For those recent college graduates of 2008, the student loan “grace period” has almost reached its end. For many, the first payment will be due in December or January – just around the corner! With the economy in a recession, graduates worry about finding a full-time job and also how they will be able to re-pay their loans without one.

It is not an easy time to just have graduated from college. However, we all have to find a way to move forward and re-paying our loans is all part of the plan. According to our partners at MainStreet.com, in 2004 the average student graduated with about $19,000 worth of student loan debt. This number continues to increase as more students look towards financial aid to support their college years.

Here are some tips that may help you when repaying your student loan debt:

Pay Off Your Interest First – Although I didn’t have much in my savings when I first graduated, I found it really helpful to pay off my interest first (before my “grace period” was even over). Interest will add up quickly over time, it is best to not have to pay even more interest on the interest you have accrued over the past few years at college.

Choose the Correct Repayment Plan for You – Often times there is more than one repayment plan that is offered with your student loans. Make sure that you choose the one that best fits your situation. There is typically an ‘income contingent’ plan which takes into account how much you are earning per year. This may be the best plan for you if you have not yet found a full-time job opportunity. The market is tough and many graduates are struggling to find the right jobs for them.

Take Advantage of Direct Payment – Direct Loans offer an Electronic Debit Account (EDA) which allows your bank to automatically deduct your monthly payment from your checking or savings account. Not only does this make payments so much easier and ensure that they are always on time, it also offers you a discount on your interest. Your interest rate will be reduced by a ¼ a point (.25%) just for enrolling in EDA. Although this may not seem like much, it will add up in the long run.

Consider Forbearance – According to an article on MainStreet.com, forbearance is where lenders may choose to let borrowers either extend their repayment period or put their payments on hold for a while. Read more about forbearance and who qualifies in the full MainStreet.com article here.

Bank Account – Another thing you could do is open a separate bank account that is only for your loans. Each month you could put money into this account and then link this to your EDA. This way you are making sure that you are not spending your loan money on something else…like clothes! It also ensures that you will be able to tell how much money you have saved towards your loans without it being combined with the rest of your savings. It makes life easier! Also, make sure to include your loan payments in your Geezeo budget and set goals so that you are covering all your bases.

Let’s face it…student loan debt isn’t just going to magically disappear (as much as we would love it to)! Make the decisions that work best for you and consider all your options. As hard as things might be, try not to fall behind on your payments. Eventually, you will repay all of your loans and it will be the greatest weight off of your shoulders and a great sense of financial accomplishment.

Photo: MeraM

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Student Loan Justice

By Farnoosh Torabi | MainStreet.com

Many college students graduating in the next year face a double whammy: An average $20,000 in student loan debt and an overall shrinking labor market. For graduates in dire financial straits some lenders offer breathing room in the form of forbearance.

What is forbearance?
Student loan forbearance is essentially a temporary get-of-out jail card, whereby lenders may choose to let certain struggling borrowers either put their student loan payments on hold for a period of time, or extend the length of the repayment plan in order to reduce their monthly balance.

Who qualifies?
Forbearance is never a guarantee. Applicants must prove financial hardship that may include a low to non-existent income (i.e. unemployment), health problems, or other outstanding loans like credit card debt and/or medical bills. It also helps your case if you have dependents.

What’s the catch?
There is a downside. Under the rules of forbearance, the interest you avoid during the extended grace period piles onto the principal balance (i.e. the loan amount). Essentially, this means that once the forbearance period is over, your principal will have grown and on top of that, you’ll still need to pay interest.

Related:

Is Grad School Worth It?
Student Loan Justice
Student-Loan Woes Hurt Upper Middle Class

By Farnoosh Torabi | MainStreet.com

As the economy drags and the job market weakens, it’s inevitable that workers will begin contemplating going back to school to increase their skill set. Both The London Business School and the Stern School of Business at New York University, for example, report double-digit jumps in applications this year, and the trend doesn’t appear to be slowing.

While a higher degree often leads to a more competitive job and a better salary, the initial investment to attend a graduate program can be daunting. On average, grad students owe $30,000 upon completing a master’s program, according to Kaplan Test Prep and Admissions. “Now more than ever you have to realistically assess what graduate school will do for you, and exactly what program will suit you best both personally and professionally,” says Priya Dasgupta, GRE program manager for Kaplan Test Prep and Admissions.

