Credit Union Student Loans http://www.custudentloans.org The private student lending marketplace powered by Fynanz Thu, 31 Jul 2014 06:05:55 +0000 en-US hourly 1 http://wordpress.org/?v=3.8.1 Top 3 ways to NOT pay college tuition http://www.custudentloans.org/2014/07/17/top-3-ways-to-not-pay-college-tuition/ http://www.custudentloans.org/2014/07/17/top-3-ways-to-not-pay-college-tuition/#comments Thu, 17 Jul 2014 17:23:37 +0000 http://www.custudentloans.org/?p=13666 If you are a student or parent about to start or continue college, you no longer need to use your imagination to figure out what your college bill will be.

By now you should already know, and the colleges are already expecting payments. Feeling the stress? Take a deep breath and commit to NOT make these common mistakes that plague personal finances.

  • Using a credit card: Using a credit card to pay for college balances is an easy way to drive up debt that can become hard to pay back. Any of the interest paid towards credit card debt from college payments is not tax deductible, unlike student loans in most cases. Additionally, colleges now charge a more hefty fee for processing credit card payments for college, as high as 3%.
    • “But I get POINTS!!!!!” OK Great, qualifying for awesome free stuff because of your credit card’s reward program is cool, but will it offset the cost the college’s processing fee or the potential interest generating on that credit card? If you cannot pay the full balance off within the first month, you should avoid using a credit card to pay for college.
  • Mortgage the house: The low interest rate environment has created some opportunities to borrow from the value of a home. However, this does put the home at risk and the debt would remain in the parent’s name without any clear way to transfer it over to the student, unless they contribute towards mortgage payments. Even if the student is helping make mortgage payments, they are not building their own personal credit along the way.
    • “But it’s a smart tax strategy!” Perhaps, but take a deeper look at the details. Mortgage interest is only deductible under “itemized deductions”. Additionally, you would only benefit from the amount of deductions that are greater than the standard deduction (The 2013 standard deduction for married taxpayers filing a joint return was $12,200). This means if you take out the mortgage for college costs and then have $13,000 of itemized deductions, you really only benefit from an $800 deduction. After multiplying this deduction by your tax rate to determine actual tax benefits it may be realized as too minimal.
  • Pulling cash from 401(k): This is the worst way to pay for college! That’s because you CAN borrow for college but you CANNOT borrow for retirement. In general taking early withdrawals from retirement accounts are liable for a 10% tax penalty in addition to any normal taxes due. Additionally, once those savings are used for other expenses they are forever gone along with the tax incentives for saving many years.
    • No, seriously, don’t do it: There is no caveat. Remove this option from the list of potential college bill payment options. It’s startling to hear that nearly a quarter of all parents would consider using retirement money for college costs. Do not be one of them.

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    ]]> http://www.custudentloans.org/2014/07/17/top-3-ways-to-not-pay-college-tuition/feed/ 0 “Read the bill together!” and four other family tips for smart college bill management http://www.custudentloans.org/2014/07/14/read-the-bill-together-and-four-other-family-tips-for-smart-college-bill-management/ http://www.custudentloans.org/2014/07/14/read-the-bill-together-and-four-other-family-tips-for-smart-college-bill-management/#comments Mon, 14 Jul 2014 20:11:10 +0000 http://www.custudentloans.org/?p=13659 New college freshman and continuing students have a big hurdle to manage over the summer; The Tuition Bill!

    Here’s some smart advice for parents and students on managing this milestone financially.

    Read the bill together: Wondering how to start a conversation on financial literacy? It starts by simply looking at the college bill. Set a time for parents and students to review the contents of a college billing statement together and understand the expenses. Students should be aware of the costs to begin to understand the value of the time and money invested in an education and look at the big picture as far as costs and outcomes are concerned.

    Know what you accepted on the Award Letter: A college award letter lists all of the funding the student will receive, including scholarships, grants, student loans and work study. The student has the option to accept or decline each award. While accepting free money like grants and scholarships feels great, most students also accept their federal student loans without really considering what they’ve signed up for, or how many hours of actual work study needs to be completed to earn the funding. Become familiar by knowing the details of each award and what is required to maintain the funding through graduation.

    Loan Repayment Begins Now: Why wait until after graduation to begin loan repayment? The long standing theory is that students should not worry about making loan payments, and should instead focus only on going to classes. But in today’s world, many students work part time and may have free money to spend on things they want when they need to make payments towards debt they already have. Learn a smart debt management strategy early by making student loan payments before graduation and reduce potential interest costs along the way.

    Will you be waiving health insurance? If the student is covered under a parent’s policy, look into options for waiving the school program from the total bill. A college will always automatically bill all students for health insurance under a blanket policy for protection purposes but allow for students to waive the expense once they document proof of other insurance. Each school has a deadline for the waiver, so make sure to submit all paperwork on time. If late, the student may be required to pay all or a portion of the school’s health insurance cost.

    Use student refund money wisely: If the student intends on paying for additional books, transportation, technology or living expenses with a student loan refund check, careful management is necessary. Students should begin the semester with a clear budget to know exactly how extra money will be spent on college necessities. College is a lot of fun, but also really expensive so don’t waste refund money on college parties while skipping class, that’s just a waste. Furthermore, if the student unexpectedly receives a large check from the school, always verify where the money comes from. Most likely it’s from extra loan money left after the whole bill has been paid for. This money needs to be paid back, so again spending it on frivolity is a bad idea. If the money is not needed for normal college expenses, it may be sent back to the lender in the form of a pre-payment to reduce total loan debt.

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    Waiving College Health Insurance? Consider options and know your benefits first. http://www.custudentloans.org/2014/07/10/waiving-college-health-insurance-consider-options-and-know-your-benefits-first/ http://www.custudentloans.org/2014/07/10/waiving-college-health-insurance-consider-options-and-know-your-benefits-first/#comments Thu, 10 Jul 2014 15:28:40 +0000 http://www.custudentloans.org/?p=13656 Health insurance coverage for college students is a necessary cost that helps keep a campus healthy.

    However, if a student is covered under another plan the cost of the school based health care program may be waived.

    Here are 4 key points to know:

    1. Are you covered under a parent’s plan? Parent’s with a plan that covers children can normally keep those children as part of that plan until they are 26 years old. As outlined in HealthCare.gov, children can join or remain on the parent’s plan even if they are married, not living with or financially dependent on parents, attending school or eligible to enroll in their employer’s plan. This means virtually any student under 26 with coverage from their parent’s can basically waive their college health care plan and remove that cost from their college bill.

    2. Submitting the request for waiver within your school’s deadline: College healthcare plans use a “blanket” policy to extend coverage to all students for safety purposes, and will only remove the coverage once proof of insurance through another plan is demonstrated. Proof of health insurance coverage usually includes an ID card, insurance policy or letter from insurance carrier. Confirm your school deadline and make sure to submit the waiver on time. If late, there may be a second deadline where the student is only responsible for a potion of the fees.

    3. If you are using the school’s health care plan, understand coverage: School plans will vary, and students should be aware of the benefits they pay for. Here are some key “Fine Print” items to examine.

    • What is the health care network? What choice of medical facilities are available through the school plan? Some plans only cover expenses at an onsite campus health center. If you are treated at a health care facility outside of the “network” what happens?
    • What are the deductibles: A deductible is when a “patient” has to pay for certain health care costs out of pocket, up to a specific limit and then the insurance kicks in to cover the additional costs. Some college health care plans have a higher deductible, like $5,000, so the patient will need to cover that $5,000 out of pocket but gain coverage for expenses above that amount.
    • Length of coverage: Does the school plan cover 12-months, or is it only the 9 months of Spring and Fall semesters that are covered?
    • Additional benefits: Does the school plan cover vision, dental or reproductive health benefits?

    4. Find out if the ACA plan is a better fit: Federal laws are changing the way health care coverage is made available. College students should examine their options by comparing their school’s plan to what may be available through the ACA marketplace. Students who earn less than about $46,000 or families that earn less than $94,000 annually may be able to access free coverage through Medicaid or discounted coverage through monthly tax credits depending on the state and their exact income level. Take a look at HealthCare.gov/young-adults to learn more.

