Even at today's tuition rates, saving for a child's education may seem like an impossible mountain to climb. For the sake of your child's future, though, now is the time to strap on those boots and grab that ice axe.
When saving money, time and discipline are your most powerful tools. If you set aside a little each week when your little one is young, you can build a substantial sum by the time junior becomes a college freshman. In reality, many parents aren't able to save consistently until their children are older. For these moms and dads, the availability of specialized college savings programs helps maximize savings quickly.
College Savings Plans: The Options
The following programs offer advantages over traditional savings accounts.
Section 529 Plans. There are two types of Section 529 Plans: the college savings plan and the prepaid tuition plan. The first is a tax-advantaged investment account. The latter allows for purchasing tuition credits that essentially lock-in current tuition rates.
Coverdell ESA. The Coverdell ESA, also known as the educational IRA, offers advantages including tax-free earnings and certain qualified tax-free distributions.
Rebate Programs. Some institutions offer loyalty rebates that help maximize your college savings over time. Two examples are BabyMint and Fidelity Investments' 529 Plan credit card. Both allow you to earn rebates through purchases of everyday products and services; these rebates are automatically transferred into your designated college savings account.
College student loans
There will be times when saving enough in the time available isn't realistic. Don't panic-you have contingency options. There are many college student loan programs available that can help fund that tuition shortfall. Talk to your child's counselor about federal student loans, and to your bank about private student loans and student loan refinancing. Depending on your situation, some government student loans may be almost automatic. Later, you can consolidate student loan debt as appropriate to your financial situation.
Now that you're in your boots, you're ready for the college-financing climb. It may be late in the season, but you won't regret starting up that mountain now.
By: Catherine Brock
Thursday, May 15, 2008
Saving for College
Saturday, May 10, 2008
When Not to Consolidate Student Loan Debt
To a college graduate, the call to "consolidate" is almost as familiar as her school fighting song. But consolidating student loans might not be as warranted as it was in years past-especially in light of recent rate changes.
Most college students spend a great deal of time with advisors. They receive guidance on class work and their various areas of study. The smart student should also seek out guidance on financial matters- especially if she has student loans.
For the last several years, students have been told to consolidate their loans before a July 2007 rate hike took place. Now that the deadline has passed, many factors need to be considered before initiating a loan consolidation.
Rate matters
The first thing that you want to do is compare the rates of your current loan with today's market. When you consolidate your student loans, a weighted average of all the interest rates of the loans is taken and rounded up to the nearest 0.125 percent.
To find out what your new monthly payment would look like after consolidation, meet with a lending official and/or do it yourself with an online loan calculator. You may discover that the new rates don't justify a refinance. You'll also want to see if the rates on your current loans are fixed. If they are, it may not make sense to refinance everything just so that you have the convenience of one loan payment. If you're uncertain about the terms on your loan, review your portfolio with a lender. Many will be happy to help you, free of charge.
Act quickly for student debt consolidation
Consolidation works most effectively if the transaction occurs within six months of graduation. That stretch of time is considered a grace period for students-they receive a price break if they start repaying their loans during that time. When the grace period ends, the interest rate on the loan increases by nearly 1 percent.
Unfortunately, if you choose the rate discount, you'll have to start repaying the student loans almost immediately after graduation. However, there are lenders willing to hold the package until the end of the grace period. Check with your bank to see if they have the same policy.
Long-term costs vs. consolidation
Ultimately, you'll need to determine your top priority. If you need low monthly payments on your loans, you may want to consider refinancing and stretching out your loan terms. However, if you'd like to be rid of a monumental debt as quickly as possible, you can opt to keep your loans at their current rate and pay down your principal.
As any academic advisor will tell a student, there are many variables to consider when making a decision. When it comes to student loans, take a good look at your current financial situation and consider your short-term job prospects. Don't jump at the easy money that a consolidation can bring. The best advice dictates that you understand all the factors at play before you make your consolidation decision.
Four Ideas for Student Loan Consolidation
To consolidate or not to consolidate? Hamlet might have asked this question if he had graduated from college with student loans. If you're considering a loan consolidation, you'd be wise to follow a few simple tips.
The great thing about graduating from college is that you don't have to worry about homework hanging over your head. On the flip side of the coin, you may have something far worse to be concerned about-a student loan payment.
