Posts Tagged ‘student loans’
Posted by admin on August 3rd, 2009
As new and returning college students gear up for the school year about to get underway, NextStudent Inc., one of the country’s longtime premier sources for college financing, has unveiled a new look to its website, www.nextstudent.com, with easier than ever one-stop access to a wide array of education financing options and information.
Since the spread of the post-subprime credit freeze into the student loan marketplace a year ago, non-government channels of student loan financing have shrunk to few and far between. Credit-based private student loans — which families have often relied upon to supplement their federal financial aid — have become especially difficult to come by, as several lenders of private student loans have gone out of business. The few lenders that remain have restricted their qualifying criteria to borrowers with superior credit or stopped offering private student loans altogether.
Even federal student loans, however, can be hard to find for those students whose schools have not yet transferred over to the Department of Education’s Federal Direct Loan Program but remain in the government-subsidized Federal Family Education Loan Program. Students enrolled at a FFELP school must obtain their federal college loans through a bank, state agency, or other third-party lender rather than directly from the government.
NextStudent, however, offers a simple online solution for those students and their families trying to find available student loans and other viable financial aid options.
The NextStudent website offers one-stop access to a network of multiple student loan providers. With just one click, students and parents can access a portal that allows them to compare dozens of student loans from various lenders and shop for the financing option that best fits the family budget. This portal puts students directly in contact with available lenders and allows students and parents to apply for student loans right then and there via these lenders’ online applications.
Courtesy of Marketwire.com
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 July 2nd, 2009
College students are often forced to make a decision between two life paths: one that feeds the soul and one that feeds the bank account. Rarely do the two meet. As a result, the average college grad — who leaves school with about $23,000 in student-loan debt — either slogs along during those first few work years in satisfying (yet typically low-paying) jobs or makes a play for grinding corporate gigs that pay the bills and deaden the heart.
But all that stands to change on July 1 with the start of an income-based repayment (IBR) plan. The goal of the government initiative, which has been championed by Massachusetts Senator Ted Kennedy, is to prevent payments on federal student loans from exceeding 15% of a borrower’s disposable income above 150% of the poverty level. Borrowers who earn below that threshold (which in most states is about $16,000 for a single person with no dependents) wouldn’t have to make any monthly payments at all. (See how Americans are spending now.)
These changes, alongside a $619 increase in the maximum Pell Grant and a reduction in the interest rate on new federal loans, arrive at a moment of seemingly runaway college costs on one end and a dismal economic outlook on the other. The Obama Administration is trying to lessen the pressure on aspiring students in ways both big and small. Last week, Secretary of Education Arne Duncan announced a plan to simplify the Free Application for Student Aid (FAFSA) — the form to apply for federal dollars — cutting at least 20% of the questions and making it easier to fill out online. For months now, Duncan has discussed the possibility of making Pell Grants an entitlement or guaranteed benefit like Social Security that would be protected from annual budget cuts. Duncan is also trying to transition to a system in which students get all their college loans from the government, rather than going through banks and other private lenders. The new IBR program does not apply to private loans. (See pictures of the college dorm’s evolution.)
Add up these steps, and the Obama Administration appears to be attacking the staggering cost of higher ed from the back end — that is, if we can’t fix how much college costs, at least we can try to fix how you pay that cost back. “There’s clearly a lot of work to do in bringing down the cost of college,” says Edie Irons, spokesperson for the Project on Student Debt. “But even if you froze college tuition at every institution tomorrow, you’d still have this problem where people are borrowing incredible amounts of money to take important jobs that may not pay very well.”
In the past, federal-loan repayment was structured so that a graduate would have to pay a certain amount of money each month, regardless of his or her income at the time. Under the IBR program, if you lose your job or are forced to take a pay cut, the amount you have to pay back per month will drop. If, however, your salary subsequently increases, your payments will still be capped at 15% of your disposable income. That is, of course, if you are eligible to participate in the program; grads with private loans are exempted as well as those who owe less than they earn in a year (use this calculator to figure out if you qualify). It’s all based on a debt-to-income ratio and is fluid and flexible in a way that most government systems are not. And if the Education Department is serious about abolishing the two-track loan system (in which it provides direct loans as well as subsidizes private-lender loans), this is just one more way of convincing borrowers to throw their hat in with the feds.
