Student Loans : News, Updates and Blog Posts

I was reading a post today in our forum about some of the more shady practices of student loan lenders, and it occurred to me that while we have a lot of blogs talking about how to get one, and why they are useful, repayment topics tend to be far and few between.

That being said, I’d like to give you a tip today to keep in the back of your mind (or use immediately, if you’re in repayment) to help smooth over paying back your loans.

Principal > Interest

If you are unfamiliar with the loan jargon, principal is the original loan amount you took out, before interest started adding up. So if you took out a $10,000 loan your freshman year, and when it goes into repayment the total bill is $13,000, $10,000 of that bill is principal and $3,000 is interest. You always want to pay principal down as quickly as possible, because the interest is calculated based on how much principal is left. Think of it like a credit card balance; the quicker you lower the balance of charges, the less interest builds on the account and the quicker you are able to pay it off.

If you ever are in a position to make an overpayment on your loan without spreading your finances too thin, absolutely do it! However, make sure that your lenders all know you want overpayments applied to principal. The reason why this is important is most, if not all, lenders have it in their fine print that if you pay over the monthly payment, they are allowed to distribute the rest to their benefit. That means if your monthly bill is $350 and you pay $500, they can decide to pay off interest with it instead of principal. Get in contact with your account manager to put a permanent note on your loan to apply all overpayments directly to your principal balance.

If you’re like me, you probably were at least somewhat confused the first time you looked at your financial award letter. “Stafford Loans”, “Perkins Loans”, “PLUS Loans”, what does it all mean?! Well friend, I’m glad you asked!

Each type of loan has a special purpose, so I’d like to break it all down for you and we’ll start with with the most common one, the Stafford loan.

Stafford Loans

To get started with these puppies, there are two different kinds of Stafford loans: subsidized and unsubsidized. The difference between the two is all about the interest; subsidized loans have a lower fixed interest rate of 4.5% for the 2010-11 academic year (meaning you pay less money over the course of the loan) and actually don’t start accruing interest until your six month grace period after graduation is over.

Unsubsidized Stafford loans begin to build interest (currently at 6.8% fixed) immediately after disbursement, which means that they snowball like private student loans. The nice thing about Stafford loans though is if you can afford to, you have the option of paying off the interest as it accrues while you’re still in school without any penalties. The end result is you pay a lot less interest over the life of the loan, and save yourself a pile of money. If you can’t afford to pay the interest while you’re in school though, don’t worry too much… you’re still getting a bargain on the interest rate compared to most private student loans out in the market.

Perkins Loans

A Perkins loan is a special type of low-interest product (5% fixed, as of 2010) intended for students with exceptional financial need. Although your need for the loan is determined based on your FAFSA, your school actually is the entity that decides whether to give you the money or not. Every year, the Federal Government grants participating schools with a certain amount of funding meant for Perkins loans, and each school can choose to lend only those funds, or add some of their own to the pool for financial assistance to their students.

If you ever write an appeal notice to your financial aid department at school, this, along with any school-sponsored scholarships or grants, is likely what they would consider you for to increase your award. One thing to consider that is a little odd for this particular type of loan is that since the school is your lender, you actually will receive the repayment bill from them instead of the government. Due to this, there can be different billing cycles… for instance, it isn’t unheard of to only be billed for this type of loan once every four months instead of monthly.

PLUS Loans

The PLUS loan is the last type of lending that the government offers to students and families, and is meant to bridge the gap between your Stafford, Perkins awards, and your total cost of attendance. Unlike the other two, the PLUS loan requires a credit check, much like a private student loan. There is a quirk though, in that if the parent does not pass the credit check, a friend or relative can actually co-sign on the loan. The APR of this loan changes every July, but will never exceed 9.0%.

As a side note, all the loans above are available to both undergraduate AND graduate students. As always, the best types of financial aid you can get are scholarships and grants (since you don’t have to pay them back!), and there are tons of resources available to find them like StudentScholarshipSearch and ScholarshipPoints. However, the subsidized Stafford loan is definitely the best option you can get as far as student loans go, and will cost the least over the course of your repayment.

*Credit Images to “Cmiper” on Flickr

ScholarshipPoints Code: MYSTERYGONE

It’s 2010, and the world is on the recovery from what many economists call the worst recession since the Great Depression in the 1930s. We get a lot of questions along the lines of “Should I go back to school?”, “Are banks still lending like they used to?”, “are online degrees as good as traditional ones?”… so we decided to take a look at why it is always a good idea to reinvest in your education.

1. More skills = more marketability

One of the fundamental reasons for going to school (or back to school) is to broaden your range of abilities and gain more knowledge to be useful and current in the workplace. Simply put, the more diverse and interesting (but relevant) classes you take, the more perspectives you gain to solve problems and convert them into opportunities. An employer will definitely look more favorably on a candidate with a varied and interesting academic background, and it could even be the difference between a hire or pass if you are equally matched with someone else.

