Why Paying Off Your Student Loans Could Actually Hurt Your Credit

When you make that last student loan payment, there are so many things to celebrate. First, youre free of an expensive debt that has soaked up much of your income since entering the job market. Second, you now have extra room in your budget for whatever goals you want to reach next, whether thats saving more for retirement, buying a house or upgrading your transportation.

Generally, paying off education debt is a great thing, but there are some negative side effects. They dont outweigh the good that comes with getting out of debt, but you should be prepared for whats coming once your student loan account closes.

When Having No Student Loans Hurts

Student loans are installment loans, meaning you make payments over a set period of time, and once the loan has been repaid (with interest), the account is no longer active. One of the main factors determining your credit score is your mix of credit accounts, and a combination of installment and revolving accounts will help your score. (Revolving accounts, like credit cards, allow you to repay your balance and borrow up to a certain limit over and over again.)

If student loans are your only active installment loans, paying them off will change your account mix. This category of your credit score shows how good you are at managing multiple accounts of varying structure at the same time, and without different active accounts, theres no recent information supporting your ability to do so.

If that student loan is really the only installment loan experience, by virtue of having no more active installment loans, thats certainly going to be factored in, said Ethan Dornhelm, principal scientist of the Scores Development Group at FICO.

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The Positive Effect of Student Loans

Because going from having an active installment loan to having none is the most drastic result of paying off a student loan (as far as credit scores are concerned), thats probably where youll see a hit to your credit score.

Still, you cant lose sight of the positive impact student loans have on your credit. If you made your payments on time throughout the life of the loan, that positive payment history will have built up your credit over time and will continue to help as long as it remains on your credit report. At the same time, if that student loan has delinquency in its history, that mistake will continue to hurt your score. Isolated incidents of late payments wont do damage for long, and all negative information on that account will age off your credit reports after seven years.

Then theres debt usage, which usually refers to how much of your available credit youre using. While keeping your credit card balances as low as possible is crucial to boosting your credit score, installment loans have an impact in this area, too.

There’s this amount owed category, and its roughly 30% of your FICO score, Dornhelm said. There is a factor that goes into the score of amounts owed in installment loans.

Obviously, when you pay off a student loan, your amounts owed goes down. Because most people pay off their loans bit by bit, the subsequent positive impact on your credit score will be gradual, but if you pay off a large chunk of debt at once, the boost may be more immediately significant.

Gerri Detweiler, Credit.coms director of consumer education, noted another positive side-effect of paying off your student loans:

Overall, your debt-to-income ratio improves, which helps with a mortgage.

Even if youre not applying for a mortgage, theres nothing bad about having less debt.

Because credit profiles are unique, its impossible to predict exactly how paying off your student loans will manifest in your credit scores, but you can get a free credit report summary every month from Credit.com and see how youre faring in each of these categories. That should give you an idea of how paying off your student loans will affect your credit, but keep in mind that your credit standing is constantly changing. The best thing you can do is regularly make payments on time and keep your debt levels low, because building good credit takes time.

More on Student Loans:

  • How Student Loans Can Impact Your Credit
  • Can You Get Your Student Loans Forgiven?
  • Strategies for Paying Off Student Loan Debt

Image: Wavebreak Media

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A little confused about my Groupon credit

Question: I bought a Groupon Getaways coupon last summer for our anniversary and my husband’s 60th birthday. We paid $1,998 per person for an air-inclusive vacation package to New Zealand and Fiji, and hoped to make a reservation for May 2015. But I didn’t read the fine print; I had to make a booking before the end of August 2014.

Groupon offered a full refund either to my Visa or to my Groupon account. I asked for it to go to my Groupon account, since I intended to find a trip package to Thailand.

Both Groupon and the tour operator, Pacific Holidays, confirmed that the vouchers were no longer good or usable. Soon after, I found a new package to New Zealand and Fiji for $100 less than the original package.

I notified Groupon about the new trip package and asked the company to leave a credit in my account. I was told to go ahead and make a reservation.

Groupon did not cancel the old order, nor did it credit the full refund to my account. Instead, Groupon decided to use the old vouchers on the new trip, which allowed it to keep the $100.

I appealed the decision in writing to a supervisor, and I was told that I should cancel the trip through the tour operator if I was not satisfied.

