Student Loan

U.S. Troops Given a Break on Student Loan Repayment

2009-07-27T02:31:00.002-07:00

According to federal regulations, mobilized military, including those in active duty, National Guard and Ready Reserves called to active duty, are not required to make student loan payments during their absences. This applies to the 145,000 troops currently involved in the Middle East conflicts, representing a significant percentage of student loan borrowers. The Department of Education has required that these troops receive a level of leniency from student loan lenders.

U.S. Education Secretary Rod Paige said earlier this year, "As they [deployed troops] defend the freedoms we cherish, our soldiers should not have to worry about their student loan obligations and resuming their studies." The Department of Education directed lenders to continue deferment status for all activated service members who recently left school or who were students prior to deployment.

Borrowers holding subsidized student loans are eligible to have the Federal Government assume the interest payments on their loans while deployed. Similarly, the Department of Education strongly encouraged colleges and universities to provide full refunds of tuition and related expenses to students required to withdraw from school and fulfill their military obligations.

ACFS -- a student loan consolidation firm -- representative Nicole Knight stated, "We want our troops to know that their efforts are appreciated. That's why provisions have been made that will remove any anxiety or stress associated with student loans and school."

In the 2002-2003 school year, approximately $75.8 billion in federally guaranteed student aid was disbursed to students. Federal regulations were implemented to ease the minds of those who received this aid and are currently involved in the Middle East conflict. These regulations are more relevant today than ever, as thousands of soldiers have been overseas for more than a year.

Presidential Candidates Recognize Importance of Higher Education Reform

2009-07-27T02:31:00.001-07:00

As the upcoming Presidential election approaches, there is an increasing focus on educational programs. Often overlooked, higher education has become a platform both Democratic and Republican candidates are paying more attention. President George W. Bush and candidate Senator John Kerry have included unprecedented proposals regarding higher education in their campaigns.

President Bush suggests increasing Pell Grants by 47 percent, over those disbursed in 2001, in an effort to make post-secondary education more affordable to low-income students. The State Scholars program will award an additional $1,000 in Pell Grant funding, increasing the maximum to $5,050.

Moreover, increasing AmeriCorps Education awards will allow the President to expand access to higher education. Full-time members will receive an education award of $4,725 to pay for college or graduate school. The plan is to support 75,000 AmeriCorps members.

David Eisner, CEO of the Corporation for National and Community Service, states, "This budget request is a sign of how vital our programs are to President Bush's goal of creating a new culture of citizenship, service, and responsibility in our nation."

Student loan reformation has taken a front seat in political agendas for significant reasons. Each year, higher education institutions increase tuition rates by an average of 7 percent (even more in private institutions). Currently, first-year students are limited to $2,625 in federally backed student loans, an amount far below the average tuition rates nationwide. President Bush plans to increase this amount to $3,000 and allow more flexibility in loan disbursements for schools with low default rates.

Bush's plan will also encourage dual enrollment, allowing high school students to earn both high school and college credits simultaneously and graduate in less time. As an incentive to promote dual enrollment programs, President Bush will provide $125 million to community colleges who participate. Additional incentives will be provided to states that facilitate the transfer of credits earned at community colleges to four-year institutions.

With recognition of the imminent challenges faced by low-income families trying to afford higher education, Senator John Kerry has voiced his own agenda on the issue. According to Kerry, if elected he will offer a fully refundable College Opportunity Tax on up to $4,000 of tuition for every year of college. Additional aid will be provided to states that keep tuition down.

Senator Kerry's plan requires approximately $13 billion in new resources over 10 years. Kerry's plan will eliminate the subsidized and guaranteed profits currently received by private lenders of student loans (i.e., banks and credit unions) and redirect them to an aid program. If elected, Kerry will require banks to bid for student loan business in an open auction.

Kerry further promises to provide nonprofit organizations and campus service-learning initiatives with the means and the training necessary to entice student involvement in community service. Young people who sustain part-time effort in service will receive up to $2,000 annually to aid with their higher education expenses.

Kerry's Helping America's Children Learn initiative would educate today's youth by providing them with real life experiences. Kerry hopes to increase the number of current college students—approximately 60 percent—participating in community service.

Today, the federal student loan program guarantees billions in profits to banks and other private lending institutions. These private agencies receive student payments, government subsidies and a government guarantee protecting them from defaulted loan borrowers. These subsidies are determined by Congress and set at rates as high as 9.5 percent. According to Kerry's platform, studies show that these rates are substantially greater than private agencies need to earn a profit.

Kerry's campaign said in a statement, "The government guarantees lenders a certain interest rate on student loans, currently 3.4 percent. When student interest payments fall short of this rate, the government makes up the difference. Currently, however, when student payments exceed this rate, lenders get to pocket the extra money."

The Kerry plan would award private agencies student loan contracts by bidding at an auction, making all subsidies reasonable and competitive. Kerry expects this reformation to save taxpayers an estimated $12 billion.

Every year, the student loan industry funds billions of dollars in higher education. Reformation to the Higher Education Act is expected frequently, as the industry grows and requires new provisions. According to Rick Castricone, a representative for American Collegiate Financial Services (ACFS), "Typically, most people are quite naïve when it comes to student loans. This includes how they obtained them, who they owe, and how they are going to repay them." Reforming higher education initiatives is increasingly important to make education more accessible.

Bounced Check, Bad Day: Financial Aid Helps Student

2009-07-27T02:30:00.001-07:00

(U-WIRE) CHICO, Calif. - The beginning of the semester started and most Chico State University students received their classes, textbooks and financial aid. But one student got much more than she had planned for.

Her rent and bills were due, her checks had bounced and the only thing that could calm Kathryn Bailey's nerves was a Camel Light cigarette.

Bailey's financial aid check was sent to her bank through electronic deposit, and the bank could not find a record of her account. The bank then sent the check back to Chico State's financial aid department.

Meanwhile, Bailey was writing checks to PG&E, the phone Company, the grocery store and more, assuming the financial aid check had been deposited.

"I ended up bouncing $300 worth of checks within a little over a week," Bailey said.

Bailey got a rude awakening when she received her bank statement with a negative balance. She then went on an investigation, playing phone tag with the bank and the financial aid department at Chico State.

After finally ironing out the mix-up, Bailey had to wait five working days for the check to actually go through the banking process.

Broke, irritated and annoyed, Bailey stood in the school's Free Speech Area slightly shaking, smoking a cigarette to ease her mind. The problem was settled, but days still had to pass before all was well.

"I'm really bad at managing money," Bailey said. "I'm constantly trying to figure it out every day."

Students Survive on Loans -- Go on, take the money and run, but be careful

2009-07-27T02:27:00.000-07:00

(U-WIRE) CHICO, Calif. - College students occasionally dig themselves into a hole of debt so deep they can barely see the light of day, much less lift the brick of payment pressure off their chests to catch their breath.

In a moment of despair with time running short, students look to be rescued. Loans become the easiest and quickest life jacket used to save students from the drowning debt of their college years.

"I have taken out two short-term loans since I've been in college," said Kathryn Bailey, a Chico State organizational communications major. "My sophomore year I needed a bed and my parents were really broke, so I took out my first loan. I then paid it back with my financial aid."

Students have the option to repay the $250 plus a $3 fee for the short-term loan in 90 days or take the payment out of a student's financial aid. Otherwise, their enrollment is withheld for the following year until paid. Any student can take out a short-term loan without stating a compelling reason.

"I just took out another loan for my spring break cruise because I need that extra $250 in case of an emergency," Bailey said. "I'll probably pay it back over a few months."

Bailey said she is in debt $1,500.