2. More education = higher salary

Countless studies have shown that on the aggregate, those who take the time to go to school and earn degrees in their chosen fields almost always will earn more over their lifetime than those who do not. Not to mention the fact that according to the US Department of Labor Statistics, the higher your education level, the lower your chance of unemployment; this translates into more earnings, less stress, and better overall quality of life.

3. There are plenty of ways to fund your educational investment

From Federal Stafford loans to alternative student loans, to scholarship sources like ScholarshipPoints and Student Scholarship Search, there are a huge amount of resources to pay for school.

When it comes right down to it, spending the money and going to school makes a whole lot of sense in the long run. Plus, you’re sure to meet and network with lots of people and maybe even make some great friends in the process. Win-win.

Scholarship Points Code: GOTOSCHOOL

The average student who graduated from college in the spring of 2009 has $23,000 in student loan debt.  If you are in this boat and have come to the end of your loan grace period it is important that you start repaying right away or have a solid deferment plan in place to avoid going into default. If you are not sure if you can defer your loans, here are the situations that qualify for federal student loan deferment:

-You are in school: If you are in graduate school at least halftime you can defer your loans.

-You are unemployed: If you are unemployed you can defer your loans for up to three years.

-You are in an approved program: If you are studying in an approved graduate fellowship or rehabilitation program for the disabled you can defer your loans.

-You have an economic hardship: If you have an economic hardship that qualifies you can defer your loans for up to three years.

It is best to consolidate your student loans before deferring them. If you defer before consolidation your interest rates will continue to fluctuate, however if you consolidate first your rates will be locked in.

If you qualify for one of these deferment options you can find all of the forms you will need to notify your lender on our Student Loan Application and Form Center page.

For both FFEL and Direct Loans you can consolidate:

• During your grace period.
• Once you’ve entered repayment (the day after the end of the six-month grace period).
• During periods of deferment or forbearance.

Generally speaking, a student cannot update information, such as income or assets, that was correct as of the date the application was signed. However, three items, household size, number in college, and dependency status must be updated in certain circumstances.

Dependency status

A student must update their dependency status any time during the award year unless it changed because his or her marital status changed. This update is required whether or not the student was selected for verification.

Household size and number in college

Unlike dependency status, household size or number in college cannot be updated unless the student is selected for verification. If the student is selected, these items must be updated to be correct at the time of verification unless they changed due to a change in the student’s marital status, in which case updating is not permitted.

It turns out that doing good really does pay off.

When many college seniors graduate in May they will be facing a tough job market and student loan bills. Because of this, many soon-to-be college graduates are considering alternative post-graduate options. For students who decide to engage in post-graduate volunteer service there are a few student loan benefits.

The Peace Corps is the best example of this. Volunteers with the Peace Corps can apply for deferment of Stafford loans, Perkins loans and consolidation loans for up to 27 months.  Additionally, PeaceCorps volunteers qualify for a partial forgiveness of their Perkins loans (15% for each year of service).

AmeriCorps is another program with loan benefits. If you serve with AmeriCorps for 12 months you receive up $7,400 in stipends and $4,725 to be used towards student loans.

If you do decide to take advantage of one of these opportunities it is important to know that deferment and cancellation do not happen automatically. It is up to you to contact your lender and complete the paperwork needed in order to apply. The Peace Corps’ itself has very little to do with the deferment process. They basically only certify your dates and country of service. The Peace Corps does not grant or deny deferments of loans.

The next $10,000 Scholarshippoints winner, along with the $1,000 and $500 scholarship winners for October will be drawn in just four days! Can you feel the excitement in the air? Is your heart pounding with anticipation? I can tell you that I haven’t been this pumped since my Mom brought home a tub of Oreo cookie ice cream from work in 1986!

Be sure to enter all the point earning activities you can to maximize your chances of winning some mucho dinero!

Good luck my friends!

Current Point Activities

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 a parent of a prospective college student, or a prospective college student yourself, you should be starting to think about financial aid. You have probably heard people around you talking about FAFSA, Stafford loans, Pell Grants, scholarships, and alternative student loans. It might seem like you are the only one who does not know what is going on, but trust me you are not alone in your confusion. Applying for financial aid can be very stressful for families and filing the FAFSA is a task that most people dread.

In order to be eligible for any kind of Federal student loans or grants you must file the FAFSA. Many people play down the importance of the FAFSA, but it should not be taken lightly.  Mistakes on this form can end up costing you thousands of dollars in aid. Luckily there are people out there who know a lot about financial aid and might even be able to help you with the application process.

Many high schools and communities host financial aid and FAFSA workshops. These are usually free sessions run by the high school guidance department, a local college or outside consulting group. These workshops usually go over a general look at financial aid, applying for student aid, why you should file the FAFSA, determining financial need, and tips and techniques for filling out the FAFSA.

If you are perplexed by the financial aid process make sure you find out if your town is holding a workshop. If they are not planning one it may be beneficial to suggest it to the high school principal or guidance department. The U.S. department of education even provides resources and presentation materials that make hosting a financial aid night more manageable. After attending a financial aid or FAFSA session you will probably find out that you are not the only one who feels lost, but you will also probably feel more confident and ready to tackle the application process.