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How To Know If You Should Consolidate Your Student loans

How To Make Debt Consolidation Loan EffectiveIf you owe a ton of money on your student loans and to multiple lenders, the idea of consolidating them into one new loan can seem very tempting. You’ve probably seen ads from debt consolidation companies extolling the virtues of a debt consolidation loan. They usually focus on the fact that if you consolidate, you will have only one payment to make every month instead of the multiple ones you’re making now. And that payment will be “dramatically” be less than the total of the payments you’re now making.

This is all true but before you decide on a debt consolidation loan, there are some important things to consider.

The options

When it comes to consolidating student loan debts there are basically two options. You could get a Direct Consolidation Loan from the federal government or from a private lender.

If you were to choose a Federal Direct Consolidation Loan, you could consolidate the following types of loans.

  • Direct Subsidized Loans
  • Direct Unsubsidized Loans
  • Subsidized Federal Stafford Loans
  • Unsubsidized Federal Stafford Loans
  • Direct PLUS Loans
  • PLUS loans from the Federal Family Education Loan (FFEL) Program
  • Supplemental Loans for Students (SLS)
  • Federal Perkins Loans
  • Federal Nursing Loans
  • Health Education Assistance Loans

In other words, you could consolidate just about every type of federal loan if, and here comes the big if, and that’s you need to have at the minimum one Direct Loan or FFEL Program loan that is in repayment or in a grace period. In addition, you must either make repayment arrangements with your loan servicer that are satisfactory to it or you will need agree to repay the loan under Income-Based Repayment, Pay As You Earn repayment or Income-Contingent Repayment.

Calculating your interest rate

Both the interest rate and the term are fixed with a Federal Direct Consolidation Loan. The way interest rates are calculated is based on the weighted average of the loans being consolidated rounded up to the nearest 1/8th of one percent. The best way to think of this is that your new interest rate will be higher than the loan with the lowest interest rate you’re now paying but lower than your loan with the highest interest rate.

Note: The government has a calculator you could use to determine exactly what your new interest rate would be. Click here to access it.

The application process

If you decide on a Federal Direct Consolidation Loan, the application process is fairly simple. You go to StudentLoans.gov where you will find both paper and electronic applications. You can download the electronic application or download and print the paper version. You would then submit it by US mail. If you choose to file electronically, there are five steps as follows.

1. Choose Loans & Servicer
2. Repayment Plan Selection
3. Terms and Conditions
4. Borrower and Reference Information
5. Review and Sign

Once you’ve submitted your application electronically or by mailing the paper version, the consolidation service you selected will handle all the other actions necessary to consolidate your loans. It will also be your point of contact should you have any questions in the future regarding your consolidation application.

Repaying your Federal Direct Consolidation Loan

As noted above, you have three repayment options if you choose a Federal Direct Consolidation loan. They are Income-Based Repayment, Pay As You Earn repayment and Income-Contingent Repayment.

Private student consolidation loans

Given the fact that federal consolidation loans come with some pretty great features, why would you choose to refinance with a private lender? One way to determine whether this would make sense for you is to use this guideline: If your annual income is larger then the amount of student loan debt you have, you might take a look at private refinancing. You’ll also need to take into consideration other factors such as your credit history and other monthly expenses. However, comparing your income to your debt load is a good way to start.

More and more private lenders are entering the student loan consolidation market so that there are more and more options for refinancing. Be sure to keep in mind that once you consolidate your student loans with a private lender you will lose the benefits that come with a federal loan including loan deferment, repayment options, forbearance and loan cancellation. So before you take out a private debt consolidation loan, it’s important to ask yourself whether or not it’s worth it to give up those benefits just to get a lower interest rate.

Check out other options

Before you apply for either a Federal Direct or a private consolidation loan, do check out the other options available for handling your debts. For example, you could go to a credit-counseling agency for help. This is where you will be assigned a counselor that reviews all of your finances, helps you develop a budget and provides you with tips for better managing your money and your debts. There’s likely a credit-counseling agency near where you live. Just make sure it’s a nonprofit and offers its services either free or at very low cost. Also, if you choose this option do not let your counselor push you into a debt management program unless you totally understand it.

Snowballing your debts is another way to get student loans paid off without having to borrow money to do it. This is a technique developed by the financial guru Dave Thomas. The way it works is that you focus all of your efforts on paying off the student loan with the lowest balance. Once you’ve done this you will have more money available to pay off the loan with the second smallest balance and so on. This is called snowballing because as you pay off each loan you will gather momentum to pay off the next loan just like a snowball rolling downhill gathers momentum. If you choose to do this just make sure that while you’re paying off that first loan you continue to make at least the minimum payments on your other loans.

If you’d like to know more about debt snowballing here is a video with Dave Thomas himself explaining it …

Shop around

If you do decide that a private debt consolidation loan would make sense given your earnings and circumstances, be sure to shop around. There are, unfortunately, some debt consolidation companies that are basically scam artists. While they promise a consolidation loan, what they often do is push you into a debt consolidation program. On the other hand, there are honest and reputable debt consolidation companies such as National Debt Relief. We actually offer many of the benefits that come with a Federal Direct including repayment options and deferment in the event you become sick or unemployed. The repayment options offered by National Debt Relief include Extended and Graduated. If you were to choose Extended Repayment you would have up to 25 years to repay your loan, which would lower your monthly payments fairly dramatically. Graduated Repayment could be a good choice if you are not earning much now but believe your earnings will grow in the years ahead. This is because with Graduated Repayment your payments start low but then gradually increase every two years.

