Tag: student loans

It’s July 1, 2010 – if you have student loans then your first payment may be due today!

Here is a reminder of what the current student loan interest rates are:

Undergraduate students

If the first payment of your subsidized loan is between July 1, 2010 and June 30, 2011: the interest rate on your loan is fixed at 4.5%

If the first payment of your subsidized loan is between July 1, 2011 and June 30, 2010: the interest rate on your loan will be fixed at 3.4%

Graduate and professional degree students

The interest rate is fixed at 6.8%

Direct Unsubsidized Loans

The interest rate is fixed at 6.8% for all borrowers – undergraduate and graduate

Don’t forget to pay your loans! Check out What Happens If You Default on Student Loans for the possible consequences.

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College graduation season is upon us, which means that soon students will need to start repaying their school and education loans.student loan repayment

Here are some tips to help keep you on track as you start to pay back your loans:

Make sure your information is up to date. You need to inform your lender as soon as possible if any of your personal information changes like your address, name, etc.

Save all your paperwork. Keep all your student loan paperwork and information organized. Start a file or folder where you can keep everything. Read everything that you receive in the mail or online! If you don’t understand something, make sure you ask your financial advisor or call the loan lender.

Make a payment plan. Decide how you’ll pay for you loans. Most lenders allow students to make payments several ways like online, over the phone, by check, or having it automatically deducted from their checking account each month. To avoid penalties for late payments chose the same day each month to pay your loan off. Write it down in your planner or calendar.

Check your student loan account online. Most lenders will offer students online access to their student loan accounts, so you can check the balance of your loan, see when payments are due, and make sure your payments went through. Regardless of the way you have decided to pay your loan bill, you will be able to easily check your account if anything comes up.

Ask questions. Student loans can be confusing, so don’t be afraid to ask questions if you don’t understand something. Ask your parents, financial advisor, bank, or loan lender for help or clarification with your student loan.

Make sure you pay your loans on time! There are consequences if you are late on your loan payments.

To learn more, please read: What Happens If You Default On Student Loans

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If you default on your student loans, meaning that you are more than 270 days delinquent on your loan repayments, there are serious consequences!default on student loans

Here are 10 things that could happen if you default on your student loans:

  1. You Could Get Sued. Private lenders and the government could sue you to collect defaulted student loans. And unlike other debts, there is no time limit on suing to collect back student loans, so you could possibly be sued indefinitely.
  2. Your Federal Benefits Could Be Taken. The government can take some of your federal benefit payments (like Social Security retirement benefits & Social Security disability benefits) to use as reimbursement for student loans.
  3. Your Credit Rating Will Be Ruined. Your credit rating will be wrecked for at least seven years, so trying to borrow money for a car, home, or expensive items is out of the question.
  4. Tax Refund Offsets. Until your student loans are paid in full, the IRS can intercept any income tax refund that you may be entitled to. This is one way the Department of Education annually collects hundreds of millions of dollars, and is a popular method to collect payment on defaulted loans.
  5. Your Paycheck May Dwindle. The government can take a limited portion of your wages, if you don’t pay student loans back (up to 15% of your disposable income).
  6. You’ll Be Harassed by Collection Agencies. Collection agencies will call your home, work, your family members, and anyone else they can track back to you. Until you start to pay, they will continue to harass and call.
  7. Forget Renting Apartments. When you submit an application to rent an apartment, usually realtors, apartment owners, or rental agencies run a credit check on you to ensure you will make payments and pay rent on time. You may run into trouble finding a place to live if you haven’t been paying your student loans.
  8. No More Federal Financial Aid. It will be nearly impossible to receive more federal financial aid until you repay your student loan in full.
  9. Associated Collection Fees. Loan agencies may charge you collection fees on your unpaid student loans. Also, collection agencies charge the Department of Education a commission, which you end up paying. So in the end you actually have to pay back your student loan with interest, the collection fees, and the commission.
  10. Dropping Out of School Won’t Help. Even if you drop out or switch schools, you will still need to repay the student loans you took out.

For more information:

Student Loan Repayment: Stay on Track!

