your finances.   A good financial professional will recommend having an emergency fund to help keep your finances on track in the face of unforeseen events.


If you are ready to invest, take the time to seek a solid financial advisor that will assist you in your financial goals.  Research your financial advisor options and if something feels off, keep looking.  This is your financial future and you should find the right fit for you and your financial goals.



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Larry Lerner
Founder

Artists Business Management Group
Financial Planning
5950 Canoga Ave. #417
​Woodland Hills, CA 91367
CA License #: 
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818.719.6541
[email protected]
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Licensed Insurance Professional. Respond and learn how insurance and annuities can positively impact your retirement. This material has been provided by a licensed insurance professional for informational and educational purposes only and is not endorsed or affiliated with the Social Security Administration or any government agency.   It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice.
 
Annuities are insurance products backed by the claims-paying ability of the issuing company; they are not FDIC insured; are not obligations or deposits of, and are not guaranteed or underwritten by any bank, savings and loan or credit union or its affiliates; are unrelated to and not a condition of the provision or term of any banking service or activity.

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16310 - 2016/12/29