The Political Side of Student Loans

Warning sign to keep up with student loan law changes. Photo by Wendy David-Gaines

Warning sign to keep up with student loan law changes. Photo by Wendy David-Gaines

Please welcome the return of special guest Jenny L. Maxey, blogger and author about financing higher education with minimal debt and maximum opportunities. Read Jenny’s important post about how to keep up with the frequent changes in student loan laws and get involved beyond staying informed:

Summer seems to be the designated time of year to get down to student loan business on Capitol Hill, attempting to beat whatever impending change will go into effect on July 1st. In 2013, a new law was passed tying Federal Direct Loans and PLUS loans to the rates of the Treasury plus a fixed rate based on the type of loan. These rates are determined in the spring and then are fixed for the life of that loan. This summer, the U.S. Department of Education has made a regulatory change to help those in default calculate a repayment plan similar to those not in default using the Income Based Repayment plan, allowing some to have repayments as low as $5. Further, President Obama signed an executive order to go into effect December of 2015 that alters repayment plans to extend repayment in order to become more manageable, especially for older borrowers.

The changes come from all over – legislative, executive, administrative. How are you or your college-bound student expected to keep up with it all? Can you? Here are a few levels of activity to help you keep informed about the political side of student loans.

LEVEL ONE:  Maybe you and your college-bound student have better things to do than follow the ever-changing squabbles on Capitol Hill. However, it is important to be informed about the influence those changes can have on the debt you and/or college-bound student are taking on. Here are a few easy ways to keep up-to-date.

  • Before you sign the terms, make sure you understand what is in them. You’ll need to do this every year, but it’s only once a year.
  • If you don’t understand the terms, visit studentloan.gov to get the most up-to-date information on government loans.
  • Speak with your Financial Aid office for additional help in understanding any changes.

LEVEL TWO:  If you have an opportunity to dig a little deeper, try these steps in addition to Level One.

  • Add a Google Alert. You can put in keywords such as “student loans” or “federal loans” and receive daily, weekly or monthly updates on what changes are being ensued. Learn how to set up a Google Alert HERE.
  • Do some bill tracking. While this only follows the changes made legislatively, you can follow the debates and where your elected representatives are hoping to steer the conversation. You can track bills HERE.

LEVEL THREE:  Do you want to do more than just stay informed? Get active!  Have an effect on the outcome. After all, it’s you and/or your college-bound student who are taking on this debt. Now that you know the news and are tracking legislation, you can email or call your state and local representatives and ask them where they stand and give your opinion on the matter. Your effort might make the difference in how the issue is amended or voted upon.

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Jenny L. Maxey is the author of Barrister on a Budget: Investing in Law School…without Breaking the Bank. Jenny earned a Master’s degree in Public Administration and a J.D., and is licensed to practice law in Ohio. Although her book is geared toward pre-law and law students, most of the information can be easily applied to any level of higher education. Barrister on a Budget is available on Amazon.com and Barnes & Noble Nook. You can find more information and follow her blog on www.jennylmaxey.com.

7 Tips to Help Your Child Decrease Their Loan Debt BEFORE Graduation Day

 

Barrister on a Budget by Jenny L. Maxey

Barrister on a Budget by Jenny L. Maxey

Jenny L. Maxey, author of Barrister on a Budget, and I have teamed up to provide some fresh financial suggestions for parents, the college-bound and students continuing with post-graduate studies. Jenny will focus on tips to help your child decrease student loans BEFORE graduation and I will zoom in on fresh ideas for families to do now, plan for the future, and ask others to step it up.

Enjoy Jenny’s guest post:

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7 Tips to Help Your Child Decrease Their Loan Debt BEFORE Graduation Day

Student debt is becoming a heavy burden, and not just for students.  Parents often co-sign for loans to help their child receive funds or even just to help them get a better interest rate.  The scary thing is that in the current economy, many students are unable to find a job that will allow for cost-of-living in addition to the hefty repayments.  And what happens if the student can’t make the payments?  Well, it can be two-fold.  If you co-sign, you are the one responsible to make the payments.  Plus, your child might move home (if you’re feeling the effects of the empty nest, that’s maybe not a bad thing), which can cause your bills to increase.  You’re likely going to be dipping into your retirement funds (or not saving for retirement at all), and then what happens when you retire?  You and your child are going to be stuck paying that student loan bill.  Even declaring bankruptcy, does not get rid of student loan debt.  So before you or your child sign for another loan, take these steps to better not only your child’s future, but yours as well.