Consider these questions before taking the leap.

Am I Switching Industries?

Often graduate school serves as a bridge when transitioning from one industry to another. In some cases, like deciding to be a doctor, graduate school is unavoidable. Still, some transitions don’t require a specific degree. For example, for a teacher to enter the business world, an MBA might come in handy during the job search, but it’s not absolutely necessary. Getting an entry-level position first can help survey the lay of the business land before making the decision whether to attend graduate school. And in the interim, that’s a $40,000 a year savings in tuition costs.

Can I Work Part-Time?

It may be more time consuming and challenging, but it also eases the blow of graduate school tuition. At least 50% of U.S. employees receive tax-free educational perks from jobs that cover career related courses. Some employers may even contribute tuition expenses, if you agree to return to the same company full-time upon graduation for a minimum number of years. The federal government actually encourages this with a special tax code letting employers pay as much as $5,250 a year in tuition for courses pertaining to your profession. Check with your human resources manager to learn about your company’s education benefits program, often called the Employer Assistance Program.

Have I Exhausted All Financial Resources?

While banks are increasingly getting out of the business of offering private student loans, that’s no excuse to quit your search for funding. Begin by filling out the FAFSA (Free Application for Federal Student Aid) at fafsa.ed.gov, which Dasgupta calls “the gateway to a large chunk of financial aid awarded to students.” Then talk to your local bank – preferably a credit union or small bank that hasn’t suffered from severe write-downs à la Citigroup - for available loan programs. Ask the student aid office in your graduate school for applications for private scholarships, school fellowships and teaching assistantships. Also consider peer-to-peer lending web sites, such as prosper.com and lending.com which eliminate banks as middlemen and directly connect individual borrowers and lenders.

Related:

Young Generations Feel the Pressure
Student-Loan Woes Hurt Upper Middle Class
Student Loan Justice

Are credit cards going out of fashion? Hardly. But, creditors are tightening up. It’s becoming harder to qualify for credit, a situation unfamiliar to many.

The most revolutionary notion in commerce today is one of the oldest. If you want to buy something, you may actually have to pay for it. We are reverting from a “borrow and buy” economy to the “cash and carry” model of our grandparents.

Read more.

This article humorously parallels the use of credit as follows:

Imagine that a restaurant, rather than charging $30 per meal, charged 50 cents per bite, with a waiter standing tableside collecting after each chomp. That would be an extremely unpleasant meal. But credit puts a safe distance between the ecstasy of consumption and the agony of payment, and thus makes us feel better.

So would it be so terrible if credit is harder to access? I guess it depends on who you ask…

The average consumer already carries quite a bit of debt and has very little savings. Restricted credit access may be a “blessing in disguise” if it becomes harder to overextend oneself. Goodbye, impromptu trips to Bermuda (or even just the mall)!

But, it could spell trouble if so called “good credit” is harder to reach. For example, in Geezeo’s Financial Aid group, members are discussing how it is becoming harder to get student loans. If I understand correctly, legally federally-sponsored educational loans must be granted. But, if you’re like many students and need “gap” loans to fill in between your personal resources and government loans, you could be faced with stiffer interest rates based on your credit score.

Creditors don’t usually garner a lot of sympathy. But, you can certainly imagine that recently they’ve been losing money on people who cannot pay them back. No wonder they’re tightening the belt!

Related:

Young Generations Feel the Pressure
Focus on Payoff to Eliminate Your Debt
Student Loan Justice

Don’t run; you can’t hide.

Did you know that if you try to run from your student loans collection agencies can garnish your wages? That’s right — they can legally garnish up to 15% of your take home pay. The government can also intercept tax refunds, Social Security payments, or even money like this year’s stimulus check if you do not (or cannot) pay your student loans.

In some dire situations collection agencies can contact your employers and neighbors. Their attempts to collect can be harassing and embarrassing.

You can’t declare bankruptcy if you get overwhelmed, either. Student loan debt is not treated the same as credit card and other consumer debt. Student loan interest is tax deductible. However, that’s little comfort if you’re struggling to make payments.

So why is the system like that? Can anything be done about it?

