MONEY Startups

3 Reasons to Take Your Startup in a New Direction

150213_CAR_PivotStartup
Robert A. Di Ieso

Many successful companies changed up their business plans early on. Here's when you should too.

Podcast platform Odeo turned into Twitter. Check-in app Burbn switched its focus to photo sharing and became Instagram. Does your startup need a change in direction to succeed? Here are three signs it’s time to revamp:

1. Customers Are Telling You

Is your target buyer consistently asking for something you don’t offer? “Customers exist because you make them better off,” says Gary Gebhardt, an associate professor of marketing at Canadian business school HEC Montréal. Listen to them.

2. Your Idea Isn’t Sticking

Do you have a hard time holding on to business? Go beyond focus groups and surveys. People often misrepresent their behavior. Instead, says Gebhardt, observe your customers going about their day. “When you see how people do things, you see how you can create a solution,” he says.

3. The Competition is Winning

Look at why people are favoring your rival’s product. But don’t panic pivot, says Steve Blank, co-author of The Startup Owner’s Manual. “A pivot requires substantial evidence that your original hypotheses for your business were incorrect.”

MONEY Face to Face

How to Tell a Friend You Can’t Afford to Be a Bridesmaid

How do I tell my friend I can't afford to be a bridesmaid?
Erik Rotter—Getty Images

Use this dialogue to let your friend down easy, save yourself serious cash—and avoid having to wear another hideous dress.

You couldn’t be happier your best friend’s going to tie the knot—but your stomach gets tied in a knot every time you think about how much it will cost to be in her bridal party.

In an ideal world, you’d have enough cash set aside to afford it, but being a bridesmaid is a pricey affair. Between dress, travel, gifts, hair and makeup, shower, and bachelorette party, you can expect to spend an average $1,695, according to a 2011 estimate by WeddingChannel.com (now part of The Knot).

You don’t want to risk spending the big day fretting over finances, or worse, going into debt to make it to the wedding. If your budget’s too tight to be a bridesmaid, you’ll need to break it to the bride—in person, says Susan Bross, a financial counselor and coach who has been in this situation herself.

Cringing as you read this? Here’s what to say to let your pal down gently:

YOU SAY: “I love you so much, and I can’t tell you how much it means to me that you asked me to be one of your bridesmaids.”

Carefully consider where and how you break this news to your friend, says Bross. You want to do it at a place and time where you can come off as calm and self-assured.

Then open by expressing gratitude and reinforcing how much your friend means to you, says Laurie Puhn, author of Instant Persuasion: How to Change Your Words to Change Your Life. In essence, you want to say, “I’m honored to be asked.” This way, you’re making sure she walks away knowing that your saying no has nothing to do with her—if you could afford to be in the wedding, you would.

YOU SAY: “I know you’re working hard to plan this wedding, and I wish I could be there with you. But this year has been tough for me financially, and I don’t think I can swing this. I hope you’ll understand.”

Be as honest as you feel comfortable being about what’s holding you back from coming, whether you’re climbing out of debt or trying to meet a savings goal.

“But make sure that what you’re saying makes sense,” says Puhn. “Recognize that she probably will be hurt if she sees you spending money on other things.” In other words, don’t splurge on a vacation three weeks later!

Also, stay away from any language that makes it seem like your friend’s choices are what’s keeping you from attending (e.g. “If only you weren’t getting married in Aruba…).

Anyway, if your friend’s wedding is in a particularly far-flung locale, she’s probably already braced for no-shows. “A person having a destination wedding knows they don’t have the right to be offended if someone can’t come,” says Puhn.

YOU SAY: “I wanted to tell you as soon as I could.”

“It’s easy to procrastinate this kind of conversation because it’s uncomfortable,” says Eric Dammann, a clinical psychologist and financial coach in New York City.

But by having it early in the process, you’re showing that you understand the pressures your friend is under—planning a wedding is hard work!—and respect that she may need time to find an alternate person to fill your dancing shoes.

Plus, the sooner you say something, the sooner you’ll feel better.