One big upside is likely to be a reduction in the number of people who default on their student loans, a financial disaster that can destroy credit ratings and hike up interest rates on future loans. “In this economic recession, a lot of students are having a difficult time just paying for normal things like groceries or rent,” says Carmen Berkley, president of the U.S. Student Association, an advocacy group. “This is really going to make sure that students are able to keep up with their loans and don’t have to default. We want to be able to have good credit, to eventually be able to buy cars and houses too.” (See TIME’s special report on paying for college.)
Under the IBR program, if students are still paying back college loans after 25 years, they will be eligible to have all debt erased (though, if the law stands as is, much of that remaining balance will be taxed as income). And if students go into a public-service career, they are eligible for loan forgiveness after a mere 10 years. While participants in programs such as AmeriCorps, the Peace Corps, the military and other such institutions have long been eligible for loan reduction or forgiveness, this new program expands such mercy to potentially hundreds of thousands more students who won’t be forced to make that knee-jerk decision between ideals and salary. “We really need college graduates to go into fields like teaching and social work and public-interest law and rural medical services,” says Irons. “And because of the way people are forced to pay for education, they are less and less able to do those jobs. For society’s sake, we should make it easier for them to do so.”
Time.com
Posted by admin on June 26th, 2009
The Obama administration took dead aim yesterday at one of the biggest headaches faced by college students and their families — how to fill out what has become a lengthy and complicated application for financial aid.
Education Secretary Arne Duncan outlined a series of changes that could allow some applicants to skip many of the 153 questions.
“Too many students who qualified found applying for student loans was too difficult to understand,” Duncan said. “Too often, they simply got frustrated and they gave up. The form itself was liter-
ally a barrier to entry in college. That has to change.
“Next year’s applicants should see a 20 percent reduction in the number of questions and a 50 percent reduction in the number of Web pages to navigate,” Duncan said.
He also asked Congress to adopt a sweeping overhaul aimed at making the form easier to fill out, including allowing families to attach their tax returns from the Internal Revenue Service to the application. Currently, families have to include separate investment and banking records.
As tuition soars, financial assistance is crucial to keeping students in college. Of the 60,000 students at Ohio State University and its regional campuses, more than 32,000 receive financial aid.
The reforms are aimed at the Free Application for Federal Student Aid, known as FAFSA. The six-page application is so complex that last year former Education Secretary Margaret Spellings jokingly complained, “It asks you how old you are three different ways.”
In the final months of the Bush administration, Spellings asked Congress to reduce the number of questions in the form to just 27. Congress never acted on that.
“It’s a good step,” said Tally Hart, senior adviser for economic access at Ohio State. “That form is really a deterrent in its existing structure because it looks so intimidating. and the problem is the greatest for the people it should serve the most.”
Educators and financial-aid specialists hailed the move, saying it eventually could lead to more students applying for financial aid.
“Could the department have gone further? Yes,” said Terry Hartle, senior vice president of the American Council on Education, which represents the nation’s universities. “Some people think you should get them on a postcard. But the fewer the questions, the less accuracy you have. What the department is trying to do is balance the importance of simplification with accuracy.”
Beginning this summer, students who have reached the age of 24 or are married may skip 11 questions dealing with their parents’ financial history. Men older than 26 will not have to answer the question about Selective Service registration. And when the new forms are made available in January, low-income students will not be asked about assets.
In another effort to simplify federal assistance, the Education Department has been giving students instant estimates of Pell Grant and student-loan eligibility since May.
Columbus Dispatch
Posted by admin on June 22nd, 2009
Low-income students and recent college graduates may reap dramatic gains beginning July 1 as a result of far-reaching changes in financial aid grant and loan programs.
While some of the gains – such as a significant hike in Pell Grants – have received attention, others that affect interest rates and student loan repayment schedules are just getting on the radar screens of policymakers and students. One of the most significant changes is the introduction of income-based repayment, through which students can reduce their monthly payments based on their earnings – a move of particular help to graduates in low-paying public service jobs.
“We estimate hundreds of thousands will take advantage of this,” said Edie Irons, spokeswoman for the Project on Student Debt in Berkeley, Calif. “But it’s not automatic. You have to apply for this.”
Students seeking income-based repayment must contact their lenders. But the switch should be easy to make, said Mark Kantrowitz, publisher of FinAid.org, a web site focused on the federal financial aid system. “If you’re in a public service job, it’s best to start sooner rather than later,” he told Diverse.
The U.S. Education Department has published a detailed chart of how income-based repayment, or IBR for short, may affect certain borrowers. For example, a single person earning $20,000 a year would face a monthly repayment of only $47. Adjustments may occur each year based on earnings and debt. (The chart is at http://studentaid.ed.gov/PORTALSWebApp/students/english/IBRPlan.jsp#content).
