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Saturday, March 28, 2009

Student Loan Tips for New College Graduates

How are you ever going to pay off your student loans? Is your college debt going to follow you around for the rest of your life?

Investing in Your Future
Although it may seem daunting, if you approach your college loans as an investment rather than a burden it could help you get rid of your debt. If you think about it, you’re not much different than a business that borrowed thousands of dollars in startup money. You took out student loans to fund your professional training, now that you have the needed skills you can earn the money to pay back the debt. First we’ll take a look at making your payments while managing your cash flow.

Student Loan Consolidation
Many small businesses use a variety of funding sources when getting started such as credit cards, personal loans, and money borrowed from friends and family. Once they begin earning a steady income, one of the things they might do to lower payments and simplify the expense is to consolidate their debt into one payment.

Since college students in search of school money will also frequently use an assortment of funding sources, student loan consolidation may help simplify your college debt repayments. Consolidation can also reduce your monthly payments, for example you could go from owing $200 a month on three different loans to owing $200 on one. Obviously, you still have the same amount of debt and you’ll actually pay more interest over the long term. Another reason to consider loan consolidation is if you have loans at several different interest rates, you might be able to role them all into one loan with a better rate.

Lowering Your Payments
Of course, not all college graduates get a job right away, just like not all businesses are profitable right away. There may be a period of time after graduation when little or no money is coming in. Even though cash flow may be tight, you still have to pay back the money you borrowed. One thing you might look into is lengthening your student loan term, which should reduce your monthly payments. Of course this will actually increase the amount of interest you pay over the life of the loan but can help your cash flow in the short term.

Delaying Your Payments?
One advantage that college graduates in debt have over small businesses trying to pay back startup loans is that repayment rules are a little more flexible for students. If you haven’t landed a job yet and run into trouble making your monthly payments you can sometimes work with the lender to get a deferment, which allows you to hold off regular payments. If you don’t qualify for the defermentthere’s also something known as a forbearance which lets you temporarily postpone regular payments, typically for a shorter period of time than the deferment. Although these methods allow you to put off payments the interest on your loan will still be accruing.

Paying Off Your Loans
So far we’ve looked at cases where money is tight right out of school and you need help repaying your debt. If, on the other hand, you do find a job and have money you can put towards making extra payments on your student loan then go for it. The money you borrowed to go to school was an investment in your future earnings power. If you see the results of that investment right out of school and start paying down your loans then your break even point on the money you borrowed will come sooner.

Don’t be discouraged if you can’t afford to accelerate your loan payments, your degree should pay for itself eventually. Many students wouldn’t have been able to afford a college degree without borrowing money. You’re basically using leverage, borrowing money from the government at relatively low rates, to invest in an education. You then use those skills to earn a higher salary and pay off the money you owe over an extended period.

Student Loan Summary
You can use methods such as student loan consolidation, deferments, and forbearance to help manage the amount you pay for student loans as you’re getting on your feet. Once you have an established salary, paying down your loans will reduce the amount of total interest you pay and help pay off the debt faster.

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posted by Moderator @ 1:18 PM 0 comments

50 Student Loan Tips

1. Meet with your financial aid or guidance counselor to get a better understanding of the student loan process.

2. Do not assume that you will not qualify for financial aid - there are many options available. (Some loans such as unsubsidized Stafford Loans and PLUS Loans are granted regardless of need.)

3. Start planning early! You can fill out the Free Application for Federal Student Aid (FAFSA) (after January 1st) even before you graduate from high school. If you have graduated already, start it ASAP!

4. Make sure that the FAFSA form you are filling out is the correct form for the school year in which you are seeking financial aid for.

5. Have all income, asset, tax information, etc. information available and ready to go before starting to fill out the FAFSA form.

6. Include your parents or guardians in on the whole process to help you with any questions that you might have about your expected family contribution (EFC), income, etc.

7. If filling out a paper copy of the FAFSA form, make a photocopy beforehand to practice on, to avoid making any mistakes on the original.

8. Consider completing the FAFSA form on the web at www.fafsa.ed.gov.

9. Always read the instructions before starting to fill out the FAFSA form, and follow them exactly.

10. Make sure that your FAFSA form is filled out completely and accurately to avoid delays.

11. Be honest and precise when filling out your FAFSA - do not lie about incomes, etc.

12. Do not leave any spaces on your FAFSA form blank. Put a zero in the space instead.

13. Do your research - not all loans are created equal!

14. Shop around! Compare lenders and see who will give you the best deal.

15. Look for a lender who will offer a variety of flexible programs to choose from.

16. Look for a loan that does not have prepayment penalties - paying all or part of your loan off early will save on interest!