As far as Groupon is concerned, my case was resolved.

I don’t consider it resolved. Could you help me get my $100 back, please?

Sue Tomita, Tucson, Ariz.

Answer: Groupon should have done what you asked it to do: move the funds from the unredeemed voucher into your account. It’s unclear why it didn’t, although I noticed that the request to transfer your funds wasn’t made in writing. If you had written evidence, I think your case would have been closed by now.

By the way, asking for store credit is never as advantageous as getting a full cash refund. When you asked for credit, you were essentially giving Groupon an interest-free loan. If you had it to do all over again, you might have just asked for the $3,996 back, and then waited to make another purchase.

Of course, you could have avoided this entire episode by reading the fine print on the original voucher. Sometimes, consumers don’t think the restrictions are meant to be read until it’s too late, which usually benefits the business. That’s not to say Groupon hid the terms on purpose — only that it’s rare to find fine print that’s good for the customer, not the company.

Finding someone at Groupon is pretty easy. Your emails to support@groupon.com were a good start, but you can always appeal to someone higher up. The naming convention for Groupon is firstinitiallastname@groupon.com. (So the email address for the CEO, Eric Lefkofsky, would be elefkofsky@groupon.com.)

I contacted Groupon on your behalf. According to its records, it never received an official request to transfer the funds to your Groupon account. To help make things right, the company agreed to a full refund, as you had first requested.

Christopher Elliott is the ombudsman for National Geographic Traveler magazine.

Siamese say: No ‘lain-lain’ for anyone

ALOR STAR: The Lain-Lain race category in government forms should be abolished throughout the country, the minority Siamese community said today.

Senator Boon Soom Inong, who represents the community in the Senate, said the time had come for action in the wake of Sabah and Sarawak abolishing the Lain-Lain category on goverment forms.

Boon said forms should instead have a space for people to state their ethnic descent next to the bumiputera category.

He said such action would help the government bridge the racial divide and ensure balanced development to benefit everyone.

He said he brought up the matter in the Senate in 2013, in that government forms did not acknowledge the bumiputera status accorded to minorities such as the Siamese and Melaka Portuguese communities.

The confusion had resulted in the minority communities not enjoying such bumiputera rights as Mara loans for education and business, or entrance to University Technoloji Mara or bumiputera discounts on houses.

Last week, the Sarawak government announced that the three major native communities, the Dayak or Iban, Bidayuh and Orang Ulu, should state their ethnic descent in the bumiputera category. The Sabah government has followed suit.

- BERNAMA

American Higher Education Is One Of The Greatest Bubbles Of Our Time

If Princeton wanted to position itself as an Asian university, yes, it could fill its classes with plenty of smart overseas students who can afford to pay their own way. Oxford, right now, could fill every class with qualified Chinese students, all of whose families would willingly, and quite easily, lay out the full fare. But an American kid who has to take out a loan to attend one of these schools faces coming out of college a couple hundred thousand dollars in debt, and that is hardly the great future these places promise solely on the strength of their names. Loans for education can be written off under US bankruptcy laws. In America, if you go broke, you can write off just about everything — everything but the loans you received for your education, the very debt that probably launched you on the trajectory to bankruptcy in the first place.

If the West continues to have problems, as seems likely to be the case, it is going to be extremely difficult for these places to find applicants. As expenses keep rising and institutions keep raising their prices, an increasing number of Americans will be unable to afford the tuition, while overseas students are discovering better brand names closer to home. If you look at the university rankings that have been published over the past twenty years, you will see now, for the first time, many Asian universities that were never there before: great pedigrees, great educations. There is competition coming.

And then there is technology, which to kids today is second nature. Why get up at 8:00 am to drag yourself to Spanish class three days a week when you can learn more efficiently and on your own schedule via computer? Does America need thirty thousand expensive, tenured Spanish professors? Is the Spanish professor at Princeton going to teach you Spanish better than anybody else? You can learn Spanish a lot faster, probably better, and certainly for a lot less money, by going online. Likewise with accounting, physics, and calculus. What you need is a great teacher. Why not find one very talented professor, tenured or not, and let him teach the course over the web? Why not find two or three great teachers whom everybody can learn from, giving millions of students access to the best instruction available?