Student loans are partly treated with severity because there is nothing for the lender to repossess if you default. With a car or home the bank can claim your property and re-sell if you can’t pay for it. But your brain? Lenders see this loan as more risky, and from that standpoint you can’t blame them.

However, there are some very real social ramifications that stem from excessive student loan debt. Gen X/Gen Y generations carry proportionately more student loan debt than our parents. Some have pointed out that this debt causes more of us marry later, have fewer children, and delay purchase of our first home. Excessive loan debt is forcing too many young adults to move away from low-paying but critical fields such as teaching and social work…a threatening situation to our nation’s strength and stability.

Who’s working to change things?

Alan Collinge is working to raise awareness of unfair practices in student lending and get policy changes made, too. He runs the website StudentLoanJustice.org. Here’s a great article about him in The New York Times. Says a Sallie Mae rep of Collinge:

“He’s had a lot of problems paying his loans back, and he’s spent an awful lot of time out there talking about his problems rather than trying to pay his loans back,” said Tom Joyce, a spokesman for Sallie Mae.

I think that sounds pretty harsh and ignores some of the larger issues with young people carrying too much educational debt. If you agree, head over to StudentLoanJustice.org.

Related:
Student-Loan Woes Hurt Upper Middle Class
Clock’s Ticking for Student Loan Applicants
If You Have Student Loans, Read This

Student-Loan Woes Hurt Upper Middle Class
By Lauren Tara LaCapra | MainStreet.com

Problems in the student-loan market are especially hurting upper-middle-class families whose children won’t go to the local community college, but are not quite up to snuff for the Ivy League.
The tight credit markets are making private student loans more costly and difficult to obtain, with several major lenders stepping out of the fray. Wachovia (WB) became the latest major bank to cut back on undergraduate loans last week. It follows Citigroup (C), which took similar steps earlier this year, along with Bank of America (BAC), JPMorgan Chase (JPM) , Student Loan Xpress (owned by CIT Group (CIT)) and a slew of others.

Kevin Walker, CEO of SimpleTuition.com, says the number of companies offering loans on the site has dropped dramatically to about 22 today from about 77 at this time last year. He says about 20% of those enrolling in higher education—or about 3 million students—seek out private loans to fill in the gaps left from scholarships and limited state and federal support.

Those who will be hit worst by the student-loan crunch will be students whose parents don’t earn enough to pay the escalating cost of enrollment. The problem will be particularly acute for students entering schools that have high tuitions, but don’t have large endowments to entice them to come.

“It’s not everybody,” says Walker, “but it’s people who go to high-profile schools - great institutions that don’t have the deep pockets that Princeton has.”

Even before the credit markets began to tighten up last year, Walker says private student loans were made “almost exclusively” to prime borrowers. Students without cosigners, or those with cosigners whose credit scores were below 650 have always had a tough time getting approved.

“These loans were not subprime,” Walker says.

But in today’s market, regardless of how credit-worthy the borrower is, lenders and investors have little appetite for unsecured debt that has a 2-, 3- or 4-year lag in repayment. During that time economic conditions –and family finances—can change dramatically.

Today’s market can be summed up in the recent results of Student Loan Corp. (STU) , whose chief shareholder is Citi. The company posted a 40% drop in second-quarter profits as it increased reserves for loans that may go bad—despite the fact that private student loans are generally offered to prime borrowers who repay their debts.

The company faced higher costs for acquiring the capital, as well as a tough market for re-selling its bundled loans, since investors today are more skittish about such unsecured debt. As a result, Student Loan Corp. boosted the fees for those making payments, more than tripling its “fee and other” income to $39 million from $9.4 million.

In other words, students (and their parents) are paying the price of the current credit-market malaise, regardless of how credit-worthy and responsible they are.
Walker emphasizes the fact that there are still private lenders offering loans, and some have not yet restructured rates to reflect current credit conditions.

“It’s a dramatic difference from this year to last year—that’s the bad news,” says Walker. “The good news is that there are still [some] out there who feel that they can get to more borrowers than they could in a more competitive market.”

Students should consult their institution’s financial-aid office—which knows best what options are available—and hurry to secure an aid package before those lenders boost rates or exit the student-loan market as well.

And remember, there are no four-year guarantees. Private lenders don’t often make commitments beyond the current school year, meaning that students and parents could be in for a tougher—and more expensive—slog ahead in obtaining education financing going forward.