“The main goal of IBR is to make sure that your student loan repayment doesn’t ruin you financially,” Irons told Diverse.
Another major change involves consolidation loans. Borrowers with variable-rate loans before July 2006 could convert to consolidation loans with interest rates as low as 2 percent, Kantrowitz said. Such changes apply to those with variable Stafford or PLUS loans.
“It’s extremely unlikely that interest rates will ever get lower,” he said. With interest rates starting to rise again, the next adjustment in 2010 is likely to carry a higher rate.
Here is a look at other financial aid changes taking place next month:
* Pell Grants: The maximum grant for needy students will increase from $4,731 to $5,350 – a jump of more than $500. Legislation approved by Congress also will allow for year-round grants to students seeking to accelerate their education. The minimum Pell Grant will increase from $400 to an annual rate equal to 10 percent of the maximum grant.
* New student loans: New fixed-rate Stafford Loans will see their interest rate drop from 6 percent to 5.6 percent. Origination fees on Stafford Loans also will drop by half-a-percentage point.
* Part-time students: Students enrolled at least half time will get access to the Academic Competitiveness and SMART Grant programs, which provide additional aid to Pell-eligible students who have completed a rigorous high school program.
Posted by admin on June 18th, 2009
The U.S. Department of Education said it awarded contracts to SLM Corp (SLM.N) and three other companies to service its $550 billion student loan portfolio, as the government prepares to shift much of the nation’s student lending into a direct loan program.
The government said it also awarded servicing business to Nelnet Inc (NNI.N), American Education Services/PHEAA and Great Lakes Education Loan Services Inc. It said the contracts run for five years, and can be extended for five more.
Eligibility for the servicing program became more important to student loan companies after President Barack Obama in February submitted a fiscal 2010 budget calling for the end of the Federal Family Education Loan Program by July 2010.
The president proposed to shift most of the nation’s $90 billion of student lending into a direct loan program, possibly saving taxpayers more than $4 billion a year.
Education Secretary Arne Duncan on Wednesday said the servicing contracts will help ensure that “all eligible students” will have access to federal student loans.
The department did not say how it plans initially to allocate the servicing business.
SLM, which better known as Sallie Mae, said it has the scale to add more than $100 billion of new volume under its servicing platform. Smaller rival Nelnet said it expects its participation to add to earnings, excluding start-up costs.
Posted by admin on June 5th, 2009
Students who wait until July 1 this year to consolidate their variable-rate federal student loans will benefit from the lowest fixed interest rates in the history of the federal loan system.
Mark Kantrowitz, the financial aid expert who founded FinAid.org, and FastWeb.com, writes that beginning July 1, the interest rate for a consolidated Stafford loan while a student is still in school will be 2 percent, and during the repayment period it will be 2.5 percent. The interest rate for consolidating PLUS loans will be 3.38 percent.
“Borrowers who wait until July 1, 2009 to consolidate will save big over the life of the loan,” he notes.
A $20,000 Stafford loan with a standard 10-year repayment plan at 6.8 percent would typically cost $230 monthly and nearly $8,000 in interest over the life of the loan. The new 2 percent rate would allow students to pay $184 a month for the same loan, with just over $2,000 in interest over the life of the loan–a whopping 73 percent savings in interest.
Kantrowitz said that consolidating loans can cut back on paperwork by combining all loans into one, he told Rochester, New York’s Democrat and Chronicle. Additionally, consolidation can make it easier to borrowers to take advantage of different repayment options, including the new Income-Based Repayment program, which allows smaller monthly payments based on the amount of one’s loans, income and family size.
Kantrowitz added that consolidation also lets some borrowers to take advantage of public service loan forgiveness, which allows workers to have their loans forgiven after 10 years of employment in public service. He noted that the government’s definition of “public service” includes anything from teaching to working for a nonprofit.
There are some caveats: Borrowers who already consolidated their loans cannot take advantage of the new interest rate, and loans originated after July 1, 2006 are also not eligible. The federal consolidated loan cannot include private loans, and students still in school cannot consolidate loans until after they graduate.
Posted by admin on April 28th, 2009
Change may be coming to the student loan system. President Obama proposed cutting federal subsidies to private student lenders, the Federal Family Education Loan program, in his February budget proposal. The money from the cuts would be used to increase the number of Pell Grants, money given to financially eligible students. This program would not affect federal student loans.