"When I graduate in a year my parents are going to help me out, since they haven't at all so far," Bailey said.

Nellie Mae offers students advice and direction when deciding the right path for their payments in the future.

"Unfortunately, when students are enrolled in school they concentrate on paying their tuition, but at graduation they begin to panic," Nellie Mae marketer Marie O'Malley said. "Students worry about their payment obligations. We essentially talk about what options are available for the student borrowing money. Leavin;g it up to the borrower to decide what is best."

O'Malley reassures borrowers that they can adjust their payment plans and also defer their payments.

According to the Texas Guaranteed Student Loan Corporation Web site, borrowers are faced with circumstances that will make it difficult to make payments on a loan. If a student is faced with a situation that qualifies postponement or adjustment of loan payments, they may apply for a deferment or forbearance.

It is important to be aware of every aspect of taking out a loan, and to plan for repayment regardless of graduation status. Borrowers should keep in contact with their lender if they change or leave a school, graduate, change enrollment, change an address or phone number or run into financial trouble.

Tips for Managing Your Student Loan Debt

2009-07-27T02:25:00.000-07:00

1) Be proactive; find out what you owe and who you owe

Find out what your total debt is, what kind of loans you have, where they are held, and who you pay.
Check nslds.com to get a list of your student loans and the details of each loan. Keep records and important paperwork in a safe place.

2) Make your payments on time

Paying on time will help establish good credit.

Paying on time will decrease the total interest that accrues on your loan.

Delinquencies and defaults on student loans will lower your credit rating, and defaulted loans are turned over to the federal government for collection.

3) Make your payments affordable

Shop for the best benefits. Many lenders offer borrower benefit programs that can lower your interestrate or reduce your loan principle. Choose the best program for your situation.
Choose a repayment plan that works for you.

Standard – Monthly payments are fixed with a payment term up to 30 years. This plan yields the lowest overall interest cost compared to other repayment plans.

Graduated – Monthly payments are initially lower for the first 2-3 years and then gradually increase over the repayment term.

Income Sensitive – The monthly payment amount is adjusted annually based on your income.

But watch out for any monthly payments that are lower than the actual interest that accrues on your loan each month. This will increase your debt to such a level that you may never be able to pay off the principle.

Is Consolidation for you?

Consolidation is the process by which a lender pays off your individual loans and refinances the total balance into a new consolidation loan with a fixed interest rate and one monthly payment. Because the total balance is higher, you will have a longer repayment term and your monthly payments will be lower. In addition, if you consolidate during your 6 month grace period prior to entering repayment, your interest rate will be fixed at the lower grace period rate.

Consolidation Guidelines:

a) You should have more than $10,000 in federal student loans to make it worthwhile.

b) The loans you wish to consolidate must all be under your social security number.

c) Do not consolidate federal student loans with private student loans. If you consolidate your federal loans into a private consolidation loan, you will lose your federal benefits e.g. fixed interest rate, deferments, subsidized interest, etc.

Have your monthly payments automatically deducted from your bank account. Most lenders offer a .25% or more interest rate discount for choosing the automatic payment method.

4) Make your payments convenient

Consolidate your loans (if this is the best option for you) so that you have one monthly payment.
If you do not consolidate, have your lender combine your loan payments on one monthly bill.
Have your monthly payments automatically deducted from your bank account.

5) Know what you are entitled to

Some lenders offer you “benefits” that are not unique benefits; they are really just entitlements that all student loan borrowers receive from the federal government. These include:
- Fixed interest rates
- No fees
- No credit checks
- No prepayment penalties, and
- Rates that are “0.6% lower if you consolidate while still in school, or in your grace period.”

Another entitlement on your federal student loans is the right to have a deferment or forbearance on your loan if you meet the federal requirements. Choosing a certain lender will not affect this entitlement.

6) Know what will cause you to lose the benefit the lender offers

The benefit offering is what many people use to evaluate a consolidation loan. Equally important is knowing what can cause you to lose the benefit.
Know what the grace period is for a late payment. Some loans do not provide ANY grace for payments. In that situation, a payment due on Saturday has to be processed on Friday or you will be late.
Look for benefits that become “permanent.” Some benefits will cease if you have one late payment OVER THE LIFE OF THE LOAN.
Be careful if the automatic withdrawal (referred to as Automatic Clearing House, or ACH) and the benefit are tied together. If you lose the withdrawal option, the benefit goes away, too. There are some very easy ways to lose ACH, such as:
- The opportunity to sign up for ACH is limited to 30 days from the signing of the application. If the borrower does not follow up with the lender to get ACH WHILE the application is processing, then they can be outside of the sign-up window. ALL benefits are lost before they get their first bill.
- They are required to sign up to receive their bill via e-mail. In addition, every month they must reply to the e-mail, acknowledging receipt. If they do not, they lose ACH, which causes them to lose their benefits.
- Returned e-mails, insufficient funds in their checking account and failure to notify the lender of a change of address are additional ways to lose ACH.

How to Choose a Student Loan

2009-07-27T02:24:00.000-07:00

Looking for savvy ways to finance your education? Then it's time to go shopping - to look at a range of loan options, that is. As interest rates on federal college loans rise and shift to fixed rates, experts say it's more important than ever to accurately calculate the cost of your education, consider all of your financing options and knowledgably select the ones that will be cheapest over time. Here's how to do it:

INVESTIGATING OPTIONS

"A popular mistake students make [when it comes to college loans] is not knowing all their options," says Raza Khan, president and co-founder of MyRichUncle, which offers private student loans. "The challenge seems so daunting, that most students take the first loan option they're offered."

But as of July 1, 2006 federal college loans, which were previously based on market rates, have moved to fixed interest rates. For the PLUS loan, that means an interest rate of 8.5 percent, and for Stafford loans, 6.8 percent. Khan says, if market interest rates go down, private loans may become a better option.

Even if federal loans remain the best deal, Khan says, the cost of education is so expensive that most students need to supplement the federal loans they're offered with private ones. In this case, he warns, "the loans which a university recommends may not be the cheapest financing option available."

A recent "60 Minutes" investigation revealed that some universities offering students particular financing options were receiving kickbacks from the organizations financing the loans. To make sure you're getting the cheapest interest rate, investigate all of your options, including loans recommended by your school and those available from other sources.

MyRichUncle, for example, offers a variety of loans tailored for particular needs, such as those customized for students who need cash to live on when they complete unpaid internships or are studying abroad at international institutions. Recently, the company began offering pre-prime products, which lend to students who lack credit -- and as a result would typically have a hard time securing loans - based upon unconventional factors such as academic performance.

CHOOSING THE CHEAPEST RATE

It may sound obvious to recommend choosing the cheapest financing option available, but Mark Kantrowitz, publisher of finaid.org, says often students do not.

"A lot of students will select private loans because the student has the obligation for repayment, even though prior to the change in rates PLUS loans were cheaper," he says.

But, even if the loan is technically in your name, most loans require a parent co-signer. Either way, parents are on the hook - so better to go with the cheapest deal. Kantrowitz also emphasizes the importance of accurately calculating the cost of education. Remember that tuition costs are likely to rise each year, so multiplying the cost of tuition for your freshman year by four won't work.

When looking at private loans, take into account all of the costs associated with them - such as origination fees and the ways in which interest will compound over time (Finaid.org has calculators to help you figure this out). And be sure that you're comparing the lowest rate that you will qualify for with each organization, which may differ from the lowest rate on offer based on factors such as your credit.

LUCRATIVE LOOPHOLES

If federal rates remain the cheapest option, being savvy can help you save.

"Once you have been in school for two years, consolidate your PLUS loan every year," Kantrowitz says.