17.Look for a lender who will guide you through the student loan process and answer any questions that you might have.

18.Educate yourself on the types of loans and see which one fits your needs the best.

19. Understand the benefits and differences between federal loans and private loans.

20. Understand that private loans require a credit check.

21. Consider using a co-signer on private loans.

22. Understand the difference between subsidized federal loans and unsubsidized federal loans.

23. Always read the fine print on your loans, so that you know exactly what terms you are agreeing to.

24. Do not borrow more than is necessary - remember that you will eventually be paying this money back.

25. Sign and return all award letters and/or Master Promissory Notes ASAP!

26. If you are not satisfied with the amount of financial aid you receive, negotiate with your school's financial aid officers, or your lenders.

27. Find out about forgiveness options. Some fields of study offer to compensate part or all of your loans if you will work in that field for a number of years

28. Watch your mail for important information regarding your loan before, during and after your schooling.

29. Pay interest on unsubsidized loans while you are still in school, if possible.

30. Maintain half-time student status. This will keep your loans in deferment, meaning that you will not have to pay the monthly payment yet. If you do drop below a half-time status, you will enter the repayment period of the loan.

31. Stay within your budget to avoid using all of your loan money too soon.

32. Use student loans only for educational purposes. Using this money for other reasons is fraudulent and a criminal offense.

33. If you are filing taxes, meet with your CPA to discuss your options for deductions regarding your financial aid.

34. Attend all of the required Entrance and Exit Loan Counseling Sessions. This will give you important information pertaining to your loan.

35. Make your lender aware of any name or address changes to avoid any unnecessary problems.

36. Consolidate your loans - this could save you thousands of dollars.

37. Consolidate your loans while you are still in your grace period! This will allow you to lock-in at a lower rate than after your grace period is over.

38. Look for a company to consolidate with who will offer the best rates and incentives.

39. Look for a company to consolidate with who will guide you through the process and answer any questions that you might have.

40. Consolidate with a company who will offer different payment plans and options that will accommodate you and your income.

41. Take advantage of borrower benefits. Law School Loans offers a borrower benefit of saving .25% off of your interest rate by paying with auto-debit, as well as an additional 1% rate deduction after 36 consecutive payments. *

42. Create a realistic budget to help with paying your monthly loan payments.

43. Stay organized! Keep copies of your applications and other forms on file.

44. Make your monthly payments on time! Failing to do so can lead to default.

45. Make your monthly payments, regardless of whether or not you receive a bill. You are obligated to make the payments each month, even if you do not receive a reminder.

46. If you are unable to make your payments, contact your lender immediately. There are deferment or forbearance options that could temporarily postpone your monthly payments.

47. If you are granted forbearance, do not drag it out longer than necessary. The interest that accrues while you are in forbearance will be added to your loan balance.

48. If forbearance is necessary, consider it only for your federal loans, and continue making the monthly payments on your private loans. Private loans tend to have a higher interest rate, so this will save you money in the long run.

49. Round your monthly payments up. Paying a little extra each month, can save you a lot of money in the long run.

50. Stay informed about your loans. Always be aware of the balance, interest rates, etc.

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posted by Moderator @ 12:11 PM 0 comments

7 Secrets You Need to Know About College Student Loans

1. Financial aid officers at all the major schools are wined and dined by the big student loan companies. These financial aid offices have set-up a "loan process" with a specific lender. In many cases, this is the federal government, but many colleges are now going with private corporations. The paperwork hassle in dealing with a bureaucracy has become too much for these financial aid officers. In some cases, the financial officer is really a "stand-in" rep. for a student loan company. However, what they are selling or advocating may not be the best deal. Consider that when you're trying to get financial aid help from a financial officer at a school.

2. Under the Clinton administration the federal government got involved in the student loan process in a big way. Now the private companies are getting the business back. If you are going to a private college you may not be eligible for federal loans.

3. Always consider your options and talk to a financial aid counselor. If you are applying for graduate school, be aware of the fact that there are few scholarships for graduate school relative to undergraduate programs. You may be able to find a scholarship, but in most cases it will not cover the real costs of graduate school. A graduate student loan may be your only option.

4. It is recommended that you go with a loan company that offers all of the following types of loan services:
Private Student Loans
PLUS Loans
Federal Stafford Loans
Student Loan Consolidation
Private Consolidation Loans
You want the largest selection possible.

5. Whenever possible lock in a student loan rate. Some loans are based off the Treasury bill. In these cases, the loan rate fluctuates. This can either be really good or bad. When interest rates go up, you may want to restructure the loan.