Advice and counsel

In addition to offering debt consolidation loans with a variety of repayment options, National Debt Relief also offers a counseling service designed to help people choose the federal loan repayment program that would best for them given their circumstances. The way this works is that the National Debt Relief customer is assigned a counselor that will carefully analyze the person’s salary, family situation, earnings potential and general finances and then recommend the best repayment program. The cost of this service is a flat, one-time fee, which is placed in an escrow account until the customer signs off on the recommended repayment program and the paperwork that we prepare to get that person into the new program. Anytime a customer is unsatisfied with National Debt Relief’s recommended repayment plan or with its paperwork, he or she can cancel out and won’t be charged a cent.

When It Comes to Student Loans There’s A New Player in Town

Graduation cap with moneyThe Student Loan Marketing Association (Sallie Mae) has long been the largest purveyor of student loans in the US. It began life as a government entity but is now a publicly traded corporation. It originates, services and collects on student loans and currently manages in excess of $180.4 billion in debt for more than 10 million people. While the company initially provided federally guaranteed student loans under the Federal Family Education Loan Program (FFELP), it now provides only private student loans. It calls this side of its business Navient.

The new player in town

There is now a new company that may be taking away some of Sallie Mae’s customers. The San Francisco-based company SoFi (Social Financing Inc.) is a peer-to peer-lender that is growing fast. It was founded by Stanford University graduate Mike Cagney and has now issued more than $500 million in loans to more than 5000 members.

What makes SoFi different from Sallie Mae is that it enables its highly qualified members to refinance their federal and private student loans. This, according to Cagney, has enabled SoFi members to purchase a home or even start a business and has helped its members save an average of $9400 over the life of their loans. Again, unlike Sally Mae, SoFi is community-based and offers its borrowers such unique benefits as entrepreneurship support, career coaching and protection against unemployment.

As Cagney explained, “We lend to individuals who we believe have the potential to be great customers for the big lenders — but we get them two years early. They are in their early 30s with a high FICO score — high incomes and cash flow — but they do not yet satisfy the criteria to get loans from the big banks.”

SoFi claims that its customers repay their loans as they have more cash flow, higher FICO scores and higher incomes.

Not for everyone

If you owe a lot on your student loans and would like to have them refinanced, SoFi could be a good choice. However, it’s not for everyone. First, you’re basically borrowing money from alumni of your school, which means your school must be one of the 550 that participate in SoFi. You must reside in one of the company’s eligible states

Note: variable rate loans are not available in Minnesota and Tennessee and in Iowa the minimum loan amount is $50,000.

Plus, there are other factors that SoFi takes into consideration including your income, credit score and that you are either employed or have an employment offer. In addition, you must not have declared bankruptcy in the past three years and must not have been convicted of a felony.

The dangers of loan refinancing

Another factor that makes SoFi unique is that it will refinance both private and federally backed loans by consolidating them. For some people, this is “breaking the golden rule of student loans.” These experts point out that once you consolidate federally backed loans with private loans you lose the benefits that come with the federal loans. You would have a loan with a fixed interest and a fixed term but would lose the possibility of having your loan canceled, deferred or extended. In other words, it would pay to be very familiar with the terms of your SoFi loan because once you sign on the dotted line that’s pretty much it.

The biggest benefit of  federally backed loans

The biggest benefit you would give up if you consolidated your federally backed loans with a private loan is the various repayment options available with federally backed loans. In fact, there are a total of seven repayment programs, including four income-driven plans. The other three are the 10-Year Standard Repayment program, Extended Repayment and Graduated Repayment. Students with federal loans are automatically put into the 10-Year Standard Repayment program unless they choose another option. This program has a fixed monthly payment, a fixed interest rate and a fixed term of 10 years. In comparison, the Extended Repayment program lengthens the term of a student loan to 25 years, which should dramatically reduce its monthly payments. In the case of Graduated Repayment, the loan payments would start low but then gradually increase every two years. This can be an excellent option for people that are just starting out and that have careers with incomes that will continue to increase.

Income-driven repayment

Of the four income-driven repayment plans, the one that has gotten the most attention recently is Pay As You Earn. The reason for this is that Pres. Obama recently signed an executive order that makes nearly five million more people eligible for this program. In addition, it caps borrowers’ monthly payments at 10% of their disposable income. Your disposable income is determined by subtracting 150% of the poverty level from your total income.

Other things you need to know

There are some other things about Pay As You Earn you need to know. For one thing, it takes into consideration not just your income but also your family size as larger families mean lower monthly payments. Second, your payments will be scheduled according to a 20-year repayment term instead of 25 years. If you make all of your payments and on time for those 20 years but still have a remaining balance, it will be forgiven. Finally, you will be required each year to submit documentation proving your income, which means your monthly payments could go up or down every year.

How to know if you could qualify for Pay As You Earn

The reason why more people will soon be eligible for Pay As You Earn is because borrowers who got their loans before October 2007 or stopped borrowing by October 2011 are now eligible. Prior to this, only newer borrowers were eligible. However, it’s important to keep in mind that these changes do not kick in until 2015. So if you feel it would be advantageous to switch to Pay As You Earn, you might have to wait until these changes take effect.

If you’d like to more details about Pay As You Earn here’s a video courtesy of National Debt Relief with lots of more information.

