October 2009

Default Prevention

In the Spotlight: St. Louis College of Health Careers

St. Louis College of Health Careers' (SLCHC) default prevention plan is built on the philosophy that schools must prevent "high risk" students from becoming entrapped in debt. SLCHC views it as their responsibility to educate students in successful ways of budgeting, managing debt, and ultimately in completing their educational goals and being financially stable.

After extensive profiling of previous years' defaulted borrowers, changes are made to the default prevention plan each year, as needed. New initiatives are developed to address the specific needs of their student population. The College has now partnered with a consumer credit counseling organization to provide free services to their students. The organization also conducts a four-hour financial literacy workshop reviewing not only credit, but consumer rights, insurance needs, and investing. This workshop is mandatory for all students requesting a loan increase above their direct tuition cost, but is available to all interested students.

By utilizing community resources outside of the school, SLCHC is able to provide their students with a wide variety of services and tools which foster program completion and loan repayment.

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Economic Tidbit courtesy of the MDHE Default Prevention Team: Saving Is the New Spending

If the recession has hindered your ability to save money, it's time to evaluate your spending patterns. With some expert advice from Jason Alderman, director of Practical Money Skills for Visa Incorporated, you'll be well on your way to rebuilding your savings account before the economy rebounds.

One small silver lining from the recent economic downturn is that people have begun saving again. For decades personal savings rates hovered around 10 percent of after-tax income, but beginning in the late 1980s, rates steadily declined.

As the stock market soared, so did home values and 401(k) balances. Many people felt richer - at least on paper - and the lessons learned during the Great Depression about saving for hard times faded into distant memory.

But today, as usually happens during severe recessions, the average savings rate has begun rising again. Why this turnaround? Financial experts cite many reasons:

• People fear losing their jobs and want a financial safety net.
• Those approaching retirement need to boost their net worth slashed by plummeting home values and retirement accounts.
• Costs for high-ticket items like medical expenses, college and retirement have far outpaced the rate of inflation.
• Many fear future funding for government-provided benefits like Social Security and Medicare is at risk.
• Lending standards have become much more stringent, so qualifying for loans and credit is more difficult.

Although increasing savings during tough times would seem to be much more difficult than during prosperous times, clearly many people have figured out how. Here are a few strategies for building your savings:

• Track spending. Write down every cent you spend for a month on food, gas, clothes, entertainment - everything. Review the list and see what you could live without or at least reduce. For example, brown-bagging once a week would save 20 percent on your lunch budget - hundreds of dollars a year.
• Shop for better rates. Compare checking and savings account interest rates at www.bankrate.com/checking.aspx. Also, the Credit Union National Association can help you find credit unions you may be eligible to join (www.creditunion.coop/cu_locator).
• Reduce fees. Banking and credit card fees for things like overdrafts and late payments can quickly erode interest earnings, so carefully monitor your balances and account activity. Bouncing one less check a month could save hundreds of dollars a year.
• Pay down debt. Earning 2 percent on savings is quickly offset by interest paid on credit card balances carried forward, so always try to pay more than the minimum amount due.
• Review insurance policies. Shop around for better car and homeowner's insurance rates; you can always ask your current carrier to match better rates found elsewhere. And consider raising deductibles, which can save hundreds of dollars.
• Avoid "retail therapy." Before hitting the mall, shop your own closet for "had-to-have" outfits still on their original hangers. Check your pantry for duplicate products as well.
• Save energy. Visit www.energystar.gov for tips on reducing home energy consumption and to learn about relevant rebates and tax credits.
• Drive your car an extra couple of years - you'll save thousands of dollars on depreciation and reduce your insurance premium.

For additional savings strategies, as well as links to other helpful sites, visit America Saves (www.americasaves.org). Another good resource is Practical Money Skills for Life, Visa Inc.'s free personal financial management program (www.practicalmoneyskills.com), where you'll find a comprehensive guide to saving, budgeting and much more.