6. Pick a fixed student loan rate and start date to do a side by side comparison. Make sure that you are comparing apples to apples when student loan shopping and checkout numerous student loan companies before making a decision.

7. Never borrow more than you absolutely need. Compound interest can make a small student loan turn into a huge amount. Don't take out extra money and play the stock market or try to get rich quick. This scenario almost never works out for college students. Moreover, in most cases it is a violation of the student loan agreement.

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posted by Moderator @ 12:02 PM 0 comments

Thursday, March 26, 2009

Federal Student Loan Consolidation

Federal student loan consolidation is a fixed-rate refinancing program that combines all of your existing federal student loans into one new loan. Consolidation is a great tool for managing your finances - providing immediate payment relief and long term benefits. With our fast and convenient eSignature, your application will be complete in just a few minutes.

Cut your monthly student loan payment by as much as 50%
Simplify your finances with one monthly payment
Improve your credit rating
No credit checks, fees, or application charges
Reduce your interest rate 0.6% by consolidating during your grace period
Free Non-Student Loan Debt Consultation
Do you have more debt outside of student loans? Please request a free debt consultation today. Consolidate your debt into one lower payment, avoid bankruptcy, and be debt free in as little as 12-48 months. Get Started Now!

Get Started – Easy Online Application
Federal Student Loan Consolidation Payment Relief
One of the key benefits of consolidating your federal school loans is payment relief. By combining all of your student loans into one consolidated loan, you can lengthen your repayment term from the standard 10 years to up to 30 years, depending on the amount of your education debts. With a lower monthly payment, you'll have more money available to meet other living expenses, including car payments, housing expenses, and career-related necessities. Because there are no penalties for overpayment, you can make larger payments and reduce your repayment term when it becomes affordable. Learn more about how student loan consolidation works in this step-by-step tutorial.

Consolidating with Student loan Consolidator
Get one-on-one personalized customer service. Our loan counselors will educate you on the benefits of federal student loan consolidation and help you determine if consolidating is the right choice. We will explain the consolidation process and the repayment options that are available to you.

What Qualifies for Federal Student Loan Consolidation?
Federal loan consolidation can include Federal Stafford Loan consolidation, PLUS Loan consolidation, Direct Loan consolidation as well as Perkins Loans, HEAL Loans and all Federal FFELP and Direct Loans taken to pay for your education. Private student loan consolidation is different - You will lose your federal loan benefits if you consolidate your federal loans into a private loan consolidation.

Get Started – Easy Online Application

Consolidating with Student loan Consolidator
Get one-on-one personalized customer service. Our loan counselors will educate you on the benefits of federal student loan consolidation and help you determine if consolidating is the right choice. We will explain the consolidation process and the repayment options that are available to you.

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posted by Moderator @ 9:27 AM 0 comments

FinAid : Student Loan Consolidation

Consolidation Loans combine several student or parent loans into one bigger loan from a single lender, which is then used to pay off the balances on the other loans. It is very similar to refinancing a mortgage. Consolidation loans are available for most federal loans, including FFELP (Stafford, PLUS and SLS), FISL, Perkins, Health Professional Student Loans, NSL, HEAL, Guaranteed Student Loans and Direct loans. Some lenders offer private consolidation loans for private education loans as well.

A separate page provides a comparison chart of consolidation loan discounts.

Most FFELP lenders are no longer offering consolidation loans because these loans are no longer profitable. Students can still consolidate their loans with the US Department of Education's Federal Direct Loan Consolidation program at loanconsolidation.ed.gov even if their college does not participate in the Direct Loan Program.

Interest Rates

The interest rate on a consolidation loan is the weighted average of the interest rates on the loans being consolidated, rounded up to the nearest 1/8 of a percent and capped at 8.25%.

For example, suppose a student has just unsubsidized Stafford Loans originated on or after July 1, 2006. These loans have a fixed interest rate of 6.8%. When they are consolidated by themselves, the consolidation loan will have an interest rate of 6 and 7/8ths of a percent, or 6.875%. So the interest rate increases only slightly.

If the borrower has a mix of loans with different interest rates, the weighted average will be somewhere in between. For example, if the borrower has $5,000 of Perkins Loans (at 5.0%) and $10,000 of unsubsidized Stafford Loans (at 6.8%), the weighted average is

$5,000 * 5.0% + $10,000 * 6.8%
------------------------------ = 6.2%
$5,000 + $10,000

This weighted average, 6.2%, is then rounded up to the nearest 1/8th of a percent, yielding a consolidation loan interest rate of 6.25%.
Note that the weighted average does not fundamentally alter the underlying cost of the loan. It preserves the cost structure by including each interest rate to the extent that it applies to part of the overall loan balance. For example, the consolidation loan in the previous paragraph says that of the $15,000 consolidation loan balance, $5,000 will be at 5.0% and $10,000 at 6.8%, yielding an equivalent interest rate of 6.2%.