YOU SAY: “I’d really like to celebrate this big milestone in another way; maybe I could…”

End on a happy note by suggesting an alternative time to celebrate your pal’s nuptials before or after the big day, says Dammann. “Create some other way to be a part of it.”

Consider what you can afford: You might throw a shower in the bride’s honor at your place, help plan the bachelorette events, or take her out to her favorite restaurant one-on-one.

Even combined with a thoughtful gift, you’ll save hundreds of dollars over the cost of being a bridesmaid.

MONEY Face to Face

How to Deal with a Roommate Who’s Late Paying the Rent

Past Due envelope slipped under door
Jim Corwin—Alamy

Unfortunately, sharing an apartment can also mean sharing money woes. Use these conversation starters to make sure your own finances don't end up in the gutter—and you don't end up on the street—because of someone else's problems.

If your roommate can’t manage his or her share of the rent, you’ve got more than an uncomfortable situation on your hands.

When both your names are on the lease, you’re both liable for the full amount owed to the landlord, and you can both be evicted if payments aren’t made in total. Your credit score may suffer in the process, too—making it difficult for you to get another apartment. Serious stuff.

Still, the first time your roomie misses a payment, you might give him a pass, says San Francisco-area financial counselor Susan Bross. “But if this happens more than once, it’s about bad decisions they’re making with their money.”

And since the situation could worsen, you’ve got to address it head on, she says. Here’s how:

OPEN GENTLY: “Can we talk about what’s going on with our rent payments?”

Your first goal is figure out why your roommate was late, so that you can determine whether missed payments will continue to be a problem in the future.

If your housemate has just started freelancing and hasn’t yet figured out how to balance expenses against an irregular income, the problem may resolve itself once she gets more settled. But if she’s got a shopping habit that eats up all her paycheck before she can get to her bills, you may have a regular headache ahead.

As you try to ascertain the situation, try your best not to come off as accusatory, says Dr. Eric Dammann, a New York City clinical psychologist and financial coach.

The last thing you want to do is put your housemate on the defensive before you’ve had a chance to discuss resolutions. And if the conversation escalates to a fight, it’ll be tougher for you to live harmoniously under the same roof going forward.

“So bring it up in the gentlest way you can,” he says.

PUT IT IN PERSPECTIVE: “I was late paying some of my other bills last month because of the missed payment.”

If your roommate’s not opening up, or if he acts like missing the deadline is no big deal, let him know how his lateness is affecting you or the rest of your roommates.

“Suggest ways in which it is a big deal,” says Dammann. “You might get through that way.”

Also, explain to him the possible consequences if his portion of the rent is not met every month (e.g. you’ll get kicked out and both end up with poor credit).

FIGURE OUT A GAME PLAN: “Let’s come up with a system so we make sure we don’t have to have these conversations again”

or

“If you’re not able to keep up with rent payments, I need to know so that I can go to our landlord and try to renegotiate the terms of our lease.”

If the late payments are truly only a matter of forgetfulness, try to encourage your roommate to set up a new system to avoid missing payments, so that you’re not left scrambling for money again.

The fix could be as simple as a Google alert, a gentle reminder on a whiteboard in the kitchen, or together using a site like Splitwise, that helps roomies coordinate shared expenses.

But if you find out the issue is more serious or more chronic, start by asking your roommate if he sees any possible resolution, such as asking a parent for money. No end in sight to the problems? Without being too aggressive, let your flatmate know that you’ll have to get the landlord involved in order to protect your own finances.

Then do so, stat. “Most leases can be modified,” says Brandy Peeples, a Frederick, Md. litigation attorney specializing in real estate. “If your landlord knows you’re having problems, he or she may work with you—it’s practical to go back and ask.”

You could see if your landlord will allow you to bring in an extra roommate to reduce everyone’s individual contributions. Or you could try negotiating an early termination fee that allows your roommate to pay a fine and leave the apartment.

“It’s good to keep the landlord into the loop,”says Peeples. “If you wait until after the fact, a lot of times the landlord is not going to be so forgiving.”