Clock’s Ticking for Student Loan Applicants
By Terry Savage

The credit crunch is hitting the student loan market. And just because your school approved you for a Stafford Loan doesn’t mean you’ll find a bank to fund it — unless you hurry!

That’s the message for students headed off to college or back to school in just a few short weeks. Even if you had a loan last year, it’s possible that your lender will not be willing to come through with money for the fall semester.

In fact, a new survey by TuitionBids.com — a Web site that says it will allow lenders to “compete” for your student-loan business — says that 60% of students needing loans for the fall semester don’t have all their money lined up. Half of those surveyed said they may have to change their plans to attend college if the money doesn’t come through.

Loan Limits Up, Loan Money Down

The message is loud and clear: Don’t wait until your tuition bill is due to check with lenders. Although Congress took steps to create liquidity in the student loan market by making the Treasury a lender of last resort, many banks are still unwilling to add these loans to their portfolio.

With lenders limiting the total amount in their student loan portfolio, many will find it is “first come, first served” for the money that is available.

For this year, Stafford loans limits have been increased to $5,500 for freshmen, up from $3,500. And seniors can borrow as much as $7,500. Subsidized Stafford loans — on which interest does not start accruing until graduation — are based on need, as determined by the FAFSA form.

Even students who don’t think they could qualify based on need may receive approval for unsubsidized Stafford loans, where interest starts accruing immediately but can be deferred until graduation.

The subsidized Stafford loans will carry a fixed rate of 6% when you graduate. Unsubsidized Stafford loans carry a lifetime rate of 6.8%.

Finding Student Loan Money

At SimpleTuition.com you can run a search of participating lenders who are still making student loans and have agreed to work with your college or university — for both Stafford and private loans. Search for the Stafford loans for which you’ve been approved first. Then, you can turn to private loans, typically made with a parent co-signing for a student.

I created a search on SimpleTuition.com for $10,000 worth of loans. At least six lenders were offering Stafford loans — a great place to start looking. On the private loans, lenders’ rates ranged from as low as 4.5% to as high as 14%!

The search also shows you the total cost of repaying that loan. Borrowing $10,000 at the loan rate of just over 14% will result in a total repayment cost of more than $41,500, if you stretch it out over 300 monthly payments. That’s 25 years.

The rate you’ll pay on a private student loan depends on your credit score. In previous years, private loans were made to borrowers with credit scores in the low 600s. But in this credit crunch, you’ll need at least a score of 700 to qualify.

PLUS loans are made to parents, regardless of need. They carry a fixed rate of 8.5% for the life of the loan. Parents who qualify based on credit scores can borrow up to the full amount of the cost of college for the year, less any student loans. Some schools participate in a Federal direct lending program for PLUS loans, and on those loans the rate is “only” 7.9%.

Warning: Don’t Over-Borrow

Kevin Walker, CEO of SimpleTuition.com, has a warning for families: While there is money available if you act quickly, you need to keep your four-year plan in perspective.

Says Walker: “Just because you can borrow huge sums of money for college, it doesn’t mean you should.

You get the picture. You’ll need good credit and an immediate search to find money for college this fall. Don’t delay. But also don’t get so involved in this “treasure hunt” that you forget the ultimate cost of borrowing — either to you, the graduate, or to your parent’s retirement plans.

It’s important to sit down and figure out the costs vs. the benefits. Part-time attendance at a community college may be the answer for some students, who can then transfer and complete their studies at a state school. Even online university degrees are looking attractive these days, if you have the self discipline.

And more expensive schools are going to be forced to give out more of their endowment money in the form of scholarships and grants that don’t have to be repaid.

If they don’t, they’ll be faced with dwindling enrollment as more and more families conclude they simply can’t afford the most expensive version of the college dream. And that’s The Savage Truth.

Related:

* What The Fine Print On Your Student Loan Really Says
* Flip This House, If You Can
* Understanding Your Student Loan Options

Student loan rates dropping? Yeah, right. When pigs fly!

Look out the window now — you may catch a glimpse of a pig flying. Yes, there is true magic in the air right now. If you have student loans, read this article. With luck the interest rates on your loans will be falling.

Hooray! From our partners at TheStreet.