Income-based Repayment

A second popular repayment program for federal loans is called Income-based. It is much like Pay As You Earn except monthly payments are capped not at 10% but at 15% of your disposable income. To qualify for this repayment plan, your payments must be less than what you would pay under 10-Year Standard Repayment. Generally speaking, you would be eligible for Income-Based Repayment if your federal student loan debt is higher than your annual discretionary income or if it represents a large portion of your annual discretionary income.

Again your payments would be based on your income and family size.

Income-Contingent repayment

The third form of Income-driven repayment is Income-Contingent repayment. This program was created to make it easier for people to repay their loans that intend to pursue careers with lower salaries, such as public service jobs. The way it does this is by fixing the borrower’s payments according to family size, income and the total amount he or she borrowed. As with Income-Based Repayment, the monthly payments under this program are adjusted each year depending on the borrower’s family size and income. It also offers loan forgiveness after 25 years of payments made on time.

Income-Sensitive Repayment

The fourth and final form of Income-driven repayment is called Income-Sensitive. This program is an alternative for loans that are serviced by lenders in the Federal Family Education Loan Program. Like the Income-Contingent program, this plan was created to make it easier for borrowers tha have low-paying jobs to make their monthly payments. The way it works is that payments are pegged to a fixed percentage of the borrower’s gross monthly income. This percentage will be between 4% and 25% and is determined by you the borrower. However, the resulting monthly payment must be larger than or equal to the interest that accrues. And it’s important to understand that some lenders set a minimum threshold on the percentage of your income, which will be based on your debt-to-income ratio.

5 Ways to Mine Free Money For College

College student  catching money in the airFree money in college refers to scholarships and grants that a college undergraduate can use to pay school expenses. Some people are saying that as the government increases the funding to support higher education funding, the cost of attendance in colleges and universities across the country are also going up. This has lead to more and more student having to borrow to be able to earn a college degree.

ASA.org shares that 60% of the total average enrolled college students in America needs student loans to get to and stay in school. This percentage boils down to about 12 million out of the 20 million students needing either a federal student loan or a private student loan or both to pay for college. This need produces students with a college degree and multiple student loan types and amounts.

The need to repay them has been nothing short of challenging for student loan holders who are already separated for school and has entered the repayment stage. There are approximately 14% of the 37 million college debt owners are trying to get current on at least one past due student loan account. This means that around 5.4 million borrowers with past due loans can become delinquent and default on their payments.

This has lead to some extreme and crazy things borrowers repay their student loans. Some has left the country to try their luck in a foreign land earning more and paying less in taxes. There are those that are packing back home and staying in their old room to save up on rent and food. While some are trying to juggle two to three jobs just to be able to make ends meet especially with their student loan payments. This is where free money in college could have made a big difference.

Getting free money for college expenses

Not all families are able to build up a college fund for higher education expenses of the children. For those that do, their kids are going to have a relatively easier time with their finances compared to those that are graduating every year with college debt. But free money is available for those that does not have a 529 plan or a college fund under their name.

Free money refers to scholarships and grants that a student can qualify for in college. It is free money simply because it is free and the entity giving it to the student does not require repayment. Comparing it to student loans that has to be repaid at a future date, free money is given to the student for use in college expenses without a repayment clause.

Briana McGeough is a testament to the effectivity of free money as shared by Huffingtonpost.com. Not only was she able to use free money to pay for cost of attendance in college, she was able to graduate debt free. To top it off, she was able to graduate with at least $16,000 refund after college expenses from all the scholarships and free money she used in school.

Of course, free money has to worked on. It may be free but it certainly is not easy. It does not grow on trees where student can leisurely pick and choose whatever they want. Hard work is also needed in securing free money for college. It will require time and commitment from the part of the borrower to identify possible sources of the funds.

Scholarships are merit-based while grants are need-based. This means that a borrower has to show proof of financial need to qualify for a grant while scholarships can have a variety of qualifications. The most popular are academic and sports scholarships where student in high school who has sterling grades or a promising athletic career are give a free ride in college.

Here are some steps to remember when actively pursuing free money for college expenses:

  • Free Application for Federal Student Aid or FAFSA. This is the primary step in receiving federal financial package. One of which are need-based Pell grants. It is important to fill out the FAFSA because in the absence of free money the a Pell grant, you can take advantage of lower interest rates in federal loans and probably some subsidy on interest payments while in-school.
  • Small over big scholarships. There are some who prefer using one hour preparing for a big amount of scholarship rather than use it to apply to three to four smaller amounts of free money. The idea is to get a balance with the priority on the smaller ones where the chances of getting some is better that being turned down for a one time big amount application.
  • Do not stop after year one. Once in school, continue to actively look for other scholarships or grants that you can use in college. Even when you are already in your second, third, or even senior year in college, you need to constantly be on the look out for free money. Especially so that cost of attendance usually increases as you progress through your years in college.
  • Under the parent’s name. For parents wanting to build up a college fund for the kids, it is advisable to put it under your name first rather than your child because when financial aid put more importance on a student’s list if assets rather than the parents.
  • Part time job. Consider looking for free money as a job. Treat it as if your are working for someone (yourself) and you need to continuously look up scholarships and grant providing companies. This might sound like a crazy way to pay for student loans but it can work to your advantage.

Here is a video about free money that can help you understand it better.