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    Two student loan questions students and parents always miss http://www.custudentloans.org/2014/07/03/two-student-loan-questions-students-and-parents-always-miss/ http://www.custudentloans.org/2014/07/03/two-student-loan-questions-students-and-parents-always-miss/#comments Thu, 03 Jul 2014 14:50:40 +0000 http://www.custudentloans.org/?p=13641 College billing season is in full swing and by now parents and students should be well aware of what is owed.

    This is when student loans become a necessity, but during all the rush, key financial questions get easily brushed aside.

    Asking the wrong questions about debt: Families looking to secure a quick college tuition solution tend to focus on two questions that fail to completely answer issues involving debt. They are “What’s the interest rate and what’s the payment?” Indeed, the interest rate and minimum payment are important to know, but are only components of a student loan application. They fail to provide the “big picture” answer necessary considering how expensive college can be. If you are comparing loan options based on interest rate and minimum payments, it’s like comparing two cars based on the hood ornament only. Wouldn’t you rather compare cars considering something more important, like the engine? It’s time to take your debt obligations on a “test drive” by knowing the right questions to answer.

    When comparing student loan options, flex your financial literacy muscles by answering the following two questions:

    • How much will this debt cost to repay? Use a loan calculator to estimate how much total interest will accrue over the course of the repayment period. Make sure to include within the calculation any loan fees that may have been built into the loan at the time of origination. Also consider fixed or variable rate projections. Fixed rates will be more predictable, but depending on the program they may actually be locked in at a somewhat higher rate. A variable rate may offer a lower rate today, but may be subject to change based on a rate index like LIBOR or Prime.
    • When will I be debt free? Look into your future and set the date when you can be student loan debt free. How many total years will it take to pay the debt back? How old will you be when that time comes? If this date is too far into the future, consider the option of making payments while in school, or additional pre-payments after graduation. Making student loan payments while in school may be more affordable than realized, so students should not shy away from the concept on face value. Even $25 a month is a good start. Making pre-payments towards student loan debt means paying more than the minimum monthly amount due each month, and can greatly reduce the time it takes to be debt free. Confirm with your loan provider that your program allows for pre-payments to secure your debt elimination strategy.

    Extra Credit Bonus Question: Can I gain a sensible consolidation to save $ on student loan repayment? Answering this advanced financial literacy question will become more clear as a student nears graduation. Gaining a student loan consolidation after graduation can help to best organize debts and manage repayment. The Federal Direct Loans consolidation is available for borrowers of federal loans only, and simply uses a weighted average of all federal debts combined into one application. This is convenient, but does not actually provide an interest rate reduction by way of a traditional loan refinance. New programs are being made available to support student loan refinancing through private lending, where private loans can gain a potential rate reduction and may be able to include federal loans as well. As a student moves towards a career path by way of their degree and experience, the right consolidation choice will become more clear.

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    Federal Student Loan Interest Rates for 2014-2015 http://www.custudentloans.org/2014/07/01/federal-student-loan-interest-rates-for-2014-2015/ http://www.custudentloans.org/2014/07/01/federal-student-loan-interest-rates-for-2014-2015/#comments Tue, 01 Jul 2014 16:14:15 +0000 http://www.custudentloans.org/?p=13628 It’s official. July 1 begins the new lending season for Direct Loans, and new interest rates are established for the 2014-2015 academic year. The most common federal direct loans each increased by .8% over last year.

    Direct Loan Interest Rates for 2014-2015:

    • Direct Subsidized Loans (Undergraduates): 4.66%
    • Direct Unsubsidized Loans (Undergraduates): 4.66%
    • Direct Unsubsidized Loans (Graduate or Professional Students): 6.21%
    • Direct PLUS Loans (Parents and Graduate or Professional Students): 7.21%

    Also, Federal Loan Origination fees have increased. The following percentage amounts are deducted from the loan prior to disbursal.

    Direct Subsidized Loans and Direct Unsubsidized Loans:

    • On or after 12/1/13 and before 10/1/14: 1.072%
    • On or after 10/1/14 and before 10/1/15: 1.073%

    Direct PLUS Loans:

    • On or after 12/1/13 and before 10/1/14: 4.288%
    • On or after 10/1/14 and before 10/1/15: 4.292%

    Plus loan origination fee example:

    A parent borrowing a $20,000 Parent Plus Loan with a 4.292% origination fee would have a disbursement amount of $19,141.60 sent to the school.

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    Could “Pay as You Earn” cost borrowers more to repay? http://www.custudentloans.org/2014/06/25/could-pay-as-you-earn-cost-borrowers-more-to-repay/ http://www.custudentloans.org/2014/06/25/could-pay-as-you-earn-cost-borrowers-more-to-repay/#comments Wed, 25 Jun 2014 21:16:22 +0000 http://www.custudentloans.org/?p=13557 Recent college graduates with student loan debt are preparing for repayment to begin in a few months, and may be looking for some assistance through the expanded “Pay-as-you-earn” program (PAYE) from federal Direct Loans for help. PAYE can really help some borrowers, but it may not be the best fit for everyone and could cost more to repay than realized.

    PAYE Attention FINAL

    Obama’s Move to Help Students Is Not as Forgiving as It Seems: A recent New York Times article outlined key aspects of the PAYE program that borrowers will soon realize.

    • PAYE “helps” borrowers with very high debt and low income the most.
    • Loan forgiveness becomes a taxable event at the end of the 20-year repayment term.

    Can PAYE save money? It depends on the definition of “save”, but this program will reduce payments to 10% of discretionary income. The payment is calculated by using the Adjusted Gross Income from the most recent year tax return and your state’s poverty guideline as determining facts. Since the payment will be reduced to an amount the borrower can surely afford, it frees up additional money for the monthly budget. However, these loan payments will not actually be enough to put a dent in the total loan balance, especially if the borrower’s income remains relatively low.

    What is really happening to the loan balance in PAYE? Federal student loans generally follow a standard 10-year repayment term. Under PAYE, this term is extended up to 20 years. When it comes to any kind of loan repayment plan (Mortgages, Car Loans etc), extending the term can allow for the minimum monthly payment to be reduced naturally, but the total cost of interest to repay a longer term loan would increase. Under PAYE legislation, the minimum monthly payment is based on income, and may be insufficient to actually pay down the entire debt within the 20 years. If the borrower’s income were to remain low during the entire 20 year term, the principal loan amount outstanding could remain quite high. This is what some people refer to as a “soft default” where the borrower continues to make a monthly payment obligation in nominal terms, but in real terms the debt was far too large to be repaid.

    What happens in PAYE if debt remains at the end of the 20-year term? PAYE allows for a taxable loan forgiveness provision at the end of the term for any amount of unpaid debt. Loan forgiveness is nice, but the tax bill may be a sudden un-affordable expenditure for the borrower in that future year. Since this program is new, no one has yet reached the 20-year threshold to qualify for loan forgiveness, but this is a reasonable trade-off, especially for borrowers of very high student loan debt. It will be interesting to see if the government legislates a forgiveness for the forgiveness tax at a future date, but this would shift even greater benefits towards borrowers that accepted much more federal debt than could be reasonably repaid.

    Can this help borrowers with moderate debt and moderate income? PAYE can act as a federal loan repayment safety net to prevent loan default by creating more flexible repayment options for borrowers. Recent college graduates may really need a reduced payment while they look for consistent employment and income. Others face life changes and need support. Consider a borrower increasing their household size by way of having a baby. An increased household size allows their minimum income for the poverty guideline to decrease and consequently their minimum loan payment would decrease. For example, the household of 2 people has an annual poverty guideline income of $15,130 or $7,565 per person, but add a baby and the poverty guideline income only adds to $19,090 or $6,363 per person. However, if income begins to increase in the future, expect minimum loan payments to increase.

    Can this help borrowers with high income relative to debt? Generally no. A borrower with high debt, but also high income may not be able to reduce their payments substantially, and may end up paying more interest over time towards the loan balance. As outlined in the New York Times, if the payments on the 10-year term loan can be afforded, it’s the most direct route towards debt elimination. That being said, even with high expected income, some Medical Doctors, Dentists, Lawyers and Veterinarians may carry so much federal student loan debt that they will need a reduced payment to stay financially afloat in the short term while their respective practices materialize. Once their income increases, they should pursue larger monthly payments towards federal loan repayment, but this may ultimately cost more total interest to repay.

