Posts Tagged ‘college student loans’
Posted by admin on July 8th, 2009
A good way to think about consolidating student loans is protection. If you have variable-rate federal student loans, you can convert your variable interest rate to a fixed interest rate. By consolidating and fixing your interest rate, you have protected yourself from future interest rate increases. You’re unlikely to catch the exact bottom so don’t try. Consider the long term ramifications of a variable or fixed rate loan in your financial plan and consider alternatives.
The current fixed rate consolidation loan rate is 2.5%, historically low. In addition, don’t be in a rush to pay off the loan if you have alternative investment options available. For instance, let’s assume you receive a bonus of $20,000 (after tax) and are looking for things to do with that money. After booking that cruise you’ve always wanted to do, look around at your investment and debt repayment options. If you are carrying credit card debt and your interest rate is greater than 9%, that’s probably a good place to put some of that bonus money to work. You’ve effectively earned a 9% return on your money by not having to pay future interest to the credit card company. How about a car loan? Pay it off and use the old car payment as a monthly savings plan into your 401k or IRA. Before paying off some of the 2.5% student loan, consider investing in a good growth mutual fund by opening a Roth IRA and saving $5,000 plus all future earnings are tax free. If you believe an investment in an IRA will earn you more than 2.5%, you’re ahead of the game.
Examiner.com
Posted by admin on April 21st, 2009
The Income-Based Repayment (IBR) plan was proposed as part of the College Cost Reduction and Access Act of 2007 and will become available on July 1, 2009.
Income-based repayment is intended as an alternative to income sensitive repayment (ISR) and income contingent repayment (ICR). (Both ISR and ICR plans will continue to exist.) It is designed to make repaying education loans easier for students who intend to pursue jobs with lower salaries, such as careers in public service. It does this by capping the monthly payments at a percentage of the borrower’s discretionary income, which is based on the borrower’s income, family size, and total amount borrowed. The monthly payment amount is adjusted annually, based on changes in annual income and family size.
Income-based repayment is only available for federal student loans, such as the Stafford, Grad PLUS and consolidation loans. It is not available for Parent PLUS loans or for consolidation loans that include Parent PLUS loans. (IBR is not available for Perkins loans, but it is available for consolidation loans that include Perkins loans.) It is also not available for private student loans.
Income-based repayment is similar to income-contingent repayment. Both cap the monthly payments at a percentage of your discretionary income, albeit with different percentages and different definitions of discretionary income. Income-based repayment caps monthly payments at 15% of your monthly discretionary income, where discretionary income is the difference between adjusted gross income (AGI) and 150% of the federal poverty line that corresponds to your family size and the state in which you reside. There is no minimum monthly payment.
(Overall, income-based repayment is probably a bit better for borrowers than income-contingent repayment, especially if the borrower’s financial circumstances improve. Income-contigent repayment caps monthly payments at 20% of the difference between AGI and 100% of the federal poverty line. Income-based repayment is clearly more generous than this aspect of income-contingent repayment, since it assesses a lower percentage, 15%, of a smaller definition of discretionary income, the excess of income over 150% of the poverty line. Income-contingent repayment also capped monthly payments at the 12-year extended repayment plan monthly payment multiplied by an income percentage factor of 50% or more based on income and marital status. However, few borrowers would trigger the income percentage factor caps.)
The maximum repayment period is 25 years. After 25 years, any remaining debt will be discharged (forgiven). Under current law, the amount of debt discharged is treated as taxable income, so you will have to pay income taxes 25 years from now on the amount discharged that year. But the savings can be significant for students who wish to pursue careers in public service. And because you will be paying the tax so long from now, the net present value of the tax you will have to pay is small.
A new public service loan forgiveness program will discharge the remaining debt after 10 years of full-time employment in public service. The borrower must have made 120 payments as part of the Direct Loan program in order to obtain this benefit. Only payments made on or after October 1, 2007 count toward the required 120 monthly payments. (Borrowers may consolidate into Direct Lending in order to qualify for this loan forgiveness program starting July 1, 2008.)
In addition to discharging the remaining balance at the end of 25 years (10 years for public service), the IBR program also includes a limited interest subsidy benefit. If your payments don’t cover the interest that accrues, the government pays or waives the unpaid interest (the difference between your monthly payment and the interest that accrued) on subsidized Stafford loans for the first three years of income-based repayment.
The IBR program is best for students who will be pursuing public service careers and borrowers with high debt and low income. Having a large household size also helps. Borrowers who have only a temporary income shortfall may be better off seeking an economic hardship deferment.
Students who are not pursuing careers in public service may be intimidated by the through of a 25-year repayment term. However, it is worth careful consideration, especially by students who might be considering using an extended or graduated repayment plan. IBR will likely provide the lowest monthly payment for many low income borrowers and certainly is a reasonable alternative to defaulting on the loans.
Calculating the cost of a loan in the IBR program can be somewhat complex, in part due to the need to make assumptions about future income and inflation increases. FinAid provides a powerful Income-Based Repayment Calculator that lets you compare the IBR program with standard and extended repayment. You can compare the costs under a variety of scenarios, including the possibility of starting off with a lower income and later switching to job with a higher salary.