Proponents of the plan to cut subsidies to private lenders expect this to increase the efficiency of student loans. They argue that subsidized private lenders make huge profits off loans while the federal government is left paying for loan defaults. President Obama describes the new plan as “putting students ahead of lenders by eliminating wasteful student loan subsidies that cost taxpayers billions each year.”
Opponents have responded that private lenders are needed to give students options. During an NPR interview, Jack Remondi, the Chief Financial Officer for lender Sallie Mae, said “choice is an important component of this program.” By eliminating choices, the opposition fears that competition would also be eliminated between lenders, causing an increase in rates and a less efficient system overall.
In spite of the poor economic environment, loan providers have explained that the cuts would not cause significant job loss throughout the loan industry. Earlier this year Sallie Mae recently brought 2,000 overseas jobs back to America. The official justification was support for the American worker but some have drawn a connection to the return of jobs with threats of federal cuts.
Sallie Mae has begun promoting for a mix between federal and private loans. This plan would have private loan providers originally providing loans to students. The federal government would then buy control of these loans from the private companies. A campaign of lobbying has begun to promote this alternative proposal.
Democratic lawmakers have generally supported President Obama’s proposal to cut subsidies to private loan providers. Republicans, however, have been wary of the programs, citing the increased burden placed on the federal government as loans shift to it from private loan services.
Student loans are also being affected by the current economic environment. On Tuesday, April 21, Treasury Secretary Timothy F. Geithner spoke to a Congressional panel saying that despite government intervention, banks are very strict about to whom they give loans. He continued by saying that results of the program have been “mixed” since some types of loans are challenging to come by.
Student loans are one of the areas being affected by the restricted flow of credit. Lending agencies are also wary of lending due to the increasing rate of students defaulting on loans. The current rate of 6.9 percent, as reported by the U.S. Department of Education, is the highest it has been in the last 10 years.
With two out of three college students graduating with debt and tuition continuing to rise, this is an issue that will greatly affect America’s next generation. If change does come, will students be shedding a tear for private loan providers? Justin Eisenstadt, a sophomore at UMBC, will not, since he considers student loans to be the “biggest scam in the nation’s history.” The outcome of private loan providers is undetermined while Congress hashes out a final budget.
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 March 24th, 2009
Changes to federal student loan policy will affect more students than ever as the financial crisis brings them in growing numbers to loan office doors.
“We just have a sense that there will be more than in past years,” said Tom Melecki, director of the Office of Student Financial Services. “That’s based on the fact that we have had a steady stream of new students saying, ‘Gosh, you know my family’s been negatively impacted by the economy, how do I go about applying?’”
This year, federal PLUS loans — which parents borrow to cover undergraduate education costs — will be administered by only two banks per state. Banks placing the two most competitive bids in a statewide auction will get exclusive rights to administer the loans.
Congress voted for the auction system in 2007 to drive down the projected cost of federal subsidies and simplify the loan process.
Melecki said the system may not be completed in time to award PLUS loans for the 2009-2010 school year and that the UT student financial services office was hoping to notify students about their financial aid by April.
“Since the U.S. Department of Education has not yet conducted that PLUS loan auction, any parent borrower who has not yet borrowed a PLUS loan — we have to send them a message and say as soon as the DOE tells us who wins the auction rights, we’ll let you know,” Melecki said. “Until then, we can’t take steps.”
Congress has imposed a July 1 deadline for completing the auction. The FAFSA priority deadline is March 31.
During the 2007-2008 fiscal year, 3,644 UT students’ parents borrowed $44,267,358 in PLUS loans, Melecki said.
President Barack Obama’s budget includes another change in the student loan process: Whereas in previous years private banks administered student loans that were in turn guaranteed by the federal government, the current administration hopes to eliminate the intermediary and administer loans directly to students.
Melecki said that, while this is a drastic change for banks, loan and repayment procedures for students will remain the same.
“I don’t think it’ll have much effect on our students, because the terms and conditions on the loans are virtually identical between the federal direct loan program and the Federal Family Education Loan Program,” Melecki said.
Melecki said the government’s plan to remove private banks from student lending may discourage banks from bidding on PLUS loan contracts since they would likely only administer loans for a year.
Loan giant Sallie Mae, which awards 40 percent of federal PLUS loans, announced last week that it would not participate in the auction. Sallie Mae’s exit may deter smaller lenders from participating in the auction as well.
“It’s one thing to bid in the PLUS auction if you can do it for five, six, seven years,” Melecki said. “It’s totally different if you can only do it for one.”
Provided by: Daily Texas