Federal Student Loan Consolidation

Debt Negotiation/Elimination

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An Income Based Repayment (IBR) is one repayment plan option for student loans, under the William D. Ford Federal Direct Loan (Direct Loan) Program, or the Federal Family Education Loan (FFEL) Program.income based repayment plan

Any Stafford, Grad PLUS, or Consolidation loan made under the Direct Loan or FFEL program is eligible for repayment under the Income Based Repayment Plan – except loans that are currently in default, parent PLUS Loans, or consolidation loans that paid for a parent PLUS loan. Income Based Repayment Plans can pay for new or old loans from your undergraduate, graduate, or professional education or job training.

If you qualify for a IBR Plan, your required monthly payment is capped at an amount that is intended to be affordable based on your income and family size. It will be less than what you would have to pay under a 10-year Standard Repayment Plan.

President Obama’s new student loan proposal states that the cap on federal student loan payments will be lowered from 15 to 10 percent of income, and will forgive any remaining debt after 20 years of payments, rather than the current 25 years.

Benefits of the Income Based Repayment Plan:

  • The IBR Plans makes your monthly student loans payments more affordable.
  • If your IBR payment amount doesn’t cover the interest that accumulates on your loans each month, the government will pay for any unpaid accrued interest on your loan for up to 3 consecutive years (from the date you begin repaying your loans under the IBR Plan).
  • If you repay your loan under an IBR Plan, and meet certain other requirements, any remaining loan balance you owe will be canceled after 20 years.
  • Loan payments made under a IBR Plan count towards the 120 payments required for the Direct Loan Public Service Loan Forgiveness (PSLF) Program.

For more information, and to see if you qualify for a Income Based Repayment Plan, please visit the StudentAid.ED.gov website.

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Thinking about going back to school, but don’t know where to start? Amanda Ly, a freshman at East Los Angeles College, wrote a gripping and informative LA Youth article about her initial experience with choosing and paying for college:

Hit with the real cost of college

Although her college plans didn’t turn exactly as she had hoped, Amanda’s financial situation will feel familiar to many students and her description of her experience in navigating student loans, and her hard-won advice, will benefit all readers—whether you’re a new high school graduate or a nontraditional student returning to school. For an introduction on college planning, take a look at this student’s thoughts about what she learned during her college selection and application process.

Top tips: What to find out from the school(s) you’re considering and how early to start planning how you’ll pay for college.

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With the intention of providing consumers with more transparency from lenders, there are big changes to credit card rules and fees on the horizon. But many financial experts have also been emphasizing the equally important need for knowledgeable and responsible borrowing, and this includes responsible borrowing for college. Student loans are a form of credit; just as credit card issuers extend you a “loan” to pay for your purchases, student loan issuers (federal or private) extend you a loan to pay for your college tuition, fees, and expenses. To minimize the risk of relentless student loan debt after graduation, responsible borrowing for college is crucial. The 2009 increase in student loan debt is one reason why financial literacy is a topic you’ll be hearing a lot about in 2010.

Until then, we have time for one more laugh to help us say good riddance to a pretty bad financial year. For a (somewhat painfully) funny look at the credit card industry, take a look at “Card Reform in Action,” a video by political cartoonist Mark Fiore and hosted on the website of the Center for Responsible Lending:

To get a jump start on increasing your financial literacy, read the latest on what to look out for in your credit card agreement fine print: Dodging Reform: As Some Credit Card Abuses Are Outlawed, New Ones Proliferate. New laws may be helpful, but ultimately, responsible borrowing, whether for college, a house, or a wide-screen HDTV, will be up to us, the borrowers.

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Worried about adding all that holiday shopping to your debt? Well, you may get some financial power back in 2010, when new credit card and student loan rules start leveling the playing field between customers and lenders.

A week ago, Congress approved a proposal to create a new Consumer Financial Protection Agency. The new CFPA is designed to monitor financial transactions not covered by the Truth in Lending Act — including private student loans, which are currently unregulated. If the CFPA proposal eventually becomes law, the Agency will have the authority to establish and enforce rules for private student loans.

