Sunday, May 30, 2010

The next lending crisis

The New York Times had a good column this week spotlighting the dangers of student loans through one family's story: an undergrad NYU education that left $100,000 of loan debt in its wake.

Almost everyone I know has student-loan bills, which vary in severity from "enh, it's not that bad" to "holy god, that's more than rent." But there's one clear similarity in all our stories: No one knew what they were getting into.

It's the undergrad debts that make me wince the most. You take those loans on when you're 17 or 18, and I don't care how academically smart you are, I've yet to meet any college-bound 18-year-old able to make sound judgment calls about loans, debt, estimated paychecks and so on. How can you? At 18, you haven't had the experience of trying to line up all your bills and make them fit within the bounds of one fixed monthly income number -- and until you actually do that, month after month, it's all hazily theoretical.

You can sign on a dotted line saying "yes, I understand that if I take on this loan I'll owe $200 a month to repay it," but is $200 a lot or a little? To me at 18, who considered $20 a windfall, it would have sounded staggeringly huge -- but me at 18 (circa 1996) hadn't ever had a job paying more than $6 an hour. I had no framework at all for making adult financial decisions.

I guess this is where parents enter the equation, but at 18, you're supposed to start making your own decisions -- and what 18-year-old is going to listen to the parent who says "this expensive school you got into and want to go to? Sorry, you can't." You spend all of high school hearing that college will be exciting, life-shaping, career-door-opening and so on. The last thing you want to think about at that point is what's cheapest.

I basically got lucky. My parents scrapped together the cash and took on the debt themselves to pay for most of my trip through the pricey college I wanted to attend. I helpfully repaid them by dropping out right before my senior year. (Thanks, Dad, for not driving up to NYC and strangling me when I told you that ...) The consolation prize is that I dropped out because the college basically did what it was supposed to: Help me get a good, full-time, decent-paying job in the career field I wanted to pursue. I left to take the job.

My three years at Barnard resulted in loan debt of $11,000, which required monthly payments of around $90. That was manageable.

But five years later, after a few halfhearted stabs at night classes, I finally decided to go back and finish off my degree. And once again, I didn't want to make practical-and-affordable choices -- I wanted to do what I wanted. Which, this time, meant going to the school best set up to deal with working students. That turned out to be New School University -- which cost about five times more than I would have spent finishing my degree at Hunter or another state school.

Result: Three years after graduating from New School (much to my Dad's delight -- I finally got the BA!), I'm currently sitting on a student-loan balance of $21,664.59. I now pay $250 a month for my loans, and have been paying that for almost five years. I have ten more to go. If I'd done the less-expensive thing, I would instead have my loans fully paid off about two years from now.

Was it worth it? In my case, maybe -- I can afford the $250, and my previous efforts to finish the BA hadn't actually worked. If New School was what it took to get me through, it was probably a sensible thing.

But really, all it boils down to is that I got lucky. I don't even remember signing the loan papers for my first set of loans, for Barnard. I definitely didn't do it with any "this will cost me X dollars each month" idea of what I was obligating myself to. The second time, when I took on the New School loans -- this time, as a working adult, and even a personal-finance blogger -- I again didn't do any precise monthly cost forecasting. I just eyeballed the total sum and said "well, it looks manageable."

Which is why I get nervous every time friends of mine talks about going back to grad school. There are, for sure, financially responsible ways to do it. You can use savings, go somewhere very inexpensive, or pursue a degree that has a very clear payoff in your chosen career field.

But you can also spend a small fortune on a degree that's hard to monetize -- or, worse, trains you for a field with salary prospects that don't align. To pick on my own alma mater and career field: A journalism or creative-writing master's degree at Columbia will cost you about $40,000. A typical entry-level journalist or any-level fiction writer would be lucky to make $40,000 a year -- and managing a $350/month loan payment on a take-home salary just north of $2,000/month starts to get pretty restrictive.

I don't see any obvious solutions, but it's scary to see a whole generation of 20- and 30-somethings (and on into their 40-somethings) chained to massive debts right out of the starting gate.

Sunday, May 23, 2010

Serial bank dating

I always intended to come back to the story of how my attempts to abandon Chase are going, but kept getting distracted. So I wrote it up over at Make Love Not Debt: Taking a Break from Monogamy.

Meanwhile, as we prepare to pay our Very First Mortgage Payment, the kitty decided now would be a great time for a dental emergency. He's lost a tooth -- and unlike when five-year-kids do this and it's an exciting milestone, with five-year-old cats you end up feeling like a horrible, neglectful parent who didn't realise that your cat's teeth are dissolving. So poor Kea is getting hauled off to the vet tomorrow to have what's left of his teeth cleaned, and likely removed.

Because what we really needed right now was a random $500 bill. Sigh. At least he's cute.

