Student Loans : News, Updates and Blog Posts

Welcome to the last post in this month’s financial literacy blog series! We’ve previously looked at student loans basics and interest rates, and covered budgeting in college. Today, I want to tell you a little bit about credit and break down student credit cards. While credit cards are scary and troublesome for many people out there, they don’t have to be. It’s all about being responsible!

Credit — What is it?

Credit can be summed up as a person’s reputation with money. It’s used by banks, landlords, and even employer’s to judge a person’s financial reputation. This means the better credit you have, the more leeway you have when getting a car, house, student loan, or job. Having and keeping good credit can save you money on those big purchases in your life, not to mention saving you the stress that often accompanies credit issues!
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When I was in college, the last thing I wanted to do was keep track of my expenses and create a budget. Booooooring. But now that I’m an adult (though it rarely feels that way) I’m finding it more and more important to keep track of money going in and out of my accounts. I wish this was something I paid attention to in college, because for someone with my level of disorganization, these skills could have been immensely beneficial.

While budgeting has not come as naturally to me as it does to others, here are a few helpful tips that have ensured I stay profitable over the years:

Needs vs. Wants

This one I learned at a young age. Growing up, my parents made sure I understood the difference between needs and wants (to the point where I now get anxiety if I splurge on a “want”). Without going this far, it’s important to realize what is considered a need vs. a want. Is it something that is absolutely necessary for school/living? This is probably a necessity if it will help you survive at college. While you may want the top-of-the-line technology, can you make do with something less expensive? Probably. Reign in the expenses by sticking to the lower-cost necessities.
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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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Not everyone is aware of all the loan options available to pay for college. Here are just a few to consider:

1) Federal Stafford Loans – These are federally guaranteed student loans. You can apply for subsidized Stafford loans and the government will pay the interest for you while you are enrolled. This is a great option for students and the most popular loan program available.

2) Parent PLUS Loans – The Parent Loan for Undergraduate Students allows parents to borrow through the federal loan program to pay for their child’s education. The loan is in the parent’s name.

3) Private Student Loans – Private college loans are not sponsored by the government but offer an alternative sources of funds for those that may not qualify for federal aid or who need additional funds. Private school loans are often in the students name with the parent acting as a cosigner.

4) Perkins Loan – Perkins loans are another federal loan for low income students based on eligibility. These loan funds are limited so apply early.

5) Credit Cards – Believe it or not, approximately 30% of students/parents put a portion of the tuition bill on their credit card. While we don’t recommend this option, it is a reality. To find and compare the best student credit cards, visit www.StudentPlatinum.com.

Once you graduate, consider consolidating your student loans to lower your monthly payment. The downside is you will pay more interest over the life of the loan by extending your repayment period. For additional resources, visit: www.studentloans.com, www.collegeloansolutions.com and www.gradloans.com.

Creating a budget and managing it is not as simple as it sounds. It is very easy to make the initial commitment to live by a frugal budget, but it is much harder to maintain. College education heads outside of the classroom as students learn to manage their own finances. They will hopefully learn the necessity of a frugal budget and effective money management techniques to build good credit. It can be frustrating for students who have not even created a solid financial history if they need to seek credit repair help from a credit repairing agency.

Read ahead for some tips to help you save money, and avoid bad credit. (more…)

One of the nice things about having a credit card is the perks. Card companies love to offer incentives to customers so they will use their cards more. Two of the most popular – and useful for customers – are cash back and rewards points programs. Which program works best for college students? Let’s break them down.

CASH BACK: Cash back programs allow you to earn cash based upon a percentage of your daily charges. For most cards it’s a flat rate; for others you can earn more or less depending on what type of purchase you’re making. My card, for example, lets me earn up to 5% cash back on gas. (A nice bonus if you’re planning a road trip.) Other cards allow you to earn more cash back for things like groceries or using your card at certain stores.

REWARDS POINTS: Points programs earn you a specific number of points for every dollar you spend. Those points can then be used almost like a gift card at certain stores designated by your card company. One of the most common types of rewards points programs are airline miles cards. (I would highly recommend this if you are going far away to school and will need to fly home a couple of times per year.)

So which is best for you? Obviously, cash back offers you more freedom. Unlike rewards points, you can use your savings pretty much anywhere, or to pay off some of your balance. It’s like getting a small discount every time you shop.

Conversely, rewards points typically give you more since they are targeted toward certain stores. If your card is partnered with a specific department store, both the card and the department store will want you shopping there.

I would personally stick with cash back if you are planning to make a bunch of small purchases at many different locations. Even if you’re only getting 1% cash back every time you use it, it can still add up.

However, if you know the stores where you plan to shop, and those businesses coincide with your credit card rewards partners, you might be better off using a points program. As I said before, if you plan to fly a couple of times per year (either to go home or on spring break), then I would recommend an airline miles card. A friend of mine went to school in Boston, but lived out in California. She used her card enough where her flights were almost all paid for by the time her junior year came around.  NOTE: Some cards have expiration dates for rewards points and airline miles. Always check these first.

Also, remember cash back and rewards points are based on your use of the card. If you use the card too much and can’t make your payments, the impending interest you will owe could render any points or cash moot. So be careful!

Image credit: pfreviews on Flickr

For many students obtaining a private student loan can be difficult. Private student loans always sound fantastic because you can apply for them at any time during your college career and they can help you pay for books and housing. However, contrary to popular belief,  these loans do not just fall into the lap of every student who cries poor.