Also, a new credit card law goes fully into effect in two months (February 22, 2010). These new rules ban or restrict unfair fees, require more transparency about credit card costs, and help consumers make more informed decisions about which credit cards they acquire and how they use them.

The Credit Card Accountability, Responsibility, and Disclosure Act:

  • Requires “Plain Language in Plain Sight” explanations of both account and contract terms before consumers open an account and the activity on consumers’ accounts after the account is opened. (For example, customers must be told before they open a credit card account what fees they may be charged. Then, after the account is open, credit card statements must conspicuously display fees the consumer paid both in the current month and over the year-to-date, along with the reasons for those fees.)
  • Bans unfair interest rate increases
  • Bans retroactive interest rate increases for arbitrary reasons and restricts retroactive rate increases due to late payment
  • Offers first year protection: Contract terms must be clearly spelled out, and they can’t be changed at all during the whole first year
  • Bans late fee traps such as a too-short payment deadline, weekend deadlines, deadlines that change each month, and deadlines that fall in the middle of the day
  • Requires over-payments be applied to the balance with the highest interest rate first, and bans interest charges on debt paid on time ( “double-cycle” billing)
  • Requires transparency about over-the-limit fees by requiring the customer’s permission before processing any transaction that would push the account over the credit limit
  • Restricts unfair sub-prime and low-limit card fees
  • Limits fees on Gift Cards and Stored Value Cards and requires more transparency in the disclosure about fees
  • Requires consumers under the age of 21 to provide the signature of a parent, guardian, or other individual 21 years or older who will take responsibility for the debt, or proof that the applicant has an independent means of repaying the debt
  • Requires a periodic review of all interest rate increases since January 2009 and requires rate reductions when a review indicates that a reduction is warranted
  • Requires the inclusion of real information about the financial consequences of decisions, including periodic statements that clearly display how long it will take to pay off the existing balance (and the total interest cost) if the consumer pays only the minimum amount due VS. the payment amount and the total interest cost if the existing balance was paid off in 36 months.

The Credit CARD Act also mandates stricter safeguards for college students and young adults, who are particularly vulnerable to sales gimmicks and traps in the fine print.

  • Credit card issuers and universities will be required to be very clear about any agreements they have regarding the marketing or distribution of credit cards to college students and young adults.
  • Credit card issuers and regulators will be held accountable for failure to abide by the new rules, including increased penalties for repeat violators.

Financial literacy is going to be a hot topic in 2010. Visit EducationGrant.com often for updates on new student loan regulations, credit card rules, and changes to the federal financial aid process.

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These days, going to college requires finding the balance between what it will cost you and what you’ll get out of it. As college students take on more financial burden than they can manage, both public and private financial aid experts stress minimizing student loan debt as critical to staying out of a downward financial spiral after graduation.

“Surviving Student Loans and College Debt,” a video from U.S. News & World Report, offers 3 tips for minimizing your student loan debt and provides examples of TV commercials advertising expensive private loans:

The Federal Trade Commission also has tips on avoiding risky loan offers and minimizing student loan debt. Click on the title to download the 4-page “FTC Guide To Avoiding Deceptive Student Loan Offers” PDF.

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Stafford Loans are student loans the federal government makes available to undergraduate and graduate college students. There are two kinds of Stafford loans: subsidized and unsubsidized. Subsidized Stafford loans are restricted to applicants with low incomes, but unsubsidized Stafford loans are available to any eligible applicant who wants one, regardless of income level. The interest rate on unsubsidized Stafford loans is fixed at 6.8% for all applicants.

Unsubsidized Stafford loans are a good deal for undergraduate students whose incomes are too high to qualify for subsidized Stafford loans. The maximum loan amounts may not seem like much, but may in fact cover all or almost all your college costs if you attend an in-state public university or community college.