Many graduates consolidate their loans to lessen the pain of repayment. But no financial transaction should be taken lightly. Not only must you carefully analyze your current situation and goals, you need to consider what types of student loans are on the market. Here are some student loan consolidation tips to keep in mind.
1. Shop until your payment drops
You don't have to stick with the same lender if you're going to consolidate your loans. Shop around and look at different opportunities. Rates may not vary, but you could find that different lenders offer different discounts (see next tip). You may also find that the lender that you're currently with has included extra charges that you don't need to pay. It's always wise to comparison shop, no matter what your purchase.
2. Go discount shopping
As you're shopping for the best consolidation package, ask about discounts. Lenders today offer them for a variety of items, including everything from making a payment on time, to using automatic withdrawals from your checking account. Lenders highly value graduates who can make their student loan payments on time, primarily because so few of them do. Discounts for on-time bill paying might include reducing your payment by one full percentage point if you can rack up a 36-month consecutive payment streak.
3. Tame the terms
By extending the repayment term of your loan, you can lower your monthly payment. For most graduates struggling in an entry-level job, that's a very enticing prospect. But don't judge a payment book by its cover-an extended loan term can be as frightening as term papers. Those lower payments don't come cheap-you're going to get whacked long-term by higher interest costs. Ask your lender to tell you the difference in long-term interest costs for loans with different repayment terms. The results will startle you.
4. Do a reality check
Most importantly, don't choose a lower loan payment just so that you can buy a really cool car. Unless you've landed an exceptionally high-paying job out of college, you'll probably have to choose more of a utilitarian vehicle until you can afford a nicer ride.
As a graduate, it's great to be free from the constraints of endless exams and required reading. Unfortunately, the financial equivalent to academic pain is waiting in the wings. Repaying a student loan will be a concern of yours for a long time to come. Make sure that the debt isn't with you one day longer than necessary by carefully shopping for the right consolidation loan.
Friday, May 9, 2008
Credit Unions Offer Themselves as Partial Solution to Looming Student Loan Crisis
In the last six months alone, since legislators eliminated over $21 billion in subsidies to student loan lenders in the Federal Family Education Loan Program, at least 44 FFELP lenders have stopped originating federal student loans.
This exodus of lenders from the federal student loan program, combined with the current credit and liquidity crunch resulting from an epidemic of defaulted mortgages, may leave many college students scrambling for money for school this fall.
In an effort to help avoid a student loan crisis before it starts, a group of credit unions serving students in California, Texas, and Wisconsin is lobbying for federal subsidies that would allow credit unions to provide significantly more loan capital for students.
Last September, federal legislation set two lender subsidy rates on federally guaranteed student loans, one rate that applies to for-profit lenders and a second for state-chartered nonprofit agencies, explains Paul Basken of The Chronicle of Higher Education.
When those rates were set, credit unions, which are essentially nonprofit banks, were left out of the picture, neither subject to the for-profit lender rate nor eligible for the nonprofit rate which is guaranteed only to state-chartered lenders.
Now, writes Basken, as more for-profit bank and nonbank lenders abandon the FFEL program each week, the credit unions seek legislation that would make them eligible for the nonprofit subsidy rate (“Credit Unions Will Lobby Congress for Loan-Subsidy Benefits Accorded to Nonprofit Lenders,” April 4, 2008).
A Viable Source for More Student Loans?
Credit unions currently provide less than 1 percent of all FFELP loans, according to Mark Kantrowitz, publisher of FinAid.org, a financial aid website.
However, credit unions could offer significantly more volume at some institutions, Michael K. Kim, vice president for student services at the USC Credit Union, told The Chronicle.
The USC Credit Union provided 30 percent of all federal student loans at the University of Southern California last year, and Kim believes the USC Credit Union could double its student loan lending to $200 million to provide financing for any students unable to find another lender.
Although Kim thinks the credit union might find a way to double its student loans even without the nonprofit subsidy, the nonprofit rate would help.
One of the key selling points in the credit unions’ lobbying efforts, Basken writes, may be the fact that credit unions have a ready pool of capital — their customer deposits — from which to lend. In contrast, nonbank lenders, who don’t hold funding capital, must find external funding sources for their student loans and thus have been more vulnerable to the liquidity crisis that’s followed the fallout in mortgage lending.
Joining Kim’s Southern California credit-union group in lobbying Congress next week for the nonprofit subsidy rate are the UW Credit Union, serving universities in Wisconsin, and the University Federal Credit Union, which serves more than 100 colleges and employers in central Texas.