Extra tip in pursuing debt free college graduation with free money

With all the statistics that are around you on how graduates are wondering how they will pay for their student loans or the total number of the student loan debt, it might surprise you to know that the school also plays a big part in the total college expenses. With that being said, students should be open to the idea that first choice of schools might have to be changed to match cost of attendance with free money available.

Debt collection scams even with student loans

After Illinois filed a landmark case versus some debt settlement companies dealing with student loans, it couldn’t be even more evident that shady groups are present even with student loan industry. In fact, CNBC.com discussed recently how the Consumer Financial Protection Bureau are putting their foot down on illegal debt collections techniques that can include student loans among the rest.

The buy and sell of old unpaid debts, that can include student loans, is a common practice between and mostly private lenders. There are banks that sell to a collection agency. In turn, the collectors gets their hands on fresh piece of information on who owes money and how much they are behind for. Of course, there are other companies that are too quick to the draw and possibly forego background check on the debtor if they do still haven’t paid for the loan or it has been paid off before.

Free money is a great objective in paying for college expenses, It just takes commitment in holding on to the feeling that you do not want debt in graduation. But for those that had to lean on federal and private student loans, there are a few ways to detect college loan scams.

The Big News About Student Loans Might Not Be So Big After All

woman thinkingPeople struggling with student debts were excited to hear the big news that Pres. Obama had signed an executive order that could make it easier for millions of Americans to pay off their student loans.

Unfortunately, the big news turned out to be not that big.

It won’t help every borrower

If you aren’t aware of this, and many people aren’t, there are seven different ways or programs for repaying federal student loans. Four of these are income-based as they take into consideration your income as well as your family size.

Pres. Obama’s executive order affected only one of the four – the Pay As You Earn option. If you are on this plan or would be eligible for it, this could help by capping your monthly payments at 10% of your disposable income (more on disposable income later).

It will still be 20 years before forgiveness

One thing that the President’s executive order didn’t change in Pay As You Earn is the number of years before loan forgiveness. You will still be required to make all your loan payments and on time for 20 years. Do this and if you still have a remaining balance it will be forgiven – or erased.

More people eligible

One of the most significant changes made by the President’s executive order is expanding the number of people who can take advantage of Pay As You Earn. Prior to this order, only newer borrowers were eligible. However, beginning next year, anyone who took out loans before October of 2007 or who stopped borrowing on their loans by October 2011 will now be eligible. It is estimated that this will affect about five million people.

Must prove a “partial financial hardship”

To be eligible for Pay As You Earn, you must prove a partial financial hardship. You would have a partial financial hardship if the annual amount due on all of your eligible loans as calculated under 10-Year Standard Repayment exceeds 15% of your discretionary or disposable income.

Determining your disposable income

As you read earlier, the President’s executive order caps monthly payments under Pay As You Earn at 10% of the borrower’s disposable or discretionary income. You need to know your discretionary income in order to determine whether or not you would qualify for Pay As You Earn. So how do you determine your disposable income? First, you need to calculate your monthly Adjusted Gross Income and then subtract 150% of the Federal poverty line, which this year is $1450. Here’s an example of this. If your Adjusted Gross Monthly Income were $4280 and you subtracted that $1450, your disposable or discretionary income would be $2800. Multiply this by 10 percent and your Pay As You Earn monthly payment would be $280, which could be substantially less then what you’re now paying.

Only certain types of loans qualify

There is yet another eligibility requirement, which is that only certain types of loans qualify. They are:

  • Direct Subsidized Loans
  • Direct Unsubsidized Loans
  • Direct PLUS Loans made to graduate or professional students
  • Direct Consolidation Loans that did not repay any PLUS loans made to parents

If you have other types of loans such as subsidized federal Stafford loans or FFEL consolidated loans, you would not qualify for Pay As You Earn. However, you could get a federal Direct Consolidation loan, use the proceeds to pay off those other types of loans and would then have a loan that would be eligible for Pay As You Earn.

The one downsideVideo thumbnail for youtube video 10 Signs That Your Financial Management Skills Suck!

The one downside of Pay As You Earn – as with all of the income-driven repayment plans – is that you must prove your income every year. In other words, you will need to submit documentation to your loan servicer every year proving your family size and income in order to stay eligible. If you ever reach the point where your family size and income exceeds the amount you would pay under 10-Year Standard Repayment, your monthly payment will be adjusted to that of 10-Year Standard Repayment. This new payment will be based on the loan amount you owed when you first started Pay As You Earn – meaning that it could result in a substantial increase in your monthly payment.

If you can’t qualify for Pay As You Earn

If for some reason you would not qualify for Pay As You Earn, there are three other income-driven repayment plans. They are Income-Contingent, Income-Based and Income-Sensitive.

Income-Based Repayment – This plan was meant to replace the Income-Contingent and Income-Sensitive Repayment plans though they are still available. It is much like Pay As You Earn and also caps your monthly payments at 10% of your disposable or discretionary income. It is also based on the size of your family and requires that you submit documentation every year proving your income. Loans that are eligible for income-Based Repayment include all Consolidation Loans made under the Direct Loan or Federal Family Education Loan programs, all Stafford Loans and all Grad PLUS Loans.

In 2010, the president took an executive action that made this program available to more borrowers by the end of 2012 instead of 2014. This latest change should reduce the monthly loan payments for an additional 1.6 million responsible student borrowers.