    PAYE does NOT refinance interest rates: The Direct loan program cannot actually reduce any of the interest rates on outstanding loans including subsidized, unsubsidized, Plus, Perkins or Nursing loans. Rates do remain fixed from the original year the loan was disbursed, unless moved into a federal Direct loans consolidation where a weighted average of all rates is affixed to the new application. This means that borrowers are still left to repay debts with rates as high as 6.8% or 7.9% and cannot truly gain a rate reduction normally found in other loan consolidation products.

    PAYE does work in conjunction with Public Service Loan Forgiveness: If you are working in a public service job with low earnings, the good news is that you may qualify for Public Service Loan Forgiveness (PSLF) as outlined in a separate article. Public Service Loan Forgiveness allows workers in qualified non-profit or government jobs to have their payments capped under “Pay as you Earn” parameters, but reduces the loan term to 10 years and forgives the remaining loan balance tax free. The assumed trade-off is that jobs that qualify for PSLF will pay limited income, normally a disincentive for those with high federal loan debt to take such jobs, until now. Individuals working in the private sector will not qualify for Public Service Loan Forgiveness.

    Are refinancing opportunities available? Outside the federal Direct Loans program, private student loan consolidations are being made available to help borrowers qualify for actual reduced interest rates on federal student loans. These programs differ from federal consolidation because they do not receive the same federally guaranteed loan provisions, and require a credit check before approval, but do offer a route to actually reduce interest rates to help manage student loan debt.

    Learn More: Carefully consider options before committing to a consolidation, including current income and future income potential, employment, fixed vs variable rates, and current rates on outstanding loans.

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    What does “Unsubsidized” mean for federal direct loans? http://www.custudentloans.org/2014/06/23/what-does-unsubsidized-mean-for-federal-direct-loans/ http://www.custudentloans.org/2014/06/23/what-does-unsubsidized-mean-for-federal-direct-loans/#comments Mon, 23 Jun 2014 17:45:09 +0000 http://www.custudentloans.org/?p=13554 When looking over financial aid award letters, one may notice that there are different varieties of federal student loans.

    Most common are the unsubsidized or subsidized direct loans. In a prior article, we outlined basics on the subsidized direct loan for undergraduates. Now let’s take a look at the unsubsidized Direct loan program details.

    It's time to refinance some old loans with high rates.......

    So what is an unsubsidized Direct loan?

    What does unsubsidized mean in context to federal student loans? An unsubsidized direct loan is when interest accrues normally on the debt while the student attends college. Unsubsidized Direct loans are most like any other traditional loan product in that it begins accruing interest after disbursement that will be included in repayment later. This is unlike the subsidized Direct loan where the government pays for the interest that accrues on behalf of the student while they are in college, saving them some money.

    How does it work? An unsubsidized Direct loans are awarded to students regardless of their financial need. Therefore, students with relatively high household income will be eligible for this loan as long as they file their FAFSA. Unsubsidized Direct Loans are basically awarded to everyone, with their choice to accept it or not.

    How is it awarded? The school’s Financial Aid office will determine financial need. Some students are determined to not have financial need, preventing any need based financial aid from being awarded to them, like the subsidized Direct loan.

    Rates and Origination Fees: For the 2014-2015 academic year, the unsubsidized Direct loan for undergraduates will carry a fixed 4.66% rate and a 1.073% origination fee if disbursed after October 1 2014, or 1.072% origination fee if disbursed before October 1, 2014.

    Annual Loan Amounts for dependent undergraduate students:

    • Freshman: Up to $5,500 in unsubsidized Direct loans
    • Sophomore: Up to $6,500 in unsubsidized Direct loans
    • Junior or Senior: Up to $7,500 in unsubsidized Direct loans

    Parent Plus loan denial provision: If the parent of a dependent student applies for and is denied the parent plus loan, the student may be eligible for an additional $4,000 in unsubsidized direct loans if they are a Freshman or Sophomore, or $5,000 if they are a Junior or Senior level student, in addition to the Direct subsidized or unsubsidized loans already awarded, potentially up to the cost of attendance.

    Why is this considered “financial aid?” You may be wondering why a loan that accrues interest normally is considered “financial aid”. Considering need based grants like Pell do not need to be paid back, and subsidized Direct loans mean the government reduces interest costs normally payable by the student, what makes the unsubsidized Direct loan so special? Basically, it’s considered “financial aid” because the loans are guaranteed approved without a credit check for any student that files the FAFSA and is admitted to a qualified school. Qualified schools may offer this loan as long as they meet requirements for Title IV funding under the Higher Education Act. Additionally, government subsidy allows the rate to lock in based on a legislative process, and allows for additional subsidies in modified repayment plans when the borrower has high federal debt relative to current income.

    Does this loan make sense to take? Basically, yes. It’s a guaranteed loan in the student’s name, easily approved. The real issue is that some students may assume it provides more financial aid than it really does. An unsubsidized loan does in fact begin accruing interest right away, and is fully repayable by the student after graduation. The loan does allow for complete deferment while the student is in school, instead beginning full repayment after graduation but allowing interest costs to build all the while. Good advice would be to begin making payments towards the unsubsidized loan while still in college to reduce interests costs, and build a healthy financial habit.

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    Help your friends with a “money secret” worth sharing http://www.custudentloans.org/2014/06/17/help-your-friends-with-a-money-secret-worth-sharing/ http://www.custudentloans.org/2014/06/17/help-your-friends-with-a-money-secret-worth-sharing/#comments Tue, 17 Jun 2014 15:15:58 +0000 http://www.custudentloans.org/?p=13546 Figuring out the “secret of money”: Imagine finding a magic digital application that could provide a small, but steady amount of money electronically delivered into your checking account everyday as long as you recited a “magic” password. The password is unusually pronounced, and it turns out that no two people have the same password, everyone’s is different. This is a pretty good thing so you try to share it with friends, but while some learn their password quickly, others take longer and still others can’t quite figure it out. Some friends are quite happy, while others are working their way to determine their password. You decide to continue sharing this application with many friends knowing it will benefit at least some. You decide to share because it’s in the best interest of others!

    Cool-Story-Bro-

    Ok, cool story bro, but what does that have to do with a “secret of money?” Did you notice that the magic digital application did not work for everyone right away? Even though it could be shared with many friends there was no guarantee it would actually work for everyone. Each person had to figure it out for themselves, but at least they had a shot to learn and could eventually figure it out. In many ways, this is how most people learn about how money works. People learn from those that share knowledge and try to figure out how the knowledge can work for them, but not everyone gets the same results.

    Helping friends with their money: Friends with money problems is nothing new, but today it seems that many folks could use a hand. With a tough economy and job market, college graduates that locked down employment need to make a few smart financial moves to get ahead, but can friends really do anything to help? Most people agree, simply giving money to friends probably can’t solve a greater financial issue looming in the background, so let’s take a look at how friends can help each other with money challenges.

    Does a friend actually want help? Before even trying to help someone, identify if they really want it. Some friends are not ready for help and would feel embarrassed if it were being offered. Being too direct with some friends can stymie efforts, so before trying to help just ask some questions and mention topics in conversation that link to the financial situation your friend might be dealing with.

    Friends separate the past from the present: As a friend, you may be very privy to someones personal life much more so than anyone else. Having direct personal knowledge about someone’s circumstances delivers insight on motivations and may explain why someone is in the situation they are in. However, having all the “dirt” on someone does not give the right to constantly use those facts against them. When helping a friend, try being personal without being insensitive, and look to their past as learning experiences rather than points of failure to focus on.

    Keep it easy: If you have found solutions to financial challenges, chances are your insight could help your friend greatly. However, your small achievement may appear to be a mountain of challenge to your friend that could defeat their motivation. For example, making double payments towards student loans, maximizing Roth IRA contributions on a low income, or knocking out all credit cards using the Dave Ramsey Debt Snowball method could be too intimidating to manage at first. Instead, simplify the actions by letting your friend know the small and easy steps you took to get there, and encourage them just to start in the right direction.

    Know any experts? If you have personal experience with a financial adviser that was really helpful, see if you can introduce them to your friend. A good financial adviser should be able to help someone reach real financial goals by helping clients overcome obstacles. Additionally, since they are a third party, they can bring some objectivity to the conversation.