Although the PLUS loan is now fixed at 8.5 percent, the maximum interest rate for consolidated loans is capped at 8.25 percent. By consolidating, you'll save a quarter percent.

Kantrowitz also says you'll lessen the amount of dough that the government believes you can afford to spend on college - known as your Expected Family Contribution, or EFC, on the Free Application for Federal Student Aid (FAFSA) - by limiting the amount of money in your name on bank and other accounts.

While the government looks at 35 percent of your own assets in considering your ability to pay for college -- a number that will change to 20 percent on July 1, 2007 -- the maximum they will consider is 6.4 percent of your parents' assets. So spend your own money first.

EVERY BIT COUNTS

John Hadeed, a senior studying business management at Fordham University in New York, is keeping his loans in check while he's in school by paying just the interest each month.

"If I waited until I was out of school to start paying, my loans would have gone up by several thousand dollars simply in interest," he says.

You may not be able to pay much while in school - that's the reason for the loan - but small efforts like this can amount to a big difference over time.

Need more information? Finaid.org offers a variety of tools to help, including information on loans and savings, and calculators to estimate the cost of college, your EFC and loan payments. With a bit of work, locking in a better deal could save thousands of dollars over the life of your loan.

Ask YOUNG MONEY: How can I lower my private student loan debt?

2009-07-27T02:20:00.000-07:00

Q: I have both federal and private college loans to pay off. I am not too concerned with my federal loans.

After I graduated, I consolidated my federal loans to lock in a low rate and I did a year of AmeriCorps so I was able to get additional money to pay my federal loans. However, my private loans have a variableinterest rate.

I had heard of folks who have taken out home equity loans (or have gotten their parents to do so and then pay them back) to take advantage of a fixed rate and use this to pay off their college loan debt.

I am not a homeowner nor can my parents do this for me and would like to know if there are other (creative) ways to get a fixed interest rate and decrease the burden of my private loans. Thank you!

A: Thanks for writing to ask about solving a private college loan question. You were correct that a homeowner could borrow against the equity in real estate, and often find an interest rate less onerous than that which your private education lender is seeking, and of course interest on home loans is deductible. Sadly for you, neither you nor your parents have a home to use for this purpose, and several years ago you'd probably be out of luck.

Ask YOUNG MONEY: Do I qualify for a student loan?

2009-07-27T01:44:00.000-07:00

Q: I am a student attending the University of West Georgia and I was recently informed that I was ineligible for financial aid and would like to know if you could give advice on obtaining a loan because I don't have a cosigner and I also don't have credit history. I've heard of the Perkins and Stafford loans but am not sure whether or not I qualify.

A: The first place I went to learn more about your choice of school was the Internet, where I found www.westga.edu as the web site for the University of West Georgia in Carrolton. They offer the standard panoply of financial aid programs, and I'm sure you can be fitted out with help.

I don't know WHO informed you that you were ineligible for financial aid, but hopefully you won't give up too easily. I can only guess that you had not indicated a desire to attend at least half-time, since financial aid programs are geared to those pursuing at least six hours of credit at the undergraduate level.

Student loans come in several types, and you obviously have done some research as you named the Perkins and Stafford programs correctly. Perkins is awarded by the Financial Aid Office.

The Stafford loan also is processed by the university based on the same FAFSAA, however, the Stafford can either be subsidized (government pays the interest for you while you're in school - determined by your income and current resources), or unsubsidized.

People who do NOT qualify for "need based aid" can still get an unsubsidized Stafford loan, and simply allow the interest from the in-school period accrue and be repaid along with the original principal amount at repayment.

As to the matter of co-signers, you'll find that applies only to private or alternative student loans, which are not guaranteed by the government but are based on your individual credit history. Private loans are the biggest growth area in student lending, but all of us recommend you start first with government programs.

Ask YOUNG MONEY: Which student loan should I pay off first?

2009-07-27T01:42:00.000-07:00

Q: I had a question about student loan repayment and I was hoping someone could give me advice. I have two types of loans to repay, $20k in government loans with a lower interest rate and $10k in private loans with an interest rate of 8% to 9%.

Should I pay more on the private loans to get them repaid faster because the interest rate is higher?

A: Thanks for asking YOUNG MONEY this question, but we think you've already got a good idea about the answer. Government loans are almost always the most flexible debt, and offer a number of deferments or forbearance options while you pay off those private loans. And intuitively you've realized that paying off those higher interest rates first, makes the most sense (not to mention saves the most cents too).

Talk to your government loan lender to determine if your financial situation qualifies for a deferment or forbearance, if making both government and private loan payments simultaneously is creating a hardship for you.

If you're unable to make that option work, then you can always seek to spread out the payments through consolidation, thus lowering the required monthly payments on both your government and private educational loans.

Colleges warned to give students more variety of lenders

2009-07-27T01:39:00.000-07:00

WASHINGTON - In their most aggressive action yet in response to problems in the student loan industry, U.S. Department of Education officials said that they have sent warning letters to more than 900 colleges and universities reminding them not to limit student choice in picking a lender.

The letter was sent to campuses where 80 percent or more of the federal student loan volume in 2006-2007 was handled by one lender.

Jeff Baker, policy liaison at the Education Department's federal student aid office, said a search of a student loan database revealed that a vast majority of students at each of 921 campuses chose the same lender.

"That was a little flag to us that perhaps the institution isn't quite being open enough to their students and parents," Baker told thousands of college financial aid officials gathered for the annual conference of the National Association of Student Financial Aid Administrators.

The letter, dated June 29, marks the first time the department has sent targeted letters to campuses in regards to their use of preferred lender lists.

Baker said that campuses could face fines or be barred from participating in the federal lending program, known as FFELP, if they violate the department's student loan policies. That also includes a prohibition that bans college administrators from accepting gifts, payments or other perks in exchange for steering student borrowers to a particular company.

Some critics say the Education Department's involvement is overdue, coming in the wake of federal and state investigations into the $85 billion student loan industry, including arguably cozy relationships between colleges and universities and lenders.

New York Attorney General Andrew Cuomo has accused the department of being "asleep at the switch" in its oversight of college loans.

"This is a good step ... but they should be far more aggressive in policing the relationships between lenders and colleges," said Michael Dannenberg, education policy director of the non-profit New America Foundation.

The financial aid group's national conference comes soon after several college-aid officials lost their jobs after it was revealed that they held stock in companies on their universities' preferred-lender lists. Meanwhile, other colleges and universities that received fees from lenders based on the number of student loans issued agreed to reimburse students.

But pending federal legislation and proposed regulations by the Education Department would include a requirement that schools list a minimum of three unaffiliated lenders and disclose how the lenders were chosen.

Supporters of such lists, which have become common practice, say they protect students by pointing them to reputable companies.

The Education Department did not provide a list of schools that were sent the letter last month.

At a conference session Monday afternoon, attorney John Dean of Washington Partners, LLC told an overflowing room of financial aid counselors that if their institutions received the letters, they "better take a look at their rationale" for why such a large share was held by one company.

More students seek private loans

2009-07-27T01:38:00.000-07:00

The number of students taking out private loans for education is growing rapidly, despite the fact they often are more expensive in the long run.

Borrowing through private loan programs for higher education totaled $17.3 billion in 2005-06, which, adjusted for inflation, is an increase of more than 900 percent since 1995-96, according to a new report on private loans by Jacqueline E. King, director of the American Council on Education Center for Policy Analysis.

Private loan borrowing accounts for 20 percent of all education borrowing, according to the report.