If you want to determine whether you would qualify for Income-Based Repayment (IBR), you should use the U.S. Department of Education’s IBR calculator to learn if you would likely qualify. This calculator takes into consideration your family size, income and state where you live to calculate your monthly payments. If this amount were less than the payments you are making on your loans under 10-year Standard Repayment, you would be qualified to pay back your loans under IBR.

If you were not a new borrower on or after July 1, 2014, your payments will be capped at 15% of your discretionary income but will never be higher than under 10-Year Standard Repayment. On the other hand, if you were a new borrower on or after July 1, 2014 your payments will be capped at 10% of your discretionary income.

Income-Contingent Repayment – Under this program you would make payments for 25 years before any remaining balance would be forgiven. You won’t need to prove a “partial financial hardship,” and your payments would be 20% of your discretionary income. Under this program, your monthly payments will be pegged to your income, the size of your family and the total amount you borrowed. Since your term will be 25 years, you will likely have lower monthly payments though you will pay more total interest over the life of the loan. Also, under this repayment program if you have a balance forgiven at the end of the 25 years, you will have to pay taxes on it.

Income-Sensitive Repayment – With this program, your monthly loan payment would be pegged to a fixed percentage of your gross monthly income. This would be between 4% and 25%. You would determine the percentage yourself. However, your monthly payment must be greater than or equal to the interest that accrues on the loan. Although you choose the percentage, be aware that some loan servicers set a minimum threshold on the percentage of your income based on your debt-to-income ratio. This program is like Pay As You Earn and Income-Contingent in that you must reapply every year. This usually means submitting your W-2 statements and tax returns. With Income-Sensitive Repayment your term or length of the loan is limited to 10 years. This means it will increase the size of your monthly payments to compensate for this. If Income-Sensitive Repayment interests you, be sure to go to the U.S. Department of Education’s IBR calculator to see if you would be eligible.

Two other alternatives

Most people will choose Income-Based Repayment over the other two alternatives explained above – assuming they are eligible. It’s just a better deal for most people. However, if you don’t qualify for any type of income-driven repayment, you still have two other options. The first is Extended Repayment. What this does is extend the term on a 10-Year Standard Loan from 10 years to 25. This almost always results in a lower monthly payment though you will pay more interest over the term of the loan since it’s 15 years longer.

A second alternative that is not income driven is Graduated Repayment. If you were to choose this program, your payments will be lower at first but then gradually increase every two years. Like with Extended Repayment, you will end up paying more interest over the life of the loan then under 10-Year Standard Repayment.

As you have read there are a number of different repayment programs available to those who have federal loans. If you are currently under 10-Year Standard Repayment, it would certainly be worth your time to use the U.S. Department of Education’s IBR calculator to learn what other repayment programs you might be able to take advantage of. You should also probably talk with your loan servicer. In any event, make sure you check out your options so that you will have a repayment plan that you can live with and that offers the best deal given your income and circumstances.

How To Graduate From College Debt Free

Yes, debt negotiation worksDid you know that undergraduate students that graduate from college with no student loans are way in the minority? In fact, according a study published in 2011 only about 2/5ths of undergraduate students or roughly 1.7 million students graduate debt-free. As of 2011, about 3/5ths graduated having less than $10,000 in student loan debts.

However this number has increased substantially in the last three years as seven in 10 college seniors or 71% that graduated this past year had student loan debts averaging $29,400 per borrower.

So what could you do to graduate from college debt-free?

The first thing to do is to go to an in-state public college. Of undergraduate students who graduated debt-free 85.2% graduated from public colleges. And of this nearly 70% were in in-state public schools. Going to school in-state at a public college costs less because states appropriate money to their universities in order to keep tuition low for state residents.

Forget those for-profit schools

For-profit schools have been in the news a lot lately due to some of their practices. One of the largest, Everest College, has been targeted by half a dozen states and the federal government over allegations that it slanted attendance records, distorted student grades and exaggerated job placement data in its ads. This has led to Everest’s parent company, Corinthian College, closing some of its nearly 100 campuses and selling the rest.

Beyond this, less than 7% of students who went to for-profit colleges graduated debt-free.

Enroll in a two-year or shorter program

If you enroll in a two-year or shorter program you’re more likely to graduate debt-free. Half of the students that graduated with no debts graduated from a community college. One-third graduated from a public four-year college and 61% of students that earned an associate’s degree from a public college graduated with no debt. What many students are now doing is going to a community college for their first two years and then transferring to a state university. Since most of a student’s first two college years are devoted to basic or core classes, it makes very little difference where he or she takes them. If you do this, your record may show that you did two years at a community college before transferring but your diploma will have the name of your state university or even a more prestigious college.

Choose a low-cost college

If you choose a school whose tuition and fees is less than $10,000, you are very likely to graduate debt-free. In fact, 80% of students who did graduate with no debt graduated from a school meeting these criteria. Another 57% graduated from a school whose total cost of attendance was under $10,000 and 86% graduated from colleges that had a total cost of attendance of less than $20,000. You might have heard the old song titled “Shop Around” and this is especially true when it comes to picking a school – assuming your goal is to graduate debt-free. For that matter there was one study done recently that came to the surprising conclusion that, in some respects, where you go to college is less important than where you applied – assuming you are accepted. It appears that when it comes to earnings that if you are smart enough to get into a prestigious school like Yale or Harvard, you’re probably smart enough that you will be able to earn like a Yale graduate.