Best Credit Card Offers for Retirees: Which Should You Choose?

If you long to spend your golden years globetrotting, the Barclaycard Arrival Plustrade; World Elite MasterCard#174; is a great card. It offers 2X miles on every $1 spent, redeemable for travel statement credit. You’ll even receive 10% of your miles back when you redeem for travel. There’s also a killer signup bonus: Earn 40,000 bonus miles when you spend $3,000 or more on purchases in the first 90 days from account opening.

The Barclaycard Arrival Plustrade; World Elite MasterCard#174; has an annual fee of $89 – Waived first year and no foreign transaction fees. It has an EMV chip with PIN capability for safer transactions — whether you’re traveling domestically or overseas — and free access to your FICO score. There’s also an introductory APR of 0% on balance transfers for 12 months (must be completed within first forty-five days of account opening), and then the ongoing APR of 14.99% or 18.99% Variable.

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Borrowing blindly for a car can cost you €11000

There are two main types of car finance: car loans, where you buy a car using a bank loan; and hire purchase, where you pay monthly repayments for the hire of a car and dont own it until the final payment is made. Youll typically be offered hire purchase if you go to a dealer. A bank will usually offer a loan though some, such as AIB and Bank of Ireland, also offer hire purchase.

The Sunday Independent examined the car finance offered by the main banks as well as the hire purchase deals offered by a few dealers. We found that you could pay almost three times as much interest if you use a bank loan, rather than hire purchase, to buy your car.

Borrowing EUR20,000

(Up to EUR4,300 more expensive at the bank)

Lets say youre borrowing EUR20,000 over five years to buy a second-hand family car. According to our survey, the most expensive way to borrow this money is through a car loan from Bank of Ireland.

BoI charges between 11.5pc and 12.8pc interest on its car loans, with the lower rate only available if you apply for your loan online or over the phone. At the higher 12.8pc rate, a five-year car loan of EUR20,000 costs EUR6,770 at Bank of Ireland.

KBC Bank is the second most expensive. A five-year personal loan of EUR20,000 could cost as much as EUR6,325 with KBC Bank. The bank offers discounted loans if you repay your loan by direct debit from a KBC current account but even then, the cost of the loan adds up to EUR5,138.

A five-year car loan of EUR20,000 costs EUR5,402 with Ulster Bank and EUR5,236 with AIB.

Permanent TSB is the cheapest bank to get a car loan from – as long as the car you are buying is no more than two years old. Permo charges 8.8pc interest on car loans if the car was registered in 2013, 2014 or 2015. At that rate, it costs EUR4,620 to borrow EUR20,000 over five years. However, if youre buying a car that is between six and seven years old, Permo charges 10.4pc interest – which would cost you EUR5,437 over five years. Permos cheapest car loan, however, still works out more expensive than the hire purchase agreements offered by some dealers.

Cheapest EUR20,000 finance

The cheapest way to borrow EUR20,000 for a car is through hire purchase from Renault Finance or Volkswagen Bank, according to our survey.

Renault Finance charges 4.9pc interest on its five-year hire purchase agreements as well as fees of EUR150. So it would cost EUR2,467 to borrow EUR20,000 from Renault over five years – compared to up to EUR6,770 through a bank loan. However, you must pay a deposit equivalent to a fifth of the price of the car to secure Renaults 4.9pc interest rate.

As Volkswagen Bank charges 5.9pc interest on hire purchase, it costs EUR3,055 to borrow EUR20,000 over five years. You need a deposit of at least a tenth of the price of the car to get the 5.9pc interest rate.

BMW Financial Services charges 7.46pc interest and EUR150 in hire purchase fees. It would therefore cost EUR3,883 to borrow EUR20,000 over five years from BMW. Although a deposit equivalent to a fifth of the price of the car is the norm when arranging finance through BMW, it is not essential, according to a spokesman for BMW Financial Services.

Hire purchase doesnt always work out cheaper than the banks.

First Citizen Finance, a finance company set up by former PTSB executives, is the most expensive for HP, according to our survey. First Citizen charges 8.9pc interest on the hire purchase of a new car and 9.9pc interest if buying a second-hand car. At those rates, it would cost either EUR4,630 or EUR4,977 to borrow EUR20,000 over five years.