RELATED: 3 Tools that Help You Nudge Friends to Pay You Back

MONEY Face to Face

Here’s What to Say When a Nosy Friend Asks How Much Your House Cost

what to say when someone asks how much your house cost
mattjeacock—Getty Images

Keep these three responses in your back pocket to get you off the hook.

More than 3 million homes have been sold in the U.S. so far in 2014, according to the National Association of Realtors. And if you’re among those who recently purchased, you’re likely still celebrating and decorating your new digs.

Before you’ll have even hung pictures on the walls, however, you’ll surely have to deal with this awkward question from some prying family member, friend or neighbor: “How much did you pay for this place?”

People pose the question for different reasons. For example, it may be that your friends from the city are thinking of moving to the suburbs, and want to get a sense of what they could get for their money, says clinical psychologist and financial coach Eric Dammann.

Or it may simply be good old-fashioned competition.

“A lot of times nosy questions have to do with low self-esteem and how we measure up,” says Dammann. “From childhood on, we’re always comparing ourselves to other people. In adulthood, one of the ways to compare ourselves is money.” In such cases, sharing numbers may heighten tension and envy between friends.

Assuming the person who’s asking is someone you know—as opposed to a nosy neighbor over the hedgerow—you probably have a sense of what’s motivating the question, and whether you feel comfortable answering. If you don’t feel comfortable, you shouldn’t feel pressured to divulge. Here are three ways you can avoid revealing what you paid, without leaving the person feeling dissed:

USE YOUR SPOUSE FOR BACKUP: “Jim and I decided that we wouldn’t talk about the price.”

One option is to use a non-disclosure pact with your partner as an excuse, says Laurie Puhn, a professional couples mediator and author of Instant Persuasion: How to Change Your Words to Change Your Life. This takes a bit of the pressure off you, laying some of the blame instead on your partner (who is hopefully not present in the moment). Also, your unified front will seem more impenetrable to a pushy pal.

“You don’t want to come off as dishonest,” says Puhn. “So discuss in advance with your husband or wife what you’re going to tell other people, and in the moment, use your partner as an ally.”

KEEP IT LIGHT: “How much did we pay? More than I would have liked!”

A joke can do double duty, diffusing tension and tacitly conveying that you’d prefer not to respond. While this response is more subtle, “most people will pick up on the cue,” says Dammann.

Still, since it’s not direct, you might want to change the subject quickly.

An easy way is to use your joke as a jumping off point for a conversation about the real estate market. For example, “I just read that the price of existing homes year-over-year has been on the rise for 30 consecutive months. Can you believe that? And there’s so much competition in our little town—our realtor was telling us about a house that got four offers after the first open house!”

TELL THE TRUTH: “I’m sorry, I’m not really comfortable talking about the cost.”

If your friend really presses you, you don’t need to be dodgy. Just be honest. This comes off as authentic, since you’re talking about your feelings. And you’re putting the questioner in a bind—by pushing for a response, he or she knows that he will be making you even more uncomfortable since you’ve already said so.

Keep in mind that if your friend really wants to know what you paid, there are other ways of finding out, since real estate transaction information becomes public record. But that doesn’t mean you need to discuss the cost. “Just because you’re asked a question doesn’t mean you have to answer it,” says Puhn.

MONEY Small Business

The Best Way to Keep Your New Business from Failing

Conjoined paperclips
Helen Sessions—Alamy Find the right partner if you want your startup to succeed.

Making sure you're compatible with your business partner is a key to success. So ask yourself these questions before you pair up.

Nearly two-thirds of high-potential startups fail because of conflicts between co-founders, says Harvard Business School professor Noam Wasserman. Make sure you know these things about a prospective partner:

How does he respond to adversity?

With a startup, “the highs are high, but the lows are very low,” says Eric Del Balso, founder of Ignite Advisors. Ask the person’s friends, family, and former co-workers how he handles letdowns and curve balls.

What are her goals for the business?

Discuss key decisions you’ll make together—like, Will you raise outside money? Pay top dollar for talent or hire temps? “If you can’t resolve those, there is a high likelihood the team won’t be aligned,” says Wasserman.

