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

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

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

(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

(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

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

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?

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.