Financial Crisis for College Students

College in the United State is not a luxury everyone can afford. It costs so much and average citizens would be forced to get loans that could suffice the amount of their child’s tuition. But the problem is, these money lenders, parents and students who get financial aids for college often have no idea what type of loans they acquired.

About 7 of 10 of those that go to college get loans for the tuition, but the way the payment works is unknown to them. One example is Tom McWilliams, a major in psychology and computer science student is studying at George Washington University, and annually pays $60,000 for his tuition and his boarding fees.

McWilliams has no clue what type of loan he has if it’s from the government, or if it’s from a private moneylender, subsidized or not. This is one of the problems of college students right now. They do not know where the money that they get for their education comes from, they even have no idea how much they are paying the university.

The funny thing is, these money lenders have the freedom to let the client know about the financial situation of the loan or to keep them in the dark. According to Arne Duncan, Education Secretary, this is the reason why clients have no idea or often do not have enough clues about their loans. This cluelessness paved way to the tremendous amount of student debt in loans nationally.

The price for college education increases every year, this also raises the amount of loans that students would ask for. However, colleges are applauding the president’s current efforts in trying to pass a law that would maintain the college interest rates at 10% monthly. This is going to be a big help for college graduates in the future, but they will still owe money even after 20 years of their graduation.

Zions Bancorp Profit Increases Due to Improved Credit Quality, Lower Loan-loss

Zions Bancorp, a Utah regional bank, had 70 percent increase from the 3.58 percent profit during the first quarter of the year. This increase is reportedly due to a smaller loan-loss provision and improvement in the credit quality.

According to Chairman and Chief Executive Harris Simmons, the improvement in the credit quality was indicated by the small losses in loans and other costs related to credit, and they expect that the trend will persist. Moreover, the bank was contented that they were able to recover the $700 million TARP investment by the US Treasury.

In addition, Simmons observed that the slow loan demand and very low interest rates is a hindrance to the growth of the net interest income, which is the largest source of revenue in the bank.

The most recent quarter indicates the fifth consecutive quarter that the company had profit after having losses for two and a half year. Similar to other regional banks, Zions had improved profit because of better credit quality and not a lot of money was needed for possible loan losses. Based on what Zions said in the previous month, the company will not have to increase further equity so that it can pay off the Troubled Asser Relief Program aid worth $1.4 billion.

In the early second quarter of the year, there was $15.7 million of provision for loan losses, which is a down from $60 million a year ago.

There was continuous progress in terms of credit quality. The loans that banks think will not be collected called net charge-offs declined to 0.59 percent from 1.59 percent in the previous year, and 1.03 percent in the first quarter. On the other hand, loans that are at risk of going bad declined to 2.79 percent from 4.54 percent last year, and 2.83 percent last quarter.

Zions earned $89.7 million so far, which is up from $52.8 million profit in the previous year. In terms of per-share basis after preferred dividends, Zions’ profit was 14 cents, which is up from 8 cents per-share profit last year.

Obama Calls for Lawmakers to Maintain Student Loan Rates

American President Barack Obama pushes for a pocket friendly interest for student financial aids issued by the government. This is part of his campaign for the coming elections.

The current president is addressing law makers to create a new law to preserve the 3.4% interest rates on education before they increase again on July. This will benefit 7.4 million student applicants. Obama believes that education should be affordable to citizens. This is a preparation for a possible demand for college graduates in the future. But as the demand increases so does the price of attaining this level of education.

According to reports, there are more unpaid student financial mortgages compared to credit card liabilities, this is discouraging less fortunate individuals from pursuing a college education. Getting into college is not a luxury for every American citizen, thus the president wants to somehow change this scenario.

To prove he is serious in his campaign, in the coming weeks, Obama will start visiting some colleges and universities in North Carolina, Colorado and Iowa.

This is also part of his strategy to convince law makers to take part of his vision. Some members of the Republican Party refuse to decrease rates because it would force them to impose higher taxes on citizens.