    Look for refer-a-friend programs that work: Have you ever used a financial product that was able to help you better save or manage your money? Does this product or service offer a refer-a-friend program? If so, it may be the right time to refer-a-friend to the success you found. Refer-a-friend programs are becoming more widely available given the new digital economy, and provide benefits in three ways. First, you as the referrer will be paid when someone moves forward with the same program you did. Second, the person you referred to now gains access to a financial solution that can help them greatly. Third, the business that provides this solution gains more happy customers. ( You may want to take a look at the cuGrad private student loan consolidation for a refer-a-friend program that really works! )

    Helping others so they may help themselves: Ultimately, it’s not the process of giving away money, rather it is the process of giving away knowledge that is really the “money secret”. Creating economic empowerment is really about helping people make independent choices that work best for their needs.

    Give-someone-a-fish-and

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    Should I consolidate federal student loans and private loans? http://www.custudentloans.org/2014/06/13/should-i-consolidate-federal-student-loans-and-private-loans/ http://www.custudentloans.org/2014/06/13/should-i-consolidate-federal-student-loans-and-private-loans/#comments Fri, 13 Jun 2014 21:54:16 +0000 http://www.custudentloans.org/?p=13543 A question that many student loan borrowers are asking is “Should I consolidate federal and private student loans together?” since they are looking for ways to best organize and manage their debts.

    After careful consideration, the answer for many would be “Yes”, but it’s important to consider personal circumstances, current income, career goals and debt elimination strategies.

    How can you save money using a new debt elimination strategy? Achieving a lower interest rate on outstanding student loans is of great importance to any debt elimination strategy. Many students still carry unsubsidized federal loans at 6.8% or Graduate PLUS loans at 7.9% or may have private student loans with even higher rates. Finding a way to simply reduce the rates is important, but apparently hard to achieve.

    What is your income? Federal student loans have income based repayment plans that can reduce payments to a percentage of income. There is a lot of confusion out there about this program, as it’s promoted as “debt relief” when really it’s simply an extension of the loan term from a normal 10-years to 20 or 25 years, allowing for minimum monthly payments to reduce, but potentially costing much more in total interest to repay. Additionally, at the end of the extended 20+ year term, any debt forgiven is actually a taxable event, so a forgiven loan balance of say $40,000 could add up to an extra tax bill in that future year of $10,000. No one has yet reached that threshold, but there will be some interesting conversations with accountants when this financial milestone is reached years from now. There is no “Debt relief” for people with greater income since they would not qualify for a payment reduction, and the federal loan program is unable to reduce the actual interest rate on their applications. If you are a federal loan borrower with high stable income and look forward to increasing that income over the next decade, moving the federal loans into a private consolidation to achieve a lower rate just makes sense.

    What is your employment? Federal student loans may qualify for Public Service Loan Forgiveness, a nice feature for employees of certain government jobs or non-profit organizations when combined with an income based repayment option. This program was designed to allow public service workers to survive on the admittedly limited income that many of these jobs will provide, especially in early years. Since the minimum monthly payment is reduced to only a portion of interest costs, the remaining debt is forgiven after 10 years but is not taxed, unlike the 20+ year taxable loan forgiveness provision. However, this is an “all or nothing” offer. A Public service employee must maintain their qualified employment and make all required payments during the 10-year term to qualify for forgiveness. If the borrower were to exit their public service job, and perhaps go to the private sector, their federal student loan debt would revert to normal full repayment and end up costing more time and money to repay. If you have low federal student loan debt, high income or private sector employment, Public Service Loan Forgiveness will probably not be helpful for you, and a private student loan consolidation may be more viable.

    Fixed rates versus variable rates: Federal student loans are fixed, creating a predictable amount of interest accrual. However, if those rates are fixed on the higher end it becomes a burdensome amount of interest to repay considering the low interest rate environment we share today. On the other hand, variable rate loans may provide extremely low interest rates today, dramatically reducing current interest costs. However, by definition, variable rate loans are subject to future change based on the the underlying rate index supporting the loan like LIBOR or in some cases Prime. If these interest rate indices move up in the future, so will the rate on a variable loan. This concern can be managed as follows. First, compare the high fixed rate or variable rate loans currently outstanding to the reduced rate available on a private student loan consolidation. Then consider how much the variable rate would have to increase to equal the high rates of the loans outstanding. Finally, consider forwarding the money saved through interest rate reduction into pre-payments towards the consolidated principal balance. This method can help to accelerate the reduction of the current loan principal amount, reducing future potential interest costs in the event of the rate indices rising.

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    cuGrad ready to refinance federal and private student loans http://www.custudentloans.org/2014/06/12/cugrad-ready-to-refinance-federal-and-private-student-loans/ http://www.custudentloans.org/2014/06/12/cugrad-ready-to-refinance-federal-and-private-student-loans/#comments Thu, 12 Jun 2014 21:25:07 +0000 http://www.custudentloans.org/?p=13540 Many agree, the student loan marketplace has experienced a breakdown where degree holders with established credit and stable incomes may still be stuck paying 7.9% on old Federal Grad Plus loans or 6.8% on unsubsidized Direct loans issued in prior years. Haven’t good borrowers earned a break? In virtually any other debt, ranging from mortgages to credit cards, gaining an option to refinance and reduce interest costs is greatly welcomed especially for those that have improved their credit over time. Student loan borrowers would be a perfect candidate as their credit and income tends to improve greatly after successfully graduating, but they have had little recourse. Until now!

    It's time to refinance some old loans with high rates.......

    It’s time to refinance some old high rate student loans…….

    cuGrad begins accepting federal student loans for refinance / consolidation: This new option just became available beginning June 1, 2014, and helps provide relief for borrowers looking for a new way to manage their debt. Here are some things to consider.

    • Know the rates of your current federal loans: Federal student loans are usually fixed rate, but may have different rates depending on the year the loan was taken. As mentioned, some federal loans may still be carrying 6.8% or 7.9%, a rather high cost given this low rate environment.
    • Fixed versus Variable: Federal student loans will carry a fixed rate. This is a nice safety net as the rate will not increase in the future, but there has been no way to reduce the rate through the federal loan program either. When moving to a private student loan consolidation like cuGrad, the rate is variable and can change based on a rate index like LIBOR, but that rate may be much lower in comparison to the current loans outstanding. Ideally, consolidation should be used to reduce rates, so if the borrower has federal or private loans with lower rates than those available in consolidation, they should probably leave those for separate repayment.
    • Income based repayment or PAYE: Federal student loans may qualify for extended repayment terms that allow for monthly payments to reduce to 10% or 15% of income, a handy feature for borrowers with high federal loan debt relative to income. However, borrowers with high income would not qualify for much relief in Income Based Repayment programs. Moving federal student loans into a private consolidation waives the income based repayment options in order to gain access to a lower rate.

    Best practices: When moving federal student loans into a private student loan consolidation, there are a few helpful things to do in preparation.

    • Consider a pre-payment strategy: Pre-paying a student loan is a debt elimination strategy that requires payments beyond the standard amount. The extra money paid should go towards the principal loan balance reducing the total debt more quickly. Both cuGrad and federal Direct consolidation accept prepayments, but it’s much more effective when the interest rate can be reduced. For example, a Graduate PLUS loan borrower may have $40,000 outstanding at 7.9% with a minimum monthly payment of $483.08 for the next 10 years. If this debt were to be refinanced to 5%, the loan could be paid of in 10 years with payments of $424.26, but if they just kept paying the same $483.20, it would knock out the debt 18 months sooner and save about $2,178.75 in interest. Additionally, if moving into a consolidation with a variable rate that is starting low, prepayment is a sensible strategy to compensate with potential rate changes in the future.
    • Consider a cosigner: Having a cosigner on the application may help the primary borrower qualify for the lowest program rates available. In this way, the cosigner can really help but they have responsibilities including their credit report registering the liability, and the handling of debt repayment if the primary borrower is unable to do so.
    • Consider income protection coverage: Owning a life-insurance policy provides financial protection against debt liabilities that would be passed to a cosigner in the event of the primary borrower’s passing. Federal student loans do carry an automatic debt discharge in the event of the borrower’s death or permanent disability. Private student loan consolidation does not receive government subsidy to support this option, so debts follow a normal path towards the cosigner under such circumstances.