Reduce the amount you spend on textbooks

Seventy-five percent of students that graduated without debt spent $1000 or less per year on their textbooks. If you buy your textbooks at the campus bookstore you’ll probably pay top price. As an alternative to this, you might be able to buy the textbooks you need used on sites such as Amazon.com, ABE Books are even Craigslist. Another option is to go to half.com or textbookrush.com and look for international editions of the textbooks you need. Finally, you may not be aware of this but it’s also possible to rent textbooks. Doing this will typically slash the book’s list price by two thirds. This can be very appealing unless the book you need is one that you want to keep in the future for reference. If this idea appeals to you try www.clegg.com or www.bookrenter.com.

Live at home

If you live at home with your parents you are more likely to graduate debt-free than students who don’t. While you might feel “shamed” to live with your parents, it’s better to live at home while you’re enrolled in college then to be forced to live at home after you graduate because you have so much student loan debt.

Choose your parents wisely

If you have upper-income parents, you are more likely to graduate with no debt than if you don’t. Statistics show that 56% of upper-income students graduated debt-free compared with 36% of low-income students and 45% of middle-income students. For that matter, if your parents have advanced degrees you are more likely to graduate debt-free because your parents probably have an higher average income. Also, more than two thirds of those who graduated debt-free got help paying for tuition and fees from their parents. In addition, statistics also show that a small percentage of students that graduated with no federal or private student loan debts were able to do this because their parents borrowed from the parent PLUS loan program.

College costs continue to skyrocket

Many students have no choice but to borrow money in order to get a college education. The cost of a higher education continues to do nothing but skyrocket. The College Board’s Trends in College Pricing reported in June of this year that the average total cost of attending a four-year public college and university in-state was $17,131. Of course, this included everything – fees, tuition, room and board. If you chose to attend a public college or university out-of-state, you would be looking at an average cost of $29,657 and if you want to go to a four-year private college you’d be looking at an average of $38,589.

If borrow you must, hope for a subsidized federal loan

As you can see, these costs echo what we had said earlier about choosing an in-state public college or university. Beyond this, if you must borrow money hope for what’s called a subsidized federal loan. You need to be able to show “need” to get one of these loans but if you can, you’ll be spared from the burden of paying interest on the loan while you’re in school. Instead, our federal government will pay the interest for you. How would you show “need” in order to get a subsidized direct federal loan? The US Department of Education (Ed) will evaluate your FAFSA or Free Application for Financial Student Aid to determine whether or not you have “need.” In addition, your FAFSA will be automatically sent to the school or schools where you have applied for admission. They will also use this information to determine what type of financial aid to offer you. Of course, the best type of financial aid is the kind that you don’t have to repay. This could be a grant, a work-study grant or best of all, a scholarship. If you find that most of your aid will come in the form of a federal student loan, you need to sit down, and evaluate how much you’ll have to borrow versus the benefits you would obtain from attending that particular college.

Work part-time

You may also be able to graduate from college debt free or at least reduce the amount of money you will have to borrow by working part-time. Most college towns have an overabundance of small shops, hotels and fast food outlets that hire part-time workers. These jobs may not pay a lot but every dollar you earn is a dollar you won’t have to borrow. Work just 15 hours a week at $10 an hour and you should net somewhere around $100 a week or around $1500 a semester – which would go a long way towards paying for your textbooks and some of your food and rent.

Build an online business

When it comes to making money online, the Internet recognizes no age restrictions. People as young as 16 have earned literally thousands of dollars a month by creating a successful business online. You could become an associate of Amazon.com and promote all of its products. Amazon even makes it incredibly easy to build a complete online store. The commissions you would earn from Amazon would not be a lot per sale but if you sell dozens of items a week, the money will mount up. Plus, this is something you could do without ever leaving your dorm room or apartment. And you could spend as much or as little time on your business as you wished.

Sell stock in yourselfVideo thumbnail for youtube video How To Calculate The Money Factor When Choosing A College

If you have a good career path mapped out and can convince other people that you will be successful you can actually sell shares in yourself via one of the crowdfunding websites. There is also a new company called Pave where you could raise money by offering a percentage of your future earnings. As an example of how this works, one person recently signed up with Pave in the hope of raising money to pay for an advanced masters degree. If he raises the $30,000 he needs he will then pay back his investors at the rate of 7% of his salary for the next 10 years.

Join the Peace Corps

This may sound a bit on the radical side but if you join the Peace Corps and complete a four-year stint you will earn $7,425 (pre-tax) to help with your transition to life back home. Plus, any payments you have on Stafford, Perkins, direct or consolidated loans will be deferred while you’re in the Corps. And if you have Perkins loans, you could be eligible for a 30% to 70% cancellation benefit meaning that a large portion of your loan could be canceled.

How To Reduce Those Incredible Out-of-State College Tuition Fees

couple going over billsIf it seems to you that college just gets more expensive every year, it’s not your imagination. In a 15-state region that includes the state where we live the tuition fees for residents at four-year public schools increased an average of 3.1% in the 2013-2014 school year. However, that’s just chump change when compared to the 50.5% increase that’s occurred since the 2008-2009 academic year and the incredible 123.4% increase since 2003-2004.

And that’s for in-state tuition.

If you or your child is attending an out-of-state college, we don’t have to explain the phrase “those ridiculous out-of-state tuition fees.” You know only to well what this means.