According to them, creating a “bad” policy for the sake of a presidential campaign is uncalled for.

The dilemma that they face is whether to grant the financial aid rates that would enable more citizens to step into college, and pile additional burden to tax payers. Or raise rates and save tax payers some slack.

Congress promises to look for a solution to fit the benefits of both parties. Hopefully, more citizens can enter college without imposing higher taxes. Obama believes that his solution will be beneficial for middle class citizens. The president explains that making interest rates higher for those who want to go to college will be just like cutting off the future of the nation.

If more people will not go to college because they cannot afford it, then it just means that America will sink because there are less people who will be professionals in the future.

Credit Unions Cry for a Higher Ceiling

According to the Federal Deposit Insurance Corp, by the end of last year there exist 7,240 credit unions and 7,357 banks in the United States. These credit unions have $974 billion worth of assets and $578 billion worth of loans while the banks had a total of $14 trillion assets and 7 trillion loans.

With the numbers continuing to rise as months pass, these financial intermediaries are starting to realize a big problem. This is not due to the fact that the lending companies are reaching their limit for giving loans, but due to the fact that they are reaching the limit of available loans they can issue for businesses. This is due to the fact that back in the 1990s the government and these businesses had an agreement to place the limit for the businesses to be able to expand their horizons and not just focus on a single type of customer.

It had been dreadful enough to these lenders to decline loans to their business partners. But a law from the Senate can change all that. Unions are calling for an amendment to the Senate Bill 2231, to change the 12.25% limit to 27.5%.

The bill is currently being reviewed by the members of the U.S. Senate. But the solution is not yet upon these lenders. This is not the first time the bill was passed to the senate, only to be ignored.

Banks are opposing the bill; they are trying to prevent these credit unions from becoming bigger. Banks believe that these organizations are nonprofit able, in 1998 the Federal Credit Union Act of 1934 was revised and the revision included the presence of the cap limit of loans these institutions can give.

But not all of these credit unions are facing the dilemma of reaching the maximum amount of loans they can issue. There are several credit unions that have unfair or under qualified employees that makes these institutions unappealing to borrowers.

These are the credit unions that banks are referring to as unsafe and unprofitable. These credit unions are encouraged to look for employees that have experience in the business and are capable to handle it.

NCR CEO Motshegare: Undesirable Market Practices

Issuers of credit who ask borrowers to pay excessive initial fees, oversell credit insurance, and deny high-risk consumers secured credit but later on sell them unsecured credit are considered undesirable market practices. These actions will no longer be allowed.

Nomsa Motshegare, chief executive officer of the National Credit Regulator, was the one who said this assertive warning.

Earlier this week, Motshegare voiced out her opinion to the national debate concerning the fast and constant growth of unsecured lending and the danger of a credit bubble should the growth continue.

According to Motshegare, the NCR is inspecting multiple credit providers.

Moreover, the NCR is inspecting the way wherein unsecured lending is carried out. They are particularly interested whether the market approach could aggravate the condition of reckless lending and over-indebtedness of the borrower or the market approach is giving rise to it.

In addition, Motshegare said that at the end of the inspection, the Minister of Trade and Industry will be advised by the NCR whether or not they need to conduct an intervention.

The following were identified by Motshegare as undesirable market practices.

First is when a credit provider refuses a consumer secured credit but sell unsecured credit to the consumer. This is done by the credit provider in order to lessen the risk because it does not have to worry about the asset being paid for and instead, guarantee a higher profit margin. According to the National Credit Act, a credit provider can ask the consumer to pay a higher maximum interest rate when being sold an unsecured credit than it can charge for a secured credit.

Second is when consumers are repeatedly asked to make payments on their personal loans and asked to pay very high initial fees again and again.

Third is when there is overselling of credit insurance and inaccurate contracting for credit insurance. The consumers who take these so-called insurance are in fact, insured only to some extent.