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    Obama’s new “Income Based Repayment” plan announced http://www.custudentloans.org/2014/06/10/obamas-new-income-based-repayment-plan-announced/ http://www.custudentloans.org/2014/06/10/obamas-new-income-based-repayment-plan-announced/#comments Tue, 10 Jun 2014 19:37:33 +0000 http://www.custudentloans.org/?p=13531 President Obama recently announced his executive order to expand an income based repayment plan to help struggling federal student loan borrowers make more affordable debt payments. This plan is executed with good intentions, with Obama noting in the order that “A college education is the single most important investment that Americans can make in their futures.” However, that investment is becoming a burden where excessive student loan debt and minimal job prospects exist. Can this new program work? Let’s review the executive order.

    Section 1. Expanding the President’s Pay As You Earn Plan to More Federal Direct Loan Borrowers: “Pay As You Earn” is a federal student loan repayment program that allows for payments to be reduced to about 10% of income, but is currently only available to “new” federal student loan borrowers that “had no outstanding balance on a Direct Loan or FFEL Program loan as of Oct. 1, 2007, or had no outstanding balance on a Direct Loan or FFEL Program loan when you received a new loan on or after Oct. 1, 2007.” This order looks to expand eligibility to all federal student loan borrowers, regardless of when their loans were originated.

    Sec. 2. Improving Communication Strategies to Help Vulnerable Borrowers: New strategies are to be developed concerning outreach to federal student loan borrowers about various repayment plans. Special focus will be put on borrowers who have “left college without completing their education, borrowers who have missed their first loan payment, and borrowers (especially those with low balances) who have defaulted on their loans to help them rehabilitate their loans with income-based monthly payments.”

    Sec. 3. Encouraging Support and Awareness of Repayment Options for Borrowers During Tax Filing Season: The president’s order calls on tax filing companies like H&R Block and Turbo Tax to work with federal outreach plans to raise awareness about student loan repayment options.

    Sec. 4. Promoting Stronger Collaboration to Ensure That Students and Their Families Have the Information They Need to Make Informed Borrowing Decisions: In order to improve loan counseling services, the Secretary of Education is to meet with higher education experts and student-debt researchers along with groups representing students, teachers, nurses, social workers, entrepreneurs, and business owners to help determine improved engagement methods.

    Executive Order Limitations and a new bill from Liz Warren: These are ambitious orders, but not outside the rule of law. Obama is allowed to direct orders about this program by expanding eligibility and raising public awareness about it, but can only move so far. In order to enact more sweeping changes, Obama will need the help of Congress, and Senator Elizabeth Warren’s (D-Mass) new student loan bill is gaining attention. The new bill, endorsed by Obama, proposes across the board access to federal student loan refinancing, allowing students to gain reduced rates on federal student loans. This is a major change for the program that currently does not refinance any federal student loan debts, instead providing a federal student loan consolidation using a weighted average of interest rates across all loans being consolidated.

    Not without criticism: New executive orders and a new bill are being rolled out ahead of mid-term elections, forcing politicians to “take sides” about the topic and face voters in a few months. No one wants to go into an election appearing un-supportive of student needs, especially when it comes to debt. But some contend, like Lamar Alexander (R-Tennessee) that the bill is a “partisan, political stunt” that has “no chance whatsoever” of passing adding that “We thought last year . . . we had stopped the political stunts on student loans. We put a market price system on all new loans at no new cost to the taxpayers, no new debt, so that this wouldn’t become an election-year football but, apparently, it has at least for a week.” Put simply, adjusting rates is a small solution to gain political recognition where the real solutions call for an actual reduction in college costs and the creation of jobs for graduates.

    Nothing wrong with raising awareness: Irregardless if Warren’s bill passes, the president’s goal of providing some relief to student loan borrowers is helpful for some barely able to make ends meet. Stay tuned for more proceedings on Capitol Hill.

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    What is a Subsidized Direct Loan? http://www.custudentloans.org/2014/06/09/what-is-a-subsidized-direct-loan/ http://www.custudentloans.org/2014/06/09/what-is-a-subsidized-direct-loan/#comments Mon, 09 Jun 2014 19:25:04 +0000 http://www.custudentloans.org/?p=13525 While taking a look at your college financial aid award letter, you may notice a federal subsidized Direct loan and wonder what it means. Here is some simple info about the program to raise borrower awareness.

    • “Subsidized” is a benefit: The subsidized Direct loan means that The U.S. Department of Education pays the interest that accumulates on the loan on behalf of the student while they are enrolled in college. This payment subsidy continues as long as the student is registered for at least half-time enrollment as determined by the educational institution. This is equal to at least 6 credits at schools where 12 credits is considered a full-time semester. If the loan was first disbursed between July 1, 2012, and July 1, 2014, interest will begin to normally accrue immediately upon exiting or graduating from college, but will not begin full required repayment until 6-month grace period is concluded.
      • What is Grace period? “Grace” for federal subsidized loans is a 6-month period beginning when a student graduates or otherwise exits college where no minimum monthly payments are due. However, interest will begin to accrue on the loan and be repaid normally by the borrower. This is relatively new policy as any direct subsidized loans disbursed now or after July 1, 2012 will begin to normally accrue interest during the grace period. Older Subsidized loans disbursed before July 1, 2012 would still qualify for the interest subsidy during their Grace period, saving some interest costs. New direct loan borrowers will not have this interest payment benefit included.
    • They are awarded after confirming the student’s financial need: The student must prove they have “financial need” to qualify for the subsidized Direct loan. Financial need is proven by the following information as determined by the office of financial aid:
      • Cost of Attendance – Expected Family Contribution = Financial Need.


      If a student is not determined to have “financial need” they are referred to unsubsidized Direct Loans only. Students from households determined to have high income and assets may not qualify for the subsidized Direct loan.

    • Subsidized Direct loans have annual limits based on the student’s grade level: A dependent undergraduate student cannot qualify for more than a set amount of subsidized Direct loans per year. Your school will determine your grade level based on a set criteria for credits completed, and award a subsidized loan up to a maximum amount as follows.
      • Freshman: No more than $3,500 per year in subsidized Direct loans.
      • Sophomore: No more than $4,500 per year in subsidized Direct loans.
      • Juniors or Seniors: No more than $5,500 per year in subsidized Direct loans.

      Should this loan be taken if offered? In general, a subsidized Direct loan is the best student loan made available as the government pays the interest on the loans while the student is in school. So, YES, if this loan is offered then it should be accepted. The only problem is that loan amounts are limited to the student’s grade level, so they are rarely enough to cover college costs. To cover the remainder of the bill, students can receive a certain amount of guaranteed unsubsidized Direct loans, and can use Parent Plus or a private loan to cover the remainder of the bill.

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    How Would Students Rank Colleges? http://www.custudentloans.org/2014/06/04/how-would-students-rank-colleges/ http://www.custudentloans.org/2014/06/04/how-would-students-rank-colleges/#comments Wed, 04 Jun 2014 19:15:24 +0000 http://www.custudentloans.org/?p=13507 Whitehouse.gov’s fact sheet on the President’s Plan to Make College More Affordable lists an ambitious federal college ratings system to be instituted by 2015. It’s touted as a way to “help students compare the value offered by colleges and encourage colleges to improve.”

    In order to develop the rankings, the Department of Education took input from students, parents, state leaders, college president’s and educational associations. Ratings will consider some of the following measures:

    • Access, such as percentage of students receiving Pell grants
    • Affordability, such as average tuition, scholarships, and loan debt
    • Outcomes, such as graduation and transfer rates, graduate earnings, and advanced degrees of college graduates

    Measurements will determine “College value” and transform the way financial aid is awarded: The impact of this ratings system could be very dramatic. Ratings programs use data to identify top performing schools, but would also demonstrate failure in other institutions. The plan is to link federal financial aid eligibility to this rating system, potentially increasing eligibility for grant programs like Pell for students attending highly ranked schools. However, some college leaders are concerned the federal rating system would become arbitrary and do more harm than good by overly promoting some institutions over others in an unfair manner. For example, community colleges were generally created to provide low cost access to education supporting the locality. If a community college were to receive a low rank on the federal scale, Pell funding for attending students could be potentially reduced, making it a more expensive option precisely when these students need a lower cost option.