Annual Stafford loan limits for dependent students are:

  • $5,500 for your first year of school (no more than $3,500 subsidized)
  • $6,500 for your second year (no more than $4,500 subsidized)
  • $7,500 for your third year (no more than $5,500 subsidized)
  • $7,500 for your fourth year (no more than $5,500 subsidized)

Annual Stafford loan limits for independent students are:

  • $9,500 for your first year of school (no more than $3,500 subsidized)
  • $10,500 for your second year (no more than $4,500 subsidized)
  • $12,500 for your third year (no more than $5,500 subsidized)
  • $12,500 for your fourth year (no more than $5,500 subsidized)

2 Federal Loan Methods: Direct Loan Program vs. Bank-based FFELP

Unsubsidized Stafford loans are currently offered through two federal loan programs, the Direct Loan Program and the bank-based Federal Family Education Loan Program (FFELP). The loan funds for the Direct Loan program are supplied by the U.S. Treasury. Loan funds for the FFELP are supplied by private financial institutions, who get subsidies from the government for making their money available for federal student loans at interest rates and fees set by the government. There’s a good chance the FFELP will be shut down some time next year, however, because the Obama administration believes the Direct Loan program is more cost-efficient.

The Student Loan Market

The administration’s decision to stop the subsidies to private lenders and offer federal loans solely via the Direct Loan program has caused a lot of unhappiness among the financial institutions and financial aid administrators who benefited from the FFEL program. If you read any news stories about their protests, you’ll see complaints about how the federal government is trying to “drive private lenders out of the student loan market” and how the “lack of free market competition” caused by the government’s soon-to-be “monopoly” on student loans will deprive students and families of student loan choice.

But the truth is, the federal government providing federal student loans through the Direct Loan program doesn’t have anything to do with the availability of private (or, alternative) student loans. There is nothing in the FFELP shut-down plan that says that private lenders will be barred from offering their own student loans. Nothing that says college students MUST take out federal student loans and are not allowed to take out private student loans if they wish to. Nothing that says private lenders cannot continue to offer student loans from the private sector, just like they already do.

If the new Direct Loan plan goes into effect, federal loan money will come from a federal source and private loan money will come from private sources, and the two will compete for student loan business. No one is forcing private lenders out of the student loan market— they will still be able to offer all the student loans they want. Just not through the government’s program.

Public-Sector/Private-Sector Competition Benefits the Student:
Federal Unsubsidized Stafford Loans vs. Commercial Lender Student Loans

In fact, the only impact the elimination of FFELP may have on private lenders (assuming they want to stay in the student loan market) is to motivate them to lower their interest rates and fees and increase their borrower rights and protections in order to be competitive with the federal Direct Loan program. Private lenders could even undercut the federal loan program by offering even lower interest rates and fees and even better borrower rights and protections than the federal government does. Then everyone will want a private loan instead of a federal loan.

It remains to be seen if the Obama administration has the right idea about offering only Direct Loans, but the hype about private lenders being driven out of the student loan market is misleading. In the meantime, until private lenders are willing to be more competitive, the fixed 6.8% interest rate, no credit check, and no loan payments until after graduation make unsubsidized Stafford loans the best student loan deal around.

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Consolidating Private Student Loans

If you took out a lot different student loans over your years in college, you may be feeling overwhelmed by trying to keep track of them all. One possible solution is loan consolidation, but like any other loan option, it requires a little looking before you leap. For example, you should understand how consolidating private student loans is different from consolidating federal loans, since the two types of loans cannot be consolidated together.

Carolyn Bigda of the Chicago Tribune Online provided a good overview, and some tips, on consolidating private student loans in her Your Money column last month:

Student loan consolidation makes sense, but federal, private debt has different rules

By the way, although consolidating private loans into a federal consolidation loan is not allowable, it sounds as though some students have consolidated, or tried to consolidate, their federal student loans into a private consolidation loan. The Student Loan Borrower Assistance Project at the National Consumer Law Center strongly advises students against doing this:

“WARNING: It is very dangerous to consolidate federal loans into a private consolidation loan. You will lose your rights under the federal loan programs once you choose to consolidate with a private lender. These include deferment, forbearance, cancellation, and affordable repayment rights. Also, federal consolidation loans generally have lower interest rates.”

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