Posts Tagged ‘student debt’

« Older Entries

Student Debt the Next Wave?

Friday, August 14th, 2009

Sandra Block at USA Today covers the next wave of financial problems: college graduates and their debt obligations. As she writes, “The latest Education Department figures estimate that student loan default rates rose to 6.9% for fiscal 2007, from 5.2% a year earlier. The consequences of default are severe: The loan balance becomes due, and the government can garnish the borrower’s wages and withhold tax refunds.”

The default rate is almost as high as that associated with consumers and their credit cards. So what should a college graduate with educational debt do?

Our core advice remains the same: understand your total balance amounts and terms of repayment. Set up and live by a budget. Prioritize your outstanding debt amounts for aggressive pay down in a way that will work for you. Ideally, they are mathematically prioritized, but using the other methods of repayment, like the snowball approach, can work. Finally, it is critical to track and measure the success of your chosen strategy for debt elimination. Consider a debt tracking form and choose easy dates for revisiting your financial status, such as the first day of each month.

Raj Patel writes for DebtGoal.com, a do-it-yourself system for getting out of debt and lowering your interest costs.  DebtGoal.com incorporates all of the techniques discussed in this post and can help users understand and get visibility to and manage their debt finances.

Tags: , , ,
Posted in Uncategorized | View Comments

7 Tips on Student Debt Refinancing

Saturday, January 17th, 2009

With so much of the focus recently on families that struggle to make ends meet, discussion on the personal finances of students has come up short. Yet the numbers are alarming: more students that ever before are leaning on risky variable-rate loans to finance their studies and the indebtedness of students has been on an upward trend long before the economic crisis of the last few months hit.

Reality

The truth for today’s students is that they carry significant debt burdens, during the college years and after graduation, when they start careers, delay the “real world”, — or take on even more debt – as graduate students. To cope with financial pressures, the refinancing of student debt is an option, especially if you need to lower your monthly payments in order to meet short or long-term basic expenses and career objectives. Here’s what needs to be known about it:

  • Private and federal loans need to be dealt with separately. The rates at which you refinance federal loans with be more attractive. Lender requirements vary and can depend on factors like “in-school” status, minimum outstanding debt balance, etc. Call your lender during normal business hours to find out the exact qualifications.
  • Lower monthly payments are the outcome of changing either the interest rate or the repayment period. Extending your repayment period is the lesser of the two options since your total outstanding debt balance does not go down. Be very careful since an extended period of repayment comes with the stringd attached of a higher interest rate and/or a longer repayment period.
  • Consolidation of all of your federal loans can be an excellent strategy, as the interest rates can be favorable. Consolidating federal loans should not negatively impact your credit score. Also, when consolidating federal loans, you have the added flexibility of frequently changing your repayment plan. For the purposes of refinancing, you will have an easier time evaluating different options when looking at just one lump sum loan instead of a basket of accounts all with different terms of repayment.
  • You typically gain a bonus interest rate reduction if you refinance while the loans are still in a grace period.
  • Before making a decision, be sure to consider the new interest rate offered in a refinancing scheme and weigh it against your fixed rate debt, as well as your percentage and totals of fixed rate vs. variable rate burdens.
  • Deferment and forebearance periods can be reset and thus start over after loan refinancing.
  • Loans to be refinanced cannot be in default – which means they have to be in a grace period, some type of deferment, or forebearance.

The ultimate goal of most ex-students is to decrease monthly payments and/or reduce the total outstanding debt burden. To these ends, don’t forget to look at options for student debt foregiveness, especially if you work in the public sector or are part of a nationwide program like the Peace Corps or military. Debt forgiveness can help alleviate some financial burden and ultimately shorten the time to clearing all of your educational debt.

Raj Patel writes for DebtGoal.com, a do-it-yourself system for getting out of debt and lowering your interest costs.  DebtGoal.com incorporates all of the techniques discussed in this post and can help users understand and get visibility to and manage their debt finances.