FinAid’s IBR calculator also computes the net present value of the total payments, telling you how much they would cost in constant dollars. The idea is that a dollar ten years from now will have less buying power than a dollar today, due to inflation. Net present value tells you how much that dollar would be worth today, under certain assumptions. Comparing different loans using constant dollars can provide a more realistic analysis of the difference in real cost.
When comparing the IBR program with the standard and extended repayment programs, it is important to recognize that the loan term has a significant impact on loan cost. Although net present value figures allow you to compare costs on a constant dollar basis, comparing the cost of a 10 year loan with a 25 year loan is like comparing apples and oranges. A 10 year loan will likely have a lower overall cost than a 25 year loan, primarily because of the shorter loan term. For example, consider a student with a $72,000 loan and an AGI of $40,000. Under the IBR program, the net present value is $77,940.78. Under the standard repayment program, the net present value is $76,074.74. So the standard repayment program is slightly less expensive than the IBR program. However, it would be a mistake to conclude from this that the extended repayment program with a 25 year loan term is better than the IBR program, because the relative costs change as the loan term increases. The 25-year extended repayment program turns out to have a net present value of $80,743.06, more expensive than the IBR program.
The marriage penalty inherent in the IBR formula was corrected by Congress (P.L. 110-153, December 21, 2007) by allowing a married borrower who files income tax returns as “married filing separately” to count only the borrower’s adjusted gross income and student loan debt. This lets a borrower exclude the (higher) income of his/her spouse when calculating the cap on monthly payments under income-based repayment instead of combining the income as under the original legislation.
An important feature of the government’s IBR program is that although you must initially sign up for 25-year income-contingent repayment, you are not locked into this payment plan. If your circumstances change or if you just decide that you want to pay off your loan more rapidly, you may do so. (Borrowers who switch into Direct Lending in order to obtain public service loan forgiveness are limited to the IBR, ICR and standard repayment plans.)
Posted by admin on October 14th, 2008
USA Funds(R), the nation’s leading education loan guarantor, announces that it supported $17.2 billion in loans to help students and parents pay for college during the fiscal year that ended Sept. 30, 2008. The figure represents an increase of more than 10 percent in college financing supported by USA Funds compared with the previous fiscal year.
USA Funds guaranteed more than $15 billion in Federal Stafford loans for students, a 15 percent increase over fiscal 2007, and more than $2 billion in Federal PLUS loans to graduate and professional students and to parents of dependent undergraduate students.
“Despite this year’s unprecedented turmoil in the financial markets, USA Funds continued to work with participating lenders, postsecondary institutions and the U.S. Department of Education to ensure eligible students were able to obtain financing through the Federal Family Education Loan Program,” said Carl C. Dalstrom, USA Funds president and CEO. “In the unlikely event eligible students are unable to find a lender willing to make FFELP loans to them, the Education Department has approved USA Funds’ plans to serve as the lender of last resort in the states where USA Funds is the designated student loan guarantor.”
USA Funds is designated by the U.S. secretary of education as the guarantor for Arizona, Hawaii and the Pacific Islands, Indiana, Kansas, Maryland, Mississippi, Nevada and Wyoming.
As a federal student loan guarantor, USA Funds insures private lenders against default. As part of this role, USA Funds supports extensive systems, services and staff who ensure requested loans are delivered to eligible students attending eligible postsecondary institutions; serves schools, lenders, students and parents with answers to their questions about their education loans and supports their compliance with loan program guidelines; helps student- and parent-borrowers successfully repay their loans; provides assistance to borrowers who face difficulties repaying their loans; and recovers on behalf of U.S. taxpayers amounts owed by borrowers who defaulted on their student loans.
Headquartered in Indianapolis, USA Funds is a nonprofit corporation that works to enhance postsecondary education preparedness, access and success by providing and supporting financial and other valued services. For more information about USA Funds, visit
www.usafunds.org .
Posted by admin on October 13th, 2008
KeyBank will no longer offer private loans for students because of the long-term unstable credit market.
Existing loans from KeyBank will still be honored through the rest of this and the Spring 2009 semesters. After Oct. 31, KeyBank will stop taking applications for private student loans.
Students usually apply for private student loans when they cannot get more money from federal loans.
Mark Evans, student financial aid director, said about 2,000 to 3,000 Kent State families have private student loans. Ninety-five percent of those families get them from KeyBank, CitiBank or Sallie Mae. Kent State works with these banks to provide private student loans.
“Over the years, the cost of going to college has increased,” Evans said. “More students and their families turn to private loan programs to gain access to additional funding.”
Laura Mimura, vice president of marketing and communications at KeyBank, said the bank will still participate in the federal loan market.
“We are still making loans to students to go to Kent State through FFELP (Federal Family Education Loan Program),” she said. “Students at Kent State and other Title IV schools can get Stafford Loans and Federal PLUS loans.”
To assist students in minimizing debt, Mimura said a service called BorrowSmart may help. BorrowSmart’s program helps minimize debt by looking at available grants and scholarships, then students can calculate the amount they can pay per month. To access BorrowSmart, students can go to www.key.com/borrowsmart.
