Minnesota Society of Certified Public Accountants
Are you or someone in your family facing heavy student loan debt? Recent graduates left college with an average of $19,646 in student loan obligations, according to a study by the Project on Student Debt. That was up 8 percent from a year earlier, while average starting salaries rose only 4 percent from the previous year, the study found. That means the debt graduates are carrying is growing faster than their initial chances to earn the money to repay it.
Thereís no reason to despair, though, according to the Minnesota Society of CPAs, because there are several steps that you can follow to manage weighty student debt.
Lower your payments
If your monthly loan costs are simply too much, one simple and immediate solution is to reduce them by finding out if you can lengthen the amount of time you have to pay the loan — from 10 years to 20 years, for example. You should be aware that extending the loan term means that you will end up paying more interest over time, but lowering the monthly payment amount may be your top priority right now. Remember, that you can always increase your monthly payments later — and thereby shorten the length of the loan — if your financial situation improves in the future.
Consider consolidation
Students often sign up for a number of different loans to finance their education. That may mean you end up writing several checks to different lenders at various points in the month. When you consolidate, you take out a new loan that is equal to your total debt and use it to pay off all your existing balances. You then can pay just one student loan bill each month. That will make life easier, but it may not necessarily lower your overall monthly outlay, depending on the new loan terms. If you do find a consolidation loan that will reduce your monthly payments, make sure to examine the loan terms carefully. And remember that if you will be paying off the consolidation loan over a longer period, the loan will cost you more in the end, so it may not be the best choice.
Do well by doing good
Do you wish you could make a difference in the world? It's possible to cancel some or all of your federal student loan balance by signing up for any one of a number of programs aimed at making positive change. For example, teaching in an elementary or secondary school in a low-income area can reduce some federal loan totals, while serving a two-year term in the Peace Corps can also lead to a reduction in your loan balance. Volunteers for AmeriCorps and VISTA may qualify to postpone loan payments while they are involved in the program and receive stipends that can be used to pay down student loan debt. Health professionals who spend two years working with the National Health Service Corps serving communities that have a shortage of medical help can qualify for loan forgiveness of up to $25,000 a year. In addition, many law schools have loan forgiveness programs for newly minted attorneys who take jobs in public interest law. If you have a strong interest in making a difference, then that commitment can also help you relieve some of your student loan obligations.
Tuesday, July 8, 2008
Don't get swamped by student loan debt
Monday, July 7, 2008
Another Hint of Student Loan Troubles?
There's growing evidence that some student lenders were as overly enthusiastic as some mortgage lenders in the recent past. A revealing blog post by an employee of a company that makes private educational loans documents how lenders' dependence on Internet applications and computerized processing might have made it too easy for students to borrow too much.
Christopher Penn of the Student Loan Network says he dissuaded a potential commission-paying client from taking out $50,000 in student loans because Penn realized what he believes predictive software programs couldn't—that the student was probably paying too much for courses that were unlikely to increase his earning power enough to cover the $500-a-month loan payments.
Similar concerns about the industry were voiced last month by federal fraud investigators in Seattle. They charged that a ring of women who allegedly borrowed nearly three-quarters of a million dollars in fraudulent student loans took advantage of student lenders who were overeager and overly reliant on technology.
The credit crunch has forced many lenders to pull back and refuse loans to students they believe to be bad risks. It will take years to see if lenders have modified their software and lending rules too much, enough, or too little.
Sunday, July 6, 2008
Paydirt: Student loan locator
Paying for college is a brow-furrowing challenge. But it's particularly confusing this year. From interest rate resets to loan providers exiting the market, there's so much going on that you could spend your summer sifting through the news. Instead, allow me.
Colleges going direct: Despite all the news about turmoil in the student loan markets, Joe and Jane College should be able to find the money they'll need. No question it's been a tough market for financing student loans, and because there are fewer incentives for lenders to offer federally guaranteed loans, 119 outfits have exited or taken breathers from the business in recent months, according to Finaid.org Publisher Mark Kantrowitz's tally. But financial aid directors are doing everything in their power to ensure that students aren't left loanless.
The turmoil has renewed interest in the Direct Loan Program run by the federal government. Locally, Macalester College and the University of St. Thomas in St. Paul are making the switch to government loans to guarantee that students will have access to funds. Without the switch, almost four in 10 borrowers returning to Macalester would have needed to switch lenders for the coming school year. At St. Thomas, more than half the students would have been in the same boat.
New Web tools for loans: Students in need of private loans have a growing list of resources at their fingertips. Greennote.com lets students borrow money from their social network at a rate rivaling federally guaranteed loans without needing a cosigner or a credit check. The loans have a competitive fixed rate of 6.8 percent; borrowers also pay $49 or a 2 percent "document fee." Lenders earn 5.8 percent on their money after Greennote takes a 1 percent administration fee. Virgin Money USA's Student Payback service (www.virginmoneyus.com) allows parents to borrow money for college from their preferred sources and then sets up a formal agreement for the students to pay back all or part of that debt. File an application with Tuitionbids.com, and lenders will bid on your loan. Simpletuition.com lets you compare various loan types for the best terms.
As always, look to federally guaranteed loans before shopping for alternatives. And read the fine print, even though you don't want to.
Big changes
On Tuesday, a host of changes went into effect that should perk up the ears of students heading to school or making loan payments.
Rates went down: The fixed interest rate for new subsidized Stafford loans dropped Tuesday, from 6.8 to 6 percent; the unsubsidized rate stays the same, courtesy of the College Cost Reduction Act passed by Congress last year. The act cuts the rate in half over the next four years.
This will save Minnesota students entering college in 2008 an average of $2,510 in interest, according to U.S. PIRG, the federation of state Public Interest Research Groups.
Stafford loans taken out before July 1, 2006, have variable rates that reset each year. This year, the rate dropped 3 percentage points, to 4.2 percent. This means it's a fine time to consolidate. If you don't, that sweet rate could go up in July 2009. If you do, you'll lock in at 4.2 percent. Recent graduates within their six-month grace period can lock in at 3.6 percent.
There aren't as many lenders offering consolidation loans because of the unfavorable student loan market and borrower benefits for paying on-time or allowing e-payments have pretty much dried up. But you can consolidate directly with the government, through www.loanconsolidation.ed.gov.
Student loans? You're forgiven: Consolidating through the direct loan program is the road to loan forgiveness for students planning at least a decadelong career in public service. The list of details is lengthy, so do your homework The Project on Student Debt -- www.projectonstudentdebt.org -- is a good place to start.
The College Cost Reduction Act also provides upfront tuition assistance for students who commit to be teachers in high-need areas. Visit studentaid.ed.gov and look for TEACH Grant info. The same site also has a wealth of information about much of what I've covered here.
And speaking of free money, Pell grants for low-income students also increased, from $4,241 to $4,731. This is the first of five increases for the Pell.
Kara McGuire • 612-673-7293
By KARA McGUIRE