Sunday, May 09, 2010

Verizon for the fail

The first time David and I moved apartments, back in 2000, it took us four months to get a working phone line.

The problem was a fight between Verizon and MCI. For reasons I happily no longer remember, we were caught in a giant wrangle between the two over whose job it was to physically hook up our line -- one company owned the wires in our area, the other had our account, and resolving the standoff took me more than two dozen phone calls and countless hours of battling through Inferno-like levels of "customer service." In retrospect, I can't believe I didn't just swear off landlines on the spot and go mobile, but the whole thing eventually got so Kafkaesque that I was determined to pry a phone line out of these companies just to prove that I could.

It was good foreshadowing. Ever since, pretty much every interaction I've had with Verizon has been fraught with errors and incompetence.

I was all set to join the modern world and scrap our landline in April in our move. We'd be just fine with Skype and mobile phones, I figured, and hey, it would save us $50-$70 a month. That's what it was costing us to have a dial tone and an occasional phone call to Australia. (I was paying $10 a month for an international calling plan that gave us sensible per-minute rates, since I learned the expensive way how bat@%^! the rack rates are for overseas calls.)

But then we found out our new building was wired for Verizon FIOS. That meant that instead of kicking Verizon to the curb and consolidating our communications bills with the cable company, we could instead give Time Warner the boot and go all-in with Verizon.

Like every other cable customer, I've watched my bills creep up over the years, from about $100 six years ago (for cable and cable-modem broadband Internet) to more than $160 this year. On the flip side, Verizon was touting its "triple play" cable/Internet/phone combo packages for $89.99 a month.

I knew our bill wouldn't really be $90 a month -- fees and taxes always seem to add another 50% to telecom bills -- but it still seemed worth investigating. So I rang up, asked many pointed questions about the plan ("Are there installation fees? Equipment fees? Fees for extra computers? Required blood sacrifices every fortnight, which you charge extra fees for missing?"), and signed on. The add-on fees I agreed to were an extra $5.99 a month for equipment rental (which really should be part of the standard cost quote, but whatever) and $10 a month more for a 300/minute overseas international calling bundle. So, total bill each month should be $106 -- plus, I figured, an extra $20-$40 for taxes.

On Friday, the first bill arrived: $203.96. <insert primal screams here>

It wasn't just that the bill was too high that irked me. It was that I would now have to slog through "customer service" to untangle the mess.

And it was indeed a total mess. Despite email records confirming my order of the triple-bundle-package thingie, Verizon ran my bill for each service individually. The amounts listed didn't even reconcile -- random charges and credits skittered all around the bill, making no sense on their own and, even better, not actually adding up to the listed grand total. Instead of even attempting to sort it out, I threw up my hands and called Verizon.

Where it took half an hour to fight through the automated prompts and connect with a live human being. Happily, once I finally landed one, he looked at my bill for about 30 seconds before agreeing that it was fubared.

Twenty minutes of hold music later, I had my bill "repaired" (in theory) and knocked down to $140.56. That seems to include two months of Internet charges (prepaying May), which doesn't make sense to me if this is supposedly a level-monthly-billing plan, but I'm not inclined to battle about it.

I'm also not convinced this whole thing is actually fixed. We'll see what shows up in next month's bill.

And since my bill has been screwed up literally every single time I've signed up for new services with Verizon, I've got to assume this isn't actually incompetence. It's a business strategy -- mess up the bills and see what percentage of customers notice.


Thursday, May 06, 2010

When Wall Street breaks

During September 2008, I almost came to regard three-digit Dow swings as normal. But seeing them happen in seconds isn't normal, and 2:50 pm this afternoon was a pretty wild time to be in the middle of a financial newsroom. In a blink, you've got the Dow flinging itself from almost 11,000 to below 10,000, and stocks zipping crazily in both directions: Accenture (ACN) rocketing from $40 to 1 cent while Sotheby's (BID) zooms from $30 to $100,000.

And what was I doing this evening, after watching an afternoon of Wall Street chaos? Going to see Enron, which I got tickets to last month for David's birthday. Talk about timing. High finance explained with lasers and dinosaurs! Now I'm gonna be grumpy if we don't get to use lasers and dinosaurs tomorrow at work when we try to explain The Great Market Crash of 2:47 pm.

I see that the exchanges and market regulators are planning to void trades in 286 stocks from 2:40-3pm that swung more than 60% either way. That takes care of the wildly crazy prices, like Philip Morris plunging from $48 to $2 or EQIX flying from $95 to $999,999. But it leaves standing some of the trades that really hammered the Dow, like P&G falling 37% in seconds and 3M sinking 21% for a blink. Tomorrow's open should be dramatic.