It costs EUR4,575 to borrow EUR20,000 over five years through hire purchase from Bank of Ireland – although this is cheaper than the banks car loan, this hire purchase agreement was the second most expensive in our survey. A five-year hire purchase agreement of EUR20,000 cost EUR4,435 with Toyota Finance and EUR4,352 with AIB.

Borrowing EUR50,000

(Up to EUR10,984 more expensive at the bank)

Lets say youre borrowing EUR50,000 to buy a new car. Again, the most expensive way to borrow that money is through a loan from Bank of Ireland or KBC.

A five-year car loan of EUR50,000 costs either EUR15,079 or EUR16,926 with Bank of Ireland, depending on whether you qualify for the banks discounted loan rate or not. Similarly, a five-year personal loan of EUR50,000 costs either EUR15,812 or EUR12,844 with KBC.

As a EUR50,000 loan for a new car costs EUR11,549 with Permanent TSB over five years, Permo is the cheapest for a bank loan of this size. However, youll still save a fortune by picking up the right finance from the right dealer.

Renault Finance and VW Bank were the cheapest in our survey for car finance of EUR50,000 (though most new cars from these dealers are below this price range). A five-year hire purchase agreement of EUR50,000 costs EUR5,942 with Renault Finance and EUR7,647 with Volkswagen Bank.

Zero Interest

Some dealers offer interest-free hire purchase – but you will usually need a sizeable deposit to secure such finance.

Renault Finance ,for example, offers interest-free HP on all of its passenger cars. However, to qualify for Renaults zero interest hire purchase, you need a deposit equivalent to between 35pc and 40pc of the price of the car if it is new – and you must also repay the finance within three years.

Caveats

Unlike bank loans, you must usually buy a car that is being sold by a dealer to borrow money from that dealer. Even if a dealer has the cheapest car finance going, you may have no interest in the cars it is selling. You are not tied to any particular models or brands of cars if buying with a car loan.

Furthermore, although HP can often work out cheaper than a bank loan, you wont actually own your car until you make the last repayment. The finance company may also have the right to repossess your car if you fall behind on your repayments. Therefore, make sure you understand how hire purchase works before you sign up to it.

How to buy a car for a good price in the New Year

You may be able to buy a 2014-reg car today for a tenth less than what you would have paid six months ago. However, January isnt always the best time to buy a car – particularly if you have a car to trade in.

It depends on how many cars the dealer has in his yard, says Padraic Deane, editor of the Motorshow Car Buyers Guide.

Having a popular car to trade in usually strengthens your hand when negotiating a deal. However, the more models of your car a dealer has in stock, the less he will be willing to strike a deal.

The number of used cars coming into a dealers compound takes off in January, says Mr Deane.

A very busy time of the year for car sales may not be the best time to buy a car if trading one in.

The dealer may have worked through his stock of used cars by mid-February – so it may be a better time to wait and buy your car then.

Of course, if you dont have a car to trade in and are buying outright in cash, you should be able to strike a good deal – no matter what time of the year it is.

Another thing which could work against you is any pent-up demand that has built up for a car which is in short supply – or which has just been launched.

In such cases, you will usually get a better price for such a car by waiting for the demand to subside.

If you have been told you have to wait between three and four weeks to get a car, chances are you wont get as good a deal as on one which is available right away, says Mr Deane.

When new models come out, there will be a huge demand. Wait until the pent-up demand eases if you really like the car.

To get the best price for a car, pick three car models you like – and then price those models with three different dealers. The lowest price you get is the one you should use as your bargaining chip to get the other dealers down.

Always go back to your nearest dealer and give them the opportunity to give you the best price, says Mr Deane.

It will always be cheaper to return a car for service or repair if the dealer is near you.

Sunday Indo Business

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How Bad Is My Credit Score?

If you have really bad credit or really good credit, you probably already know it. But theres that vast middle area where your score is too low to get the best offers. If you want to get a new credit card, take out a loan at the car dealership, get a mortgage to buy a house or borrow money for some other purpose, the quality of your credit score makes a serious difference.