If you are consolidating loans with different interest rates, the weighted average interest rate will always be in between. Don't be fooled if someone tries to suggest that this will save you money by getting you a lower interest rate. The interest rate may be lower than the highest of your interest rates, but it is also higher than the lowest of your interest rates. More importantly, the amount of interest you pay over the lifetime of the loan will be about the same.

(For the mathematically inclined, there is a slight difference due to the different shapes of amortization curves at each interest rate. In the example given above on a 10 year term, $10,000 at 6.8% has a monthly payment of $115.08 and total interest paid of $3,809.66, $5,000 at 5.0% has a monthly payment of $53.03 and total interest paid of $1,364.03. If you add these, you obtain a total monthly payment of $168.11 and a total interest paid of $5,173.69. Using the weighted average, $15,000 at 6.2% has a monthly payment of $168.04 and a total interest paid of $5,165.01. So using a weighted average yields a very small reduction in the monthly payment (in this case, 7 cents) and in the total interest paid ($8.68) due to a kind of triangle law. Of course, when you consolidate the interest rate is rounded up to the nearest 1/8th of a point, so $15,000 at 6.25% has monthly payments of $168.42 and total interest of $5,210.42, yielding a slight increase. So you pay a tiny bit of a premium for consolidation, due to the rounding up of the interest rate.

The PLUS loan interest rate loophole can reduce the interest rate on 8.5% fixed rate PLUS loans by 0.25% through consolidation.

If you were deferring the interest on an unsubsidized Stafford Loan by capitalizing it, most lenders will add the capitalized interest to principal when you consolidate. (Lenders can capitalize interest at most quarterly, but most capitalize it once when the loans enter repayment or at other loan status changes.)

No Cost to Consolidate

Aside from a slight increase in the interest rate on the consolidation loan, there is no cost to consolidate your loans. There are no fees to consolidate.

Under no circumstances pay a fee in advance to get a federal education loan or consolidate your federal education loans. There are no fees to consolidate your loans. While other federal education loans, such as the Stafford and PLUS loans, may charge some fees, the fees are always deducted from the disbursement check. There is never an up front fee. If someone wants you to pay an up front fee, chances are that it is an example of an advance fee loan scam.

Who Can Consolidate

Both student and parent borrowers can consolidate their education loans. (Students and parents cannot combine their loans through consolidation, since only loans from the same borrower can be consolidated. But they can consolidate their loans separately.)

Married students are no longer able to consolidate their loans together. This provision was repealed effective July 1, 2006. When married students consolidated their loans together, each spouse became responsible for the full amount of the loan, and the loans could not be separated if the couple got divorced. To avoid such problems in the future, Congress decided to repeal this provision as part of the Higher Education Reconciliation Act of 2005.

Students can only consolidate their education loans during the grace period or after the loans enter repayment. (Loans that are in default but with satisfactory repayment arrangements may also be consolidated.) Students can no longer consolidate while they are still in school. (The early repayment status loophole and the ability of Direct Loan borrowers to consolidate during the in-school period was repealed as part of the Higher Education Reconciliation Act of 2005, effective July 1, 2006.)

Parents, however, can consolidate PLUS loans at any time.

You Can Consolidate with Any Lender

Students and parents can consolidate their loans with any lender, even if all of their loans are with a single lender. (The single holder rule was repealed on June 15, 2006, as part of the Emergency Supplemental Appropriations Act of 2006. Borrowers no longer need to exploit the single holder rule loopholes in order to consolidate with any lender.) Direct Loans can also be consolidated with any lender. This allows you to shop around for a lender that offers a lower rate or better discounts.

Most lenders require a minimum balance before they will consolidate your loans. For example, many lenders will only offer consolidation loans for borrowers with loan balances of at least $7,500. A few lenders will offer consolidation loans for balances of $5,000 or more, and the Federal Direct Consolidation Loan program has no minimum balance for consolidation loans. (Lenders may not discriminate against borrowers who seek consolidation loans on the basis of number/type of student loans, type/category of educational institution, the interest rate on the loans, or the type of repayment schedule sought by the borrower. Lenders are, however, able to discriminate on the basis of the amount of the loans being consolidated, so lenders can set a minimum balance on the loans.)

Which Loans Can be Consolidated?