How does he handle money?

An overspender may burn through funds before you find revenue. But a timid spender can hold you back. Pull a credit report on your compatriot. Then discuss “what you each think is worthwhile to spend on and what’s lower priority,” says Wasserman.

More on starting your own business:

MONEY Careers

Why Your Boss is Working Harder to Keep You Happy

Revolving Door
ONOKY - Photononstop—Alamy Your boss doesn't want you to head out the door. Exploit that.

With hiring and job turnover up, a new survey finds that companies are having trouble attracting and hanging on to talented workers. Use that to your advantage.

Boss brought in cupcakes for no particular reason? Sweet. Even sweeter? You might be seeing more morale boosters at work these days, whether in the form of baked goods or bonuses. A new survey finds that employers are having a tough time attracting and retaining top talent—and with a little smart negotiating, that could mean good things for your career.

According to the new Towers Watson Global Talent Management and Rewards Survey, hiring and turnover are on the rise in offices around the world, including in the U.S. And mobility has its downsides.

Of 1,637 companies surveyed worldwide, nearly two-thirds report difficulty attracting top performers (65%) and high-potential employees (64%), an increase from two years ago. More than half of employers surveyed say it is hard to hold on to high-potential employees (56%) and top performers (54%).

Pay to Stay

Of course, one approach to getting workers to stick around is to offer them more money. And employers know that. “The survey data would indicate that they understand compensation is an important retention driver,” says Laura Sejen, managing director at Towers Watson.

Just last week, a survey by a major business group found that employers are starting to expand payrolls and raise wages. After years of decline, sign-on bonus programs are at an all-time high, and retention bonuses are surging, according to an analysis of bonus programs and practices by WorldatWork released in June. Of the businesses WorldatWork surveyed, 74% used sign-on bonus programs this year and 51% used retention bonus programs this year.

What Money Can’t Buy

So how come bosses still can’t figure out how to hold on to their best workers? Another new Towers Watson survey suggests they’re a little out of touch when it comes to judging the importance of other factors, such as perceived job security and confidence in senior management. In a separate survey, the Towers Watson Global Workforce Study of 32,000 employees worldwide, the group found that employees rank job security and confidence in senior leadership among the most important reasons they stay with a company. But employers didn’t rank either factor as a key attraction or retention driver.

“Those are really important to employees,” says Sejen. “Employers don’t necessarily rank those as highly as they should.”

To get a better sense of what it takes to keep employees enthusiastic, some bosses are trying to listen more closely, says Rose Stanley, a Total Rewards practice leader for WorldatWork. “A lot of organizations will do satisfaction or engagement surveys,” says Stanley.

They’ll even conduct “stay interviews” (as opposed to exit interviews) to pick employees’ brains about how their rewards packages, schedule flexibility, and work environment could be improved to inspire them to stay.

“It’s a way to connect with employees and figure out what’s going on,” says Stanley.

How You Can Leverage the News

Even if your employer hasn’t reached out to you yet, come up with your own requests. If you’ve been craving a more flexible schedule or higher pay, now could be the right time to ask, says career consultant Maggie Mistal.

Mistal has noticed that many employees have lingering anxiety from the financial crisis and fail to realize their own worth to their employers. “Some folks I work with are in a mindset of ‘I’m just lucky to have a job,’ when in reality they’re the people bosses want to hold on to,” she says.

To improve your own situation, Mistal advises, first figure out what would improve your job and make you likelier to stick with your company. Once you have a good idea of your goals, let your boss know you’d like to talk.

“The magic term is: ‘I’d like to get your feedback on some ideas,’” says Mistal. “Managers are willing—and a lot of them are even excited—to have that conversation.”

Open your discussion with gratitude, emphasizing how much you enjoy working at your company or with your boss, advises career coach Roy L. Cohen. Then make your request clearly, with a positive angle. If you’d like to telecommute two days a week, for instance, highlight that a more flexible schedule could make you more productive.

“Focus on how you’re helping the company achieve even greater success,” says Cohen.