  1. Avoid borrowing loans altogether.  Okay, this might sound obvious, but have you and your child looked for opportunities?  I mean really looked?  Scour the internet, local and state organizations, your employers, and corporations, anything you can do to find scholarships.  Then, apply for all of the ones your child qualifies for.  Yes, this can be time consuming, but you could avoid thousands in debt for not much work.  Joining the military is also an option that many don’t consider.  The military can offer partial and sometimes full tuition assistance among other benefits.  And, as some employers give preference to the military, can be the difference in acquiring a job or not in this market.
  2. Graduate early.  If your child is still in high school, take Advanced Placement (AP) courses.  While the exam to receive the college credit can cost $80 – $120 (plus any fees added by the high school), it can be cheaper than the same course in college.  Be sure to inquire about any financial assistance the high school may provide for these courses.  If your child is currently in college, take the full credit load every semester if the tuition is a flat rate (every school is different, so check the policies).  Also, they should use their summers wisely and do an internship that will give them course credit (and maybe some spending money) as well as experience and references!
  3. Pay attention to loan agreements.  Apply for subsidized loans and other need-based loans that will usually cover part or all of the interest payments while your child is in school.  Shop around for the lowest interest rates. Keep documents organized and be aware of your repayment schedule to avoid late fees.  Know the options to make repayment manageable to avoid fees and default.
  4. Negotiate tuition fees.  Schools have some fees that are negotiable.  Fees that are automatically put into your tuition bill, such as gym membership and athletic tickets, can sometimes be opted out of and removed from the bill.  Check with the financial aid office and discuss these options.
  5. Get a job.  If your child can handle working while in school (make sure they are able to maintain a high GPA to open up employment options upon graduation), then get a job…maybe two.  Colleges offer Resident Advisors (RA) and work study programs that are flexible with school hours and offer benefits – reduced housing expenses and free meals for RAs – or payment to pay for educational expenses.  If they get a job off of campus, they can also use the income to pay for educational expenses, decreasing the amount they may be inclined to borrow.
  6. PAY INTEREST!  This one is a biggie! Most student loans have compound interest, which means, if you don’t pay your interest, it adds on to the total amount owed and the next time you are charged interest, the payment is based on the new total.  This can quickly add up!  The original balance owed will be maintained and your child will pay less over the life of the loan if you or they make the interest payments during school.
  7. Teach them how to budget.  Keep track of spending for a month or a semester and create a budget.  Review the spending and determine what areas can be cut back.  Do they really need the $7 Starbucks coffee or the newest iPhone?  Can they buy used books or eBooks for lower prices?  Have they been flashing their student ID as much as possible to get all the discounts on food, entertainment, and transportation possible?  There are free apps available that can easily keep track of budgeting for you, making it readily accessible at each purchase and keeps you in check or there is always Excel Spreadsheet.

Now hop over to read my 10 $$$ ideas for POCS (Parents of College/college-bound Students)

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Jenny L. Maxey is the author of Barrister on a Budget:  Investing in Law School…without Breaking the Bank.  Jenny earned a Master’s degree in Public Administration and a J.D., and is licensed to practice law in Ohio.  Although her book is geared toward pre-law and law students, most of the information can be easily applied to any level of higher education.  Barrister on a Budget is available on Amazon.com and Barnes & Noble Nook.  You can find more information and follow her blog on www.jennylmaxey.com.

Update: New Solution to Stop High Student Loan Debt

Cliché: Take out a loan.    
POCS Reality: Federal student loans are a form of financial aid to help pay for college.

 

The student loan crisis goes on and President Obama announced some ways to reduce debt for 1.6 million student loan borrowers. This is an update from my prior blog.

First the existing help:

IBR

There is an Income-Based Repayment (IBR) Plan for federal Stafford student loans, student Grad PLUS, and Consolidation Loans not in default that caps monthly payment at an amount intended to be affordable based on income, family size, and state of residence.

The annual IBR repayment amount is 15 percent of the difference between your AGI and 150 percent of the Department of Health and Human Services Poverty Guideline for your family size and state. This amount is then divided by 12 to get the monthly IBR payment amount.

