News with Tags "debt"

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6 Scary Facts About Student Loans That Will Depress You

Posted on Saturday, May 25, 2013 - 16:16 pm

Republicans and Democrats are scrambling in Washington, D.C., to introduce legislation that will prevent federal student loan rates from doubling. Should Congress fail to act by July 1, the interest rate for subsidized Stafford loans will increase from 3.4 percent to 6.8 percent, a crisis situation for a country whose current students and graduates hold $1.1 trillion in outstanding debt — an amount greater than the nation’s combined credit card debt.

It’s a scary prospect for students as their college education costs continue to skyrocket and show smaller and smaller certainties of payoff. Despite the diplomas they receive on graduation day, they attempt to take their first steps in a nation that is slowly recovering from its recession and still suffers from a 7.5 percent unemployment rate.

Joseph Stiglitz, a former senior vice president and chief economist at the World Bank and a former member and chairman of the Council of Economic Advisers, has spoken openly, and often critically about the student loan crisis. He explains: “Student debt has become an integral part of the story of American inequality … We now have a pay-to-play, winner-take-all game where the wealthiest are assured a spot, and the rest are compelled to take a gamble on huge debts, with no guarantee of a payoff.”

Grim enough for you? Unfortunately, we have 6 other facts about student loans that will depress you.

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Posted by on Saturday, May 25, 2013 - 16:16 pm.
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UK may be three quarters of the way through debt purge – Fisher

Posted on Friday, May 24, 2013 - 14:48 pm

CARDIFF (Reuters) - Britain may be as much as three quarters of the way through the process of working off the high debt levels which have weighed on the economy since the financial crisis, a top Bank of England policymaker said on Friday.

Paul Fisher, one of nine members of the bank's rate-setting committee, said growth would remain weak while Britain's households, public sector, banks and other companies sought to get themselves back to financial health.

"In my view we are maybe two thirds to three quarters of the way through in each case, varying both across and within sectors," Fisher said in notes for a speech.

"There is nothing scientific or ‘official' in that assessment," he added. "It's just a personal best guess on the back of how the economy is behaving plus some direct knowledge of the progress of the banks with their deleveraging plans."

Britain's economy grew 0.3 percent in the first quarter of 2013 after stagnating for two years. That, and other signs of a slow recovery, have prompted some cautious optimism from the Bank of England's leadership that the worst might be over.

Fisher said the process of tackling high debt levels did not need to be completely finished before growth can strengthen.

He is one of three Bank policymakers who have voted, unsuccessfully, since February for a resumption of bond-buying by the central bank to give the recovery more help.

But in his speech to a group of businessmen in the Welsh capital, he warned that pumping too much money into the economy might fuel inflation.

"We cannot guarantee that a specific monetary boost will split the real and inflationary outcomes in the way that we might all wish," he said.

He also said a further cut in the bank's key lending rate, which has been at a record low of 0.5 percent since 2009, would probably not boost demand. "We may well find that getting rates back to normal is part of re-establishing economic activity at potential in due course," he said.

(Reporting by William Schomberg; editing by Ron Askew)

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Posted by on Friday, May 24, 2013 - 14:48 pm.
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Foreign central banks’ U.S. debt holdings fall: Fed

Posted on Friday, May 24, 2013 - 01:33 am

Thomson Reuters is the world's largest international multimedia news agency, providing investing news, world news, business news, technology news, headline news, small business news, news alerts, personal finance, stock market, and mutual funds information available on Reuters.com, video, mobile, and interactive television platforms. Thomson Reuters journalists are subject to an Editorial Handbook which requires fair presentation and disclosure of relevant interests.

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Posted by on Friday, May 24, 2013 - 01:33 am.
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How Congress could raise student loan debt

Posted on Friday, May 24, 2013 - 01:13 am

By Quentin Fottrell

College students buckling under the weight of rising tuition face a new threat: rising interest rates on loans.

The House of Representatives on Thursday approved a Republican bill to link student loan rates to financial markets. Under the bill, most students on federal aid — those with subsidized or unsubsidized Stafford loans — would pay the Treasury rate, plus 2.5 percentage points with a cap of 8.5 percentage points. Without action by Congress, rates on subsidized Stafford loans were set to double to 6.8% from 3.4% on July 1.

