Student Loans : News, Updates and Blog Posts

When it comes to private student loans, one tense topic among students and parents is, “how are you going to pay for it?” Between often needing a cosigner and qualifying for a relatively high interest rate, there are a lot of considerations that go into choosing a private student loan that are not necessarily present in the lending offerings of federal programs like Direct Loan and FFEL.

That being said, many private lenders have systems, incentives, and educational materials on hand to make their loans as attractive as possible. These can include benefits like graduation rewards, conditional interest rate reductions, and deferments based on special circumstances.

Graduation Rewards

An example of a graduation reward would be knocking a fixed percentage off your loan after completion of your degree. Here is a short list of what some of the more popular private lenders are doing today for graduation rewards:

• Discover Student Loans – 2% interest rate reduction
• SunTrust – $300 balance reduction
• Sallie Mae – Cosigner release

As you can see, each has their own little incentive for choosing their company over the competition. If you’re interested in reading up on more of these differences, check out our private loan comparison tool.

Rate Reductions

Interest rate reductions are another great way to save money. Many lenders offer these for becoming part of special programs or consistently making on-time payments.

For instance, the Federal Direct Loan program is currently offering an interest rate reduction for borrowers that join the auto-debit program for making monthly payments. In addition, it is not unheard of for lenders to offer a small rate reduction for participating in paperless billing systems. If you have a pre-existing loan(s), check with your lender to see if there are any opportunities available for interest rate reductions.

Consolidation

The topic of private student loan consolidation is tricky in the arena of saving money, because you realistically are not saving anything. When you consolidate one or more loans, you are essentially remortgaging them; it combines them into one bill, repackages them under a new interest rate, and extends the repayment terms. The end result is a lower monthly payment, but the long term effect is more interest being paid to the bank.

So now I ask you, what tips and tricks have worked to save you money during repayment?

Did you know that if you decide to take a semester off from school your federal student loans go into repayment right away? That is right! You will get a six month grace period after your student-status drops below half-time even if you plan on eventually returning to school.

For example, say you leave school in December and plan to take the spring semester off. After a six month loan grace period you will have to start paying you loans back. You will have to make payments throughout the summer but, if you decide to go back to school in September you can apply for in-school deferment and hold off on making additional payments until you graduate. Just remember that you will have already used up your six month grace period so you will have to start making payments on your original loans right away.

This holds true for graduate and undergraduate students! So think twice before you decide to relax for a few months. It might be more stressful than you think!

Academic probation may cost you your federal aid, or worse, your enrollment in that institution.

Satisfactory academic progress standards are set by the post-secondary school you are attending, which means no one size fits all solution exists. The formal academic probation process at Southern Cal may be entirely different from that of Florida State. Generally speaking, however, academic probation is when your overall GPA has fallen below a 2.0. You are then given a semester to raise your cumulative GPA to above 2.0 (the probationary period). If you are unable to do so you may be sanctioned to financial aid suspension or dismissal from the school.

If a student is dismissed they will need to enter another school, raise their academic standing, and then apply for reinstatement. As for your federal aid, you remain eligible for aid during your probationary period, however, if you fail to reach the 2.0 marker your next semester will be in jeopardy. It is also important to note that you must complete a certain percentage of your classes as well – usually greater than 75 percent. So enrolling in 5 classes and then dropping two won’t cut it. The classes attempted vs. completed ratio is important.

Be sure to check with your school for more details. Remember, if you are in need of funds for school there are always scholarship opportinties worth exploring. ScholoarshipPoints is giving away over $100,000 in scholarship money this year.

Did you realize your Stafford loan may hold one of several statuses? The most common status these days is deferment (after you get out of school). Many can not afford to pay their student loans at this time so they are deferring their loans for a period of time. Stafford loans come equipped with up to three years worth of deferment time.

Knowing your status is very important. If you change schools, for example, you want to make sure you maintain your “in school” deferment status otherwise it may shift to “grace” meaning your loan will come due within six months time.

Just be sure to monitor your loan status. It could save you a lot of headaches later.

Possible Statuses

If you receive a degree in the field of early childhood education, become a childcare provider in a facility that serves a low-income community, and meet other eligibilty requirements, you may be eligigble to have up to 100 percent of your combined Direct Loan or FFEL debt cancelled. However, this type of loan forgiveness depends upon the availabilty of federal funds. If no funds are available, you will not be able to receive this type of forgiveness.

While Stafford loans remain your best loan option for higher education it is important to be mindful of the amount you are borrowing – it can get out of hand quickly.

As a rule of thumb repayment of student loans should be only a small percentage of your salary after you graduate.  If you expect to pay more than 15 percent of your annual salary for student loans, you might have difficulty making your monthly payments.

Ask your school’s FAO for starting salaries of recent grad’s in your field of study to get an idea of how much you are likely to earn after graduation.

Estimates of salaries for different careers are available in the Occupational Outlook Handbook at www.bls.gov/oco.

There are certain mandatory forbearances. Examples include borrowers who:

• are in a medical or dental internship or residency;
• have student loan payments that are 20 percent or more of their monthly income;
• have payments being made for them by the Department of Defense

Contact your lender or loan-servicing agent for more information on the mandatory forbearance benefit.

An income-contingent monthly payment will be based on your annual income (and that of your spouse if you’re married), your family size, and the total amount of your Direct Loans.

Borrowers have 25 years to repay under this plan, the unpaid portion will then be forgiven. However, you may have to pay income tax on the amount that is forgiven.

This program takes effect July 1, and graduate and professional student PLUS borrowers in the Direct Loan program are eligible to use the ICR repayment plan. Direct Loan parent PLUS borrowers are not eligible for the ICR repayment plan.

No, you are not permitted to use your Stafford loan funds to pay non school related bills.

The Stafford loan is to be applied toward your cost of tuition, which is why the funds get sent directly to your school.  You can not apply those funds toward your cell phone bill, car payment, etc.

I do, however, know someone who received funds from the school (through Stafford) and used them to purchase an iphone, but that is not the intended purpose.  That iphone will end up costing her almost double the cost over the next 10-years with interest.

I caution all to be responsible with your Stafford loans funds.  Some schools may not safe guard as well as others, but using your funds in an inappropriate manner will literally cost you dearly on the backend.

Being late or behind on your loan payments does not necessarily mean you have fallen into a “default” status.

If you do not make payments, even one, your loan is considered delinquent and late fees can be assessed, but you need to be 270 days past due to earn the not so coveted default title. I think that is pretty fair. You have 9 months before you loan gets turned over to collections to make arrangements with your lender.

If you are struggling with your monthly payment you may want to ask your lender/servicer about making partial payments, changing your payment due date, or if you qualify for an income sensitive repayment plan.