Tags: , , , , , , , , , , ,
Posted in Debt Management, Paying Down Debt | View Comments

5 Important Tips on Educational Debt Repayment

Tuesday, December 16th, 2008

It’s tough to get a comprehensive view of all of one’s outstanding educational debt. This is frustrating especially if you have a suite of different loan types and sources to fund your undergraduate and/or graduate years. But putting forth the effort to see the total picture will pay dividends in averted late fees, lost interest rate breaks, and other factors that can delay your arrival to “debt-free” status.

1. CREATE A PLAN AND GET ORGANIZED

Set aside a specific time during normal business hours to give your undivided attention to sorting out your outstanding debt sources, amounts, and repayment terms. To get clarity you may need to call the Federal Student Aid Information Center and/or private loan lenders, which are all more easily reached during the day.

2.  FEDERAL VERSUS PRIVATE LOANS

Know the differences between your private and federal student loans. Your educational debt may be comprised of only federal loans, only private loans, or a combination of the two.

FEDERAL LOANS

Most students in educational debt have federal loans, which are typically one of four types: Perkins, PLUS, Stafford Subsidized, and Stafford Unsubsidized. All of these can be consolidated into one federal loan at a fixed interest rate. There are several repayment term options, some of which depend on your total outstanding amount of educational debt. You can consolidate your federal loans from different lenders all into one lump loan. This is even true for federal loans that are issued by the same lenders as your private loans.

PRIVATE LOANS

Private loans are educational loans provided by nongovernmental lenders such as banks. There’s been a large jump in the percentage of students relying on private loans instead of federal loans to fund their studies, and this is problematic because they are harder to pay off. They cannot be consolidated with federal student loans. They typically have variable interest rates and in the current economic downturn, many lenders are not even allowing them to be consolidated with other private loans. For most, the best debt elimination strategy entails paying off private loans before the federal ones.

3. GRACE PERIOD

If you’ve finished school and cannot generate income to start payment on your educational debt, there are alternatives to incurring penalties and fees for missing payments. One is the grace period: a period between the completion of a degree or falling below half-time enrollment and the need to start normal repayment. The grace period varies by loan type, but falls in the range of several months. Grace periods vary by loan, so if you choose to go into a grace period for a particular loan, make sure to find out how long it will last. Choose this option instead of defaulting, because just one missed scheduled payment can permanently disqualify you for bonus interest rate reductions. 

4. LOAN DEFERMENT, LOAN FORGIVENESS

You make be able to qualify for either a deferment or loan forgiveness. Loan deferment involves delaying payment on outstanding educational debt. You can almost always defer repayment on outstanding educational loans if you are enrolled at least half-time in a school. The deferment programs are numerous and a solid list is on the Federal Student Aid website. For the unemployed, popular deferment programs include the Economic Hardship Deferment and the temporary forbearance option.

Partial loan forgiveness is available from a number of federal, state, and educational institutions. They range from Peace Corps volunteering to teaching to the military and public sector positions as trained doctors and lawyers. A good list of the options is available at FinAid’s website.

5. AVOID DEFAULT

Most critically, avoid defaulting on the debt. The Project on Student Debt contains other valuable tips, but the single most important factor in effectively eliminating debt is to get organized and make a plan, no matter how far or near deadlines loom.

Stay tuned for more quick tips on debt.

Raj Patel writes for DebtGoal.com, a do-it-yourself system for getting out of debt and lowering your interest costs.  DebtGoal.com incorporates all of the techniques discussed in this post and can help users understand and get visibility to and manage their debt finances.

Tags: , , , , , , , , , , , , , ,
Posted in Debt Management, Lending Industy, Paying Down Debt | View Comments

The “Good Debt” Fallacy: Part 3 (Auto Loans)

Saturday, December 13th, 2008

Over the last couple of days, we’ve looked at debt that we’ve been told since we’re little is OK or even desirable. Incurring student debt or a mortgage is a great thing, right?  It means we’re achieving the American dream and moving on up.