But although student loan rates linked to financial markets would be lower for now, experts say that’s unlikely to last long. “Most of the interest-rate proposals, including the one that passed the House, are rate increases masquerading as a rate decrease,” says Mark Kantrowitz, publisher of Edvisers.com, a network of about a dozen websites about planning and paying for college. The Congressional Budget Office estimates that the Republican bill would save the government $1 billion over five years and $3.7 billion over 10 years. “Borrowers are the ones that will pick up the tab,” he says.

Financial planning 101 for college grads

Here are a few tips on how advisers can help college grads start their financial life out on the right foot.

President Obama has threatened to veto the Republican bill. In his 2014 budget, Obama supported linking federal government college loan rates to market-based interest rates, but wanted to set the rate at less than 1 percentage point above the Treasury note rate. Democratic lawmakers also said it would create more certainty if the interest rate were to remain fixed for the duration of the loan. As an alternative, Senate Majority Leader Harry Reid (D., Nev.) favored freezing loan rates for two years. “Passing the House proposal would be worse than doing nothing at all,” he said on Wednesday.

Others say both sides should step out of the picture. “Young people should oppose any government meddling in the student loan market,” says Evan Feinberg, president of Generation Opportunity, a nonprofit think tank in Arlington, Va. “We’ve tried that approach already and all it’s gotten us is skyrocketing tuition prices and mountains of debt.” Kantrowitz too says the political debate over student loans detracts from the real issue: “The ever-increasing amount of debt.” The government limits undergraduate student loans to $57,500 per student, but there is no limit for graduate students.

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Posted by on Friday, May 24, 2013 - 01:13 am.
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Will Linking Student Loans to Markets Help Anyone?

Posted on Friday, May 24, 2013 - 01:10 am

Current students and graduates hold $1.1 trillion in outstanding debt — an amount greater than the nation’s combined credit card debt. Seventy percent of students who graduated this year owe an average of $35,200.

The amount of debt has grown to such weighty proportions because college education costs have skyrocketed; the annual cost of a four-year degree has increased three times as fast as the rate of inflation since the 1970s. What has made the crisis worse is the economy. While the labor market has made some gains since the recession came to an end, the progress has not necessarily reached new college graduates, who have a much higher unemployment rate than the broader U.S. population. The higher education system is broken, and consequently, various fixes are being vetted.

On Thursday, the House of Representatives passed a bill championed by Republican Rep. John Kline of Minnesota, the chairman of the House Committee on Education and the Workforce, that would link loan rates to financial markets. His plan combines subsidized and unsubsidized Stafford loans into a single loan and sets the rate at the 10-year Treasury Note plus 2.5 percentage points. The rate on plus loans would be equal to the 10-year Treasury Note plus 4.5 percentage points. He would set caps at 8.5 percent for the Stafford loan and 10.5 percent for the PLUS.

The bill passed on 22 yes votes and 198 no votes, mostly along partisan lines. President Barack Obama has said that he would veto the bill, as it would not guarantee low rates and would burden low- and middle-income students.

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Posted by on Friday, May 24, 2013 - 01:10 am.
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Change possible in debt security valuation

Posted on Wednesday, May 22, 2013 - 22:55 pm

The mutual fund (MF) sector might introduce uniform valuations of debt securities across asset management companies (AMCs), to increase the transparency in the valuation of these instruments.

The move would mean a debt security cannot have different valuations even in different fund houses. A trial test by MFs is already on, say two people familiar with the matter.

Currently, traded debt securities can be valued on the basis of weighted average price. Untraded ones can be valued on the basis of parameters set by an AMC’s valuation committee.

The Association of Mutual Funds in India (AMFI) has asked members to work with third-party entities to introduce a uniform valuation system for all securities across funds, said the sources. They expect it to be formally implemented from July. Officials from Amfi declined to comment on the issue.

“Data on these securities will be sent to rating agencies. They will compile the data on both traded and non-traded securities, providing an objective and independent means of valuing these,” said a debt fund manager who works with a bank-sponsored MF.

“We have used third-party uniform valuation for government securities. There were discussions on the matter and Sebi (the market regulator, Securities and Exchange Board of India) also wanted other debt securities valued in a similar manner. We are in a testing phase and it might take a few months to implement,” said the chief executive officer of a domestic MF.

Currently, the valuation for government securities is on the basis of the average of prices released by CRISIL and Icra, the two agencies approved for the purpose. Rating agencies will now aid valuations for all debt securities. “The rating agencies will accumulate data points on these securities by getting in touch with MFs and banks, in addition to applying their own models of valuation on these securities,” said another fund manager.

