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Financial Literacy Information

Banking Basics

Opening both a checking account and a savings account is an important first step in taking charge of your money. With a checking account, you have an easy and cost-effective way to keep track of your money, manage your cash flow, and pay bills. A savings account gives you a safe place to stash your cash and set aside money for financial goals.

When choosing a bank or a credit union consider:

Convenience
• Location
• Customer service
• Hours
• Do I prefer to use an app or talk to a person?

Cost – Avoid fees on your accounts. Common charges include ATM fees for withdrawing cash at an ATM not associated with your bank, overdraft fees, and monthly maintenance fees. Many banks have accounts that do not cost any money to use so long as you maintain a positive balance.

Legitimacy – You will want to make sure whatever institution you choose is insured by the FDIC (Federal Deposit Insurance Corporation) for banks, or the NCUA (National Credit Union Administration) for Credit Unions.

When you open a checking account the bank or credit union may give you a box of blank checks, a debit card, an ATM card or all of the above. This allows you to pay your bills, buy items like groceries or clothes, and make cash withdrawals from an ATM machine. The challenge is making sure your checking account stays balanced, meaning you always know how much is available in your account. If you write a check or use your debit card for an amount above your available balance it may cause the check to “bounce” and the bank may charge an overdraft fee.

An emergency fund is a savings account to use in the event of an unexpected expense, like a car repair, a trip to the emergency room or replacing a lost or stolen item. Your emergency fund is not the same as your savings account that you deposit into for future goals. In college, aim to have at least $500 in your emergency savings account. After college consider increasing the amount you have in your emergency savings to cover at least three to six months of living expenses.

Cash Course has an excellent resource for “Choosing the Best Checking Account“. Be sure to check out the “Comparing Checking Account Worksheet” link at the bottom.
Credit Unions vs. Banks; How to Decide

Build Your Budget

If you don’t know where our money is going, you lose the opportunity to spend your money on the things that matter most to you. If you have a goal (think; new car, trip abroad, vacation) budgeting allows you to set aside money to make your dream a reality.

Download the Lute Budget to create your own spending plan.

    1. In the “Monthly Income” Section, enter all of your income for the month, after taxes. Be sure to include all of your sources.
      1. If you receive a refund from your financial aid, divide the full amount of the refund over the number of months you need it to last. Enter this number in the “planned” column.
    2. Enter all of your planned monthly expenses in the “Expenses” section.
      1. If you live on campus, you may not have all the listed expenses, that’s ok. If a category doesn’t apply to you, just ignore it.
      2. If you live off campus, add your additional expenses like rent, utilities and groceries.
    3. Subtract your expenses from your income. The Lute Budget will do this for you.
      1. If you have money left over, a budget surplus, you can save it, spend it, use it to pay off debt, or put it in an emergency fund.
      2. If you find that you are spending more than you earn, you have a budget deficit. You will need to reevaluate your expenses and adjust accordingly.
    4. Revisit your budget frequently to record what you have received or spent.
      1. In the “Received” column, enter your actual income and see how it compares to what you projected you would receive.
      2. Keep track of your spending and make sure that you do not exceed what you projected. Adjust your plan if needed.

Cash Course offers “The Smart Student’s Guide to Starting a Budget” and their “Budget Wizard” interactive budgeting tool.

If you prefer to use an online budgeting app, you can try Mint. Mint is free, it tracks of all your expenses, and spending and it can alert you when you are spending more than you projected.

Credit Cards and Credit Scores

Understanding credit cards and credit scores is vital to establishing credit and using credit cards wisely. Your ability to get a loan for larger purchases generally depends on your credit score, which is composed of different factors that show lenders your history with debt. Beware of using credit cards recklessly; you will pay interest on borrowed or credited funds. The longer you take to pay back the purchases you made make with a credit card, the more interest you will pay to your lender.

A bank or a lending institution issues a credit card. Credit cards charge interest and are primarily used for short-term financing. Interest usually begins one month after a purchase is made, and borrowing limits are pre-set according to the individual’s credit rating.

Be a savvy consumer and evaluate the interest rate before taking out a line of credit. You can avoid paying interest on your credit card by paying the balance in full each month.

Tips to Avoid Credit Card Problems

• Always pay on time
• Use your credit card for things you would have purchased anyway, not something you can’t afford.
• Don’t get hooked on the minimum payment.
• Pay off the balance each month.
• Leave your credit cards at home to avoid “impulse purchases”.

