Posted: May 17th, 2010 | Author: Joe | Filed under: Debt | Tags: Federal student loans, PLUS loans, Stafford loans, Student Loan Consolidation, Student Loans | 4 Comments »
After July 1st, 2010, the federal government will become the sole lender for all federal student loans. Here’s what this means for current and future students.
The changes to the federal student loan programs (Stafford and PLUS loans) were enacted as part of the 2010 healthcare legislation. Along with the changes to loans outlined below, the bill also allocates more money for Pell grants. The maximum grant per student will rise from it’s 2010 level of $5,550 to $5,975 at a cost to taxpayers of $36-billion over the next decade.
The first major change comes about when the federal government assumes control of federal student loans in July. A total of 4 different agencies will begin servicing the loans, and their impact depends on when the loan was originated:
- Loans after July 1st, 2010 will be serviced by the federal government.
- Loans originated prior to July 1st, 2010 will be taken over by the feds if they are currently federal loans.
- Student loans that are not funded by the federal government will remain unchanged for now.
- Students are encouraged to contact their financial aid office if they’re unsure if they have a private of federally backed loan.
Changes to federal student loan program.
One-time consolidation exception. Current students for the 2010-11 academic year can consolidate their loans prior to graduation. NOTE: Students who take this opportunity to consolidate early will lose their 6 month repayment grace period after they graduate.
More forgiving repayment terms. The current income-based repayment program is expanded under the new law. Students with high debt-to-income (student loan debt only) will have to pay no more than 10% of their discretionary income, and the remainder of the debt will be forgiven after 20 years. This is a change from the 15% cap on payments and forgiveness after 25 years. These changes apply to loans after July 1st, 2014.
More aid for some colleges. Community colleges will receive $2 billion in additional aid over the next 4 years, and “minority-serving institutions” will receive $2.55 billion in aid.
Source.
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Posted: March 24th, 2010 | Author: Joe | Filed under: Debt, Tips | Tags: Auto loans, Credit Cards, Credit score, Debt, Mortgages, Student Loan Consolidation, Student Loans | No Comments »
It’s a sad fact of modern life that unless we are diligent we are bound to end up with a multitude of debts, so it’s no wonder that people often feel overwhelmed when considering which debt they should pay off first.
This topic is usually centered around credit card debt and often pits philosophies and formulae against one another. For example, many people espouse the Dave Ramsey snow-ball method, while others decry it as too simplistic.
What this post isn’t about.
This post is not about the snow-ball or any other method of repayment. This isn’t about the nitty gritty of how to weigh various balance amounts and interest rates against each other to arrive at the optimum payoff order of your credit card balances. In fact, this isn’t even about any specific type of debt.
What this post is about is how you should go about classifying your debt and which category of debt should be paid first and why.
Naturally the best course of action is to keep your debt to a minimum, if you can’t avoid it all together. But to help you get there sooner, consider this list of importance when paying off your debt.
#1. IRS debt.
IRS debt is the most important to pay off, hands down. You simply don’t mess with Uncle Sam. If you fail to pay your taxes, the government can garnish your wages and seize your home and property. If you find yourself owing the IRS back taxes, you can go the tax relief route to help clean up your mess but it’s best to avoid the situation altogether.
#2. Credit card debt & personal loans.
Credit cards and personal loans carry the worst interest rates and fees. The longer you carry debt of this type, the longer you will be working for things you bought in the past and the longer you will wait until you have the freedom of your paycheck back. It’s that simple.
#3. Car loans.
Auto loans get us to what is known in the industry as secured debt, sometimes called “good debt.” The reason is that there are often tax deductions associated with it, and the terms are more favorable because there is something that could be repossessed if you fail to pay. While you don’t get to deduction the interest on your car loan, you will typically see a lower rate than on credit cards.
#4. Student loans.
Student loans are typically the lowest interest rate you can get, and if they’re not you can usually use a student loan consolidation company to lower your interest rates significantly. Besides, most graduates end up paying their student loans until they retire anyway. 