    It’s time for students to step up and provide feedback: People love rankings and lists because it makes it easy to compare things. Anything. Especially colleges, since comparing institutions is complicated, and each individual has their own perspective and goals. However, with lots of federal funding and the future of higher education on the line, students need to start making it clear what expectations they have for higher education. Here are some areas many students are very concerned about and want “rankings” for.

    success kid finds a job

    • Usefulness of curriculum and training: Students want to learn knowledge that is fulfilling and worthwhile, but also need economic utility resultant from education. The challenge with education is that it’s nearly impossible to attach a value to it until after it is acquired. College outcomes by way of income and occupation can vary wildly and individual results cannot be guaranteed to all. However, in the era of big data, trends and patterns can begin to be identified in various student cohorts. Schools and programs can be categorized based on the kind of training and job opportunities made available. Over time, economic outcomes can be charted based on student success and failure, and while not perfect, a degree Return on Investment (ROI) can begin to be calculated.
    • Learning environment: Having access to a safe environment is conducive towards the learning experience. A college’s ability to provide a safe environment while maintaining fair access for many students will continue to be a focus point. How can a college maintain such an environment without following over-protective measures that drive up costs? What is the safety of the greater community surrounding the campus, and should this be included in ranking even though colleges cannot directly affect these outside variables? What about the future of learning through online portals? Would the importance of a physical plant begin to diminish due to online access, or would it increase in importance given the unique needs of certain programs?
    • Social scene: The famous catch-phrase “It’s not what you know, but who you know” helps explain the differences between exclusive institutions of higher education versus others. Part of the reason why students and parents are drawn to elite universities is that a barrier of entry only allows a selective number of people to attend. If one can make the cut to be admitted to an elite institution, they can be assured of good company with their equally talented classmates. Additionally, alumni are graduated into a field of potentially influential contacts that provide an all-important “foot in the door” for job opportunities. But social scenes at college goes beyond making contacts for internships and jobs. Students want to have a good time with good friends they meet along the way to graduation. They want to know if a college has a tightly knit community, if the fraternities and sororities are worth joining, are big time sports pivotal to campus life, and what life is like in the community surrounding the campus including activities and nightlife. These ancillary activities play a major role in college choices, but are not so easily determined given they require more personal decisions and non quantifiable emotional connections made real by the exhilaration of a packed football stadium, for example.

    You just had to be there to understand: Go Bucks!

    You just had to be there to understand: Go Bucks!

    • Affordability: Cost has increasingly become an issue as the price-tag for most institutions far outpaces the earning power of any young person. Students rely on a basket of funding sources to cover costs, ranging from need based financial aid, merit based scholarships, student loans, and the bank of mom and dad since no amount of student earnings can afford even most state schools today. Currently there are two common metrics measuring costs. One is the cost of attendance, essentially the “Sticker” price when adding tuition, room, board, books and transportation. This number will appear very high when all the costs are tallied, and will be intimidating to recognize without any further consideration. The second is the net-price, a term used to describe the costs of college after financial aid has been made available. Consequently, net-price is a much lower cost for many people to deal with. However, each individual will qualify for different financial aid, so average net-price will not be perfectly reflective of all applicants. Also, staying eligible for college funding year after year presents it’s own pitfalls, where an affordable school could becomes suddenly very expensive if financial aid were reduced due to increased parent income, or if the student loses an academic scholarship requiring a GPA that was simply out of reach. The definition of college affordability can expect to change as the Federal government begins using new metrics to determine how financial aid can be disbursed to different institutions.

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    How to improve your Credit for Job Interviews http://www.custudentloans.org/2014/06/02/how-to-improve-your-credit-for-job-interviews/ http://www.custudentloans.org/2014/06/02/how-to-improve-your-credit-for-job-interviews/#comments Mon, 02 Jun 2014 16:44:57 +0000 http://www.custudentloans.org/?p=13499 Recent College Graduates are still basking in the glow of their commencement ceremonies, but the next challenge for many will be hitting the job market.

    Interviews remain competitive, with employers going to great lengths to qualify their candidates, including a review of an applicant’s credit report. Employers are mostly concerned if an applicant has very bad credit history, as it’s a sign of poor financial management that may spill problems into work life.

    credit-report-request
    Even if you are still in college now, it’s worth taking steps to improve the limited credit available not only for long term financial benefits but also for jobs. Here’s how.

    Know your lines of credit: A line of credit is an extension of credit to an individual, usually from a financial institution, and may come in many different forms. Credit cards, car loans, mortgages and student loans are all different lines of credit that may be available. In general, a college student or recent graduate may only have a student loan and perhaps a credit card but as time progresses, new lines become available. Having multiple lines of credit that are being successfully managed is a simple way to improve credit, and demonstrates the individual can handle their financial obligations.

    Use a college credit card and pay it off immediately: Average national credit card balances have been in decline in recent years and most college students have less than $1,000 outstanding by the time they graduate. Students would be wise to simply use their credit card for school necessities, and focus on paying them back as quickly as possible.

    Begin student loan repayment before graduation: Following a disciplined approach to student loans includes beginning repayment before graduation. Even just $25 per month is enough to make a difference.

    Review a copy of your credit report: Before going on many job interviews, pull a free credit report and take a look before the employer does. You can go to AnnualCreditReport.com to take a deeper look and catch any potential errors. If this is your first experience in dealing with a credit report, it may be very simple as a young person’s credit history is limited. However, this is good practice to raise financial literacy about an important subject.

    Look for errors on the credit report: Credit reports may be carrying errors due to data entry mistakes. Additionally, when a free credit report is requested, the credit bureau pulls data from an array of sources to piece together a profile. If the applicant has been inconsistent with their personal information on credit applications, like name variations or different addresses, there are chances where errors can occur. Other common errors include issues of identity theft, out dated information or other data errors as reported by creditors. That’s why it’s so important to pull the report, review it and confirm accuracy.

    Start fixing errors right away: There are two ways to deal with errors on a credit report. One way is through the credit bureau. The other way is through contacting the company that is reporting your credit information, like a credit card company for example.

    • Correcting errors with the credit bureau agency: Equifax, Experian and TransUnion all have credit dispute and correction options available online. However, not all errors can actually be fixed by the credit bureaus. THey rely on information from companies that report credit information. However, since it’s the actual credit report that is used for job screenings, it’s important to clarify any issues that can be fixed, usually regarding variations of name or home address.
    • Correcting errors with a credit granting company: If a company is providing erroneous information about you to a credit bureau, resolve the issue directly with that company. First, know exactly what error is showing up on the credit report. Then, contact the company reporting that error to review this information and verify what their records are showing. A written notification may need to be sent to the company to settle the matter entirely once all the facts are verified.

    Starting early is really the key to fixing credit reports before job interviews: It’s easy for errors to show up on a credit report, but it may take more time than you would like to fix them. By reviewing credit reports early, enough time is available to resolve any errors well before a job screening has a chance to view it.

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    Growing Wage Gap for College Grads make the Education Worth It http://www.custudentloans.org/2014/05/30/growing-wage-gap-for-college-grads-make-the-education-worth-it/ http://www.custudentloans.org/2014/05/30/growing-wage-gap-for-college-grads-make-the-education-worth-it/#comments Fri, 30 May 2014 21:34:34 +0000 http://www.custudentloans.org/?p=13488 Recently released data from an Economic Policy Institute report demonstrates that “Americans with four-year college degrees made 98 percent more an hour on average in 2013 than people without a degree. That’s up from 89 percent five years earlier, 85 percent a decade earlier and 64 percent in the early 1980s.”

    Is_College_Worth_It_Clearly,_New_Data_Say_-_NYTimes.com_-_2014-05-28_13.17.45
    These are impressive numbers, reassuring many that a college degree is worth it.  This comes at a time when the value of a college degree has come under question, especially when compounding the rising costs into the equation.

    Is this sustainable?  Daniel Leonhardt from the New York Times explains that “The gap’s recent growth is especially notable because it has come after a rise in the number of college graduates, partly because many people went back to school during the Great Recession If there were more college graduates than the economy needed, the pay gap would shrink…” The continued wage gap demonstrates that too few college grads are being produced.

    Four-year degree holders out pacing wages for two-year degree holders and non-graduates: The report also indicates that the wage premium has grown most for holders of a Bachelor’s degree, while two year degree holders, and those that had not graduated at all have not seen a rising income over the same period of time. This underscores the importance of efforts to help students complete their four-year degrees, validating many of the college success programs more aggressively promoted.  The corollary is that attending college without graduating is the most risky of propositions, especially when including student loan debt.