Instead of making an ultimatum, stay open to feedback from your boss, Mistal advises. If your boss isn’t sold on the idea of telecommuting, offer to check in periodically throughout the day, or to give your flexible schedule a two-week test run.

But don’t demand too much all at once. Even in an environment where your boss is working harder to hold on to great employees like you, you don’t want to come off as smug.

“Never be greedy,” says Cohen. “Greediness is always remembered. Even if you feel you’re worth it, make sure you can back up your request.”

MONEY Careers

Make Sure a Friend’s Unemployment Doesn’t Ruin Your Friendship

140725_FF_FriendshipEmploy_1
Melissa Ross—Getty Images/Flickr Open

Millennials and new college grads still face a tough job market, and that can create strains in your social circle. Follow this script to keep everyone happy.

You and your best friend graduated from the same college and moved to the same city at the same time. But while you landed a promising entry-level position, your friend’s been out of work for months. Even though you know that shouldn’t affect your relationship, you’re starting to feel that the two of you are drifting apart. Or maybe you’re simply sick of hearing yourself repeat the same chirpy platitudes (“I’m sure something will come up!”).

As millennials and new grads enter the job market together, one friend’s unemployment can easily become a point of tension. Landing a position is an uphill battle for some young job seekers. The unemployment rate for 20- to 24-year-olds stood at 10.5% in June. Although that number has been on the decline, it’s still higher than the overall unemployment rate of 6.1%

“This mirrors a lot of other life-stage issues, whether it’s getting married or getting pregnant. One person is moving forward, and the other one is stuck,” says Ken Clark, a certified financial planner and psychotherapist.

The good news? You can take steps to ensure that your relationship doesn’t crumble as your friend scrambles for a job. No matter how long this stretch of unemployment lasts, here’s what you can say (or not say) to preserve your friendship.

YOU SAY: “A couple of people are coming to my place for happy hour this week—want to join?”

While your friend looks for work he or she may pull away from you or your group of friends. It’s normal—many people are embarrassed and reluctant to spend money on socializing when they’re unemployed. But if you notice your friend hasn’t been around much, try to draw him or her back into your social circle.

“A sensitive friend should take a leadership role among their circle of friends,” says Clark.

If your group of friends tends to spend a lot of money at bars or eating out, subtly push for a change. Invite a close group over for drinks at your place, or suggest a half-price movie or a free concert you can all attend. If spending time together doesn’t mean spending money, your unemployed friend may find it easier to join in.

“People have a tendency to self-isolate when they’re trying to be careful with their money,” says Amanda Clayman, a financial therapist and author of financial behavior blog The Good, the Bad and the Money. “Go above and beyond in terms of making offers to your friend.”

YOU DON’T SAY: “How’s the job hunt going this week?”

Avoid the impulse to dig for details on the job search. Trust that you’ll hear when a major development comes up.

“Stuff doesn’t change that much in a week,” says Clark. “If you’re asking more than once a month, it’s too much.”

That said, don’t stop checking in. Retreating from your friend could cause him or her to become even more isolated.

“Your presence and availability is huge for someone who’s hurting,” says Maggie Baker, a psychologist specializing in money and relationships. “The worst thing you can do is pull away.”

YOU SAY: “I could really use a running partner tomorrow.”

Be aware that unemployment can quickly give way to depression. Exercise is an easy, natural way to shake the blues. Invite your friend out for a brisk walk or run with you. It’ll give you two time to talk one-on-one and help your friend re-energize.

“Physical exercise outside is both beneficial and free,” says Clark. “You’re helping elevate her mood, decreasing anxiety, and building your relationship.”

YOU DON’T SAY: “I can give you feedback on your résumé if you’d like.”

You might want to offer to help edit your friend’s résumé or forward job listings that seem relevant. Tread lightly. Your offers could backfire if they come off as condescending.

“Just having a job doesn’t make you an expert on résumés,” says Clayman. “Don’t presume that you have the solution.”

Instead, make a gentle, broad offer to help in any way you can. Beyond that, let your friend’s reaction guide you.

