by John Darer® CLU ChFC MSSC RSP CLTC
"Get a Loan Free College Degree" by selling your structured settlement? That's the fat sales pitch from AnFED bank, a division of NASP member BOFI Holdings*in its online advertising."Loan free college degree" looks good at first blush, but what's the catch?
The Catch is the Effective Discount Rate Charged by Structured Settlement Payment Purchaser
When you sell structured settlement payments you are selling them at a discount. That discount bears an effective interest rate and that interest rate may exceed current student loan rates or student loan refinance rates. According to a survey by StudentLoanHero.com, which publishes The 6 Best Banks to Refinance and Consolidate Student Loans in 2016, you may be able to achieve better financial outcomes than you can do by selling your structured settlement payment rights.
MBA, CPA and Certified Financial Planner Says Lump Sum For Annuity Payments Is "In Essence a Loan"
Addressing the sale of $1,000/month for 240 months for a $55,000 lump sum, Craig C. Le Bouef MBA CPA CFP, an Opelousas Louisiana accountant and financial adviser says, “How should you assess the price he pays for receiving a lump sum distribution rather than annuity payments? The question could be answered this way by understanding that the retiree in essence obtained a $55,000 loan and promised to repay the loan at the rate of $1,000 per month for 240 months. These figures calculate to an annual interest rate of about 21.51-23.8 percent. The calculation of the annual interest rate can be complex and tricky".
If Lump Sum for Structured Settlement is Not Enough, You May Get Disqualified From Student Loans
Money in the student's bank account is a countable asset that reduces eligibility for certain types of student loans. 20% of the money students have sitting in their bank account effectively reduces the amount of their eligibility, among other factors.
*Axos Bank | Start Banking Effortlessly | BofI Holding, Inc. Changes Corporate Name to Axos Financial, Inc. September 12, 2018