"A lot of times (students and parents) think it might be quicker to do a private loan, even though it's more expensive," said Suzanne Pittman, director of financial aid and assistant vice president for enrollment management at Georgia College & State University.

To qualify for a federal loan, students must fill out the Free Application for Federal Student Aid, better known as the FAFSA. The application takes about an hour to fill out, and then the government and college have to process it, which could take weeks, Pittman said.

"Some people think that process is too cumbersome and complicated," she said. "Sometimes you may have students or families who wait until the last minute to do anything about financial aid, and they think they don't have enough time."

Acquiring a private loan is a simpler application process, although sometimes it may require a credit check, she said.

Other possible reasons a student may choose a private loan over a federal loan include comparable introductory rates, a lack of comparative information and misperceptions about who is eligible for a federal loan, according to the American Council on Education report.

Several students who filled out the FAFSA for federal loans, though, said they didn't find the process difficult.

"It was pretty quick," said Max Kingsley, a sophomore at Mercer University in Macon, Ga.

Jannae Carrick, a Mercer senior, said she did research before applying for a loan and decided a federal loan was right for her.

"I didn't even really consider the private ones because they have a bad reputation because their interest rates are so high," she said.

Financial aid counselors generally tell students to apply for federal loans before private loans for that very reason.

"There are some (private loans) that could have very attractive rates, but we've seen alternative or private loans that are charging 21 percent interest, so it's really all over the board," Pittman said.

The interest rate on a Stafford loan, the most common federal loan, is 6.8 percent.

Generally, private loans should be used to supplement federal loans when more money is needed past the federal loan limit. More than three-quarters of private student loan borrowers also took out a Stafford loan, according to the American Council on Education report.

Colleges recommending lenders to students must adhere to stricter guidelines

2009-07-27T01:37:00.000-07:00

CHICAGO - Beginning next school year, colleges that recommend specific lenders to their students must list at least three unaffiliated companies and disclose how they were chosen - reforms prompted by a wide-ranging investigation of student loans that has tripped up universities in Illinois and across the nation.

A final version of the new U.S. Department of Education regulations, which will be published in early November and go into effect in July, also will make it clear that college administrators cannot accept gifts, payments or other perks from lenders eager to get business at the campuses, Education Secretary Margaret Spellings and other officials told reporters during a conference call Wednesday.

"We encourage participants to start adopting these practices sooner rather than later," said Sara Martinez Tucker, Education Dept. undersecretary.

The new rules, similar to those pending in Congress, come toward the end of a year marked by scandals in the student loan industry. The Education Department has come under pressure to beef up its oversight, after numerous revelations of cozy relationships between colleges and lenders.

State and federal investigations found instances where financial aid officials held stock in companies on their universities' preferred-lender lists. In other cases, colleges and universities were receiving fees from lenders based on the number of students' loans.

The new rules for the first time mandate that colleges with preferred lender lists include a minimum number of companies. Critics have said that colleges used the lists to steer students to specific lenders, while supporters of such lists said they protected students by pointing them to reputable companies.

Campuses could be fined or barred from participating in the federal lending program, known as FFEL, if they violate the department's student loan policies.

Earlier this year, the Education Department sent warning letters to 921 colleges and universities where 80 percent of the federal student loan volume in 2006-2007 was handled by one lender. The letters reminded officials not to limit student choice in picking a lender.

Education Department officials said Wednesday that they sent 55 of those schools another letter on Oct. 24 requesting more information about their arrangements with lenders. At 48 of those schools, where federal loan volume exceeded $10 million a year, 95 percent of the loans went to one lender.

The letters went to schools where students had more than $10 million in federal loans last year. The Education Department did not provide a list of the schools.

The letters, also sent to 23 lenders, request copies of any agreements between colleges and lenders; information about cash, stock or other perks provided to college officials or the institutions; and the names of any college employees who served on lender advisory boards.

Paying for Grad School: Tips from an Insider

2009-07-27T01:25:00.000-07:00

From a purely economic perspective, going to grad school is an easy decision. According to the U.S. Census Bureau, adults with a master's, doctoral, or professional degree earn an average of $79,946 a year, while those with just a bachelor's degree earn an average of $54,689. However, figuring out how to pay for that advanced degree can be difficult.

This article provides some sound advice to help you understand your options in paying for either a traditional graduate program or a professional degree program.

Unless you are one of the very few students who can just write a check to pay for your education, you should seriously consider applying for financial aid. Financial aid, even federal financial aid programs, is not solely for low-income students. Almost every student can qualify for some form of aid.

To begin the financial aid process, you should complete the Free Application for Federal Student Aid (FAFSA) form. After completing the form, you will learn your eligibility for institutional aid, grants, and federal student loans. Most schools base their aid packages on the FAFSA, so it is always a good idea to complete it. Graduate students are considered independent, so parental information is not required for federal student aid. However, some colleges do review parental information when awarding their own institutional funding.

Of course, the first avenue to explore is financial aid you don't have to pay back, namely, fellowships, grants and scholarships. For fellowship information, contact the financial aid office or the specific academic department where you'll be a student. You may also contact professional organizations for fellowship information. For example, medical students should look at the American Medical Association or the American Osteopathic Association.

Grants can be found just about anywhere, but the federal government and your state government are key sources. Usually, your school can tell you about any grants for which you are eligible. For scholarships, there are many free online search engines to help you find one (or more) you might be eligible for. Under no circumstances, never, ever pay to enter or search for a scholarship - if they ask for money, it is likely a scam.

If savings, scholarships, grants, and fellowships aren't enough to cover your education expenses, student loans are a good option. In fact, student loans are one of the most common ways to pay for graduate school. In the 2003-04 academic year, 63 % of all graduate and professional students received a student loan. However, as with all financial decisions, doing your homework may save you thousands of dollars.

Your first resource for student loans should be the federal student loan program. Federal student loans have more attractive interest rates and payment terms than private, non-federal loans or credit cards. There are three main federal loans for grad students: Perkins loans, Stafford loans, and Grad PLUS loans.

Perkins Loans. Perkins loans are offered through your school and based largely on financial need. Schools that participate in the Perkins loan program have a limited amount of dollars to lend, so it is important to complete your FAFSA as soon as possible after January 1 of each year.

Stafford Loans. Stafford loans come in two forms, subsidized and unsubsidized. The difference between the two is interest: for subsidized loans, the federal government pays the interest while you're a student. For unsubsidized loans, you pay the interest that accrues while attending school.

Grad PLUS Loans. If you have maxed out your Stafford loan eligibility and still need more money for school, Grad PLUS loans are a great option. Grad PLUS loans have a capped, fixed interest rate - currently set at 8.5% for the 2007-08 academic year - and many lenders will offer discounts that effectively lower the rate. To be eligible, you must have no adverse credit; meaning you cannot be 90 days or more delinquent on any debt , be in bankruptcy, foreclosure, repossession, or have a tax lien or wage garnishment. Also, you can expect to pay a 3% origination fee for your Grad PLUS loan.

Both Stafford and Grad PLUS loan can be obtained from almost any lender, but here is where some research will pay off. Lenders offer discounts to get your business, and each lender's discounts are a little different. So be a comparison shopper and choose the most affordable loan for you.

Interestingly, there are nonprofit lenders that often have the best rates for students in particular states. For example, ALL Student Loan offers competitive rates nationwide; and for students in California, rates are even better.

Another option is a private, non-federal loan. Private loan interest rates are variable, and generally do not have a cap. Also, private loans are credit-based, which means the lender will look at your credit score and financial history. Finally, origination fees associated with private loans tend to be higher than with federal loans, sometimes as high as 10%.