“Usually if people are scrambling to find whatever work they can, they put off a very strong signal. If you aren’t seeing them ask for help, better safe than sorry.”

Read more Face to Face columns:

 

 

MONEY Food & Drink

Cook Healthy, Tasty Meals on $4 a Day–Help the Poor Too

"Banana Pancakes" from Good and Cheap by Leanne Brown.
Leanne Brown Short on cash? You can make this short stack for $0.70 per serving.

Yes, it is possible. A crowdfunded cookbook could change the way you shop, cook, and eat--and what you think about food stamps

More than 4,000 people have contributed to a Kickstarter campaign created, of all reasons, to print a cookbook. The project’s original goal, $10,000, has been left in the dust, with more than $110,000 raised as of Wednesday, and the campaign doesn’t end until Sunday, July 13. (That total beats the viral potato salad recipe, at least so far.)

Most curious of all, the cookbook in question is one that can be downloaded for free. What gives?

The cookbook, Good and Cheap: Eat Well on $4/Day, serves up recipes that can be made, as the title indicates, on a bare-bones budget of just $4 daily. Author Leanne Brown designed the book while a graduate student at NYU as a resource for families on the Supplemental Nutrition Assistance Program (SNAP), also known as food stamps. (The average food stamp benefit per person per day is $4.) Brown posted Good and Cheap online as a free PDF in April, and there were 100,000 downloads in the first two weeks. The total has since topped 200,000 free downloads.

It’s been a huge hit. “I was getting all these notes from people saying how useful it was to them,” says Brown.

But something bothered her: not every family on food stamps has access to a computer and internet service.

So Brown turned her attention to a Kickstarter campaign based on a “buy one, give one” model, reminiscent of TOMS and Warby Parker. For $25, donors receive a hard copy of Good and Cheap, and an additional copy is donated to a low-income person who needs it. Heftier donations yield extra perks.

Donors readily opened their wallets, long ago surpassing the original goal of $10,000. “It seems to have really hit a chord,” says Brown. “I think people are getting away from the purely consumerist model of the world. Buying a cookbook and making it possible for everyone to eat well is more exciting.”

The free print books that thousands of Kickstarter backers are donating will be distributed by organizations that work with low-income families on food stamps. They have yet to be selected, but more than 240 organizations from all over the country have applied to become distributors, including food pantries, farmers’ markets and nutritional education organizations.

Beyond families on food stamps, Good and Cheap has found fans of many different stripes. Brown’s inbox has flooded with thank-yous from students, single parents, families saving to buy a home, and general foodies and chowhounds who appreciate that she’s busting up the myth that eating healthfully entails spending a ton of money.

Many of the meals in Good and Cheap cost less than 75¢ cents per serving to make: the 132-page book features recipes for 65¢ vegetable jambalaya, 60¢ lentil soup, and 70¢ banana pancakes. You don’t need Bobby Flay’s kitchen prowess or an arsenal of fancy cooking utensils to prepare the recipes, either. Most require short lists of ingredients and minimal advance preparation, making the recipes feasible even for absolute rookies in the kitchen.

Brown became interested in the American food stamp program as she worked toward her master’s degree in Food Studies at New York University. She comes from Canada, where food stamps are not used as a form of social assistance.

“Because we don’t have a similar program I came at it with a different perspective,” she says.

When it came time to write her thesis, Brown wanted to create something that would live on outside of academia. A free cookbook, she thought, could serve as a resource to America’s 47 million SNAP recipients while meeting her thesis requirements. Thus her viral cookbook was born.

We in the Money.com test kitchen were curious about the recipes–for both journalistic and purely personal reasons–and took a stab at a couple from Good and Cheap. Our favorite was the sweet potato recipe featured on the book jacket, a dirt cheap, simple meal. The price for a sweet potato, a 16 oz. tub of sour cream, and a bunch of scallions came in at $4.30, just about lining up with the book’s total estimated cost of $4.80 (though we bought one sweet potato, not four as the recipe outlined). We had four leftover servings of sour cream and scallions, leaving the total price per serving at just over a buck, in line with the book’s estimated price tag of $1.20 per serving. The recipe doubles as a great way to use up leftovers: just pile on yesterday’s chicken, beans, tomatoes or whatever else is in the fridge, Brown suggests.