With a bad score, few banks will take a chance on you; those that do will offer you their highest rates. A bad credit score can also increase your insurance rates or cause insurers to reject you altogether, and it can stand between you and the apartment you want to rent. Negative items in your credit report can even hurt your ability to get certain jobs. Even a mediocre score will jack up rates compared to those offered to people with excellent credit.

Let’s take a look at what is considered a bad credit score, how you might have gotten there and what you can do to fix it.

Credit Scores, Defined

A bad credit score is a FICO score in the range of 300 to 620. Some score charts subdivide that range, and call “bad credit” a score of 300 to 550 and “subprime credit” a score of 550 to 620. Regardless of labeling, you’ll have trouble getting a good interest rate or getting a loan at all with a credit score of 620 or lower. In contrast, an excellent credit score falls in the 740 to 850 range. 

Credit Behaviors That Hurt Your Score

Borrowers with bad credit usually have one of more of the following negative items on their credit reports: 

- delinquent payments

- charge-offs

- collections

- foreclosure

- short sale of real estate you owned

- deed in lieu of foreclosure

- bankruptcy

FICO credit scores are based on five broad categories of borrowing behavior, some of which affect your score more than others.

Your payment history counts for 35% of your score, so missing your payment due dates seriously hurts your score. Being 31 days late is not as bad as being 120 days late, however, and being late is not as bad as failing to pay for so long that your creditor sends your account to collections, charges off your debt or agrees to settle your debt for less than you owe. 

How much you owe relative to how much credit you have available is another major factor, accounting for 30% of your score. Say you have three credit cards, each with a $5,000 credit limit, and you’ve maxed them all out. Your credit utilization ratio is 100%. The scoring formula looks most favorably on borrowers whose ratio is 20% or lower. 

Less important is the length of your credit history, which counts for 15% of your score. You don’t have much control over this component. Either your credit history stretches back several years or it doesn’t.

The number of new credit accounts you have counts for 10% of your score, which means that applying for new loans to move your debt around might hurt your score. On the other hand, if moving your debt around means getting a lower interest rate that helps you get out of debt more easily, new credit could ultimately help your score. (To learn more, read 0% Balance Transfers: Who Really Benefits?)

Types of credit used counts for 10% of your score. If you have an auto loan, a mortgage and a credit card – three different types of credit – it can mean a better score than if you just have credit cards. Again, don’t worry about this one. Applying for different types of loans to try to improve your score will have little impact and gets you further into debt – not what you want when you have less than stellar credit. Focus on paying down your balances and making your payments on time. (For options to improve your credit score, read 7 Tips to Bounce Back from a Credit Score Disaster and 3 Easy Ways to Improve Your Credit Score.)

Big Banks Signal Opportunity In These Sectors [Wells Fargo & Co, D.R. Horton …

The likes of Citigroup (NYSE: C), Bank of America (NYSE: BAC) and JPMorgan Chase (NYSE: JPM) all missed earnings expectations. Studious investors will be interested in the fact that it wasn’t all bad news from the banks.

The conference calls of the big banks revealed some tell-tale signs that certain sectors are poised to move higher this year.

Here are three investment opportunities that are enticing, based on some surprising trends gleaned from the comments big banks made during their earnings calls.

Big Bank Outlook No. 1: Oil Crash is a Net Positive

As far as the oil crash, the banks don’t expect a material fallout. JPMorgan Chase disclosing that it doesn’t expect a significant amount of charge-offs. All in all, low oil prices should be a big positive for the US consumer. Wells Fargo (NYSE: WFC) pointed out during their conference call that the US is a net consumer of energy.

So, the best way to play lower energy costs? Via retailers, where consumers have more money to spend on consumer discretionary goods. Bank of America noted that spending on credit and debit cards for January was up 3% on a year-over-year basis.

SPDR Samp;P Retail ETF (NYSEArca: XRT) is the broadest way to play an increase in consumer spending. This ETF gives investors exposure to over 100 companies, from various industries. Its major holdings are CarMax (NYSE: KMX), Office Depot (NASDAQ: ODP) and Sprouts Farmers Market (NASDAQ: SFM).

Big Bank Outlook No. 2: There’s Still Upside in Housing 

This is one of the more speculative plays that we found while digging through bank earnings, but it is worth digging deeper into. Bank of America noted that its mortgage pipeline at the end of 2014 was much stronger than the end of 2013.