Mimura and Evans both said students have to be informed and do research to get the financial aid that works for them.
“You have to do the work,” Mimura said. “This (BorrowSmart) is not a magic pill.”
Evans suggested students go to the Kent State Student Financial Aid Web site, www.sfa.kent.edu, for current information on available aid. He also said students should come to the financial aid office and talk to a financial aid representative if they have questions.
Mimura said KeyBank’s decision to exit the private student loan market was made about a year ago.
“We are still committed to education,” Mimura said. “But we have to make decisions to protect the strength of Key.”
Although some students may have to apply for private student loans from a different company next year, Evans said students shouldn’t be worried about getting another loan.
Posted by admin on October 7th, 2008
Sen. Charles Schumer is calling on the federal government to protect college students and their families from the credit crunch by expanding the economic bailout to include student loans.
“We have to build a wall around the student loan market to protect our kids from the credit crisis,” Schumer said at a news conference yesterday in Massapequa outside Plainedge High School, where students from a senior government class peppered him with questions about college costs and loan availability.
“My parents tell me I have to be realistic about where I want to go, and money is nearly as important as how good my grades are,” said Marianne Kennedy, 17, of Seaford, who is applying to both public and private schools. “They don’t want me having huge debt when I graduate.”
The Wall Street bailout legislation passed by Congress last week gives the federal government authority to buy up bad student loan debt as well as bad mortgage debt.
In a letter to U.S. Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke yesterday, Schumer (D-N.Y.) asked that they “pay special attention to the student loan market” as they carry out the bailout plan. He also wrote to every college and university in New York State, asking those that do not participate in the federal Department of Education Direct Loan student aid program to reconsider. Nationwide, 1,369 of more than 4,000 colleges and universities participate, according to a Schumer spokesman.
Schumer also is proposing that a commission be established to determine whether the federal loan program has enough resources if private loan programs dry up.
In recent months, more than 50 lenders have either suspended new government-backed student loans, left the program altogether or begun raising interest rates for private loans - in some instances, Schumer said, to as high as 19 percent.
“Lots and lots of the banks that are doing the lending are pulling back,” he said. “This wouldn’t be just a two-year economic crisis, it would be a generation crisis.”
Posted by admin on September 15th, 2008
It was announced recently that 8 of the top student loan organizations would adopt a code of conduct when qualifying and funding college students for student loans.
Seven direct-to-student lenders, Nelnet Inc., Campus Door Inc., GMAC Bank, NextStudent Inc., Xanthus Financial Services Inc., EduCap Inc. and Graduate Loan Associates are donating an estimated $1.4mm to help educate students and their families on loan practices helping to eliminate the bait-and-switch tactics, higher-interest private loans and marketed products that appear to be federal loans.
The new code of conduct bans practices including:
* Using logos that make mailings appear to be from the federal government.
* Paying students to get their friends to take out loans.
* Offering prizes such as iPods and gift cards to induce students to take out loans with a particular lender.
* Advertising interest rates that are not available to a majority of borrowers.
We hope that these codes of conduct will be adopted across the board at all student loan providers and help college students and their parents understand and make good student loan decisions.
Posted by admin on July 30th, 2008
The State of Massachusetts announced yesterday that they will not be guaranteeing 40,000 college students with federally backed college loans this coming fall semester due to their inability to raise the necessary funds through MEFA, the Massachusetts Educational Financing Authority. The state recommends that nearly 40,000 students and their families seek alternate arrangements, through federal plans.
There are a number of loan packages available for college students including private college student loans from Nextstudent.com and Sallie Mae and students can find college scholarship opportunities at sites like Fastweb.com, collegeboard.com and through corporations like Coca Cola, and Apple.
Posted by shonjohns on July 28th, 2008
Each year, thousands of high school graduates aspire to continue their education at the college level. There are a number of students who have clear goals as to what their studies will be at their upcoming universities. Most of those who’ve acheived academic prominance and extra curricular activities will receive large sums of money to attend the college of their choice. Although this free education seems wonderful, sadly this is not the case for most college wanna b’s.
Fear not young ones, there is money out there, you just have to know how to dig for it. None of the generous companies that give away money, advertise it. The one with the biggest shovel wins the free money game. Finding your money needs to be like another part time job (1-2 hours week). There are other tactics as well to shorten the college price tag:
* Always show them you have less money than they thought. They need to know about shorter work hours, or the need to care for a sick relative.
* Take the loans. Most of them don’t charge until months after graduation, and the Grandmothers of college funding already expect a nice long relationship with each and every lendee.
*Get a four year deal from your school. Some schools will boost prices after Freshman year once you’ve already committed mind, body, and soul.
For every ten students who can’t get a penny for school, there’s one student out there putting time in EVERY week taking here and there until it all adds up. There are hundreds of companies who want to give money away. So get your road maps, and shovels and start looking. If you make finding the money a priority over everything else, you will find it!
Two hours on the computer, can turn into a $3,000 education loan……….just for asking.
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