Posts tagged ‘Student loan’

November 11, 2013

New rules help struggling student loan borrowers

by Grace

The Education Department has finalized new rules that can help struggling student loan borrowers by imposing stricter requirements on debt collectors.

One problem has been that some creditors have not been disclosing the most favorable payment options in cases where borrowers want to “rehabilitate” loans that are in default.

In its final rules, the Education Department requires that borrowers who want to rehabilitate loans must first be offered a payment amount similar to what would be offered under the federal income-based repayment program. That option, meant to help borrowers who have high debt in relation to income, caps a borrower’s monthly payments at 15 percent of his or her monthly income….

In addition, some debt collectors had demanded minimum monthly payments without disclosing more affordable alternatives, even though federal student aid law does not require minimum payments. The rules specify that payments in rehabilitation must not be a required minimum amount.

Rehabilitating a loan makes a borrower eligible for additional student aid.  It is hoped that additional borrowing will be accompanied by serious consideration about how the loans will be paid back.

Q&A on the new student loan rules:

■ When do the new rules go into effect?

Most take effect July 1 of next year. But lenders and schools may carry out some of the rules, like the one on forbearances, right away if they choose.

■ Do these rules apply to private student loans?

No. They apply to loans made or guaranteed by the federal government.

■ What if I don’t think I am being offered a fair repayment plan?

Complaints can be made to the Education Department at http://www.myeddebt.com.

Related:  Not enough borrowers take advantage of Income Based Repayment’s ‘mind-boggling’ generous benefits (Cost of College)

November 5, 2013

Student loan forgiveness for government employees

by Grace

Here’s the plea from a government employee.

I Work for HHS and Want to Get My Student Loans Forgiven

Steve Rhode, the Get Out of Debt Guy, responds in the Huffington Post that the writer may qualify for a loan forgiveness program.

… certain public service employees can get a substantial discharge of their federal student loans under the Public Service Loan Forgiveness Program (PSLFP)….

Many employers qualify as “public service” employers under the PSLFP.

Qualifying employment is any employment with a federal, state, or local government agency, entity, or organization or a not-for-profit organization that has been designated as tax-exempt by the Internal Revenue Service (IRS) under Section 501(c)(3) of the Internal Revenue Code (IRC). The type or nature of employment with the organization does not matter for PSLF purposes. Additionally, the type of services that these public service organizations provide does not matter for PSLF purposes.

A private not-for-profit employer that is not a tax-exempt organization under Section 501(c)(3) of the IRC may be a qualifying public service organization if it provides certain specified public services. These services include emergency management, military service, public safety, or law enforcement services; public health services; public education or public library services; school library and other school-based services; public interest law services; early childhood education; public service for individuals with disabilities and the elderly. The organization must not be a labor union or a partisan political organization.

Jason Delisle, director of the Federal Education Budget Project at the New America Foundation, advises college graduates to take advantage of this benefit.

“If you plan on doing any kind of public service, nonprofit or government work,” said Delisle, “then you should borrow as much money as [your school] will possibly let you.”

Taxpayers are picking up the tab, which can be substantial.

Under the New IBR, a student who owes $70,000 upon graduation would end up paying back only $22,000 if he stayed ten years at a government job with a starting salary of $40,000.  That’s a savings of $143,000 compared to how much that graduate would have paid had he not taken the IBR option.

Related:  Income Based Repayment (IBR) is a ‘moral hazard’ for high-income student loan borrowers (Cost of College)

October 31, 2013

Scary student loans

by Grace

20131030.COCScaryStudentLoans1

Student debt levels surge to frightening levels.

Student Loan Defaults Surge To Highest Level In Nearly 2 Decades

Recent college students are defaulting on federal loans at the highest rate in nearly two decades, reflecting “crisis” levels of student debt and a lackluster economy that leaves graduates with bleak employment prospects.

One in 10 recent borrowers defaulted on their federal student loans within the first two years, the highest default rate since 1995, according to annual figures made public Monday by the Department of Education.