More, but Still Not Enough
An advisor from Senator Edward Kennedy’s office recently expressed support for the credit unions’ request that their proposal for inclusion in the nonprofit subsidy rate be added to the legislation for reauthorization of the Higher Education Act currently before Congress.
Kantrowitz believes that the credit unions’ subsidy proposal is reasonable since they’re nonprofit entities whose earnings don’t benefit outside investors.
On the other hand, he says, the additional loan volume credit unions could provide for the federally backed student loan program will likely not be enough to staunch the tide of students that may potentially be unable to find lenders this fall.
Kantrowitz further points out that among the 100 largest lenders in the federal student loan program, only three are credit unions.
“If credit unions can double their volume, that’s a 5-percent solution,” Kantrowitz says. “It could be part of the solution, but not even close to the entire solution.”
Thursday, May 8, 2008
Bank of America Backs Out of Private Student Loan Business
On April 17, Bank of America Corp. notified student-loan packager First Marblehead Corp. that it would no longer offer private student loans, focusing instead on providing federal student loans. Bank of America’s announcement comes amid increasing unsteadiness in the federal student loan market, where nearly 50 non-government lenders in the last six months have suspended their federal student loan programs.
Bank of America exercised its right to terminate its agreement with First Marblehead after The Education Resources Institute, the Boston-based nonprofit that guaranteed the loans packaged by First Marblehead, voluntarily filed for Chapter 11 bankruptcy protection on April 7, 2008.
Bank of America’s decision delivered yet another financial blow to First Marblehead, whose shares have already been on a downward spiral over the past few weeks, tumbling 37 percent on April 8 alone, the day after TERI filed its bankruptcy petition.
Shares in First Marblehead fell another 17 percent to $3.37 on the heels of Bank of America’s announcement, with the stock down nearly 91 percent over the past year. The loans originated by Bank of America accounted for about 15 percent of First Marblehead’s total revenue for the 2007 fiscal year, according to a Boston Business Journal article (“First Marblehead Loses Major Customer, Revenue Source,” April 18, 2008).
Kentucky Lender Puts Brakes on Student Loans to New Borrowers
Citing ongoing fallout from the national capital market crisis, Kentucky officials announced the state’s student loan agency will stop making student loans to first-time borrowers beginning May 1 until it can secure additional financing, according to an article by Nancy C. Rodriguez in the The Courier-Journal (“State to Suspend Student Loans to First-Time Borrowers,” April 18, 2008).
The Kentucky Higher Education Student Loan Corp., also known as The Student Loan People, will continue to make student loans for its returning borrowers based on the availability of funds.
In the meantime, the student loan company has asked the U.S. Treasury to allow the Federal Financing Bank to temporarily help the state fund new student loans until confidence in the market is restored.
A few months ago, the state also announced it would be phasing out three loan-forgiveness programs for health care, education, and public prosecutors due to federal cutbacks and overall market instability.
Wednesday, May 7, 2008
Arkansas Offers State Student Loan Agency $80M Line of Credit
The Arkansas state student loan authority has been tentatively approved for an $80 million loan after an announcement that it may not be able to continue issuing student loans without financial assistance.
The state board of finance, the investment arm of the state treasurer’s office, unanimously approved the line of credit to the Arkansas Student Loan Authority, whose ability to offer student loans has been severely compromised by the nation’s ailing economy, according to an Associated Press article (“Arkansas Offers $80M to Help Student Loan Agency,” April 24, 2008).
At a meeting next month, the five-member board will vote on the final terms and conditions of the loan, which will be issued from state treasury funds that would normally be invested in banks.
Mark Conine, the authority's chief financial officer, told the Associated Press the money would solely be used to issue student loans. The authority issued $70 million in new loans last year.
Tuesday, May 6, 2008
Student Loan Consolidation Can Help.
Today's career minded students can get help with the burden of having several student loans. One can focus on their chosen career, instead of losing sleep over paying several monthly student loan payments. Student loan consolidation can be the solution with several advantages.
How Student Loan Consolidation Works
Here is typically how a student consolidation loan works. When a student first applied for several loans from several different agencies and student loan providers, they each gave a different interest rate and term for paying back the loans. The idea of student loan consolidation, is to take all the different student loans and put them into one easy convenient loan. You them only have to make one monthly loan payment every month, instead of several loan payments every month over time. This saves the student both time and money. Having a lower interest rate and less checks to write every month are a couple of advantages of doing a student loan consolidation.