Here are a few examples. Where we live the tuition for an out-of-state student is $33,333 or roughly three times what a resident pays. And it’s just as bad in other states. In-state tuition at Arizona State University is $10,156 while out-of-state residents pay $24,502. If you live in California you would pay $12,872 to attend the University of California-Berkeley but if not, your tuition would be $35,750. The University of Washington charges in-state residents $12,394 while out-of-state residents pay $33,513 … and these numbers are just for one year!

Becoming a resident

Of course, you could beat this by becoming a resident of the state where you are going to school. Unfortunately this is not easy. You will have to prove that you are a permanent resident of the state and not just going to school there. You will need to show that you are financially independent to a degree. This means you may have to turn over statements from your bank, your parents’ tax returns and your W-2 forms. You may also need to register to vote, have an in-state driver’s license and show that you’re paying income taxes to that state. In fact, where we live the law requires that students that are less than 23 years old and doesn’t have a parent living here must prove emancipation or total residential and financial independence for one year to be eligible for in-state tuition.

A few options for relief

There are a few ways to get relief from these onerous costs. One of them is a tuition reciprocity program like the Western Undergraduate Exchange (WUE). This can save a lot of money for residents of certain states. The agreements made under this Exchange allow students to attend schools in other states at either in-state or highly discounted rates, and save thousands of dollars in tuitions bills. Over 150 two-year and four-year schools in 15 western states participate in this program. The way this works is that every member school offers eligible students from all other member states a discount on tuition. This often means charging students no more than 150% of the in-state rate. In the academic year 2013-2014 the savings that could be gotten from this program ranged from $925 to $13,400 per student and averaged $6150. However, be aware that each participating school has its own rules for eligibility. There are ones that automatically give students the WUE rate assuming they meet certain academic thresholds. However, many schools restrict the number of WUE awards each academic year by giving the rate only to a specific number of students or those that major in specific categories. In case you’re wondering which states belong to the WUE they are, Arizona, California, Colorado, Hawaii, Idaho, Montana, Nevada, New Mexico, North Dakota, Oregon, South Dakota, Utah, Washington, Wyoming, and the Commonwealth of the Northern Mariana Islands.

In-state Angels

If you don’t live in any of the states listed above, there is another alternative called In-state Angels. It guarantees that you will either get in-state tuition or you pay the company nothing. The way this works is that In-state Angels develops a customized action plan designed around your specific circumstances and then assigns you a personal In-state Angel. This person will work with you every step of the way to achieve in-state residency. He or she understands the process of getting in-state tuition and will help with a plan that requires you to do as little as possible. The company works for free until it is successful in getting you in-state tuition and then charges a percentage of the money it’s saved you each semester until you graduate. Because In-state Angels makes no money unless it can get you in-state tuition its motivation is to get this for you as quickly as possible. In-state Angels claims that undergraduates have saved up to $18,000 per year net depending on the college even after you subtract its fees.

Is this legal?

Given the fact that it’s illegal to make false claims about residency, which can actually be a crime, this raises the question of legality – is what In-state Angels does legal? According to the company, what it does is 100% legal and we guess you can’t get more legal than that.

Not for everyone

While the savings promised by In-state Angels makes the program sound very tempting, it’s clearly not for everyone. You will have to first submit all your information, You and your parents will have the opportunity to ask questions and get answers. You will ultimately receive a quote, review it and share it with your parents. You would then talk to In-state Angels to determine whether or not you would be a good candidate. If so, you’ll be required to sign the contract and then schedule a time to come into the In-state Angels’ office to get started.

frustrated looking womanIf you can’t qualify for one of these types of programs

In the event you don’t live in one of the states that belongs to the Western Undergraduate Exchange and if you find that you can’t take advantage of the In-state Angels program, what can you do? You’ll probably end up having to borrow a lot of money. There are two ways to do this — through public and private loans. The best deal by far is to get a public loan or a loan from the Department of Education (ED). It offers William D. Ford Direct Loans that are loans where the money comes directly from the federal government. You can learn more about these loans on the Department of Education’s website, http://www.direct.ed.gov/. The way you apply for one is by filling out the Free Application for Federal Student Aid (FAFSA). As a general rule, Direct Loans are usually part of a larger “award package,” which will come from the college or colleges where you applied for admission. This package may also contain other types of financial aid.

The two types

If you are offered a Direct Loan there are two major types – subsidized and unsubsidized. Subsidized loans are based on need. In other words, if you can demonstrate that you have a financial need as determined by federal regulations, you would not be required to pay any interest while in school at least half-time. If you can’t demonstrate a financial need, your loan would be unsubsidized meaning that you would be required to pay interest during all periods you are in school including even periods of grace or deferment.

PLUS loans

There are also PLUS loans. These are unsubsidized loans that would be taken out by your parents and that can also be used by graduate/professional students. These loans are designed to help pay educational expenses up to the cost of attending the school minus all other financial aid. Since the loans are unsubsidized, your parents would be required to pay interest during all periods that you are in school.

The best loan is no loan at all

Of course, the best type of student loan is no loan at all. If you can graduate from college owing nothing you’ll be well ahead of most people. In fact, according to recent statistics about 12 million students borrow money each year to help cover their college costs. As a result they graduate owing an average of more than $28,000 in student loans. So, how could you graduate debt free? The answer will be a combination of what’s in your financial aid package and what your parents will contribute. You will need to add up the aid offered by your college such as a scholarship, work-study grant or some other type of aid and then subtract this from the cost of attending that school. If your parents can make up the difference, you could actually graduate debt free. You should also check with your state to see what grants and scholarships it has available. If one of your parents belongs to a social organization such as the Elks, IOOF or Moose be sure to see if it has a scholarship program for the children of its members. And, finally, many companies have scholarship programs for the children of their employees.