Private loans aren't all bad, though. It's just that they should be used only after exhausting federal loan options. For example, ALL Student Loan offers private loans targeted specifically for students who have maxed out of federal loans. Comparison shopping for private loans is especially important because there are literally hundreds of options.

One payment method you certainly want to avoid is credit cards. Credit card interest rates tend to be high, and you generally need to start paying them off while you're still in school. And, because of higher payments with credit cards, you are at a much higher risk of ruining your credit.

Once you finish school, you cannot forget about your loans: they need to be repaid. If you've left school with a lot of debt, and from various lenders, you might want to consider loan consolidation. Loan consolidation basically lumps all of your loans into one manageable payment and works best for those who are struggling to make monthly payments. Consolidation will, however, extend the repayment time to up to 30 years.

Loan consolidation has been a popular option for the past few years. However, recent federal legislation made it harder for banks to finance consolidation loans, so not as many lenders offer them (or only offer them to borrowers with a lot of student loan debt). Thankfully, there is another option: extended repayment.

With extended repayment, the various loans remain independent, but you spread out the payments over a longer period of time, reducing your monthly payment. To see if you qualify for consolidation or extended repayment, contact your lender or call ALL Student Loan (877-255-0006) to find the best option for you.

Remember to apply for as many scholarships and fellowships as you can. If you need a loan, start with federal loans first, check out nonprofit lenders, and closely evaluate your options. Paying for graduate or professional school can be challenging, but if you do your research and become savvy, you'll see that it can be done affordably.

Pay Off Student Loans or Save for Retirement?

2009-07-27T01:22:00.000-07:00

Today it’s not uncommon for college graduates to owe $50,000, $100,000 or even $150,000 in student loans upon graduating. Unfortunately, it’s commonplace given the escalating costs of tuition and students taking more than four years to complete their education.

Students loans are the necessary price to pay for opportunities and the possibility of career advancement. But be warned, once you assume these loans it becomes your responsibility to manage them effectively and “do your homework."

If you’re like most of us, you didn’t hesitate to take out loans your first year of college because you were filled with the optimism that a college degree would provide you with more than enough income to meet your living expenses, save for retirement, and quickly pay off your loans. But reality isn’t always so kind. Now you realize that between taxes and inflating living expenses there’s not as much money to spread between paying bills and saving for retirement as you had thought. You’re faced with a decision. With your limited income, should you pay off your students loans or save for retirement?

If this isn’t a question you’re asking yourself, it should be. You know that your loans won’t repay themselves, but at the same time you need to maintain a lifestyle and try to put some money away for retirement. There’s just not enough money to go around and the question becomes one of balance, and finding out where every dollar of your income will be put to its best use.

Comparing Peer-to-Peer Lending Sites

2009-07-27T01:21:00.000-07:00

The rising cost of college tuition and other expenses has plagued students for years. Private bank loans are becoming increasingly hard to come by, and government loans require mountains of paperwork and red tape.

Enter peer-to-peer lending (or P2P lending) websites. Experts warn that it can be a risky undertaking for lenders, but, unlike a bank, it allows borrowers to appeal directly to lenders and explain their situation in as much detail as they want.

Say you needed an extra $5,000 to cover your living expenses at college. Maybe you missed the deadline to apply for federal loans, and the bank didn’t think you were a good candidate for a private loan. You could go online and set up a profile explaining why you need the money and how it will be used.

Lenders on the site might choose to invest in you, plus you can link your Facebook, MySpace, and other profiles to your borrower profile so that friends and family can pitch in, too. The site would serve as the intermediary for your loan, which you would pay back over time with interest.
Here’s an overview of five major P2P lending sites and how they work.

Lending Club
Lending Club is a leading social lending network. Borrowers with good credit can get personal loans at better interest rates than conventional funding sources such as banks and credit cards. There is a streamlined process between the source of funds (lenders) and the borrowers who need those funds.

Borrowers complete a personal loan request online and can instantly view the interest rate they qualify for (it's free to check, but Lending Club does have strict credit standards, such as a minimum FICO score of 640, so there is a chance you won’t qualify). There are no hidden fees, and the interest rate is fixed for the full three-year duration of the loan.

How Does Lending Club Set Interest Rates?
Lending Club assigns each borrowing a credit grade. The first part is based on his or her credit score (the higher your score, the higher your grade). The second part is based on the borrower’s debt-to-income (DTI) ratio. A DTI ranging from 0 to 12.99% results in no adjustment. A DTI of 29% results in a downward adjust of 16 sub-grades. The third adjustment is made based on the amount of the requested loan. Lending Club offers each person a loan guidance limit based on your credit grade. I know, it sounds confusing. But Lending Club offers a short tutorial that shows you exactly how the formula works.

Approved borrowers can then list their loan request on the site, at the interest rate they qualify for. There is a two-week loan listing period during which lenders can review loan listings and decide to fund the borrowers. If a loan is not fully funded at the end of the two-week period, the borrower can decide to accept partial funding or relist the loan for another two-week period. Most loan requests receive full funding.

Lenders get the chance to help someone while making a return on their investment.

Lending Club lets you know exactly what you qualify for and lets lenders know exactly how much they will make. There is no guesswork. If you qualify, this might be the best way to go. And since Lending Club has high standards, you are more likely to get your full loan request filled. The lenders know you have good credit and are more willing to take a chance on you. And, Lending clubs fees for borrowers (.75% to 2%) are some of the lowest you’ll find.

Ask Young Money: Does a Disabled Graduate Have to Pay Back Loans?

2009-07-27T01:19:00.000-07:00

Q: Does a disabled graduate have to pay back all of the loan borrowed? My daughter is disabled from diabetes and has been unable to work, but is still paying on her loan. Any help will be appreciated.
Thank you, Wanda.

A: Your daughter has several options in the repayment of her student loan due to her disability. If she is temporarily disabled due to her diabetes and unable to obtain employment, than her loan servicer can grant her a temporary total disability deferment. This deferment will temporarily suspend her loan payments until such time she is able to obtain employment. Keep in mind during the deferment period her loan will be accruing interest in most cases.

The second option is if your daughter diabetes causes total and permanent disability which will not allow her to obtain employment now or in the future. Your daughter’s student loan servicer will require a letter of certification from her physician stating your daughter is total and permanent disability in order for her loan servicer to complete the borrower’s discharge documents. In either case, your daughter must contact her current student loan servicer to discuss both of these options.

MARY JO LAMBERT-TERRY
As Director of National Lending Associates, Inc. (NLA); and President of The Student Loan Processors, Inc.(TSLP); and Executive Vice President, Sales of Education Loan Source, Inc. (ELS) [wholly-owned subsidiaries of NLA]; Ms. Lambert-Terry offers more than 15 years of strategic management experience in the student lending industry. In her role as President of TSLP, Ms. Lambert-Terry oversees the day-to-day management and strategic direction, assisting students and their families with low-cost, comprehensive education financing solutions. As Executive Vice President, Sales of ELS, Ms. Lambert-Terry is responsible for managing the direction and marketing of its Custom Loan Source ProgramSM to regional and community banks.

Loans with A Twist: Peer-to-Peer

2009-07-27T01:18:00.000-07:00

If you’re having trouble getting a student loan, you might be tempted to go through a peer-to-peer loan site. With phrases like “finance education the easy, affordable way!” and “get student loans from people who believe in you,” sites like fynanz.com and greennote.com make offers from private lenders that seem too good to be true.

