Student Loans : News, Updates and Blog Posts

This week, many student nationwide are rejoicing in their college decisions, having just sent their deposits to their chosen colleges. Simultaneously, parents everywhere are worrying about how to pay the upcoming tuition bill. If you’re one of these parents, you may be weighing the pros and cons of tapping your 401k for those funds. In this instance, it may be more beneficial to be a little selfish. Here’s what I mean…

Tapping your 401k to pay for college tuition is usually not a good idea. Whether you’re thinking about withdrawing funds, or borrowing against your 401k or IRA, both options end up leaving you with less funds for retirement. Anytime you withdraw funds from your account, the money will be slapped with a hefty 10 percent penalty AND subject to taxes. If you’re looking for a deal, this really isn’t your best option.
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In last week’s blog “Know your student loans” I talked about some of the basic student loan terms you’ll need to know when choosing the best financial aid option. Included in the article were the basics of student loan interest rates. This week I want to break down interest rates even further to help you understand why banks charge what they do and how this is determined.

How interest rates are determined

The first thing you might notice during your financial aid process is that not all interest rates are created equal, even federal ones. Federal Stafford loans are currently at very low rates of 3.4%, while federal PLUS loans are at 7.9%. Even amongst private loans, the lowest available rates can vary significantly. But why is this?

For starters, the lowest advertised rates are not what most people get. You and everyone you know must have perfect credit to get these rates (not literally, but it might as well be). These low rates offered by lenders are based on external factors like PRIME or LIBOR indexes, and the stock market, as well as some internal factors such as how the bank invests its funds or even the business model the bank uses. The bottom line: banks determine their lowest interest rates based on what will keep them competitive in the market, while still being profitable.
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April is financial literacy month and this blog kicks off our financial literacy blog series! In keeping with this spirit, I wanted to break down some common student loan terms so that students and parents can be better informed about the student loan choices they make.

Basic Terms

The following are a few basic loan terms that are imperative to know when taking out a loan for the first time:

Principle – The total amount of the loan when you take it out. Interest accrues on this amount.

Origination fees – These are fees charged by the lender for the “creation” of the loan.

Interest – The amount charged for use of the loan money.

Capitalized interest – An amount of interest that is added to your principle. This means that if you have a loan of 10,000 with $100 in interest, once your interest is capitalized your loan principle becomes $10,100. It’s always best to avoid capitalizing interest because any interest that accrues after is going to be based on this new, higher principle balance, so you will end up paying more over time.

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With graduation right around the corner for many-a-senior, the thoughts that occupy the minds of future grads probably revolve more around finals and parties than around repaying their loans. While graduation is absolutely a time for celebrating accomplishments, it also means that loan repayment is looming. Start planning now so that when the time comes, you’re ready and not scrambling to locate your loan paperwork.

Here are five ways you can prepare for repayment right now:

1. Locate your loans

This may sound simpler than it is. Many students lose track of their loans while in school. Whether due to neglect or the buying/selling of private loans, students can have a hard time tracking down who they owe. If you have federal loans (this includes Stafford, PLUS, Perkins) you can log in to NSLDS.ed.gov and find out all of your loan information, including who services the loan. Yes, the Department of Education outsources loan servicing, so while you may have a Direct Stafford loan, your payments may need to go to Great Lakes, for example. If you need to track down your private loans, request a copy of your credit report. This will list all of your loan lenders, plus it’s always good to know how your credit stands.
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If you have had any issues with your federal student loans, you may be familiar with the Federal Student Aid Ombudsman office. This office is responsible for mediating issues with your federal student loans or financial aid office. Students weren’t lucky enough to have this luxury for private student loans, that is, until now.

The Consumer Financial Protection Bureau created a private student loan Ombudsman office to handle consumer complaints with loan lenders, servicers, and collectors.

What does it really mean for you, the borrower? Well, for starters, a single federal agency is now responsible for overseeing private student loans, which will hopefully provide easy answers to families seeking assistance. This new office will allow families to file complaints, at which point the office will contact the loan lender to help resolve any issues. These could be issues such as you were billed while loans were in deferment, or your payments were not applies as specified. The CFPB will now be able to help resolve loan repayment issues between you and your private loan lender.

While this office does handle complaints, they are also available to answer questions you may have about borrowing a private student loan. For more information or to submit a complaint or question, visit http://www.consumerfinance.gov/complaint/ or call 1-855-411-CFPB.

I recently released my co-signer (my dad) from the burden of being responsible for my student loan payments. A co-signer is responsible for the payment of a student loan if the student who ‘owned the loan’ was unable to make payments, and deferment or forbearance wasn’t an option.

I thought this would be an easy, no ceremony (or notification) process needed. I didn’t realize how big of a deal this can be to your co-signer, the relief, and the adult-like responsibility you embody when you complete this process.
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If you borrowed tens of thousands of dollars from someone, knowing you would eventually have to pay them back, more than likely over several years, you would think the person from whom you borrowed would be a high priority. But amazingly, the vast majority of people who borrow thousands of dollars in student loans have no idea who their lender is.

Now granted, if you are still in school, it really doesn’t matter. Your lender only comes into play around repayment time. But if you have recently graduated college and are interested in consolidation or deferment, you may have to contact your lender. So let’s talk about how to do that.

If you have a federal student loan, such as Stafford, Perkins or PLUS, you can visit the National Student Loan Data System and enter your four-digit PIN number that you received when you filled out your FAFSA. If you don’t know your PIN, contact the Department of Education at 800.433.3242.

If you have a private student loan, you can either contact your school’s financial aid office, or request a copy of your credit report from Free Credit Report, which will list your outstanding loans and lenders.

If there’s one thing that makes people nervous about borrowing money, it’s the question of the interest rate. Will it go up? Is fixed or variable better? What the heck is LIBOR?! These are all very common questions, so read on to learn the answers! (more…)

While there are a lot of resources out there helping students to find the best private loans, I’m hoping to take it a step further and discuss some of the best repayment tips and tricks private loan holders may not be aware of. There are a lot of ways students can not only manage their debt, but even reduce it!

1. Keep an eye on rewards and incentives

Did you know that the vast majority of private lenders offer repayment incentives such as interest rate reductions? In many cases, these reductions come from automating payments through a checking or savings account (ACH). The incentives can range from about .25% to .50% and can save you a lot of interest.  (more…)

We realize that covering all of your expenses can be a challenge, especially when government loans and financial aid just aren’t enough. Private student loans can help you find the money you need to finance your education. Private student loans also offer a variety of borrower incentives. These can include co-signer release, graduation rewards, APR (annual percentage rate) reductions and more depending on the lender.

Speaking of which, we are pleased to inform you that one of the major private loan lenders represented by the Student Loan Network, PNC Bank, announced earlier this year that PNC Solution Loans are now available with no origination fees. Borrowers can also take advantage of a 0.50% interest rate reduction for use of automatic payments.

These are among the latest enhancements by PNC to products and services specially designed to simplify the process of paying for higher education. PNC already provides a variety of resources geared to improve money management and avoid costly mistakes and fees while students are still in school. They also offer upon graduation a customizable repayment planning tool.

Thomas Lustig, manager of Education Lending at PNC, offers that “By eliminating origination fees and rewarding automated payments with a reduced interest rate, we are taking another step in our efforts to simplify the student aid process to make it easier for students to achieve their academic and financial goals.” We agree – Keep It Simple!

PNC’s private Solution Loans provide education financing for undergraduate and graduate/professional degrees, health professions, and bar exam preparation for qualified borrowers at eligible schools.

Other Benefits and Qualifications for PNC Solution Loan

Apply Now for a PNC Solution Loan!