Use the IBR calculator to determine if your monthly payment would be lower than under the 10-year standard repayment plan. Note that borrowers may end up paying more interest because the longer the repayment period, usually the more interest is paid. However, after 25 years of repayment under IBR and meeting certain other requirements, any remaining loan balance will be canceled.

Perkins Loan Forgiveness Programs

All or a portion of Perkins Loans may be forgiven under certain circumstances for the following occupations: teachers, firefighters, librarians, speech pathologists, Vista or Peace Corps volunteers, veterans, totally and permanently disabled, attorneys, nurses and medical technicians. 

Stafford, Grad PLUS Forgiveness Programs

All or a portion of Stafford andGrad Plus Loans may be forgiven under certain circumstances for the following occupations:

For teachers

For public service

For totally and permanently disabled  

 

Then what’s coming:

2012

The following info comes from the White House blog, Fact Sheet, and Press Release: 

  • Originally slated to start in 2014 but now fast-tracked to begin next year, the “Pay As You Earn” proposal will reduce monthly student loan payments for more than 1.6 borrowers from 15 percent to 10 percent of their discretionary income. The period of  repayment years under IBR to achieve forgiveness of loan balances has been reduced from 25 to 20 years.
  • 6 million student borrowers have federal student loans under two different programs- the old Family Education Loans (FFEL) program and the Direct Loan program. They will be able to consolidate their split loans into the Direct Loans, make one combined monthly payment instead of 2 or more, and receive up to a ½ % interest rate reduction:

Borrowers who take advantage of this special, limited-time consolidation option would also receive up to a 0.5 percent reduction to their interest rate on some of their loans, which means lower monthly payments and saving hundreds in interest.  Borrowers would receive a 0.25 percent interest rate reduction on their consolidated FFEL loans and an additional 0.25 percent interest rate reduction on the entire consolidated FFEL and DL balance.

  • The Department of Education in conjunction with the Consumer Financial Protection Bureau (CFPB) will launch a new “Know Before You Owe” project. The goal is to help students and their families make an informed decision about where to attend college and the debt burden they may be left with. A model financial aid disclosure form for colleges to help students better understand the types and amounts of their aid and compare financial aid packages offered by different schools will be created.

This “Financial Aid Shopping Sheet” makes the costs and risks of student loans clear upfront – before students have enrolled – outlining their total estimated student loan debt, monthly loan payments after graduation and additional costs not covered by federal aid. 

College students and their families can provide input about the form to the CFPB on its website http://consumerfinance.gov/students/knowbeforeyouowe

Learn more:

www.studentaid.ed.gov or call 1-800-4-FED-AID

www.nslds.ed.gov federal loan information

POCSmom’s College Prep DIY Insight: There is info to help the college-bound prevent their own student debt crisis. Graduates with heavy debt that do not qualify for loan forgiveness/consolidation continue to struggle.

*POCSmom’s Insight: College Loans

Cliché: Pay back.  
POCS Reality: There are borrowing costs associated with education loans.    

 

More college graduates are struggling to repay their student loans:

http://sanfrancisco.cbslocal.com/2011/08/29/consumerwatch-more-college-grads-struggling-to-pay-student-loans/

Even after counting grants and scholarships, many families cannot afford to pay for college out-of-pocket, so they borrow. After applying for federal financial aid via the FAFSA (Free Application for Federal Student Aid), colleges may offer undergraduate students federal education loans that are regulated by the federal government. There are additional federal loans for graduate students (Grad PLUS) and for parents of undergraduate students (PLUS). Some families choose to borrow from private lenders that set their own interest rates and terms for repayment.

POCSmom’s insight: Do the math. There are borrowing costs such as origination fees and interest charges which will increase the cost of a college education. Estimate income potential upon graduation to calculate if borrowing is an affordable option and if so, what is the maximum borrowing amount that is affordable.

If borrowing, federal loans usually have more favorable terms than private loans. Federal loan features that private loans do not have include:

  • Limits to the annual amount and the aggregate amount students may borrow.
  • Forgiveness programs (all or a part of a federal loan may be wiped out and forgiven if meet qualifications).
  • Deferral and forbearance programs to postpone repayment.

The best college choice is the affordable school with the best chance for student educational and student/family financial success. It should have the programs, activities, and location the student wants and the costs the student/family can pay.

To fully enjoy the rewards of  a post-college future, it is necessary to plan wisely in the present.

*POCS: Parent Of a College Student