Any federal education loan can be consolidated. You can even consolidate a single loan. There are, however, a few restrictions on consolidating a consolidation loan.

You can consolidate a consolidation loan only once. In order to reconsolidate an existing consolidation loan, you must add loans that were not previously consolidated to the consolidation loan. You can also consolidate two consolidation loans together. But you cannot consolidate a single consolidation loan by itself. These restrictions have been in effect since early 2006.

Note that when you reconsolidate a consolidation loan, it does not relock the rates on the consolidation loan. The consolidation loan is treated as a fixed rate loan within the weighted average interest rate formula used to calculate the interest rate on the new consolidation loan. Consolidation does not pierce the veil on previous consolidations.

The new restrictions on consolidating a consolidation loan limit your ability to use consolidation to switch lenders. Generally, you will consolidate your loans once, toward the end of the grace period or after the loans enter repayment, and then be locked into that lender for the lifetime of the loan. If you want to preserve your ability to use consolidation in the future to switch lenders, you should exclude one of your loans from the consolidation.

Repayment Plans

Consolidation loans provide access to several alternate repayment plans besides standard ten-year repayment. These include extended repayment, graduated repayment, income contingent repayment (Direct Loans only) and income sensitive repayment (FFEL only). If you do not specify the repayment terms, you will receive standard ten-year repayment.

Consolidation loans often reduce the size of the monthly payment by extending the term of the loan beyond the 10-year repayment plan that is standard with federal loans. Depending on the loan amount, the term of the loan can be extended from 12 to 30 years. The reduced monthly payment may make the loan easier to repay for some borrowers. However, by extending the term of a loan the total amount of interest paid over the lifetime of the loan is increased.

In certain circumstances (for example, when one or more of the loans was being repaid in less than 10 years because of minimum payment requirements), a consolidation loan may decrease the monthly payment without extending the overall loan term beyond 10 years. In effect, the shorter-term loan is being extended to 10 years. The total amount of interest paid will increase unless you continue to make the same monthly payment as before, in which case the total amount of interest paid will decrease.

You do not need to pick an alternate repayment plan. We recommend sticking with standard ten-year repayment, because it will save you money. The alternate repayment plans may have lower monthly payments, but this increases the term of the loan and the total interest paid over the lifetime of the loan. See our caveat about extended repayment below.

Repayment on a consolidation loan will begin within 60 days of disbursement of the loan, unless the borrower qualifies for an deferment or forbearance.

Federal education loans, including consolidation loans, do not have a prepayment penalty. So you can pay off all or part of your federal education loans without incurring a penalty. If you want to take advantage of this, be sure to include a letter with the extra payment indicating that it should be applied to reducing your principal. Otherwise, the lender may treat it as an advance payment of the next month's monthly payment.

Tools for Evaluating Consolidation Options

FinAid's Loan Consolidation Calculator can help you understand the tradeoffs of consolidating your loans. It compares the reduction in the monthly loan payment with the increase in the total interest paid over the lifetime of the loan. It also shows you the interest rate on your consolidation loan.

Despite the switch to fixed interest rates on Stafford and PLUS loans eliminating a key financial incentive to consolidate, there are still several reasons to consolidate your education loans. These include having a single monthly payment, access to alternate repayment plans, the PLUS loan interest rate loophole, and the ability to reset the 3-year clock on deferments and forbearances. But consolidation can cut short the grace period, although the grace period loophole can work around this problem. It is best to avoid consolidating Perkins loans, because you lose several valuable benefits. Beware of extending the term of your loan, as this can increase the total interest paid over the lifetime of the loan; you can stick with standard ten-year repayment.

Before consolidating, always evaluate the benefits provided by the current holder of your loans. The loan discounts offered by originating lenders tend to be superior to those offered by consolidating lenders, since consolidation loans have tighter margins. Also, if you received a fee waiver or rebate from the originating lender, you may have to repay that discount if you consolidate with another lender. It may be possible to get some of the benefits of alternate repayment plans without consolidating, such as extended/graduated repayment with a loan term of up to 25 years and a single monthly payment, if you have more than $30,000 in federal education loan debt accumulated since October 7, 1998 with the lender. (This is due to a little known provision of the Higher Education Act, in section 428(b)(9)(A)(iv), and the regulations at 34 CFR 682.209(a)(6)(ix).)

You can change the repayment schedule on your loan once per year. So consider starting off with standard ten-year repayment on your consolidation loan. You are not required to start off with extended repayment. If you find it difficult to afford the payments, you can always switch to extended repayment later.

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posted by Moderator @ 9:05 AM 0 comments