A separate gauge, measuring defaults occurring within the first three years of required payments, showed that more than one in seven borrowers with federal student loans went into default, an event that can trigger invasive debt-collection methods that include fees, wage garnishments, and withheld IRS tax refunds.

“The growing number of students who have defaulted on their federal student loans is troubling,” Education Secretary Arne Duncan said. Duncan said the department will work to “ensure that student debt is affordable.”

Taxpayers hand out “treats” to struggling borrowers in the form of debt-relief programs, but many who have defaulted may be unaware of these bail-out options.

To ensure that students are aware of the flexible income-driven loan repayment options available through Federal Student Aid (FSA), this fall the Department will expand its outreach efforts to struggling borrowers to inform them about the different plans. The Department has also released new loan counseling tools to help students and families make more informed decisions about planning for college. Students and families can visit www.studentaid.gov for more information.

Happy Halloween!

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October 28, 2013

Make sure extra payments on your student loan are allocated correctly

by Grace

Apparently many student loan borrowers are having their extra principal payments allocated improperly.

Difficulties in having payments properly applied to a loan balance are among the most common complaints the Consumer Financial Protection Bureau receives about student loans, according to the bureau’s second annual report on the topic.

Paying extra toward the principal is a common way to save on accrued interest and to shorten the life of a loan.  But without explicit instructions, extra amounts may be allocated incorrectly.

Borrowers sending in extra payments, however, may find that the money is not allocated in the way they intended. Sometimes, borrowers told the bureau, they received a notice putting them into “paid ahead” or “advanced payment” status.

Complicating the problem is the fact that borrowers typically have several loans, with different balances and interest rates, which are bundled together in one “billing group” with a servicer, who collects a single payment and applies it to the individual loans. Just how much benefit a borrower gets from the extra payment depends on how the servicer applies the money. Savings will generally be greater, for instance, if the entire extra payment is applied to the loan with the highest interest rate, rather than being prorated to each loan individually.

The difference in savings can be substantial, as shown in this example where a borrower makes an extra $100 payment every month over the life of her loans.

20131025.COCPayBackLoans1

What should a borrower do?

Here are some questions to consider when making extra payments to reduce your student loan balance:

■ Is there any penalty to prepaying my student loans?

No. Private lenders are barred from penalizing students who make extra payments or pay off their loans early. (Federal loans do not have prepayment penalties either, Mr. Chopra said,)

■ How can I make sure my extra payment is allocated properly?

Send written instructions to your servicer; otherwise, the servicer may choose how to allocate the extra money. The bureau created a sample instruction letter, directing the servicer to apply extra payments to the loan with the highest interest rate first, which is generally the best option for most borrowers.

When I send in extra money on my mortgage payment, it automatically goes to pay down principal and is never counted as an “advanced payment” on next month’s bill.  I thought that was standard practice, but apparently not.

Pauline Abernathy, vice president of the nonprofit Institute for College Access and Success, said the report suggested there should be a uniform policy, outlining the way payments were applied. “Why force the borrower to specify?” she said.

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October 22, 2013

How much do you know about the Income Based Repayment Plan?

by Grace

Take a quiz on the Income Based Repayment Plan.

First, a basic definition:

Income-Based Repayment Plan (IBR)
“… a repayment plan for the major types of federal student loans that caps your required monthly payment at an amount intended to be affordable based on your income and family size.”

Take the quiz at the National Association for College Admission Counseling website.

It’s a short quiz.  I got all the answers right, but I have to admit I guessed on one question.  Apparently I need to read up on the Pay as You Earn Repayment Plan.

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September 4, 2013

Politicized federal student loan program bails out ‘deadbeats’

by Grace

After a Wall Street Journal editorial related how the federal government advises “deadbeats” to avoid paying back student loans, George Leef of the John W. Pope Center for Higher Education Policy escalated the conversation with charges that politicized federal student-aid programs are promoting waste, fraud, and abuse,  In a surprising development, similar criticism is being echoed on the left.

The Consumer Financial Protection Bureau produced a report explaining how taxpayers are bailing out “deadbeat” student borrowers.