Mortgage debt is about the best debt you can have. Don’t confuse that with a mortgage being a good thing. Most people would like to own their home “free and clear” if given the option, just for peace of mind. But there are arguments that say a mortgage is a good thing to have. I’m not personally so interested in that thought because I don’t know very many people who simply do not have the luxury of paying off their mortgage in less than a decade, and that’s with serious stick-to-it-ivness. Most homeowners will have a mortgage and while it may not be the best thing in the world, it’s far from the worst. You get to deduct the interest payments on your taxes, and it allows you to buy a much nicer house than you would likely be able to afford without one. The trick is finding the happy medium and what works for you.
The importance of order.
That’s assuming you are paying off each of those debt obligations. Interestingly, if you are looking at a situation in which you cannot afford to pay all of your creditors and you might end up defaulting on the obligation, the order is a bit different.
In the case where you have to pick and choose which category of debt gets paid and which does not, the order of importance looks more like this:
- #1. IRS Debt.
The IRS can garnish your wages and seize your property. You could even do jail time if your situation is serious enough.
- #2. Mortgage.
Don’t pay your mortgage, and you lose your home and all the money you spent on it over the time you owned it. That’s a serious hardship and setback. It also does very bad things to your credit score.
- #3. Student loans.
The interest rate is usually more favorable than other forms of debt, but failure to pay your student loans at all will lead to having your wages garnished and being hit with serious fees.
- #4. Car loans.
Failure to pay your auto loan will result in your car being repossessed. This is bad for your credit score as well as your freedom of mobility.
- #5. Credit card debt & personal loans.
Failure to pay your credit card and personal loans can lead to a lot of lost money in interest charges and fees, as well as ruining your credit score but there’s no loss of property and a small chance of having your wages garnished.
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Posted: August 6th, 2008 | Author: Joe | Filed under: Debt | Tags: Debt, loan consolidation, loans, Student Loan, Student Loan Consolidation | 2 Comments »
Got student loan debt?
If you do, you’re not alone. With more people attending higher education than ever before and tuition skyrocketing, graduates are finding themselves saddled with 5 figure debt before they’ve even begun their careers.
I was fairly lucky to do as well I did. Having no scholarship and a deteriorating family situation that left me with very little in college savings available, it was federal loans and summer jobs for me. Still, I had about $10,000 in student loans by the time I finished – and I went to a community college the first 2 years and a state school the last 2 years. I can’t imagine people who went to a 4 year school for the full 4 years.
So, if you’re one of the unlucky ones, like me, who don’t have a 4 year degree gifted to them and emerge from the halls of higher learning with higher levels of debt than you’d ever thought possible, now is the time to take action. Maybe.
Since July 1, 2008 you can consolidate your Stafford and PLUS Loans and save up to 3% on the interest rate.
A recent MSN Money Central article by Liz Pulliam Weston provides the details, but the rates look excellent:
“…3.62% to 4.25% on Stafford Loans and 5.13% on PLUS Loans for graduate students and parents.”
I consolidated my student loans about 6 years ago, and at that time the best rate I could get was 4.5%. But it was A LOT better than the 6.25% I had when I graduated.
There are some exceptions (of course) that exclude some loans from being consolidated:
Only federal loans need apply.
Due to the credit crunch and recent changes to student loan funding from Congress, loan consolidation is not as profitable as it once was. This has forced many lenders to move on to greener pastures, as it were. This means chances of your consolidating a student loan that is not a federal loan are pretty slim.
No second spin on the consolidation merry-go-round.
These new rates only apply to variable-rate federal loans. Anyone who has already consolidated their student loans to a fixed rate loan is excluded from this opportunity.
In a state of grace? Wait your turn.
If your loan is in a period of grace where you don’t need to begin repayment, if you’re still in school for instance, you’ll have to let this opportunity pass. This used to be an option, but Congress eliminated it in 2006. Thanks guys.
Still, there are some additional perks as well.
- There are no fees for consolidating federal debt.
- Interest is Tax Deductible.
- You can get a quarter-point discount for agreeing to automatic debits.
Check out the U.S. Department of Education website for more details at: http://loanconsolidation.ed.gov/
AND this is one of those rare cases in finance where procrastination pays off. Here’s an article on BankRate, titled No rush to consolidate student loans this year that details why it was smart to wait until after July 1st.
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