But one of the big drivers for further growth this year is the changes in lending guidelines for government-sponsored enterprises (GSEs), which should make housing more affordable — something Wells Fargo was sure to point out on their call.

Yet, over the last few days the SPDR Samp;P Homebuilders ETF (NYSEArca: XHB) has fallen more than 5%. This comes as a couple of top homebuilding companies offered weak outlooks for the next few quarters — the SPDR Samp;P Homebuilders ETF focuses on homebuilders, like DR Horton (NYSE: DHI).

The recent issue with homebuilders is increasing competition and pricing pressure, which doesn’t signal a fundamental industry problem. The industrywide selloff could be presenting an enticing buying opportunity.

Alternatively, investors can take a more diversified approach to homebuilding –consider the iShares Dow Jones US Home Construction ETF (NYSEArca: ITB). This ETF focuses on all angles of homebuilding, a broader swath than just the companies building the houses. These holdings include Lumber Liquidators (NYSE: LL) and Whirlpool (NYSE: WHR), among  others. 

American Higher Education Is One Of The Greatest Bubbles Of Our Time

I do not believe many Americans would claim that secondary education in this country today stands as the best in the world. Indeed, most seem to agree that American primary and secondary education today is pretty hopeless. But those same people will insist, in the same paragraph, that American tertiary education is unequaled.

Maybe at one time that was true.

American universities used to be places where excellent teachers could be found, where the best of them rose to the top. But then along came tenure. It is the brass ring on the academic merry-go-round, and excellence in teaching has never been the way to attain it. Publishing and research and campus politics are what lead one to tenure. In pursuit of it, as often as not, teaching is seen as a distraction. I remember a professor once telling me, This is a fantastic life. Too bad we have all these students around.

Tenure, at its worst, is where incompetent teachers find refuge. American academia is controlled by tenured faculty. They do research; they go to the library. Most will not say it, but students coming around, whether in need of extra help, complaining about their grades, or submitting papers that have to be graded, are an impediment to what they see as the real work of a college professor.

There is no profession in the world, anywhere in the world, where if you work for seven years you get a lifetime guarantee of a job. Except at a university. Becoming a doctor, becoming a partner in a law firm, you still have to produce. If you have tenure at a university, by the time you are thirty-five you never have to prove yourself again. Unless you burn down the university or murder somebody, you have a job for life. And a job as a college professor is the closest thing this side of political patronage or a mob-run construction site to a no-show job. When I was a full professor, I figured out that, averaged over a calendar year, I could fulfill my obligation by working five hours a week.

Academic tenure is a relatively recent development in American education. And the rationale behind it, academic freedom, seems a little bit ludicrous today. Does an accounting professor have to have life tenure to protect his or her political views in the classroom? A physics professor? Political beliefs about assets and liabilities? About the force of gravity on falling bodies? The professors may need protection from one another, but that is no justification for lifetime employment.

Tenure is an aspect of the exceptionalism that makes American tertiary education one of the greatest bubbles of our time. Right now, to go to Princeton costs $56,000 a year. That is just to get in the door: tuition and room and board. It does not include the plane fare to get there. It does not include beer. That is at least a quarter of a million dollars for a four-year course of study, and the price goes up every year. Soon it will be fifty times what it cost me to go to Yale in 1964. All the Ivy League schools, as well as Stanford and the like, have convinced everybody that admission is worth the price of the exorbitant tuition, and so far the world has fallen for the pitch, just like everybody else fell for the housing bubble. There are always good reasons and solid evidence for participating in whatever the current bubble is. In three or four years, just the base cost at Princeton will be $65,000 a year.

I went to a couple of these schools, Yale and Oxford. I loved every minute of it. I had a fabulous time. It made me who I am. But if it is just an education you want, you can get a good education, if you apply yourself, at any number of places, and everyone knows this by now. What these institutions are selling today is nothing more than the sticker–the brand name, the label. And when things get tough, fewer and fewer people are going to be able to afford to pay so much for so little.

Flickr/llee_wuHow much is a Princeton degree really worth?