While traditional government student loans have mandated dollar limits that fall short of real-world education expenses, these college lending sites boast no dollar limits. The downside could be a higher interest rate. If you’re considering using one of these sites, take the following steps before you commit:

• Know your credit score. Like many private lenders, the interest rate you may be offered will vary based on your credit score.
• Check to make sure the loan has a fixed interest rate. That means the rate won’t change throughout the life of the loan.
• Know when the loan payments will become due. Some loans may require you to make payments while you’re still in school, which may be hard for you to pay. Other loans may not become due until six months after you graduate, which should give you time to secure a job and a paycheck.
• Know the consequences of missing payments. If you’re unable to repay the loan on time, your account could be turned over to a collection agency, which will ding your credit score and make it harder for you to get credit in the future.

Life with Loans

2009-07-27T01:16:00.000-07:00

To spend or not to spend? That’s a question Erin Monahan asks herself frequently. Since she graduated from the University of Southern Indiana in 2005 owing $31,500 in student loans, most of her day-to-day choices are centered on money. In a three-month journal kept last year, the 24-year-old from Indianapolis shares how she’s moving forward with her debt and dreams in tow.

april 15
I have four jobs. My full-time job is acting at the local children’s museum. This position is 37.5 hours a week, pays $28,000 a year, and includes medical benefits and 25 days of paid time off per year. I earn about $200 a month in my three part-time jobs: event host and planner, public relations specialist, and script writer. How do I prioritize these jobs? Very, very carefully. I fear burn-out, but the extra money is helpful.

april 16
I enrolled in one graduate course, paid by my employer’s education reimbursement program. I can’t justify the cost of grad school on my own while I’m more than $30,000 in debt for undergrad. I’m waiting to see if I can handle this class and my jobs before enrolling for next semester.

april 18
My rent is $375 a month, including utilities, to live in a room with a shared bathroom and kitchen. I plan to move to save money by living in a house with friends. We’ve spent the past few months looking for a place to rent. We found it! Plenty of space, hardwood floors, and near downtown. It’s $1,000 a month for a 13-month lease. I have agreed to pay $280 for a larger room. We’ll split the water, gas, electric, and Internet bills evenly, so my total utility cost should average $75. Fortunately, all of us agree that cable service is a waste of time and money. I’ll save $20 a month.

april 19
My family and friends have plenty of moving boxes for me to use and my father will help me move. To cut down on items to move and save money, I tried to avoid the grocery store last week and eat only what’s left in the pantry of my old place. Why did I buy five cans of tomato soup last fall? Never again.

april 25
All moved in. I made several purchases for the house today. I keep asking myself, Do I buy the cheapest thing, spend the money on what I really want, or get something in between? I can mix and match funky sizes and shapes of silverware from a thrift store for much less than purchasing a new matching set. Thrift store wins.

april 26
My new roommates and I shared dinner costs multiple times this first week. It is a nice feeling! I have been eating healthier. And no more tomato soup.

april 29
Last summer, I bought a used 2002 Toyota Prius with 60,000 miles on it for $11,000, including taxes. My parents agreed to help me with my student loans so I could get a good, reliable car. They pay $215 a month on my college loan that has to be paid back in five years. I pay $75 a month for a college loan that I have 30 years to pay back. Even though my car’s 40 to 45 mpg has saved me gas money, the $210 monthly car payments and maintenance costs are tough. Since someone scraped my back bumper and taillight without leaving insurance information, I continue to weigh the need to have my car fixed. The $500 deductible is hard to get together right now. Is it worth putting it on a credit card and paying interest? My fear of rust from the chipped paint may push me toward the cosmetic repair.

april 30
I just realized how often I use coupons! For grocery purchases, an oil change, online shopping. I debated the value of taking the time to find coupons and better deals vs. spending the extra money to save time. I chose time. The only coupons I use now are printed out with my receipt at the grocery store or from Web sites I quickly check before shopping.

may 3
I bought an awesome mattress. It’s a floor model that cost just $600 instead of the $1,000 regular price. While hundreds of customers probably have laid on it, no one has ever actually slept on it. Thank goodness for inexpensive, washable mattress pads.

may 8
I embrace the power of trade. I carpooled with a co-worker to my parents’ house four hours away. Instead of the $16 I owed for gas, she accepted a bag my mother crocheted using recycled plastic bags.

may 9
If I purchase the greasy pizza slice with my work discount, I pay only $2.49. If I bring the frozen organic meal I bought on sale for $3.50, I spend more money but feel less sluggish. These decisions about what is valuable to me have become more and more difficult. Is pleasing my stomach more important than emptying my bank account? It depends on the day and my mood. Today, pizza won.

may 23
The museum matches up to 12 percent of my contribution to my retirement account. Recently, I started contributing 10 percent of my income to see if I could manage without racking up credit-card debt. So far, success! Today, on my one-year anniversary at work, I received a 3 percent pay raise. I upped my retirement fund contribution to 12 percent and still have a 1 percent
increase in my take-home pay.

may 26
What does refinance mean? When I called my bank to order new free checks, the advisor told me I qualify for auto-loan refinancing. My response was: “What does refinance mean, exactly?” The patient representative explained that when you refinance a loan, the lender takes a look at your credit report and payment history and determines if you are eligible for a lower interest rate. Turns out I am. By having my auto loan lowered a fraction of a point, I will save $849 on the total loan. The rep offered to give me a month off making car payments and to lower my monthly payment by a few bucks. I turned down the offer so that I can pay back my loan a few months earlier than expected. Who knew learning about money could be so rewarding?

june 3
At work, I have been putting $10 per paycheck into a flexible spending account to use for medical purposes. Unfortunately that did not prepare me for a medical scare. I’ll have to visit
the doctor more in the next two months than in the past year. Fortunately, my flex account has enough funding so that I won’t be financially drained. My doctor recommended I cut some stress out of my busy life, so I left my event host job. I’ll lose some monthly income but gain time to get healthy. And time to tell all my friends to be sure to get their yearly check-ups!

june 12
The second Saturday of every month, my roommates and I host a music and art show. We invite visual artists to display their work and musicians to perform. We buy the ice, snacks, paper plates, and plastic cups. We ask guests to bring their own beverages and to donate money to pay the musicians. Not bad. I spent just $20 for an evening of live music, art, drinks, and good company in my own home.

june 20
My bank notified me that it was upping my credit card limit by $4,500. The letter also included
a set of convenience checks. I took advantage of the offer to pay the $500 deductible on my car repair.

june 24
I received a special life insurance offer from USAA: I can pay $5 a month for $50,000 worth of coverage, without medical screening. I qualified simply based on my age and membership. It is tough at the age of 24 to be talking about my possible death, but I feel better knowing that the policy will pay off my debt and won’t burden anyone.

july 3
One of my part-time jobs offered me the opportunity to attend the Urban Music Awards in New York City. I’ll pay $120 toward gas and limo rental. Since I’m staying with a co-worker’s father in New Jersey, I’ll get free lodging. Good thing, since I had to splurge on a $30 pair of heels to go with the formal dress that I purchased on eBay several months ago. Although this event is not something I budgeted for, I believe the experience will be worth it.

july 9
I spent $19.99 on a pair of jeans on clearance. This was an emergency purchase after my favorite pair of jeans busted a button. I’ve avoided buying new clothes lately. My rule is that I have to donate as many things as I buy. I haven’t had the heart to get rid of much lately or the extra money to buy more.

july 11
Because of a schedule change, I have time to date again. Since money’s tight for both of us, we’ve found creative ways to share expenses. I pay for dinner, he gets the movie. He pays tonight, I pay next week. We cook dinner at home and rent a movie from the library, or go for a long walk downtown. Life on a budget isn’t so bad.

