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mercredi 29 mai 2013

5 Ways Student Loans Can Hurt Middle-Class Kids

5 Ways Student Loans Can Hurt Middle-Class Kids:
Student loans are supposed to help middle-class kids pay for a college education, but these days they can do more harm than good. It’s high time we did something about that.
If you imagine a world where the federal government and private lenders actually partner with students, instead of treating them as a profit center, have I got a bridge investment deal for you.
Riddle me this: Why should middle-class students pay more for loans than is absolutely necessary, all the while padding the government’s coffers and enabling state universities to build facilities that the students will only get to use for four years?
The answer: they shouldn’t.
While no doubt there are more, here are five instances where middle-class kids are getting hosed on their student loans and student loan debt.
[Related Article: The Ultimate Guide to Student Loans]

The $50 billion heist.

As Washington prepares for another epic battle over keeping federal Stafford loan rates at 3.4 percent rather than allowing them to double to 6.8 percent, an important fact goes overlooked: Stafford loans are already a significant profit center for the feds.
Indeed, these loans earn Uncle Sam some 36 cents for every dollar it puts out. Bottom line: the government will reap $50.6 billion in profit from federal student loans in 2013 alone.
So instead of arguing for weeks over whether we should hold the line on Stafford interest rates, perhaps the debate is better focused on how we might cut them to a level sufficient to cover administrative costs and provide a slight cushion.
That should help to make college more affordable for the middle class.

Student loans fund tuition inflation.

Average college debt has grown from $9,188 in 1993 to$35,200 now.
Here’s the dirty little secret why colleges and universities charge so much: Because they can. Their operating budgets are funded largely by student loans, which are repaid by students themselves.
So why not pay your college president $3 million a year, spend $194 million to build or renovate a football stadium, or “invest” $70 million in a pool?
Experts have suggested a panoply of solutions, including capping the maximum loan amount available to people who plan to pursue low-paying majors such as art history, or making student loans pay for education only, and not facilities like dorms, arenas or sports stadiums.
Whatever the solution, we have to stop this crazy cycle before it shuts the middle class out of college entirely.
[Related Article: Can You Really Get Your Credit Score for Free?]

Till death do us part…really!

You can never shake student loans, because unlike other types of loans they cannot be discharged in bankruptcy (with a few rare exceptions).
It doesn’t matter if you get laid off, are financially devastated by the illness or death of the family breadwinner or take up residence in your car. Student lenders will hound you until your last breath or they are repaid, whichever comes first.
This change to the bankruptcy laws was originally conceived to protect taxpayers, who otherwise would be on the hook if (and when) borrowers default on federal loans.
After years of aggressive lobbying, private lenders eventually won the same benefit, i.e., they have the same risk of not getting repaid: Essentially zero. Yet they still charge a premium.
Mitchell Weiss is a finance professor at University of Hartford and says he regularly counsels students whose private loans boast 12% or 15% interest rates. The same loan from the government costs a quarter of the price.
It’s the cornerstone of credit that interest rates are based on risk: the higher the risk that a borrower won’t pay a debt, the higher his or her interest rate.
Private lenders flout this rule, pumping more money into the higher education system and driving tuition inflation.
Maybe it’s time for private lenders to play by the rules. Lending means risk. If they are unwilling to accept that risk, perhaps they should open a chain of newsstands.

Limited tax benefit.

When you get a mortgage, the federal government allows you to deduct the interest on your taxes to help incentivize homeownership.
Having a well-educated population is no less important to our nation’s future than buying a house. We should demand that student loans get the same tax treatment.
Currently, only people who earn below $75,000 can write off a portion of their student loan interest. That’s a problem.
If you graduated from an expensive school, you may owe $100,000 or more in student debt — as much as many mortgages. But even if you get a good-paying job, you could face a crippling student loan payment every month.
It’s a slippery slope from there to a tepid economy, because if all of your money is going to pay rent and service student loan debt, you’re not going to be in a position to buy a house, a car, and/or all the other things that put “consumer” into our consumer economy.
Let’s change this, and give student loans the same tax benefits that apply to mortgages.
[Related Article: How to Student Loans Affect Your Credit?]

Forbearance = Tightening the Screws.

Many people who are having trouble paying their student loans mistakenly assume that forbearance is just another word for free.
Weiss says he works with students all the time who believe all they have to do is fill out a form, and their payments magically go away.
In fact, forbearance can cost student loan borrowers a great deal of money. The entire time their loans are in forbearance, the interest keeps accruing, and is being added to the principal. Over time, that can make even small loans balloon into Behemoths.
In many cases, forbearance is the only option most private student lenders offer distressed borrowers, even though they can offer other alternatives like loan restructure or modification.
But hey, why would they when bankruptcy rules essentially guarantee full repayment? Clearly, this needs to change.
First, eliminating the “Render to Caesar what is Caesar’s” lending environment and allowing student loans to be discharged in bankruptcy will bring private student lenders to the bargaining table, cause them to offer a host of reasonable options and force everyone to make smarter choices.
Second, let’s expand the Pay As You Earn Repayment (PAYER) plan, the federal program that in many cases caps monthly student loan payments to a percentage of the borrower’s income.
We should include all private loans, as well as borrowers who are seriously behind on their payments. These are precisely the people in most dire need of help.
America has always been the land of “What’s next?” Washington’s failure to adequately address suffocating student debt, where few have had any incentive to act differently, represents “what was,” cripples millions of Americans and stifles economic growth.
This is an op-ed contribution to Mint.com and does not necessarily represent the views of the company.
“5 Ways Student Loans Can Hurt Middle-Class Kids” was written by , chairman and co-founder of Credit.com and Identity Theft 911. His experience as former director of the New Jersey Division of Consumer Affairs gives him unique insight into consumer privacy, legislation and financial advocacy. He is a nationally recognized expert on identity theft and credit.