If Princeton wanted to position itself as an Asian university, yes, it could fill its classes with plenty of smart overseas students who can afford to pay their own way. Oxford, right now, could fill every class with qualified Chinese students, all of whose families would willingly, and quite easily, lay out the full fare. But an American kid who has to take out a loan to attend one of these schools faces coming out of college a couple hundred thousand dollars in debt, and that is hardly the great future these places promise solely on the strength of their names. Loans for education cannot be written off under US bankruptcy laws. In America, if you go broke, you can write off just about everything — everything but the loans you received for your education, the very debt that probably launched you on the trajectory to bankruptcy in the first place.

If the West continues to have problems, as seems likely to be the case, it is going to be extremely difficult for these places to find applicants. As expenses keep rising and institutions keep raising their prices, an increasing number of Americans will be unable to afford the tuition, while overseas students are discovering better brand names closer to home. If you look at the university rankings that have been published over the past twenty years, you will see now, for the first time, many Asian universities that were never there before: great pedigrees, great educations. There is competition coming.

And then there is technology, which to kids today is second nature. Why get up at 8:00 am to drag yourself to Spanish class three days a week when you can learn more efficiently and on your own schedule via computer? Does America need thirty thousand expensive, tenured Spanish professors? Is the Spanish professor at Princeton going to teach you Spanish better than anybody else? You can learn Spanish a lot faster, probably better, and certainly for a lot less money, by going online. Likewise with accounting, physics, and calculus. What you need is a great teacher. Why not find one very talented professor, tenured or not, and let him teach the course over the web? Why not find two or three great teachers whom everybody can learn from, giving millions of students access to the best instruction available?Justin Sullivan/Getty ImagesA woman works on a laptop on the Stanford University campus.

For some institutions of higher learning, it may already be too late. Several elite universities in the United States are now on the verge of bankruptcy. Their expense structure is unsustainable. You cannot run a business of any kind where your top people work only five hours a week, or work even ten hours a week. Do it and you are going to go bankrupt, especially operating within the constraints of a system like tenure, where it is not possible to fire anyone, not even those who, by virtue of the system, do not work very hard in the first place. Add to that the fact that Ivy League universities are traditionally overgenerous with labor, because they do not want to appear to be filthy capitalists, and bankruptcy presents itself as a blessing. We saw it with the automobile industry. The unions would come around when the contracts were up, and the auto companies would cave in. They just kept giving away the store. Eventually it bankrupted the industry.

Part of the problem is that these institutions are run by academics; they are not run by entrepreneurs. The universities are badly managed, and their endowments can no longer save them. Much of what makes up their endowments is phony. A lot of what these schools have invested in over the past twenty years has been things that are illiquid, assets for which there is no public market, whether timber or real estate or the main one, and most crippling: private equity. 

In the bubble, many financial institutions carried what are known as Tier 3 assets. These are assets whose value was no more than hypothetical–mortgages, for example. Their market value was marked to a model. If your computer program said a particular piece of paper was worth 96, you wrote down 96. Moodys and Standard amp; Poors said the paper was AAA and therefore worth 96. But we know now that most of that stuff was garbage. And it is that kind of stuff that makes up a very large share of the endowments in question.

Harvard — and this applies to all the elite schools — does not manage a lot of this money itself. A hotshot private equity guy comes in and says invest in our fund, and Harvard gives him $100 million. He goes out and invests in new ventures or buys companies; whatever he does, he marks it to model and Harvard accepts his numbers. Now the fund manager has every incentive to jack up his valuations, just as Fannie Mae and Citibank did, and just as everybody else who was using mark-to-model did. And Harvard loves to accept the numbers with pride.

All of them, in the bull market, thought they were making huge amounts of money. They spent. They gave everybody raises. Harvard went out and bought huge amounts of acreage in Boston. Yale bought a lot of acreage. They thought: We have all this money; it is time to expand; we can be generous. Then they all got hit with the truth — the financial meltdown — and what some of them did was start borrowing. They started selling bonds to the public, based on their respectable names and their AAA credit, and the market bought into it.

Several universities, for the first time in their histories, now have debt on their balance sheets. They have bonds they have to pay off. At the same time, many of the portfolio managers have leveraged the portfolios. They have bought things on margin. It is a classic case of how companies and institutions get into trouble. They borrow things, being told that there is no problem. Things go bad, then things get worse, and they realize that this is a permanent state, that they have a serious problem. It is especially a problem in academia because they cannot cut their expenses. They have unions, tenured professors.