    The net cost of college is negative $500,000: This interesting stat from David Autor first accounts for total tuition and fees, and then subtracts the average lifetime earnings of college graduate vs a high school graduate, accounting for inflation and the time-value of money.  This would demonstrate in most cases that college completion provides an enormous lifetime earnings bonus.  Even in cases of a moderate amount of student loan debt.  Most students graduate with roughly $25,000 – $30,000 in total student loan debt, but an even larger amount would appear to be affordable given the advantages provided by a degree.

    Tough economic conditions are still very real: While these statistics are comforting, students and parents must remain focused on how the college dream is made a reality.  It’s simple to view statistics based on the results of others, and quickly judge that college is right for everybody.  However college, much like anything else, cannot guarantee success.  Some struggle after college due to economic conditions that have persisted through the past few years.  However, the unemployment rate in April for people between 25 and 34 years old with a bachelor’s degree was about 3 percent.  A new generation of college graduates is beginning to reshape the economy, creating new opportunities for many along the way, and hopefully leading the greater economy in the right direction.

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    Tuition goes “Frozen” at Purdue: Could your college be next? http://www.custudentloans.org/2014/05/23/tuition-goes-frozen-at-purdue-could-your-college-be-next/ http://www.custudentloans.org/2014/05/23/tuition-goes-frozen-at-purdue-could-your-college-be-next/#comments Fri, 23 May 2014 13:42:52 +0000 http://www.custudentloans.org/?p=13138 Post by Ken O’Connor- Director of Student Advocacy

    College costs have a 30 year track record of increases, but could it finally start to slow down now?

     

    The Frozen College Tuition Dollar: Is Tuition Freeze Coming To Your College?

    The Frozen College Tuition Dollar: Is Tuition Freeze Coming To Your College?

    The answer at Purdue, and soon potentially other schools is “Yes”, but now without some tough decisions from leadership in higher-education, cost cutting measures, and improved technology.

    A recent article highlights the example that Purdue president Mitch Daniels is setting. Since beginning his tenure in January 2013 he’s successfully worked with his trustees for the past two years to freeze tuition, and looking to continue this trend into the 2015-2016 academic year. A Tuition freeze is when the cost is locked in, preventing it from increasing any further.

    How is a tuition freeze possible? Increased college costs have have been so consistent annually that it’s assumed it will “always” continue. However, it finally may be the time when tuition begins to level off, as some schools face the prospect of declining enrollments due to high costs, a tough job market, and a slow demographic shift where Gen Y is growing out of college attendance and into an adult life. Colleges are now the epicenter of several economic variables finally forcing a reconsideration of how they do business.

    As Daniels explains it, “Instead of asking our students’ families to adjust their budgets to our desired spending, let’s try to adjust our spending to their budgets,”, recognizing that in fact there is a limit to the resources families can reasonably pay towards higher education.

    Bringing a tuition freeze to reality takes more than rhetoric. Some of the actions taken at Purdue include:

    • A higher deductible health care plan, saving the school money by shifting costs back the employees.
    • Reduction in administrative expenses by combining some job roles and eliminating redundancies in positions.
    • Reduction in food service costs through volume purchases and part-time student employees to handle extra work.

    Those are just some of the potential cost cutting measures available. There will be many more on the horizon, including more efficient use of technology on campus, and further streamlining of administrative costs. The big barrier initially is going to be a change in culture. As Daniels makes note of over the issue of food, students now have highly increased expectations regarding their college experience that supersede the overwhelming history of learning environments. College students need to reconsider their expectations as being more in line with economic realities in 2014. “The food (is) supposed to be standard and bad. … I say to my students, ‘Do you guys understand that higher ed has been around for a millennium and, until the last few years, every college student everywhere hated the food?’ says Daniels.

    But additional culture change will have to come from within the faculty and administration. Another recent report from the Institute for Policy Studies indicates that student loan debt is accelerating at college’s with the highest paid presidents. It was noted that administrative expenditures at the highest-paying universities outpaced spending on scholarships by more than two to one, while the share of adjunct, part time faculty increased drastically to handle the student volume.

    Could college costs actually drop? While college costs may at best freeze and flat-line at many institutions, the odds of sudden dramatic decreases remains nearly impossible. Higher Education, even through MOOC models and online access, is still very labor intensive, slow and arduous. Quality does not come cheap, though it may be administered more effectively to create greater net outcomes for the student’s mind as well as the wallet.

    Stay tuned, and if you have any suggestions for ways that schools can reduce costs, leave a comment!

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    What is cosigner release on private student loans? http://www.custudentloans.org/2014/05/20/what-is-cosigner-release-on-private-student-loans/ http://www.custudentloans.org/2014/05/20/what-is-cosigner-release-on-private-student-loans/#comments Tue, 20 May 2014 15:58:03 +0000 http://www.custudentloans.org/?p=13120 When comparing private student loan options, it’s important to remember the needs of the cosigner. Often, students that are in need of additional college funding turn to loans, and may need a cosigner to get approved for some. Usually a parent ends up handling the duties, but before signing up, they should consider all the details.

    Mother and daugther smiling at laptop while using webcam

    What is a cosigner release on a private student loan? It’s when a cosigner can be released from an application once certain repayment requirements are met by the primary borrower on a private student loan application. This allows for the cosigner’s credit to be cleared of the debt, freeing it up for other needs.

    How does it work? In order for a cosigner to be released from a private student loan application, the primary borrower must often complete certain minimum requirements. These minimum requirements are enough to demonstrate that the borrower will be able to handle debt repayment on their own, allowing the cosigner to be released from the obligation of repaying the debt if the borrower were unable to do so. The most common requirements include…..

    • Borrower must have graduated from college: If the borrower cannot provide proof of graduation, then the cosigner cannot be released. Proof is usually found in the actual degree certificate or through an official school transcript.
    • Borrower must make a minimum number of full monthly payments: Full monthly payments include entire principal and interest portion that is due. Each payment must be on-time to qualify. A range of 12-48 monthly payments may be required depending on the lender. Private student loan consolidations may also qualify for a similar cosigner release program.
    • Borrower must be employed and earning a minimum income: The lender may ask for proof of income to determine that the borrower is meeting the income requirement. This is usually found in the two most recent pay-stubs, but may also require a w-2 or other proof of income documentation.
    • Borrower’s credit must be approved on a stand alone basis: The borrower will need to meet minimum credit requirements before the cosigner can be released. The lender will have to check the primary borrowers credit information before allowing the cosigner to be released.

    What happens when the cosigner is released? Often, the person that cosigned is able to have their credit or debt-to-income ratio improved by removing the other debt. This may create flexibility for the cosigner a few ways…

    • Multiple college bound children: Cosigner release can free up parent credit to cosign for another child going to college. Good planning can allow for credit to be fairly distributed to each child. The last thing parent’s want is to over extend their credit to one child, but be unable to assist the next one.
    • Frees up credit for other needs: With low rates available on other auto or home loans, parents removing their obligations as a cosigner could improve their credit to qualify for them.
    • Peace of mind: Co-borrowers are just relieved to know that the debt is no longer something they are obligated to in the event the primary borrower is unable to repay.

    Making sure this feature is available on your private loan or consolidation Students as well as cosigning parents, make sure to check on cosigner release options on any private loan before committing, this way a debt exit strategy can be implemented to ensure the primary borrower is paying back their debt, and the cosigner can receive the release benefit. Without a cosigner release option, the cosigner would remain obligated to the loan until it is fully repaid.

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    Federal student loan interest rates set to increase for 2014-2015 school year http://www.custudentloans.org/2014/05/20/federal-student-loan-interest-rates-set-to-increase-for-2014-2015-school-year/ http://www.custudentloans.org/2014/05/20/federal-student-loan-interest-rates-set-to-increase-for-2014-2015-school-year/#comments Tue, 20 May 2014 15:38:37 +0000 http://www.custudentloans.org/?p=13118 When federal direct loan interest rates are updated July 1 2014, it’s expected that rates will increase. This is because the United States Treasury recently completed their auction on their 10-year notes, and use that figure to peg upcoming student loan rates.