In December, the US regulator, the Securities and Exchange Commission (SEC), announced charges against eight former members of the boards of directors of MFs, of violating their asset pricing responsibilities under federal securities’ laws.

“The funds, invested in some securities backed by subprime mortgages, fraudulently overstated the value of their securities as the housing market was on the brink of financial crisis in 2007. The SEC and other regulators previously charged the funds’ managers with fraud, and the firms later agreed to pay $200 million to settle the charges,” stated the SEC.

Regulations required the fund directors to determine the valuations of securities whose value cannot be easily determined in the market. In one case, the fund did not use reasonable procedures for valuation and allowed the fund manager to set arbitrary values to the fund, according to the statement.

“As a result, the net asset values of the funds were materially mis-stated in 2007 from at least March 31 to August 9. Consequently, the prices at which one open-end fund sold, redeemed and repurchased its shares were inaccurate,” said the SEC order.


WINDS OF CHANGE

How are debt securities valued by mutual funds?

  • Currently, mutual funds can value debt securities on the basis of traded price
  • Untraded debt securities can be valued on the basis of parameters set by a valuation committee
What will change?
  • MFs plan to move to uniform valuation of debt securities
  • Rating agencies will be used for determining valuations of both traded and untraded securities
  • Every security to be valued at the same price across fund houses
When will it be implemented?
  • Move was planned for May, now pushed tentatively to July
Why does it matter?
  • Non-transparent valuation of securities has come under scrutiny of international regulators
  • SEC and others have charged fund managers with fraud; firms paid $200 million to settle charges

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Posted by on Wednesday, May 22, 2013 - 22:55 pm.
Filed under India. Tagged with: • • •
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Spot early warning signs, arm yourself

Posted on Wednesday, May 22, 2013 - 06:06 am

There is always the chance that your investments could turn bad despite good market conditions. If an investor knew how to identify bad investments, he would have never suffered losses. However, warning signs and early indications may help here.

Sometimes a lack of planning too could jeopardise your invesments. Financial planner Gaurav Mushruwalla says, “An investment can turn bad in two ways. One, when the choice of a product goes wrong due to which it underperforms, and two, when an investor has to abruptly sell investments at a distressed value due to lack of investment planning.”

Hence, as a start, always, plan your investments. 

At times, even the best of planned strategies can go for a toss. Some telltale signs of an investment that is going nowhere is when it's not making the returns that it should against its benchmark or among its peer set. For instance, a diversified mutual fund should at least be able to match the performance of its benchmark. If that is not happening for a long time, as much as three or four quarters, it's time to re-jig your investment.

Dhirendra Kumar, CEO at ValueResearch, says, “If the mutual fund or stock doesn't fulfil the criteria of returns and growth, which were the main reasons for the investment, then one should exit it.”

Adds Mashruwalla, "One should exit a fund or stock if it has underperformed the benchmark or has not returned as much as its peers. Excessive churning of a portfolio, high charges and a weak portfolio could further hamper the returns.” If the net-asset value/price of your fund or stock has increased but only in a limited manner, despite good market conditions you should exit, say experts.

Also, if you sense that the mutual fund scheme is deviating from its objective or investing strategy, this could be an early indicator. To be on the safe side, it’s best to study the fact sheet and grasp all the fund details before you invest in a mutual fund scheme. This rule also applies regarding a fund manager. If a fund manager has moved from a particular fund or is not performing well, this could be a cause for concern.

For ULIP holders, exit might not be easy. But if you have invested in a equity ULIP that is underperforming, ensure you switch plans over to debt to cut losses, if any. Exiting out of a ULIP might prove expensive and may not make sense due to surrender charges, which are 4-5% of the fund value. Preferably exit the policy after five years, as it then doesn't attract any surrender charge.Pawan Verma, chief operating officer at Star Union Dai-chi Life Insurance says,

“The ULIP policyholder should switch between options to cut losses. For instance, s/he should increase her/his exposure to debt by switching to a debt option in the fund if equities are doing badly, and vice versa.”

For direct investors, if promoters’ holdings fall significantly, this could be an indicator. One should exit a stock if debt is ballooning, and there do not seem to be attempts by the company to reduce it. An investor, should examine a company’s quarterly numbers regularly and look for variations from plans such as unexpected losses reported, or a significant drop in margins.

Bottom line: Keep an eye out and spot such early indicators; cut your losses.

