Hope Sparks for AEA

The National Credit Union Administration website brings good news for the AEA, as they post in their website that the agency has improved during the first quarter of this year. The agency however still has a lot to go before they work through bad debt and for its asset ratio to increase.

The credit union imposes a subordinated debt deposit in order to give it additional capital; this is according to NCUA specialist John Zimmerman.

AEA was able to report a positive total assets ration during the fourth quarter of 2011 with 2.69 percent, this is the first time the ratio was announced since the NCUA placed the company into conservatorship on December of 2010.

The positive assets ratio continued to grow as it increased to 2.85 percent at the end of March this year. This is commendable since it only had a negative 7.77 percent on the same period last year.

The company also reported a profit of more than $839,000 in the first three months of the year. This continuing development that started last year, has now earned about $6.2 million profits for the company.

The credit union has an increase of $11 million worth of sales in their deposits, but the number of people applying for membership has decreased to 41,750. This is a lot fewer than the 46,015 members the company had last year.

The net worth of the corporation increased to $7 million last March from $6.1 million on December of 2011. The number of delinquent loans that they issued has lessened in the first quarter; this probably means that the past loans of the companies have been settled during the period.

The credit union used to have $8.9 million worth of delinquent loans last December, which decreased to $2.4 million last March.  The company reported that they have recovered and foreclosed their assets worth about $7.8 million in the first quarter of the year.

Congress Insisted to Increase Business Lending Cap

Assuring that small-business lending would grow, credit unions insist that the Congress increase their business lending cap. However, there are some who believe that the facts are altered.

Sen. Mark Udall proposed the Small Business Lending Enhancement Act (S. 2231). It would transfer loans at community banks to credit unions, which do not actually pay taxes. For years now, community banks in cities all over America pay their taxes and have been assisting small businesses by means of loans.

The truth is that credit unions have sufficient small-business lending authority. The proposed Small Business Lending Enhancement Act would basically let credit unions which do not pay taxes to make big commercial loans. As a result, it would benefit them in terms of safety and soundness.

However, credit unions are also aware of the disadvantages that will come with the proposal. Some of those who disagree with the proposal include credit union executives from places such as Michigan, Washington state and California. Moreover, they are saying that it might result to reckless lending and rising credit union failures.

Stuart Perlitsh, the chief executive of Glendale Area Schools Federal Credit Union wrote a letter addressed to the Senate leaders last April 11. According to the letter, most of the credit unions will not profit if the business lending cap is increased, and instead, they will pay more expensive premiums caused by the credit union failures.

One other truth is that allowing the shift of business loans from taxpaying community banks to non-taxpaying credit unions will place the Treasury in more debt. In the previous Congress, a parallel bill would have cost taxpayers lost revenue of nearly $354 million after a decade. Apparently, this proposal would cost greater than that.

If credit unions want to develop their business lending, then they have another option, which is to switch into a mutual saving bank charter. In fact, a few have already done this because of its flexibility.

US Congress Pressured to Stop Doubling of Student Loan Interest Rate

The US Congress is being pressured to do something to keep low interest rates on Stafford loans. There are 225,000 Georgia students who rely on these loans to be able to go to college. On Tuesday, the United States Senate will vote concerning the interest rates on the loans and if the Congress does nothing, then the interest rates might be twice as much starting July 1.

According to Georgia PIRG during a conference call, the current 3.4 percent interest rate on student loans will become 6.8 percent. Since students should reapply for the loans yearly, it will further increase the college loan debt load. Moreover, even before the doubling of the interest rate, college loan debt is already greater than credit card debt in the US.

For a typical Georgia student, there will be an added $913 in repayment costs if the federal Stafford loans charge a 6.8 percent interest rate. At present, a typical Georgia student owes approximately $19,000 by the time of graduation. On the other hand, the national average debt is $25,000.

Philip E. Hawkins, associate director of financial aid at Kennesaw State University, said that there are students who have difficulties in meeting their college expenses. Not only do they exert a lot of effort in meeting their expenses, but they are also concerned on how they are going to pay those loans after graduation.

According to Rich Williams, a Higher Education Advocate for Georgia PIRG, at present times, a college education is needed for students to be able to make progress. However, making the interest rate for student loans twice as much would hinder a large number of Georgians in attaining success.

In addition, Ron Day, the Financial Aid Director at Kennesaw State University, said that college costs are becoming much more expensive than before, add to that a declining number of financial assistance programs. As a result, student loans are turning out to be an unavoidable alternative for students to be able to pay for college.

How to Assess a Good or Bad Debt

In the past few years, the different types of financing solutions have been common to a lot of Americans already. However, many are still asking whether or not there is indeed good debt or bad debt. The following are answers to that question.

To be brief, there is such thing as good debt. This is because the majority of people do not have the money to buy expensive things without using a line of credit.

To find out if a debt is good, the first question to ask is whether or not the debt will be used to buy something that increases your importance, for instance, a higher education degree. Another question to ask is whether or not the thing you bought will increase in value. If the answer to one or both of the questions is yes, then the debt is considered as good debt.

Higher education loans may be considered either a good debt or a bad debt. It will be a good debt if you graduate and have favorable job prospects. Otherwise, it will be a bad debt.

Besides increasing your value, good debt increases your credit score as well if you always pay your debts on time.

On the other hand, a lot of financial advisors consider credit card debt as bad debt. A bad debt is incurred when a credit card is used to buy non-durable goods like clothing, vacations, and excessive gadgets. Moreover, if these items are not paid off within either one to two billing cycles, then it will be considered as bad debt.

Importantly, buying non-durable goods and services does not increase tangible value to the life of a certain person and most of the time is not needed.

Just like higher education loans, auto loans may also be considered good or bad debt depending on the car’s value and its main purpose. To determine whether an auto loan is good or bad debt, the question to ask is whether or not a car is essential to your lifestyle.

S&P Concerned About Fixing State’s Finances

Since income tax revenues are behind by $2 billion for the month of April, Standard and Poor’s is bringing up concerns. Moreover, S&P is also concerned about a ruling by a judge, which states that the lawmakers’ pay cannot be withheld by the state controller.

The budget for the month of May is billions behind because the April revenues added up to approximately $7.1 billion but the state’s estimate was $9 billion. This is according to Governor Jerry Brown while he organizes his May budget revise.

Based on income figures reported by Controller John Chiang, Brown gave a warning by last week that the revenues will be short by $1 billion or $2 billion than the estimate. Also last week, the Legislative Analyst’s Office stated that revenue is $3.5 billion behind than Brown’s fiscal year estimate.

The planned budget for the current fiscal year by Brown totaled $92.6 billion. Furthermore, he proposed that people who annually earn $250,000 or more will have higher income taxes and also add a quarter cent to the sales tax.

Standard and Poor’s is more worried about a ruling by a Sacramento judge in the previous month.

According to Judge David Brown, Chiang went beyond his authority after withholding the lawmakers’ pay because they did not pass a budget punctually. The lawmakers actually passed a budget but Brown did not permit it because it was out-of-balance.

As a result, Chiang made a decision that there had been no budget passed so he withheld the pay for the lawmakers under Proposition 25, which permits a majority vote of the Legislature to pass a budget. Moreover, it states that lawmakers would lose their pay if they do not punctually pass a budget.

The lawmakers filed a lawsuit claiming it was a problem on separation of powers and they want their pay. Judge Brown granted their claim.

Standard and Poor’s is still concerned that the lawmakers are not willing to make the restriction, increase the taxes, or both to solve the state’s finances.