We’re not the only ones sharing our Good and Cheap cooking experiences online. Thrifty cooks around the web are posting photos of pierogi parties and blogging about learning to cook using the book.

“It feels like this has become this ‘Good and Cheap’ movement,” Brown says. “Making things from scratch sounds intimidating, but really it’s just mixing ingredients up. Cooking from scratch doesn’t have to be difficult.”

It obviously doesn’t have to be expensive either.

MONEY College

Student Loan Rates Rise Next Week. Don’t Freak Out—Yet

College students walking on campus
Tetra Images—Alamy "OMG, Kimmy, I am so relieved that the student loan rate increase will not impact my beer budget."

While new loans will cost more, the difference in monthly payment won't be significant.

Interest rates on federal student loans are set to rise—again—this July 1, following a nearly half a percentage point bump on Staffords last year.

But before you cue the outrage, consider this: The hike isn’t likely to increase students’ or parents’ borrowing costs in any drastic way, at least not in the short term. Here’s everything you need to know about the upcoming rate jump.

What’s happening

Interest rates on undergraduate Stafford loans taken out after July 1 will climb to 4.66% from last year’s 3.86%. That goes for both subsidized and unsubsidized loans.

Loans for graduate students and parents of college students had higher interest rates to begin with, and will rise too. Unsubsidized Stafford loans for graduate students will now cost 6.21%, up from last year’s 5.41%. And rates on direct PLUS loans, offered both to parents of college students and to graduate students, will rise to 7.21% from 6.41%.

Keep in mind, none of these rate increases apply to loans disbursed in previous years.

Why it’s happening

The story starts last summer, when Congress came up against a major dilemma over student loan rates.

Under existing legislation, rates on undergraduate Stafford loans were set to double in 2013, from 3.4% to 6.8%. To prevent that from happening, Congress—after some partisan squabbling—passed legislation pegging federal student loan rates to yields on 10-year Treasury notes, with direct loan rates resetting every year on July 1.

That’s the system we’re on now; so if you’re unhappy about the increase in interest rates, you have bond yields to blame.

Why you shouldn’t panic—yet

The size of your loan ultimately will determine how much the new rate hike affects you. But experts say that it’s unlikely to have a meaningful impact on most borrowers.

Consider two different undergraduate Stafford loans of $5,500, the max a dependent freshman can take out. One was taken out last year at the 3.86% interest rate and another taken out this year at the higher 4.66%. In a 10-year repayment period, you’ll only pay about $3 more per month on the loan taken out this year.

So, does it make a difference? Sure, but probably not enough of a difference to stop a student from borrowing to attend school.

“[Government] tinkering with interest rates does not affect who enrolls in college or who graduates college,” says Mark Kantrowitz, senior vice president of Edvisors, an organization that helps students and families plan how to pay for college.

So no, you don’t need to freak out about the interest rate increase this year. But before you get too comfortable, bear in mind that it’s very likely rates will rise in the future, and perhaps even over the four or so years that you or your child is in school. “Given that we’re in a period of very low interest rates right now, there’s nowhere for rates to go but up,” says Kantrowitz. The Congressional Budget Office predicts that rates on Stafford loans will be at 7.7% by 2018.

Fortunately, rates can’t rise infinitely: Congress agreed last year to cap undergraduate Stafford loans at 8.25%, graduate Stafford loans at 9.5%, and PLUS loans at 10.5%.

MONEY Pick from a Pro

A Middle Class Retailer that’s Actually Thriving

TJ Maxx is now bigger and more valuable than even Target.
Tim Boyle—Bloomberg/Getty Images

While discounters such as Target are feeling squeezed, TJX Companies, which runs T.J. Maxx, Marshalls and HomeGoods, is finding success with its own version of cheap chic.

The Pro: John Crowley, co-manager of the Eaton Vance Focused Value Opportunities fund (Ticker: EAFVX).