5 Helpful Benefits of Student Loan Consolidation
1. Lower Monthly Payments.
Depending on your student loan situation and the type of lender you choose, you may be able to lower your monthly payments by up to 50%
2. Having Simple Loan Payments.
By consolidating your student loans, you only have one loan payment per month and one check to write. This is very beneficial if you are writing several checks every month to multiple lenders.
3. Having Fixed Interest Rates.
With some federal consolidation loans you can have a fixed rate for the life of your student loan. It's best to do research to see what the best interest rates and term you are eligible for. You can check online to calculate the interest rate on a new student consolidation loan based on the rates of your current student loans. You can then round up to the nearest 1/8th of a percent of the we ighted average of the interest rates on your eligible student loans.
4. Extending Your Payment Period.
You may have a lot of student loan debt. With federal consolidation loans you may be able to extend the payment term up to 30 years. It's a good idea to realize you will end up paying more interest over the life of your student loan consolidation. The idea is to get some leverage until your career takes off. You can focus on making money instead of several monthly loan payments.
5. In School Consolidation Programs.
While still in school, eligible students can lock in a low rate. This would put you into repayment status, but since you are still in school, you are automatically put into deferment. The drawback of consolidating your loans while in school, is that you lose your 6 month grace period. The solution to this would be to request forbearance for up to 1 year on your student loan consolidation. Here again you can do some research and get more information online.
Student Loan Consolidation Help Online
With today's Internet technology, you can get a student loan consolidation quickly and easily. The Internet makes research and finding great programs, easy as a few clicks of the mouse. You can learn everything you need to know from information sites that provide the latest news and data in regards to student loan consolidation. With just a few clicks of the mouse, you now can get loan quotes and compare loan companies without having to run all over town.
Student Loan Consolidation Helps Relieve Stress
Student loan consolidation can help student loan borrowers focus on their education, instead of debt. With a single new loan and lower monthly payments, you can focus on what's most important, education and your new career. There is no need to lose sleep stressing out about how you're going to pay back all those student loans. There are several agencies and companies online that can help with many resources and information to get the help you need.
Sunday, May 4, 2008
Should we use home equity to pay off student loans?
Should we use home equity to pay off student loans?
by Liz Pulliam Weston
Dear Liz: Our question is about student loans.
We have a total of $69,000 in education debt. We also have a home worth $400,000 and our mortgage balance is $266,000, plus a home equity loan with a balance of $14,500.
We make a good salary, have excellent credit, pay all our bills on time, and, if gas weren't so darn high, we would have a decent amount of discretionary income.
We make extra principal payments when we can. The problem is that interest rates on our school loans are climbing, and payments are getting higher and higher.
We're wondering whether we should take out another home equity loan to pay off the student loans.
That would obviously leave us with less equity, which could limit the price we could pay on the house we plan to buy in three to five years.
But it would also decrease our monthly loan payment significantly and we would be able to deduct the interest on the home equity loan. (We can't deduct student loan interest because we make too much money.)
Does a home equity loan make sense in this case?
Answer: Generally speaking, trading student loan debt for home debt isn't a great idea.
Student lenders typically are much more flexible than mortgage lenders, with a wider variety of repayment options. You also can get a deferment or forbearance if you lose your job or otherwise encounter a financial hardship. This respite from payments can last as long as three years on many student loans.
Compare that with what would happen if you couldn't make your mortgage payments. Within a year, and usually much less, your home lender would start foreclosure proceedings.
In addition, most student loan debt can be consolidated. This would allow you to lock in your current interest rate and perhaps lengthen the repayment term to lower your monthly payments.
A longer loan means you would pay more interest over time, but it could help ease the monthly crunch you're feeling.
All that said, not being able to deduct the interest on your student loans is a significant disadvantage.
If you're confident you'll be able to make the payments, then you might consider paying off at least some of your student loan debt with home equity borrowing.
You should, however, limit your total borrowing — all your home equity loans plus your primary mortgage — to no more than 80% of the value of your house.
You want to keep at least a 20% equity cushion in your home whenever possible, as a last-resort emergency fund and also to protect yourself in case of declining home values. (You don't want to be faced with having to sell your home and owing more than it's worth.)
Given the loans you already have, you should be able to pay off $39,500 of your student loans with home equity debt. Then you could consolidate the remaining $29,500.