Credit scoring is a system that creditors use to help determine whether to give you credit. The purpose of the score is to help lenders evaluate whether the consumer is a risky borrower. Your credit score is used to help decide the terms you are offered or the interest rate you will pay for the loan or credit card.

Each credit reporting agency and credit scoring company has a slightly different way of calculating credit scores. The biggest credit scoring company, FICO, has disclosed the factors it considers in generating credit scores:

• Payment history 35%. Late payments will lower a score
• Amounts owed 30%. High balances in relation to credit limits may indicate that you are over extended.
• Length of credit history 15%. Longer credit history increases the score.
• New Credit 10%. Opening several accounts in a short period of time can indicate greater risk and lower your credit score.
• Types of credit 10%

You are entitled to a free copy of your credit report every 12 months from each of the nationwide credit bureaus, TransUnion, Equifax, and Experian. Go to Annual Credit Report to get your report. Beware of imposters.

For more information about credit scores:

Understanding Student Loans

Borrowing student loans may be necessary to pay for your degree. While you are in college, understand that you are investing in yourself and you are increasing your future earning potential. Be aware of how much you are borrowing and be familiar with the details of your student loans. Keep your future projected income in mind when deciding how much to borrow. It is recommended that students should not borrow more than their expected first year salary.

Federal Student Aid Familiarize yourself with the different types of student loans.

National Student Loan Data System Use your FSA ID to login and access your federal loan history.

Repayment Estimator Use your FSA ID to see what your monthly payment will be under different repayment plans.

Salary.com to research your future earnings

Federal student loans have multiple repayment plans to choose from. Explore your federal student loan repayment options and pick a plan that best fits your income and financial goals. If you do not choose a repayment plan you will be enrolled in ‘Standard Repayment” as the default. Typically, under Standard Repayment, you will pay the most each month but you will spend less in interest over the life of the loan. Keep in mind that if you plan to utilize Public Service Loan Forgiveness you will need to be enrolled in one of the income driven repayment plans.

Repayment PlanEligible LoansMonthly Payment and Time Frame
Standard Repayment

• Direct Subsidized and Unsubsidized Loans
• All Plus Loans
• Consolidation Loans (Direct or FFEL)
Payments are fixed over 10 years
Graduated Repayment• Direct Subsidized and Unsubsidized Loans
• All Plus Loans
• Consolidation Loans (Direct or FFEL)
Payments are lower at first and then increase, usually every two years.

Payment term up to 10 years
Extended Repayment• Direct Subsidized and Unsubsidized Loans
• All Plus Loans
• Consolidation Loans (Direct or FFEL)
Payments may be fixed or graduated.

Payment term up to 25 years.

*If you’re a direct loan borrower, you must have more than $30,000 in outstanding Direct Loans.
Revised Pay As You Earn (REPAYE)

*Income driven repayment plan
• Direct Subsidized and Unsubsidized Loans
• Direct PLUS Loans made to students
• Direct Consolidation Loans that do not include PLUS loans (Direct or FFEL) made to parents
Your monthly payments will be 10 percent of discretionary income for 20 years.

Your monthly payment can be more than the 10-year Standard Plan amount.
Pay As You Earn (PAYE)

*Income driven repayment plan
• Direct Subsidized and Unsubsidized Loans
• Direct PLUS Loans made to students
• Direct Consolidation Loans that do not include PLUS loans (Direct or FFEL) made to parents
Your maximum monthly payments will be 10 percent of discretionary income for 20 years.

Your monthly payment will never be more than the 10-year Standard Plan amount.
Income Based Repayment (IBR)

*Income driven repayment plan
• Direct Subsidized and Unsubsidized Loans
• All PLUS loans made to students
• Consolidation Loans (Direct or FFEL) that do not include Direct or FFEL PLUS loans made to parents
Your monthly payments will be 10 or 15 percent of discretionary income for 20 or 25 years.
Income Contingent Repayment (ICR)

*Income driven repayment plan
• Direct Subsidized and Unsubsidized Loans
• Direct PLUS Loans made to students
• Direct Consolidation Loans
Your monthly payment will be the lesser of:
• 20 percent of discretionary income, or
• the amount you would pay on a repayment plan with a fixed payment over 12 years, adjusted according to your income

*If you’re married and file a joint federal income tax return, your spouse’s adjusted gross income, and eligible student loan debt, if applicable, is also taken into consideration for the income driven repayment plans

If you have received a subsidized, unsubsidized or PLUS loan under the Direct Loan Program or the FFEL Program, you must complete exit counseling each time you:

• Drop below half-time enrollment
• Graduate
• Leave School

Note: The FFEL Program ended June 30, 2010 and no new loans have been made under the FFEL Program after that date.

