There’s been a lot of breaking news over the past few days — and that’s not even including an event that rhymes with “toil maybe” or “Wait Schmiddleton” — so let’s jump right into it this week. First up, something that might have left you wondering what the larger implications will be: on Thursday, Detroit (the city) filed for bankruptcy. It is the largest U.S city to do so, and by some estimates owes its creditors as much as $20 billion.
My first question upon seeing this was: what does this mean for Detroit residents?
The Wall Street Journal ran a fantastic Q&A that I highly recommend reading — it does a good job of breaking down a complicated issue. According to the Journal: “The lights will stay on, but some services could be reduced, and the city could choose to raise taxes.”
A matter of even greater concern: What happens to city employees who are retired and on a city pension, or are still working and counting on that city pension? This is a complicated issue, and one that many are predicting will turn into a legal battle in the coming weeks and months. For now, the answer looks something like this: Detroit’s emergency manager has said that all city employees — current and retired — could see their pensions cut in order to help Detroit’s floundering finances.
Finally, you might also be wondering how this could happen — after all, wasn’t “Detroit” bailed out in 2009? Yes and no. The “big-three” automakers (Ford, Chrysler and GM) got a bailout in 2009, and as this great Washington Post article notes, we often refer to these automakers as “Detroit.” However, most of the actual operations for these three automakers happen outside of Detroit’s city limits, which is why bailing out “Detroit” the corporate hub didn’t do much for Detroit the municipality.
I feel a personal tie to this story — I was born in Detroit in a hospital on Eight Mile Road (a fact my kids think is cool, thanks to the Eminem movie) — so I’ll be following this story as it develops, and will be paying special attention to what the bankruptcy proceedings mean for Detroit and its residents. Stay tuned here and on my blog for updates over the coming weeks and months.
And now, here are the other headlines for the week:
A Student Loan Deal — But What Does It Mean?
Continuing our tour of important breaking news, let’s turn our attention to student loans. As you may know, the interest rates on subsidized federal loans doubled to 6.8 percent on July 1 (up from the previous rate of 3.4 percent). As CNN Money reports, a bipartisan deal announced on Thursday will set the rates to 3.86 percent for loans taken out for the 2013-2014 school year — a significant improvement over 6.8 percent — but student advocates aren’t happy about the legislation. While setting rates at 3.86 percent this year, the legislation ties student loan rates to that of the market, up to a cap of 8.25 percent. This means that as the economy improves, rates on student loans will go up.
What does this mean for you? If you or a child needs federal loans for this coming school year, you have some short-term relief. If you or a child is entering college sometime over the next several years, you might not be able to capture federal loans at rates under four percent. My advice: it’s never too late to start saving. If your (or your child’s) freshman year of undergrad isn’t set to start until September 2017, use the next four years to save as much as you can and minimize the amount you need to borrow.
What Your Education Means For Your Auto Insurance
In a concerning new report released yesterday by the Consumer Federation of America, five of the top ten auto insurers in the country charge higher rates to drivers with lower education levels and blue color jobs. In some cities tested, the CFA found that a factory worker with a perfect driving record but just high school diploma was charged as much as 45 percent more than a factory supervisor with a college diploma. Yikes! The CFA found that the worst offenders were GEICO, Progressive, Liberty Mutual and Farmers; on the plus side, State Farm, Allstate, Nationwide, USAA and Travelers do not factor in education level or occupation when setting their rates.
“We feel a moral obligation to address this issue,” said CFA executive director Stephen Brobeck, in a press conference yesterday. “Low and moderate income households have enough hurdles placed in front of them to even survive. We think it’s one small contribution we can make to focus attention on this issue.”
Brobeck expressed hope that as awareness of this discrimination spreads, so too will state regulations that prevent education- or occupation-based pricing. In the meantime, if you think your job or education level might be costing you extra money in auto insurance, shop around, and be sure to check out the five insurers that don’t factor in education or occupation — switching to one of those companies could save you significant amounts of money!
Have a great week!