--
Liz Pulliam Weston is the author of "Deal with Your Debt: How to Manage Your Bills and Pay Off What You Owe" and "Your Credit Score: How to Fix, Improve and Protect the 3-Digit Number that Shapes Your Financial Future." This column may not be resold, reprinted, resyndicated or redistributed without written permission from its distributor, No More Red Inc.
Student Loan Consolidation
Student Loan Consolidation by Student Loan Center
After graduation, many students do not realize the total amount of student loan payments they will be responsible for every month. Several smaller loan payments can add up to a substantial amount of money each month. While the interest rates for student loans are great, and the education received as a result of the loans is worth the inconvenience of loan payments, many students will still need to research ways to make their student loan payments more manageable. Fortunately, there are several worthwhile options for borrowers who find that they need some help in adjusting their student loan payments to fit their income. One such option is student loan consolidation, which is simply combining all of your student loans into one lender, and therefore making one monthly payment.
Should You Consolidate?
If you find that you are having trouble meeting all of your payment obligations every month, you may want to consider consolidating all of your student loans into one monthly payment. The payment is usually smaller under consolidation, which is beneficial if you want to reduce the percentage of your income that is used to pay your student loans. Another reason to consolidate, especially if you have an adjustable interest rate loan, is that you can often lock in an interest rate under consolidation. You will want to be very careful, however, not to mix private and federal student loans together when you decide to consolidate; because when you do so, you will lose all of the tax benefits available to you with your federal loans (such as the tax deduction for interest paid). Another factor to consider with student loan consolidation is that by reducing your payments and lengthening the term of your loan repayment, you will be adding to the total amount of money you will be repaying; so be sure to pay any extra amount on your payment that you can, if possible.
Beginning the Consolidation Process
Once you have decided to begin the consolidation process, the most logical option is to contact one of your current lenders. Most of the lenders for federal student loans will be happy to buy out the loans from your other lenders and consolidate them for you. Be sure that you ask about the difference between private and federal student loans; because many lenders treat them very differently during consolidation. You may also need to specify that you are interested in locking in the lowest interest rate possible for the life of the loan. If you are a married borrower and your spouse also has student loans, the lender may suggest that the two of you consolidate all of your loans together, for one lower monthly payment. Be extremely wary of this option: by combining all of your loans into one, you are taking joint responsibility for the debt. This means if one of you dies, the other spouse continues to be responsible for the loan; it also means that, in cases of divorce, you must go through the process of attempting to divide the debt.
There are many companies that will help walk you through the process of student loan consolidation; however, make sure that you are well-informed of the actual process before you sign on with any one lender. Student loan debt does not have to severely affect your finances, and consolidation is a great method of managing this type of debt. As long as you have researched all of the options of consolidation, and you have also well-researched your lender options, you can go through the process of student loan consolidation assured that you are making a very wise financial decision.
About the Author
For more information like this please visit the Student Loan Center
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After you graduate from college, you are beginning on your brand new life and career. However, six months later, you are hit with the reality of just how much debt you steadily gained while going to college. As you go through each paper of all the student loans you have received throughout the years, you become overwhelmed. You are possibly thinking how could I ever afford these with what I make? If you find troubles, it might be the perfect moment to consider calling student loan consolidation experts.
Sometimes the school you attend may recommend the right debt consolidation companies for you to approach for your student debt consolidation loan. However, you can have your federal school loan consolidated only if you have stopped attending school, have not missed any payments and your loan is of a sum of at least $10,000. If your federal school loan does not meet one of these requirements, then you can’t opt for student loan debt consolidation.
Soon after you send your application, the Department of Education will send out your student aid report (SAR) with all the information you provided as well as the information the school takes into consideration. If they ask for additional information, don’t wait to send it to them. Doing so could prevent you from getting aid of any type. How much you’ll be able to take out will depend on your information, the school and the budget they assume for the academic year.
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With an unsubsidized loan, the loan will be charged interest during the entire course of your school career. If the interest is left unpaid, it is then added to the principle amount of the loan. This tends to increase the amount you need to pay, as well as the time it will take you to pay off the loan.
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In order to make it easier for to help repaying student loans after graduating from college, the first step you seriously consider refinancing student loans and to consolidate your student loans into a single loan account. Through this, you will be able to avoid paying a lot of excessive money from all your various loans different interest rates. Having one single loan to deal with will also allow you to better manage your money and your loans.
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