Then there are the many off-the-balance-sheet obligations. One of the more absurd requires the school to pay for the college education of the children of any parent — not just a professor — who has been employed by the university for ten years. An employee with three or four children represents over $1 million of future obligations. Also, private equity deals may require an ongoing stream of funding that does not appear on the balance sheet–fine when things are going well, but troublesome when things are not and administrators need more money. Every school has millions of hidden obligations like these.

Some of the people running these university financial departments are not terribly clever. The same is true of many pension plans. Many state and city pension plans are bankrupt. In the next bear market, whenever it comes (and it will probably hit pretty soon), you are going to see more of the same. It will come as a huge shock to the world when Harvard University or Princeton or Stanford goes bankrupt, when these institutions that have been around for decades, for centuries in some cases, understand how bad their finances are.

AP Photo/Lisa PooleCould Harvard go bankrupt?

When the big collapse came in 2008 and 2009, a lot of them were faced with having to cut back their spending. The way they traditionally operate is they take a percentage of the endowment, say 5 percent of the endowment, for running the place. But the endowment of $40 million is suddenly $24 million — as a result of the crash — and they start looking for places to make cuts. But they have already increased their expense minimums; they have taken permanent debt on their balance sheets, putting themselves in deeper trouble, and what they do then is add more debt, because they think the market will turn around. We have smart managers, they tell themselves, who assure us everything is going to be OK.

We have seen it many times. Things start spiraling downward, and by the time people start catching on, it is usually too late, as it was for Lehman Brothers and Bear Stearns. One of the advantages of this, of course, is we might get rid of tenure finally. And the Asian universities, which do not have these problems yet — gigantic salaries, gigantic union obligations — will rise.

One of the more vital aspects of an American university education will survive even after the current bubble pops: the experience of going away from home to live and learn among hundreds or thousands of other eighteen- to twenty-year-olds. Sports teams, debating societies, social events — all will continue, even if much of academic life is conducted via a computer in a dorm room. Lecture halls might even survive, with lectures being piped in via satellite. Libraries will disappear or be converted to tennis courts.

The creative destruction caused by technology combined with an absurd, unsustainable cost structure will give rise to whole new centers and ways of learning — just as has happened throughout history. We have all forgotten the names of the former great world universities in places like Morocco, Timbuktu, Portugal, Italy, Asia … the list goes on.

Reprinted from Street Smarts Copyright  2013 by Jim Rogers. Published by Crown Business, an imprint of The Crown Publishing Group, a division Random House LLC, a Penguin Random House Company.

Here Are The 5 Factors That Determine Your Credit Score

Your credit score plays a role in everything from your mortgage rates to insurance rates.

So its probably a good idea to know how its determined in the first place – then you can figure out how to improve it.

In her upcoming book, What You Should Have Learned About Money, But Never Did, certified financial planner Sophia Bera discusses the five factors that go into calculating your credit score.

Theyre listed as percentages, but they arent perfect, and they dont add up to 100%.

Thats because the credit bureaus that create your score arent exactly forthcoming with details. Plus, theyre constantly adjusting the calculations, so an educated guess from an experienced professional is about as accurate as you can get.

The important takeaway is which factors matter the most.

1. Amount of balances owed: ~35%

Bera refers to this as the ratio of credit available to you to the balances you have on your lines of credit. Essentially, it measures how much of your available credit you use. The less, the better.

She writes, having lots of available credit but only using a small percentage of it is good for your score. Having a small amount of available credit and charging up to the limit – even if you pay off the balance monthly – wont help your score.

2. Payment history: ~35%

Along with balances owed, payment history is the other large chunk of your credit score. Bera explains this simply as whether you pay your credit card bills on time and in full. She advises paying on time – every time.

How late your payments are will also affect your score, Bera says. So payments that are more than 60 or 90 days late will have a bigger ding to your credit than if you are 30 days late. The good news is that if your payment is less than 30 days late, it probably hasnt been reported to the credit bureaus yet, so make a payment – fast!

3. Length of credit history: ~15%