Last note
Journaling my spending decisions for three months taught me a lot about my finances. My biggest burdens are my student loans and saving for retirement. The past and the future are costing me a lot in the present. The cushion of my credit card is used more often than I would like, and my savings seem to disappear as soon as I scrape some together. But as a single person recently graduated and working in the arts, I’d say I’m doing pretty well.

How to Manage Your Student Loans

2009-07-27T00:59:00.000-07:00

As someone who has gone to college twice (thanks to a last-minute decision to attend grad school), I’ve amassed a pretty hefty amount of student loans. These loans are a mishmash of subsidized and unsubsidized federal and private loans that have one thing in common: they need to be paid off. Luckily, I was well versed in the art of managing student loans as an undergrad; making a handful of smart money moves then has made these loans manageable now. The secret? Stay informed and don’t wait until graduation to figure out how you’re going to pay everything back.

According to the Project on Student Debt, a nonprofit advocacy group, nearly two-thirds of students leave college with student loan debt. With college costs on the rise, many students graduate with more than $20,000 in loans and credit card debt and others may even find themselves with debt reaching six figures. The amount of debt can get worse if students don’t know how to handle it from the outset. Here’s how to make the right moves:

Plan from the Outset
Starting from your freshmen year, every time you take out a student loan, you should be aware of what the loan terms are, how long the grace period is, and whether or not these loans are subsidized or unsubsidized. Taking out the right student loans while you’re in college will make the repayment process immensely easier. Knowing what the terms are from the get-go will also help you plan ahead and be more conscious of what you can spend during the school year. Senior year is the time to get everything organized in preparation for the repayment process. By then, you should have taken out all the loans you’ll have needed for school and should have a good sense of how much you’ll owe once you’ve graduated.
The best loans to get are federal student loans because they have much more favorable terms than private loans, including lower interest rates and better repayment plans. There are three types of federal loans available to undergrads:

Federal Stafford loan: The most common of the federal loans, Stafford loans disbursed after July 1, 2006 have a fixed, low interest rate.
Federal Perkins loan: Students with exceptional financial need are offered low-interest Perkins loans, generally carrying a rate of five percent.
Federal Parent Plus loan: A loan offered to parents of undergraduates to help cover the entire cost of their child’s education. Remember, this is a loan your parents – and not you – have to take out, so make sure your parents are on board before looking into a Plus loan.

Students can find out if they are eligible for these loans by filling out a Free Application for Federal Student Aid (FAFSA).

If you can’t secure enough federal loans to cover your educational costs, look into taking out a private loan. Private loans are not ideal because the terms can be relatively unfavorable — most are unsubsidized and have higher interest rates. Although private loans are not ideal, they can be better than other lines of credit, so don’t write them off.

Be Organized
During your senior year, make a list of all the loans you’ll have to pay off once you’re through with school, including credit card debt and any other costs you may have incurred while in college. This will help you prioritize your debts and will let you evaluate which of your balances have the highest interest rates. Generally, private loans and credit card balances will have the highest rates, so focus your energy on eliminating these debts first while making the minimum payments on your other balances. This is the most efficient way to tackle your financial obligations and will save you tons of money in the long run.
“Another way to save money is to stay in communication with the lenders,” said Robert Shireman, Executive Director of the Project on Student Debt. “What will often happen is that students will miss a payment because they change their address after graduation without telling the lender. When students miss payments, they lose eligibility for possible benefits given to borrowers that make their payments on time.”

Decide if You Need to Consolidate
Once you’ve tossed your cap and received your diploma, you’ll notice a barrage of letters coming from various lenders badgering you to consolidate your federal student loans. Consolidation means taking all your federal student loans and combining them into one big loan under one lender.

Consolidating can make paying back federal loans easier because you only have to make one payment to one lender each month. Even so, if you do have multiple federal loans, you will generally be able to work out a system that will let you pay all of them in one bill each month. One easy way to do this is by going on to the Federal Student Loan Servicing site and enrolling in their electronic service. Once you’ve enrolled, you can make online payments, view your payment history, and change your billing options.

According to Shireman, there are fewer reasons than there used to be to consolidate your federal loans. This is because in 2005, Congress set a fixed rate for Stafford and PLUS loans. Consolidating to get a fixed rate with a lender is no longer beneficial because the government’s fixed interest rate is slightly lower than the consolidation rates. Fixed rate loans have an interest rate that will remain the same for the loan’s entire lifetime — until the loan is paid off. Shireman recommends consolidation only if you have any student loans that existed prior to July 2006, because these loans have variable interest rates that could be lowered if you choose to consolidate under a fixed rate.

With this in mind, the easiest way to figure out whether or not you should consolidate is to pay attention to your loans’ interest rates. Are they variable or fixed? If they’re variable, look into consolidation. If they’re fixed, you might not want to consolidate. You should generally wait until July 1 if you do consolidate because that’s when the rates for student loans with variable interests reset. On July 1, 2008, borrowers with variable-rate Stafford loans saw their interest rate drop from 7.22 percent to 4.21 percent. Remember, doing a little research can save you a lot of money in the long run!

Devise a Repayment Plan
It’s a good idea to let lenders know what your income will be and to ask them to match that income with a repayment plan you can handle. Lenders can also tell you about additional repayment plans that are available or give you suggestions for the best way to pay off a particular loan in relation to your other debts. When times are tough, opting for an extended repayment plan will allow you to make smaller monthly payments; the tradeoff is that you’ll have to pay more over the entire life of the loan.

The best way to take advantage of extended repayment plans is to use them to pay off other debts faster – especially those that come with higher interest rates. These plans can also help you reserve scarce funds for other costs, such as medical bills or car payments.

“Remember that you can always change your repayment option if you get into a better situation – there’s no penalty for early repayment on either federal or private loans through Sallie Mae – and talk to your lender if you end up in a difficult situation,” said Erika Eriksdotter, a corporate communications representative for Sallie Mae, a college student loan company.

Avoid Mistakes
“The biggest mistake you can make is not paying attention to your loans and having a lender track you down,” said Shireman. “This has a negative effect on your credit report and if you ignore your debt and end up in default, it’s terrible. Some employers look at your credit report as a way to look for responsible people and it doesn’t look very good to have not paid your loans.”

Rather than doing your best to ignore your debt, talk to your lenders if you’re having difficulty making payments. Lenders are willing to work with borrowers who have financial difficulties, and the federal aid ombudsman and other assistance may be available as well. You can also work with your lenders to defer your payments or ask for a forbearance to postpone payments. This will allow you to maintain your credit record while you get back on your feet.

Eriksdotter recommends getting a copy of your credit report every year to review it for inaccuracies. “Adverse information on your credit report may result in higher interest rates when you buy a car or house or make any other purchase on credit,” Eriksdotter said in an e-mail.

Stay Informed
Student aid advocates are always working to find ways to lessen the student loan burden, so it’s important to keep abreast of information that affects loan borrowers. One recent development is the Income Based Repayment (IBR) program, which was signed into law in September 2007 as part of the College Cost Reduction and Access Act. The program’s purpose is to ensure that students who take out loans for college do not later find themselves unable to pursue careers in public service, raise a family, or save for retirement.

IBR will not be available to borrowers until July 1, 2009, but when it is implemented, the program is expected to cap student loan payments at a reasonable percentage of income. This means that grads with lower-paying jobs, many of which are in the public sector, will make monthly payments in line with their income. The program also ensures that there is a light at the end of the tunnel for borrowers: after 25 years, most remaining balances will be forgiven. Those in public service careers can have their remaining debts forgiven after 10 years under the public service loan forgiveness program.