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The Economics of Self-Publishing an E-Book: Part 1

The Economics of Self-Publishing an E-Book: Part 1:
Earlier this year, I told you about how I ran a successful Kickstarter campaign to fund the editing, design, and book tour for my self-published ebook, Pretty Good Number One: An American Family Eats Tokyo.
I published the book last month, and it spent a few days at number one…in Amazon’s “ebooks about Japan” category.
Still, not bad, and the book is selling steadily. I guess my fourth grade teacher was right: people do want to know what I did on my summer vacation.
If you’ve been thinking about self-publishing an ebook, here’s a guide to the economics. I’m not going to tell you how to write a book—that’s your job, author.
But I want to give an overview of what happens after that, from the moment you write the last word and have a well-deserved beverage to the day you receive your first royalty payment.
This week, let’s look at the expense side: what it costs to produce a high-quality ebook that can compete with the big publishers.
Next week, the fun part: getting paid. We’ll look at how to get your book into the major stores, whether to use a middleman, how to price your book, and how much you’ll make in royalties on each book sale.
For more detail, I highly recommend the book APE: Author, Publisher, Entrepreneur, by Guy Kawasaki and Shawn Welch.

Hire a typo hitman (or woman)

Self-publishing an ebook is cheap compared to mainstream publishing. The major ebook stores charge you nothing to list your book. But that doesn’t mean making an ebook is free.
The two biggest expenses for a typical ebook are copy editing and cover design.
My book is about 250 pages, and I paid a copy editor $1500 to edit it. That’s a midrange price; you don’t need to pay more, and it’s risky to pay much less (I found trustworthy quotes as low as $1200).
The longer the book, the more it costs to copy-edit. Duh.
Fifteen hundred bucks is a lot of money (paid for by my Kickstarter backers, of course—thank you!).
Is copy editing really necessary? Can’t I just rely on friendly volunteers? Let’s look at the facts.
Before I sent my manuscript to the copy editor, I had several friends and family members read it and point out typos, grammatical errors, continuity errors, inconsistent spelling of Japanese words, and so on.
They found dozens of errors. By the time I sent it to the copy editor, I figured the manuscript was in excellent shape.
The copy editor sent it back with over 500 unequivocal errors flagged, including plenty of big, stupid ones. Kawasaki describes a nearly identical experience in his book.
The moral: if your book is a vanity project and you just want to see your name come up in an Amazon search, sure, skip copy editing.
If you want to actually sell books and avoid having readers fling their Kindles aside after slogging through two pages of your error-ridden prose (and leave you a one-star review), hire a professional.
You can find a copy editor through the Editorial Freelancers Association.

Cover me

I also hired a professional cover designer. Readers are more likely to click on a good cover, and there are a lot of bad covers, so it’s not hard to stand out.
The design cost $300 and included several prototype designs to choose from, and back-and-forth edits with the designer. (“Can you make the octopus scarier?” “Sure.”) I hired CL Smith.
Another good place to shop for a book cover is 99Designs, where freelance designers compete for your contract.
Recently, Amazon introduced a tool called Cover Designer which lets you build a cover using free stock photos, backgrounds, and templates.
I’ve tried it, and it’s pretty good—not as good as the results you’ll get from hiring a professional designer, but possibly good enough for your book.
Since it’s free, by all means give it a try. (To try it, sign up for Amazon’s Kindle Direct Publishing program and add a book; you don’t have to have your manuscript ready in order to play with Cover Designer.)

Inside job

Finally, there’s the small matter of the stuff inside the book.
Most of the major ebook stores will let you simply upload a Microsoft Word document, but it’s not a great idea.
Unless your surname is Gates, you’re probably not as consistent with your use of formatting styles as an ebook requires, and, as a result, your ebook will look funny: weird spacing, clunky title page, and so on.
You have several options for making your words look as good as they sound.
Design it yourself. Amazon publishes a free guide, Building Your Book for Kindle, that explains how to format your book well in Word, including building a table of contents (often missing from published books, infuriatingly).
For the most part, the book’s advice applies not just to Amazon, but to other stores such as Barnes and Noble, iBooks, and Kobo.
Use an aggregator such as BookBaby or Smashwords. These services (which I’ll discuss more next week) will format your manuscript for a fee (BookBaby) or a cut of your royalties (Smashwords).
The results range from decent to excellent, depending on how good your formatting is when you deliver the manuscript.
Hire a book designer. For $200 (for a medium-length novel), 52 Novels will produce pristine EPUB and Kindle-format files from your manuscript. Extra-long books and nonfiction books cost more.

The bill

Assuming a 250-page novel, the total cost of producing a pro-quality ebook from your finished manuscript is $1200 to $2000.
Next week we’ll put your book up for sale and figure out how many books you have to sell to make a profit.
Matthew Amster-Burton is a personal finance columnist at Mint.com. His new book, Pretty Good Number One: An American Family Eats Tokyo, is available now. Find him on Twitter @Mint_Mamster.





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