A new analysis by the bureau shows federal-backed student loan debt surpassing $1 trillion, which is nearly double what it was at the start of the Obama Presidency. As college costs have continued to balloon in tandem with federal loan and grant subsidies, students have assumed more debt. Many jobless Americans have also sought asylum from the Obama economy by returning to school….

But deadbeats need not fear. According to the bureau, “there are ways to avoid default on a federal student loan even when you think you can’t afford your payment.”

For instance, income-based repayment plans allow borrowers who meet the Department of Education’s criteria for a “partial financial hardship” to cap their monthly loan payments at 15% of their discretionary income (which is defined as income above 150% of the poverty line). They can also have their entire remaining loan balance forgiven in 25 years regardless of how much they still owe….

Graduates entering “public service” (i.e., government or 501(c)(3) nonprofit employment) get an even sweeter deal since they can discharge their loans entirely after a mere 10 years of making regular payments. That’s right. Take out a big loan, work 10 years for the government repaying as little as possible, and then have your debt entirely forgiven. Maybe this incentive falls under some previously unknown “Making Government Work Pay” program.

Leef’s response chastises the government’s politicized misallocation of taxpayer money that has helped to inflate college tuition costs.

Regarding your editorial “The Rolling Student Loan Bailout” (Aug. 10): Whenever the government gets involved in an activity that is not properly any of its business, we get the infamous trio: waste, fraud, abuse, and then the politicians feel the need to meddle still more in an effort to solve the problems they’ve created. The federal student-aid programs are a perfect illustration. Repayment of loans is being politicized, with easy terms for students provided they make the “right” choices in employment. That will only further misallocate resources and help to keep the higher-education bubble inflated.

Instead of further politicizing student lending, the right move is to get out of it altogether. Even if there were any constitutional warrant for federal lending to college students (and there isn’t), it would be a bad policy. Politicians and bureaucrats are very bad at deciding how to lend other people’s money.

Even Rolling Stone is conceding that easy access federal funds has played a part in propelling college costs to staggering levels.

The federal government has made it easier than ever to borrow money for higher education – saddling a generation with crushing debts and inflating a bubble that could bring down the economy

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August 29, 2013

A checklist before you take out a student loan

by Grace

From the Wall Street Journal comes 5 Things to Know Before Taking Out a Student Loan

1. Research what aid is available to you—including scholarships, state and federal grants, and then federal loans. Meet with your school’s financial-aid counselor to learn these options. Visit the government’s website. The private website http://www.Finaid.org also has good resources.

2. Know the terms of your loans. What is the interest rate, what is the repayment period, and when precisely will payments begin? More importantly, find out what your expected monthly payment will be upon graduation….

3. Once you take out loans, be aware that this debt will not go away until you pay it. Federal loans are often called “aid,” but they are not grants—they must be repaid. Also, it is extremely difficult to discharge student loans—federal or private—through bankruptcy….

4. Look up information on your institution. Don’t just find out your school’s overall ranking or graduation rate. Also look up its “three-year cohort default rate,” a figure intended to show how many students pay back their loans within three years of graduation. That reflects how many students from that school are finding work and decent pay. Information on your school, including default data, can be found here.

5. Look up the earnings potential of your major. This website has information on different careers, including average salaries. Consider whether your debt load is too high relative to the expected earnings of your chosen field.

Also check out loan forgiveness options.

I’ll add another item to this list.  Be sure to research the most recent federal student loan relief programs that reduce loan payments based on a percentage of income, subsidize interest charges, and forgive loan balances after 25, 20, or 10 years.

Income-Based Repayment Plan (IBR)
“… a repayment plan for the major types of federal student loans that caps your required monthly payment at an amount intended to be affordable based on your income and family size.”

Public Service Loan Forgiveness Program
“Under this program, borrowers may qualify for forgiveness of the remaining balance of their Direct Loans after they have made 120 qualifying payments on those loans while employed full time by certain public service employers.”

Keep in mind that these taxpayer-funded programs are expected to benefit higher-income borrowers the most while offering only marginal assistance to low-income borrowers.