Exit counseling provides important information you will need to prepare to repay your federal student loan(s). Students must log in using their own FSA ID to complete Exit Counseling. Use of another person’s FSA ID constitutes fraud.

Complete Exit Counseling here

The Public Service Loan Forgiveness (PSLF) Program forgives the remaining balance on your Direct Loans after you have made 120 qualifying monthly payments under a qualifying repayment plan while working full-time for a qualifying employer.

Qualifying employment

• Government organizations at any level (federal, state, local, or tribal)
• Not-for-profit organizations that are tax-exempt under Section 501(c)(3) of the Internal Revenue Code
• Other types of not-for-profit organizations that are not tax-exempt under Section 501(c)(3) of the Internal Revenue Code, if their primary purpose is to provide certain types of qualifying public services

Which types of federal student loans qualify for PSLF?

• Any non-defaulted loan you received under the William D. Ford Federal Direct Loan (Direct Loan) Program.
• Only Direct Loans are eligible for PSLF. If you borrowed before July 1, 2010, some or all of your loans may have been made under an older federal student loan program called the Federal Family Education Loan (FFEL) Program. There are additional actions you can take to make your FEEL loan eligible for PSLF.
• Federal Perkins Loans do not qualify for PSLF, but they may become eligible if you consolidate them into a Direct Consolidation Loan.

If you want to qualify for Public Service Loan Forgiveness now or in the future, complete and submit the Employment Certification form as soon as possible.

More details on Public Service Loan Forgiveness here:
https://studentaid.ed.gov/sa/repay-loans/forgiveness-cancellation/public-service#qualifying-employment

10 Ways to Protect your Identity from CashCourse

1.  Don’t give personal information over the phone. Tell anyone who calls asking for your Social Security, credit card, or bank account numbers that you don’t give that information over the phone and that they can contact you by mail.

2.  Go paperless. If you haven’t already done so, sign up for paperless billing with your creditors, bank, utilities, etc., to receive billing statements online through secure sites.

3.  Shred everything. Shred or tear up anything containing your name, address, credit card information, or bank account numbers before putting it in the trash or recycle bin. This includes unused credit card offers.

4.  Review financial statements. Take the time each month to balance your checkbook and review your credit card statements for any suspicious charges. Keep your credit card and ATM receipts in a safe place until you balance your accounts, and then shred them.

5.  Use a secure postal mailbox. Don’t leave bill payment envelopes in a home mailbox for pickup by a mail carrier. Someone might steal them. Instead, put your envelopes inside a postal mailbox.

6.  Opt out from pre-approved credit card offers. Identity thieves can use them to set up fraudulent accounts in your name. To put a stop to having prescreened credit offers mailed to you, call 888-5OPTOUT (888-567-8688), go online to www.optoutprescreen.com, or contact the Direct Marketing Association.

7.  Keep technology secured. Make sure the computer you are using has up-to-date anti-virus, anti-spyware, firewall, and other security software. Additionally, don’t shop online unless you know you are on a secure website. Log off of a computer before shutting down and don’t save your user name and passwords on public or private computers.

8.  Don’t get hooked by “phishing.” Scam artists looking to get personal information such as credit card numbers, bank account information, Social Security numbers, and other pieces of data send spam emails hoping to lure you into divulging this important information. If you get an unexpected email asking you to update or verify any important information, be careful—even if the sender’s email address looks authentic. It might be a “phisher” trying to steal your personal information. For more information, visit www.phishinginfo.org.

9.  Check your credit report. Look for errors in your information and be sure all accounts are correct. To receive a free report each year from each of the three national credit-reporting firms, go to www.annualcreditreport.com.

10.  Report identity theft. If you’re a victim of identity theft, report the crime to the police immediately.

For additional information, visit the Federal Trade Commission’s website.

For more about protecting your assets and your identity, visit CashCourse.