Meanwhile, in financial news involving vastly smaller sums, I have a new outlet for some of my personal-finance writing: For the next few months, I'll be filing a weekly dispatch to Make Love Not Debt. It was one of the first pf blogs to catch my eye when I started Birds & Bills years ago; while I get pretty solipsistic in my ramblings here, MLND has always been finance and relationships. It'll be fun to shift my focus and think in that vein for a bit. Plus, like all journalists, I've realized the only sure way to get me to actually write is to hit me with a deadline. Generally one that's two or three days past.

So hop on over and check out my first MLND column, on the two-income pothole:

Keeping separate bank accounts with your spouse or similarly intertwined partner has a whole spate of logistical issues attached. How do you split the bills? How do you make sure none slip through the cracks? How closely do you track your partner's finances – and how do you ensure you'll have access in an emergency?

There's also the philosophical issues. Why are the accounts separate, and do you both have the same reasons, or at least understand and respect your partner's rationale if it's different?

Wednesday, May 05, 2010

I have to issue 1099s!?

Funny I just wrote yesterday about how I don't hate taxes. Today, I'm less enamored with 'em. Or, at least, with the paperwork they entail.

I spent most of today working with my friend Neil to piece together a major and underreported story he stumbled on over the weekend: Tucked into the 2,000-page health care bill is a significant tax-code change. Gotta love how Congress tacks riders and stealth legislation into totally unrelated bills (like tossing "hey, bring your guns to national parks" into the credit card act).

From the story:

An all-but-overlooked provision of the health reform law is threatening to swamp U.S. businesses with a flood of new tax paperwork.

Beginning in 2012 all companies will have to issue 1099 tax forms not just to contract workers but to any individual or corporation from which they buy more than $600 in goods or services in a tax year. The stealth change radically alters the nature of 1099s and means businesses will have to issue millions of new tax documents each year.

"1099 tax form" sounds like an eyeball-glazing thing, but anyone who has ever freelanced knows what it is. Companies send out millions of them each year, to any individual they pay who isn't a salaried staffer. The vast bulk of the money I make comes from my day job, but every year I end up with a few stray 1099s for freelance articles.

Because I have freelance income, in the eyes of the IRS I'm running a small business. That means I file a Schedule C and -- the painful part -- pay self-employment taxes on my freelance income. (You know those Social Security and Medicare taxes you see deducted on your paycheck, which typically add up to 7.65% of your wages? What you're paying is actually only half the tax. Your employer pays the other half. Those who are self-employed get hit with both ends and cover the full 15.3%.)

Like all freelancers, I offset this pain by deducting anything I reasonably can. If I buy a new computer or phone line to use exclusively for work, I write it off as a business expense.

Starting in 2012, the health-care law requires businesses (that means us too, freelancers) to send 1099s not only to workers they pay for services, but to any entity they pay more than $600 to in a year. The example in Neil's story: If you buy an iMac, you have to send Apple a 1099 reporting what you paid for it.

As Neil quipped in response to my shocked "they're kidding, right!?" noises: "It's the Accountant Full Employment Act."

After we thrashed out as many details as possible -- which is not many, considering the IRS is a long way off from issuing guidance on how this will work -- I calmed down a small bit.

On the one hand, while I've received dozens of 1099s over the years, I've never issued one to other businesses. That sounds ... daunting. On the other hand, this is why tax software exists. I imagine Intuit's TurboTax team is doing the dance of joy over this looming tax change. By 2012, when the law actually kicks in, tax software packages should be well-equipped to fire off the millions -- or, as a CPA the Cato Institute talked with predicts, billions -- of new 1099s this will require.

Still. I see why activists are really, really tempted to just chuck the U.S. tax code and start over.

Tuesday, May 04, 2010

What your tax dollars buy

Like everyone else who has to balance a household budget, I flinch every so often when I see how much of "my" paycheck is disappearing toward taxes. Between that and my retirement/health care/etc deductions, I actually take home less than 50% of my gross pay. That's pretty common.

... and then I read stuff like today's news about the Johnson & Johnson drug recalls, which are fast getting ugly. The FDA did some serious smacking of J&J, especially for its failure to take action fast when it became clear something was amiss:

In its report, the FDA said McNeil did not initiate "corrective and prevention action" after it had received 46 consumer complaints from June 2009 to April 2010 regarding foreign materials and black or dark specks in its drugs.

Reading such things reminds me afresh of why I am happy to hand over a chunk of earnings to taxes: Because unfettered capitalism is actually a pretty crappy way to run a society, and I don't especially want to worry that over-the-counter painkillers are going to kill me or a nearby toddler because it was cheaper for a company to cut corners and ignore problems. I want regulators cracking whips over those who process meat, hold savings accounts, build bridges, fly airplanes and so on.

Sure, the government could be a more efficient steward of our cash -- I like internal watchdogs and get very cranky when they're hamstrung or ignored -- but in general, I'm a big fan of this whole "pay for an infrastructure that keeps society running" deal. It was a pretty clever system for us human beings to invent.