One of the major advantages of a private student loan is that they are not need based, but this comes with a trade-off. Private student loans are based on credit and if you have a bad credit history or no credit history your chances of obtaining a loan are slim. Even if you have a cosigner with a strong credit history your credit score will still be checked during the application process and could affect whether or not you get a loan.

You might be surprised to hear that the solution to this problem is a credit card. Credit cards often carry a bad reputation, but the truth is that when they are used responsibly they can help your credit score soar. My advice is to apply for a card with a low limit, use the card for a few purchases every week, and pay off the balance every month. This method with help you build your credit history and show prospective lenders you are financially responsible.

If the need for a private student loan might be in your future I encourage you to consider building your credit with a credit card. StudentPlatinum.com can help you figure out which credit card would be good for you. There are cards for people in all kinds of financial situations. Even if you already have poor credit you can apply for a card and start turning things around.

Try saying that five times fast!

Do you know what happens when you do not make your student loan payments? Ideally you should take repayment into consideration before you sign off on a loan, however most people do not really think about it until the bills start coming in. The worst thing you can do is miss payments. Missing payments kills your credit score. A bad credit score makes it impossible to obtain a mortgage, buy a car, and take out any other loans in the future. If you miss payments you will also end up getting slammed with interest in the long run. Paying at least the minimum amount every month is key to staying on top of your debt.

If you are in a position where you really cannot make your payments there are steps you can take to avoid being severely penalized. One option is to apply for income-based repayment. This is a new payment option for federal student loans. With this option your monthly payment is calculated based on your income and family size. The IBR loan payments will usually be less than 10% of your income.

Loan consolidation is another option that will help you minimize your monthly payments. When you consolidate your federal student loans your loan term is extended and you end up with one smaller monthly payment. The new interest rate is a weighted average of all of your previous loans. Before considering consolidation you should know that does not necessarily cut down your interest and you will be paying off your loans for a longer period of time.

Loan deferment options are also available in certain situations. Deferment does not excuse you from ever paying off your loans, rather it temporarily suspends payments. You may be eligible for deferment if you are in school at least half time, unemployed or have experienced an extreme economic hardship.

Finally, in rare situations a person might be eligible for student loan forgiveness. Forgiveness means that all or part of a person’s student loans are cancelled. You would qualify for loan forgiveness if you enter into public service, perform volunteer work, perform military service, or if you become permanently disabled.

If you are like me you probably graduated from college with two things; a diploma and a pile of debt. It is completely normal for students to have federal student loans and private student loans to pay off after college, but on top of credit card payments, rent and insurance payments these loans can be a huge burden. There are ways to quickly pay down your debt without getting overwhelmed. Here is the method that I use:

1: Figure out your monthly income and expenses including any student loan and credit card bills. This will allow you to see how much money you have left over after the bare minimum is paid.

2: Pay at least the minimum payment on all of your debts each month. Missing any payment can negatively affect your credit score. A poor credit score will makes it hard to rent an apartment, buy a car and take out any kind of loan in the future. Additionally, if you put off making payments you will end up getting slammed with interest in the long run.

3: Without neglecting any other living expenses and a modest savings plan, use any extra money to pay off whichever debt has the highest interest rate.  If you have a lot of credit card debt it is probably best to pay that down first. Once your credit card debt is paid off, try not to accumulate any additional debt. Once your first debt is paid you can move on to using your extra money to pay off whichever student loan has the highest interest rate and so on until you are debt free.

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Budgets; you can’t live with them and you can’t live without them. I hate budgets just as much as the next person, but I have realized that having one makes my life a lot easier. By the time you make the decision to pursue grad school chances are you will be completely on your own financially. Whether you decide to go to school full time or part time while you work, paying for grad school will take a certain amount of financial discipline and budgeting. However, living within your means does not have to be a drag. You can successfully pay for grad school without being strapped for cash.

Here are some tips for creating a budget that works for your lifestyle:

1: Determine your monthly income and your monthly expenses. This is the most important step to creating a budget. The amount of money you bring home on a monthly basis is what you have to work with. Make sure your expenses do not exceed you income. If you are going to school part time and working full time this will probably be a little bit easier for you. If you are living off of savings, determine how much you have for each month. Be sure to factor in all expenses including rent, car payments, insurance, groceries etc.

2: Take out loans to pay your tuition and other school expenses. As a grad student you have plenty of loan options. The Graduate Stafford Loan has a low fixed interest rate and does not require a credit check. The Graduate PLUS Loan is a low, fixed interest rate student loan that is based on your credit. It allows you to borrow up to the total cost of your education minus any other aid you receive. Finally, there are other private loans that can help you cover any and all of your school expenses. Make sure you include all loan funds and tuition payments in your monthly income and expenses. GradLoans.com can help you apply for and secure all of the loans you need.

3: Defer undergraduate loans until your graduate degree is complete. Unless you have the money to start paying your loans back while you are in grad school you might as well wait. Do not kill yourself trying to pay off these loans until you are working full-time and have more flexibility.

4: Use a free online budgeting tool like Mint.com. The days of scratching numbers on a piece of paper are over. This tool allows you to see all of your accounts, including your student loans, aggregated together. It will allow you to see where you spend the most money and where you might be able to cut back.

5: Find a credit card with good rewards. Sometimes using a credit card to make all of your purchases can be beneficial if you pay it off every month and you get rewards points. I have a credit card that awards one point for every dollar spent. Usually I trade in my points for Target gift cards. Since I spend a lot of money there anyway it gives me a little extra wiggle room in my budget. StudentPlatinum.com can help you choose a credit card with a rewards program that will work for you.

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