 “If you are high-income and have a lot of debt, this is a huge giveaway.”

And some advice from Glenn Reynolds:

There are a few circumstances where student loans may be justified, but they should be viewed with extreme distrust.

Related:  Not enough borrowers take advantage of Income Based Repayment’s ‘mind-boggling’ generous benefits (Cost of College)

August 5, 2013

Compromise reached on student loan interest rates

by Grace

After a compromise was finally reached last week, a new student loan bill was sent to President Obama for signature.

Under the old federal student loan program, borrowers were offered a fixed rate. Under the new rate structure, which still drew opposition from nearly one-third of Senate Democrats when it passed last week, loans to undergraduates and graduate students, along with parents in the PLUS program, would be subject to a fixed rate plus the yield on the 10-year Treasury note.

Rates for loans taken out after July 1 of this year would be 3.9 percent for undergraduates, 5.4 percent for graduate students and 6.4 percent for those receiving PLUS loans. The rates are fixed over the life of the loan but would change for new borrowers each year.

In a compromise that pleased many Democrats who had initially been wary of using a rate that was subject to inflation and fluctuated with the markets, Congress set a cap on all loans: 8.25 percent for undergraduates, 9.5 for graduate students and 10.5 for PLUS recipients.

Perkins loan rates were unchanged.

20130801.COCLoanInterestRates2

* Interest is paid by the federal government during the in-school period.

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July 11, 2013

Student loans were the only kind of debt that grew during the latest recession

by Grace

All other types of debt declined.

… only student debt grew during the Great Recession. Federal policy has encouraged this habit. In the two years following the financial crisis, spending on student loans grew 19 percent and 18 percent, respectively.

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‘Good Debt vs. Bad Debt’

Good debt is an investment that will grow in value or generate long-term income. Taking out student loans to pay for a college education is the perfect example of good debt. First of all, student loans typically have a very low interest rate compared to other types of debt. Secondly, a college education increases your value as an employee and raises your potential future income.

‘Student Loan Problems: One Third Of Millennials Regret Going To College’ – Forbes

… About one-third of millennials say they would have been better off working, instead of going to college and paying tuition.

That’s a according to a new Wells Fargo WFC +2.06% study which surveyed 1,414 millennials between the ages of 22 and 32. More than half of them financed their education through student loans, and many say the if they had $10,000 the “first thing” they’d do is pay down their student loan or credit card debt.

After the experience of the last few years, I would say it’s not a good idea to generalize that college debt is always “good debt”.

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July 1, 2013

Taxpayers pay off millions in federal employees’ student loans

by Grace

Taxpayers have spent over $70 million annually in recent years to pay off the student loans of federal employees.

This chart shows the annual expenditures under the federal government’s Student Loan Repayment program.

20130628.COCFederalLoanPayback3

The Federal student loan repayment program permits agencies to repay Federally insured student loans as a recruitment or retention incentive for candidates or current employees of the agency. The program implements 5 U.S.C. 5379, which authorizes agencies to set up their own student loan repayment programs to attract or retain highly qualified employees.

This perk is raising eyebrows, especially in light of the pending increase in federal student loan interest rates.

Federal officials defend the program as a critical benefit that helps the government recruit and retain top talent. Congressional sources point out that participants are not protected from interest rate increases.

I doubt this perk is needed to recruit employees for all government jobs, especially for prestigious Capitol Hill positions.

The program may make sense for some federal jobs, but it should be limited to those where the benefit really makes a difference, said Tom Schatz, president of the non-profit Citizens Against Government Waste. It is harder to defend for congressional staff, Schatz said.

Senator Tom Coburn’s spokesman call this program a “circular subsidy”.

… “Student loan assistance programs are a circular subsidy that offsets the costs of Congress’ expensive desire to make education affordable. It’s government fixing one failed subsidy with another.”

It would seem these circular subsidies that require teams of bureaucrats to administer are a particularly potent way to fuel government growth.

Related:  Do we have a student loan crisis? (Cost of College)

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