—
If You Have Student Loans, Read This
by Terry Savage

The world of student loans just became more complicated and expensive for some borrowers, while others are about to get a great deal.

It all depends on whether you’re borrowing now or dealing with loans from the past.

Interest rates on variable-rate student loans will drop sharply on July 1st. That will make newer, fixed-rate loans look like a terrible deal, although for most borrowers, they’re the “only deal in town.”

Two years ago, Congress changed the student-loan program from a variable-rate deal based on Treasury bill rates to a fixed rate program at 6.5%. That rate now looks extremely expensive in comparison with falling interest rates in the marketplace. Still, those who have Federal student loans taken out after July 1, 2006, are stuck with those relatively high fixed-rate loans for the life of the loan.

The divergence becomes even more apparent because interest rates on older, variable-rate loans are about to be cut in half — to 3.61% from the current 6.62% — starting July 1. The cut comes because rates on those older loans are tied by formula to the T-bill auction that took place the last week in May.

That creates some interesting opportunities for those who borrowed in earlier years and are now graduating, as well as for graduates who have not yet consolidated their old, variable-rate loans. Not only will they get lower rates, they’ll also have the opportunity to lock in those low rates for the duration of their loans.

Continue reading and pray flying pigs pass your window!

School may be out for the summer — but the tuition bills continue for a long, long time.

If you’re still in the market for student loans, be sure to check out brand-new peer-to-peer lending options. They may come with better, or more flexible, rates. This great article thanks to our partner, Mainstreet.com.

—
Learn About Student Peer To Peer Lending
By Juliana Bunim (05/21/08)

Costs for higher education are soaring, and with students up against rising interest rates, it’s harder than ever to finance a college education. Students and parents borrowed an estimated $17.1 billion in private loans in 2006-7, representing 22% of all lending that year. Now the subprime mortgage meltdown has changed the student loan landscape, and not necessarily for the better.

“A lot of easy money was going into education via the home acting as a piggy bank through refinancing,” says Akash Agarwal, CEO of GreenNote, a social networking and microfinance website. “That has completely stopped.” It’s increasingly difficult for parents to take out home equity lines, and students are looking away from traditional avenues such as Sallie Mae (SLM) and Bank of America (BAC) in favor of more creative ways to finance their education. (Yearly expenses for a public university, including room and board and financial aid, have risen to $9,980 a year from $7,650 according to the College Board, a non-profit examination board. The average net cost for a private college is $23,000, up from $18,050.)

Click here to read more about peer-to-peer student loan options. Sallie Mae: be frightened… very frightened!

In the Boston University student newspaper yesterday, our dean announced that tuition for next year will increase by 4.2%, bringing the cost of tution here at BU to up around $50,000! I can tell you something, when I told my Dad that news he was extremely happy that I am a senior and will be graduating this May!

In just under 20 years, the average private school rate will be just under $75,000 and the average public school rate will be around $25,000! This is crazy…how do you afford this if you have more than one child, all going into college around the same time?! It worries me a little that I’m already worried about how I am going to pay for my childrens tuitions when I haven’t even graduated my 4 years of college yet!

This rising cost of tuition is becoming more and more frustrating for incoming students. Not only do they want to get into the top universities (many of these private) but they now have to find a way to cover the costs of these expensive schools! From my experience, my family never received any money from the federal direct aid (the money that does not need to be repaid), but we did get student loans (all of which I am now looking to start re-paying when I land a job). The more the cost of tuition continues to rise, the more students are going to have to look for more money in the form of loans!

Not only that, but more students are also holding jobs as well as attending a full course of classes and studying for midterms/finals…you name it! I think it’s hard enough keeping your grades up and have a social life without throwing a job into the mix as well (just to make sure you have some money to spend).

In this day and age, it is almost required that to get an entry level job you have at least a Bachelor’s degree. This burden to get a good job leaves many without a choice and they are almost required to attend a university or college that will land them a job to begin earning a decent salary.

As I am only 2 months away from graduation, I saw the relief on my parents faces that my last amount of tuition is paid off for the semester (just around $18,000) and that my last months rent will be paid for this upcoming April. I am the 3rd child out of my family to graduate from school AND the last one to go! So..I think my parents can finally breathe a sigh of relief, but for many other families and incoming students…the financial journey of tuition, fees, and books is just beginning!