Well, not really.  It’s definitely possible to be house-poor or end up with unmanageable levels of student debt, with the unfortunate result that these debts hold us back from achieving other important life goals.

Today we look at our final entry in the “good debt” fallacy highlight list:  the auto loan.  Although not as big as student loans or a mortgage, auto loans really aren’t your friend.

Autos:

Most people today finance cars rather than paying cash.  Our autos are an asset and enable us to get to work so aren’t these an investment?  These are true, but autos are a depreciating asset.  When you buy a new car, it immediately starts to depreciate and can lose as much as 40% of its value in the first 3 years.  So a new car buyer is paying interest on an asset that will lose value over time.

You can mitigate this buy saving up and paying cash for a car.  One technique for people who find it difficult to purchase their ideal car with cash is to work up to this over time: save what you can and purchase an inexpensive used car with what you can save in a year or so.  Purchase this car and continue saving.  If you would have paid $400 per month in a car payment, in just a year you can save close to $5000, enough to buy a passable used car.  Continue saving and when you have enough accumulated, sell the car you’ve been driving and trade up to a better used car that meets your needs.  Yes, you’ll have driven a beater for a year, but you’ll eventually own a good car, paid for in cash, that will not depreciate as quickly as a new car.  You’ll save in both interest and depreciation.

Labeling certain types of debt as “good” can give us a rationale to take out much more debt than we can handle.  Make sure that you plan and evaluate these debts carefully to ensure that they don’t become a future burden.

Scott Crawford is CEO of DebtGoal.com, a do-it-yourself system for getting out of debt and lowering your interest costs.  DebtGoal.com incorporates all of the techniques discussed in this post and can help users understand and get visibility to and manage their debt finances.

Tags: , , , , , , , , , ,
Posted in Credit Card, Debt Management, DebtGoal, mortgage | View Comments

The “Good Debt” Fallacy: Part 2 (Student Debt)

Saturday, December 13th, 2008

In today’s post, we examine why debts that many people have been told are “good” may not be so good and what to do about it.  In Part 1, we looked at housing and what has happened over time as home buyers bought more house than they could afford and found out that there can, in fact, be too much of a good thing.

Today, we consider student debt.

Student Debt:

Claim:  Student debt is a good investment, since college graduates earn significantly more than those without a college degree.

This is true, but recent graduates have increased their level of debt to the point where their debt levels are often unmanageable and recent grads have become one of the quickest growing segments of new bankruptcies.  According to the American Association of State Colleges, two out of three college students graduate with debt and the average borrower who graduates from a public college owes $17,250 from student loans. Ten years ago, the average student borrower attending a public college or university graduated owing $8,000 from student loans (adjusted for inflation).  Students are even paying for college on their credit cards, which have significantly higher interest rates than subsidized or unsubsidized federal student loans. A recent survey by the National Association of College and University Business Officers found that credit cards account for 18 percent of tuition payments.

When not managed wisely, this debt becomes an impediment to buying a car, purchasing a house, getting married, or attaining other financial goals.  To ensure that your education is an investment rather than a burden, chose a school that meets your budget and chose an area of study and career that will enable you to successfully pay off your debt.  Take advantage of low-cost subsidized loans rather than private educational loans, and keep credit card debt to a minimum.

Turn into tomorrow when we discuss why taking out an auto loan isn’t such a great idea if you can avoid it.

Scott Crawford is CEO of DebtGoal.com, a do-it-yourself system for getting out of debt and lowering your interest costs.  DebtGoal.com incorporates all of the techniques discussed in this post and can help users understand and get visibility to and manage their debt finances.

Tags: , , , , , ,
Posted in Credit Card, Debt Management, DebtGoal, Paying Down Debt | View Comments

« Older Entries