The Fund: Eaton Vance Focused Value Opportunities EATON VANCE FOCUSED VAL OPPORT A EAFVX -0.28% is a concentrated portfolio that only invests in around 30 value-oriented blue chip stocks. The fund has beaten around two-thirds of its peers over the past one and three years, according to Morningstar.

The Pick: TJX Companies

The Case: TJX, the retailer behind bargain behemoths such as T.J. Maxx, Marshalls and HomeGoods, is a different type of discounter. The company not only gets brand-name apparel and home decor directly from manufacturers (in some cases buying cancelled orders and overruns), it also buys from wholesalers and other retailers looking to move excess inventory at discounted prices. The combination of high-end brands—think Diane Von Furstenberg tops and Helmut Lang sweaters—coupled with bargain-basement prices makes the company appealing in both favorable and unfavorable economic conditions.

That’s certainly been the case in recent years, as revenue growth at TJX has far exceeded that of other big retailers in recent years, including Target TARGET CORP. TGT 0.44% , Walmart WAL-MART STORES INC. WMT 0.84% , and Macy’s MACYS INC M 0.45% .

TJX Revenue (Annual YoY Growth) Chart

TJX Revenue (Annual YoY Growth) data by YCharts

Strategy:

Crowley says the company owes its success in large part to its smart, sturdy business model, selling heavily discounted brand name apparel and home decor. The off-price retail model is hardly new. Its roots date back to the old Filene’s Basement, and you can see traces of it in online retailers such as Overstock.com OVERSTOCK COM OSTK 1.4% . What is rare is TJX’s ability to pull it off on such a grand scale. The company has more than 3,200 stores globally, versus fewer than 2,000 for Target.

Plus it’s no easy feat to generate returns on par with TJX, says Crowley. For instance, Crowley points out that TJX’s return on equity—which is a popular gauge of measuring a business’s profitability and efficiency—is over 50%. That compares favorably to the 16% average ROE for companies in the S&P 500.

It also compares favorably to other retailers:

TJX Return on Equity (Annual) Chart

TJX Return on Equity (Annual) data by YCharts

Speed:

One possible downside to the way TJX sources its merchandise is that clothes sometimes come in limited quantities, colors or sizes. Yet the company has managed to turn this into an advantage. Limited inventory means merchandise moves through TJX stores rather quickly. In many cases racks of clothes are even put on wheels.

The chart below shows just how much faster inventory churns at TJX than at Macy’s, Kohl’s, and J.C. Penny’s.

TJX Inventory Turnover (Annual) Chart

TJX Inventory Turnover (Annual) data by YCharts

“The merchandise turns over so quickly that it keeps the traffic and sales moving,” says Crowley. It also creates a “kind of a treasure hunt mentality,” he adds. Indeed, bargain-hunters know they’re likely to find something new with every visit — and if they don’t move fast to purchase, they could miss a deal.

Online, T.J. Maxx replicates the same feeling of urgency and treasure hunting for customers. Items almost out of stock are labeled with a bold red “almost gone” sticker. And for high-end designer items, shoppers can click a “reveal designer” button that adds a touch of drama to the moment where you uncover that that $499 leather purse is Gucci, or those $629 platforms are Jimmy Choo.

Scale:

TJX has enormous reach, buying from 16,000-plus manufacturers in more than 75 countries. Its closest true competitor, Ross Stores ROSS STORES INC. ROST 0.34% , is five times smaller.

Scale is important, especially for future earnings growth. TJX has more than 3,200 stores in the U.S., Canada and Europe. Of those, only about 370 are in Europe, where Crowley sees particularly strong growth potential. “They will continue to grow as their value proposition resonates loudly and more clearly over there,” says Crowley.

And as TJX gains traction overseas, its business model could work in more varied international markets like Latin America and Asia, says Crowley.

True, TJX stock reflects that potential, as the stock’s price/earnings ratio is around 18.5, versus 17 for Ross.

The company’s earnings, though, are growing faster than many of its rivals, as are its dividends. Crowley notes that TJX has boosted its dividends by an average of 22% annually for the past five years.

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