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Posted by on Wednesday, May 22, 2013 - 06:06 am.
Filed under India. Tagged with: • • •
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Will Debt Be a Nasty Surprise for Students?

Posted on Wednesday, May 22, 2013 - 04:29 am

Students are often surprised by their own debt when graduating college, according to a recent study by Fidelity Investments.

The study found that 70 percent of the class of 2013 is graduating with debt, and half of those say they are surprised to learn exactly what condition their finances are in when they enter the working world. This debt factors in federal, state, and private loans, as well as familial debt and credit cards. The average student in 2013 owes around $35,000. As a result, the class of 2013 told incoming freshman to save as much as possible, and be careful when selecting a major in order to maximize job prospects after graduation.

This highlights a need for financial education among students and parents, as 39 percent of participants said they would have made different choices had they better understood the ramifications of such a debt burden. This is up 14 percent from the previous survey by Fidelity in 2011. Keith Bernhardt, vice president of college planning at Fidelity Investments, indicated the need for further financial literacy among families, saying, “It is critically important for families to have thorough discussions related to college planning a lot earlier than they do now, and to understand their options and create a college savings and funding plan to help avoid significant post-graduation debt.”

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Posted by on Wednesday, May 22, 2013 - 04:29 am.
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United Stock Exchange sets up a clash with BSE over debt trading

Posted on Tuesday, May 21, 2013 - 04:37 am
MUMBAI: India's oldest stock exchange BSE and United Stock Exchange (USE), in which the former is the single largest shareholder, are gearing for a fight over the launch of debt market trading despite the new bourse having signed a non-compete agreement in 2010.

The non-compete agreement bars USE from competing in any trading segment BSE is present. BSE is among the largest exchanges for reporting of debt market volumes for over the counter market in India and hence wants to start trading in it.

However, officials with the Securities and Exchange Board of India (Sebi) say both the exchanges had applied for debt market trading and USE also wants to launch equity trading on its platform later.

The BSE spokesperson said they would not comment on the issue. USE did not respond to an emailed questionnaire and its managing director and chief executive officer Saurabh Sarkar did not take calls on his mobile.

The USE, now, operates only in the currency futures segment and has an average daily turnover of around 900 crore. The exchange was the brainchild of Jaypee Capital's Gaurav Arora and was launched in 2010. Jaypee owns 2.91% stake in USE now as it had to bring down its holding to comply with Sebi regulations.

"There is a view within the USE, that it should compete with the BSE and all other exchanges," said a promoter of USE. "The war of the bourses will only hot up in India as there would be increased competition with USE wanting to have its presence in equity, debt and currency segments."

"BSE's reach and resources can cater to an infrastructure that can attract large traders giving it an edge but, USE would require to pool in recourses and widen its reach if it plans to go solo," said another USE shareholder.

USE's trading volumes had dried down after an initial blockbuster performance when it created a world record with 45,000 crore currency futures volumes on first day. Later, its managing director TS Narayanasami resigned on issues of corporate governance.

Sebi had issued a show-cause notice for several discrepancies and asked USE to bring down representation of trading members on its board.

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Posted by on Tuesday, May 21, 2013 - 04:37 am.
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Nigeria says switching to foreign debt to lower costs

Posted on Monday, May 20, 2013 - 16:54 pm

By Chijioke Ohuocha

LAGOS (Reuters) - Nigeria will increase the amount it borrows overseas to around 40 percent of all debt over the next three to five years, from 12 percent currently, to lower its cost of funds, the head of the debt office said on Monday.

DMO Director General, Abraham Nwankwo, said he expected Nigeria's debt to GDP ratio to fall to 17 percent over the same period from 21 percent, as Africa's second-biggest economy switches into cheaper foreign debt.

Nigeria is one of several African countries seeking to ride the wave of cheap money generated by ultra-loose monetary policy in the West and Japan.

"Nigeria has developed a medium-term debt strategy ... which will improve the portfolio mix and reduce our average cost of funds," Nwankwo told Reuters in a telephone interview.

Nwankwo said foreign debt was currently 800 basis points cheaper than domestic debt, noting that a proposed $1 billion Eurobond issue was part of the strategy to move towards cheaper foreign loans.

Total domestic debt stood at 6.49 trillion naira at end-March, 2013 while foreign debt was $6 billion. "We have to look at the optimal portfolio mix, cost structure, market development and source of funding," Nwankwo said.

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Posted by on Monday, May 20, 2013 - 16:54 pm.
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