    The auction selling price: 2.61%

    This is 0.8% higher than last year’s determining auction, and will lead to increased student loan interest rates for this new year.

    fsli 2014 2015

    How will this affect Direct loans for the new federal lending year beginning July 1?

    • Undergraduates: Fixed rate subsidized and unsubsidized Direct loans are expected to price at 4.66%, up from 3.86% in 2013-2014.
    • Parent’s of undergraduates: The Direct Parent Plus loan fixed interest rate is expected to increase to 7.21%, up from 6.41% for 2013-2014.
    • Graduate students: Unsubsidized direct loans for grad students are expected to increase to 6.21%, up from 5.41%. Graduate Plus loans are expected to increase to 7.21%, up from 6.41%.

    How much will this cost borrowers?

    I ran a hypothetical illustration for an incoming freshman that qualifies for $9,500 in unsubsidized Direct loans @ 4.66%, kept loans in deferment for 48 months, making no payments while in college. Then I calculated the debt repayment schedule using a standard 10-year term, and compared the numbers to a 3.86% loan of the same amount.

      • Direct loan amount borrowed: $9,500 unsubsidized
      • Interest rate: 4.66%
      • Deferment: 48 months
      • Interest accrued during deferment: $1,942.94
      • Total loan balance at end of deferment / beginning of repayment: $11,442.46
      • 10-year repayment term – monthly payment due: $119.47
      • Cumulative payments: $14,336.76
      • Total cost of $9,500 borrowed: $4,836.76 in interest.

    Under the same scenario, but with a lower 3.86% rate, cumulative payments would add up to $13,377.24, with total interest costs adding up to $3,877.24.

    The slight increase in interest rate ends up costing almost a thousand extra dollars in this scenario.

    When does this become official?

    On July 1, 2014 the new rates will be officially released to the public. It’s nothing like the #DontDoubleMyRate issue of last year, but it’s still another increased cost that students must deal with to complete college.

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    5 simple financial moves for new college graduates http://www.custudentloans.org/2014/05/20/5-simple-financial-moves-for-new-college-graduates/ http://www.custudentloans.org/2014/05/20/5-simple-financial-moves-for-new-college-graduates/#comments Tue, 20 May 2014 15:29:16 +0000 http://www.custudentloans.org/?p=13115 College graduations are getting all the attention now, but after it’s all over, it’s back to reality. Here are 5 easy tips to get a college grad into improved finances asap.

    Review a copy of your credit report and fix any errors: You are entitled to a free credit report every 12 months from each of the three main credit reporting agencies, including TransUnion, Equifax and Experian. Go to annualcreditreport.com for a copy. When you receive the report, read it! If there is any information on there that is incorrect, you should take action by contacting the credit bureau in writing informing them of inaccuracies. Here is a form letter from the Federal Trade Commission to help you get issues settled on the way to clean credit.

    Get a student loan consolidation: This is pretty much an automatic given the amount of student loan debt that may be outstanding. Look at loanconsolidation.ed.gov for federal loans. They cannot offer a reduced interest rate, but make it easier to coordinate federal loan repayment through one monthly payment, instead of several. Take a look at the cuGrad program for any private student loan debt. Since it’s a credit based application, students that have graduated and are gainfully employed often have improved credit, qualifying them for lower rates than the originally disbursed private loans from prior years.

    Dwolla is one of many digital payment providers

    Dwolla is one of many digital payment providers

    Add a digital payment provider to your smart phone: Digital wallet management is in your smartphone now and ready to work for you. Never again will you forget to pay back friends that spot you! Utilizing a digital system like Dwolla allows for individuals to send payments quickly and easily to friends or vendors. If you are thinking about starting a business, the ability to receive payments quickly over a digital format will take a lot of headaches out of your day. Either way you cut it, gaining familiarity with digital payments is good for your financial future.

    Start a modest savings plan for retirement: Nothing fancy is necessary to get started. First, look at obvious options. If your job makes a 401(k) or 403(b) available, start making contributions. These programs use pre-tax dollars withdrawn directly from the pay check to fund the account. If that is not available, try looking at a Traditional or Roth IRA. Traditional IRA uses pre-tax dollars to fund the account, potentially reducing tax liabilities for the current year, but taxing withdrawals at a hopefully low tax bracket once reaching retirement age. Roth IRA uses after tax dollars, so no reduction in tax liabilities would occur in the current year, but the money grows tax free potentially leading to huge gains in the future. Just taking the steps to learn about the options early is a smart move.

    learn to cook

    Learn to cook: Some college students pick up bad eating habits along the way to graduation, beginning with the Freshman 15 and ending with a lack of ability to even boil an egg. Poor eating habits become a financial liability in two ways. First, always paying for take-out or restaurants gets expensive. Second, delicious prepared meals tend to have high fat and calories and may not provide the best nutrition, leading to long term health issues, lower energy, and consequently lower productivity. On the other hand, buying and preparing your own meals saves money in two ways. First, it just costs less money to buy food at a super market and prepare it yourself. Second, since you are in control of what goes into the meals you prepare, you can make a point of making sure healthy ingredients are used to enhance energy, leading to greater productivity.

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    Dorm, home or off-campus: How college housing affects cost of attendance http://www.custudentloans.org/2014/05/20/dorm-home-or-off-campus-how-college-housing-affects-cost-of-attendance/ http://www.custudentloans.org/2014/05/20/dorm-home-or-off-campus-how-college-housing-affects-cost-of-attendance/#comments Tue, 20 May 2014 15:22:48 +0000 http://www.custudentloans.org/?p=13113 Did you know that your college cost of attendance is subject to change based on your choice of housing on the FAFSA? Also, did you know that your cost of attendance could increase or decrease if housing were to change? For example, if on the FAFSA the student originally requests consideration as an on-campus dorm student, but later changes to commuter status by living at home, their cost of attendance would be reduced reflective of lower costs. Changing the cost of attendance may affect a students eligibility for some financial aid, here are some things to consider.

    Remember the FAFSA? It specifically asks about your college living arrangements, and provides a drop down menu where the student selects “On-campus”, “With parent” or “Off-campus”. When the school receives the FAFSA including the student housing choice, it constructs a cost of attendance to account for the particular expenses.

    housing plan FAFSA

    There are pros and cons for any living arrangement:

    Where should I Live Dorm, Home off campus

    How is “Cost of Attendance” Impacted by housing choice?

    “On-Campus” This will carry the highest cost of attendance due to dorm costs plus the cost of the mandatory meal plan.

    “Off-Campus” This figure can vary, but will generally be lower than the cost of dorms at the school, but higher than living at home with parents

    “With Parents” The commuter student generally has the lowest cost of attendance with reduced room and board costs, but the portion of the cost of attendance used for transportation will be slightly higher.

    Can this impact financial aid eligibility? Yes. Here is why. Financial aid is awarded considering financial need. Financial need is a technical term used to determine eligibility for certain funding sources. It follows a partiular equation: Cost of attendance – Expected Family Contribution = Financial Need.

    If the student selects a housing option that would increase their cost of attendance this would cause an increase in financial need and may allow more financial aid to be made available.

    Financial aid hangs in the balance: Students must file the FAFSA each year of college to qualify for financial aid. On the FAFSA the student can choose their housing option, and the financial aid office will add funding accordingly. It’s especially important for incoming freshman to take a good look at potential funding made available through their housing choice. An incoming student may be awarded with substantial financial aid to help pay for the costs of living at the dorms. A common strategy for some students is to file the FAFSA as a dorm student to see the maximum amount of funding that can be made available. If it’s sufficient, living at the dorms may be economical. If the funding increase is not enough, then request to be re-packed as a commuter student and save some money. If the school only awards increased parent plus loans to fund the extra dorm costs, it’s probably not economical. Students should be looking to increase grants due to increased financial need.

    Off-campus variations: Calculations on off-campus housing costs can be adjusted through an appeal process. This may be important for adult and continuing students returning to school while raising a family, while potentially facing reduced income as well. To make an adjustment, contact the school’s financial aid office to verify the cost of attendance components for off-campus room, board, miscellaneous and transportation expenses. If the student has documentation proving that these costs are actually greater than what the school has estimated, the student may appeal. The appeal should simply explain that a re-evaluation of the cost of attendance must be considered including the additional documented expenses. If it’s determined the student has increased financial need, the student may qualify for other funding sources.

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