Other loan forgiveness programs are available for borrowers who perform volunteer work or military service, teach or practice medicine in certain communities, or meet other specified criteria. If borrowers do meet these criteria, the federal government will cancel all or part of an educational loan. Examples of borrowers who would benefit from loan forgiveness include AmeriCorps and Peace Corps volunteers, students in the Army National Guard, and some borrowers pursuing careers in occupational and physical therapy.

Hang in There!
Having to pay off your student loans shouldn’t be a heavy burden. Remember, 75 percent of your peers are going through the same thing. If you make the right decisions from the beginning and prioritize your debts, you should still have some leftover funds to allow you have a decent social life. You can still save for retirement, a nice vacation, or a personal indulgence. Have some fun, keep at it, and pretty soon those monthly payments will disappear and you can move on with your life.

Attention High School Seniors: Your College Education is in Jeopardy

2009-07-27T00:51:00.000-07:00

Even before the financial markets began to tumble, experts predicted that this year’s graduating class would be subjected to one of the most competitive college admissions environments on record, with a particularly large population of high school seniors pushing college application numbers ever higher. But now that the economic downturn has entered into the picture, the admissions landscape may be changing even faster than expected, and students could find themselves disappointed or even distraught when the acceptance and rejection letters start pouring in.

With budgets slashed, many colleges are taking measures that will effectively make the admissions process even more selective, so if you’re applying to college, we suggest you look into the financial situation of each of your target schools and reassess your list before sending those applications off.

Private Colleges

For most private universities, the school’s endowment is its lifeline. So when a financial crisis causes donations to dry up or the school’s stock portfolio to plummet, colleges have to find ways to cut costs. CNNMoney reports that Moody's, the financial research and ratings service, has projected a 30% decline in the value of college and university endowments in general this fiscal year. In one notable example, Harvard, the world’s wealthiest institution of higher learning, announced last Tuesday that its endowment had lost more than $8 billion over the past four months.

What does that mean for admissions?

Admirable programs like “need-blind” admissions policies could be jeopardized at many of the schools that offer them. That means that some students who need cash may be rejected in favor of those who can afford to pay full tuition or require less financial aid. According to a report released by the National Association for College Admission and Counseling (NACAC) this November, less than one third of all colleges are able to offer financial aid packages that meet the full financial need of all the students they admit.

Even the schools that maintain their need-blind programs may not be casting a blind eye after all. In a recent press release, NACAC President William McClintick noted that, “While the concept of need-blind admission was developed to ensure that students were not rejected due to financial need, admission practices that utilize differential financial aid targeting have emerged recently as colleges grapple with difficult aid allocation decisions.”

But with college tuitions rising to such astronomical highs (with Sarah Lawrence College coming in as the most expensive with a total cost of $53,166/year), most students need cash.

A recent article in The New York Times reported that from 1982 to 2007, college tuition and fees increased 439 percent, while median family income rose just 147 percent. Over the past decade, student borrowing has doubled and, on average, students from lower-income families receive smaller grants from colleges than students from more affluent families.

“Last year, the net cost at a four-year public university amounted to 28 percent of the median family income, while a four-year private university cost 76 percent of the median family income,” reported the Times.

These findings are worrisome, all the more so now that many families have taken a hit on the stock market or suffered layoffs. College is becoming a luxury that fewer can afford at a time when student loans are becoming increasingly difficult to obtain. A survey administered by the scholarship-matching website FastWeb found that nearly half of student loan applications are being denied.

Those who find that they can no longer afford tuition at a private school might look to more modestly priced public universities—but those schools are facing a host of problems of their own.

Public Universities

The top public universities will soon be in higher demand than ever before, and may even draw the caliber of applicants typically reserved for Ivys as the best and the brightest of the broke vie for a quality education. SUNY Binghamton University, for example, received over 50% more early applications this year than at any time in its history.

But public universities have financial problems of their own, as the state governments that provide much of their funding have been hit hard by the economic downturn. In California, Governor Schwarzenegger has proposed a $4.8 billion cut in education services. The UC system recently announced a midyear $65.5 million budget cut, on top of a $48 million reduction that was already approved earlier this year. And the California State University system has also announced that it will be accepting 10,000 fewer students this year due to financial constraints.

With well-heeled private institutions like MIT trimming expenses, it’s no surprise that public universities across the country are feeling the squeeze. In a recent article, The New York Times reported that “the University of Florida, which eliminated 430 faculty and staff positions this year, was told recently to cut next year’s budget by 10 percent, probably requiring more layoffs. Financing for the University of Massachusetts system was cut $24.6 million for the current fiscal year.”

So as more students are applying to colleges overall, and financial issues lead more people to apply to public schools, public universities may begin to admit fewer students because of severe budget cuts—all this while dramatically diminishing resources may jeopardize the quality of the education public universities can offer.

What can you do?

1. Reassess your financial situation. What can you afford to pay? Play it safe and prepare for the worst; who knows where the economy will go in the coming months? Get a figure on paper and see which schools are in your price range.

2. Re-compile your list of schools. Taking into account the concerns outlined above and your newly calculated price point, reconstruct a list of reach, target and safety schools. Evaluate the financial situation at each school and consider how it might affect your chances of admission.

3. Apply to more safety schools. Because the financial situation may skew the qualifications for admission and tip the applicant pool so that grades and test scores increasingly have to compete with checkbooks, some of your target schools may now be considered reaches. Even if your own finances are stable, consider how the economy might affect admissions at your target schools and whether the schools might be experiencing an unprecendented influx of applicants that could place you out of their acceptance pool. You should probably add at least 2-3 more safeties to your list and consider schools one or two notches below your previous baseline. It’s better to be safe than to find out in March that you’ve been rejected from most or all of your choices.

4. Visit Unigo.com for a list of schools under the $20,000 price point.

5. Consider Community College. It may not be your dream school, but if you and your family simply can’t afford to pay for college right now, it’s a practical and, most importantly, affordable alternative. Plus, it’ll buy you some time. A two-year program at a community college will give you time to see if the market stabilizes and can allow you to try to save up some money to transfer to a public university after you receive your associate degree.

6. Fill out your FAFSA. And get it in early. They say that the earlier you submit your FAFSA application, the greater your chance of receiving the full amount of financial aid for which you qualify.

7. Look into private student loans. Visit the FinAid website for all your private student loan needs. Check with your bank or local credit unions, as well as other private student loan providers. The interest rates at these lenders will be higher than those of federal loans, but at least you’ll be able to pay for school if federal loans won’t cover all your costs. You should be aware that a large bank may turn you down, so finding a local bank or credit union may increase your chances of securing a loan.

A few more excellent tips from college counselor and education blogger Mark Montgomery:
8. Develop a “top 25%” strategy that will help increase the likelihood you will get the aid you need.While there is a great deal of variation in financial aid policies, most colleges shower their best financial aid packages on those students in the top 25% of their incoming class. Colleges routinely report the average ACT or SAT test scores by identifying the “middle 50 percent” range of scores of admitted students. So if Elmer Fudd College reports an middle 50% ACT range of 22 to 26, this means 25% of students scored lower than 22, and another 25% scored 27 or higher. An applicant to Elmer Fudd College with an ACT of 29 has a much better chance of receiving a solid financial aid package than the applicant with a 22.

9. If you plan to take out a loan to partially finance an education, start shopping for that loan now.Do not wait until admissions decisions are made. Learn what loans are available (or not) so that you can make a realistic plan for how much you can borrow. This knowledge will make it easier to compare financial aid packages later when they are finally announced.

10. Don’t assume that your in-state colleges and universities offer you the best deal. As an example, see my post here about cost comparisons for a Colorado student considering University of Colorado vs. Montana State University or the University of Wyoming.