4 College Majors Worth Taking On Student Loans and 5 That Aren’t

family with teenage daughterIf you’re in or headed towards college you may be like 12 million other Americans and have to borrow money to finance your education. You certainly won’t be alone as there are about 37 million student loan borrowers that have outstanding loans today. But before you join this crowd you need to take a hard look at what you’d like in the way of a career after you graduate vs. what would be a good-paying career. The problem is that the two often don’t go hand-in-hand.

It is still true that the average college graduate earns a lot more over his or her lifetime than a high school graduate but this is just an average. The fact is that what you major in will have a huge impact on your lifetime earnings. For that matter it can have a major impact on whether you will even be able to get a job in your field of study. One recent study revealed that 2012 graduates are having a tough time and many have been forced to take jobs for which they are overqualified or even accept low-wage or part-time work – often because they chose the wrong major.

It’s an investment

You might feel passionate about a particular subject but before you decide to major in it, you need to evaluate it as you would any investment. The College Board has reported that the average cost of tuition and fees for the 2013–2014 school year for state residents that went to a public college was $8,893 and $30,094 at private colleges. Multiply that $8,893 by four years and you’d be looking at a total investment of at least $35,572. Given this, plus the fact you that you’ll probably have to borrow all or a good part of that money, it’s important to choose a major that will turn out to be a good investment.

What not to invest in

Just as there are stocks that perform well and generate a good ROI (return-on-investment) and bad stocks that don’t, there are also college majors that won’t return as good an ROI as others.

The five worst

A study was done recently on college majors in terms of which are the “worst” and which are the “best” in terms of a career. The fifth worst is Art History with a starting annual salary of $36,400 and a mid-career salary of just $54,000. Plus its mid-career unemployment rate is 8.3%. No matter how passionate you are about art history, you’d be better off majoring in a related field such as art education with its unemployment rate of just 3.9%.

The fourth worst major in terms of a career is Early Childhood Education. You might feel strongly about working with pre-K and kindergarten kids but the starting salary for this job is only $29,200 and its mid-career salary is $37,600. While it’s believed that the demand for preschool and kindergarten teachers will rise rapidly, you might be better off getting other specialized education training in elementary or middle school teaching.

Third on our list of majors with a poor career outlook is social work. You might be committed to helping people in need but your starting salary will be only $33,100 with a mid-career salary of $45,300. However, the demand for healthcare social workers is expected to increase 33.5% through the year 2020 or more than double the national average. Another field you might explore related to social work is public administration. Majors in this area sport a lower 6.2% mid-career unemployment rate and a higher pay grade as it begins at $41,500 a year.

Fine Arts comes in as the second worst major in terms of a potential career as it has a starting salary of just $31,800 and a mid-career salary of $53,700. Fields related to fine arts where you would do better in terms of a career, especially after you have a few years of experience, is film, video and photographic arts. Majors in these areas start at $37,500.

Number one on our hit parade of bad majors is Human Services and Community Organization. The starting salary for these people is just $32,900 with a mid-career salary of $41,100. And its mid-career unemployment rate is 8.1%. If you are really passionate about human services and community organization, try for the managerial ranks. This has a projected 10-year growth rate of 26.7% and an annual median pay of $59,970. Another related area that would be good is business administration. It has a mid-career unemployment rate of just 5.6%.

Girl with one hand on laptop, the other giving a thumbs upThe top five

If you can think of your major as a steppingstone to a good career, there are five that hold the best potential. The first is Nursing. Its starting salary is $54,100 and its mid-career salary is $70,200. Even more important, nursing’s mid-career unemployment rate is just 2.3%. If the idea of becoming a nurse interests you, you should take many science courses including chemistry, microbiology, nutrition and anatomy. And you will have to pass the National Council Licensure examination to get your license.

Fourth best major according to a recent study is Information Systems Management. The starting salary in this career is $51,600 and its mid-career salary is $88,600. If you get a major in Information Systems Management this can lead to many different kinds of computer related careers but the best seems to be information systems manager. This is the highest paid of all computer specialists with a median salary of $120,950 a year.

The third best major is Civil Engineering. The starting salary for civil engineers is $53,800 and its mid-career salary is $88,800. Civil engineering’s mid-career unemployment rate is just 4.0%. If the idea of majoring in civil engineering appeals to you, be sure to take courses in statics, fluid mechanics, structural analysis and design and thermodynamics.

Computer science is the second best choice for a major. Its starting salary is $58,400 with a mid-career salary of $100,000. The mid-career unemployment rate in computer science is just 4.7%. In addition to having an estimated above-average growth in demand for computer scientists, the median pay for this job is $102,190 year.

Here comes a surprise. The top rated major for career growth is Pharmacy and Pharmaceutical Science. The starting salary in this field is $42,100 and the mid-career salary is an excellent $120,000. Even better, the mid-career unemployment rate in Pharmacy and Pharmaceutical Sciences is just 2.5%. If you would like to become a pharmacist, you’ll need a Doctor of Pharmacy degree, which you can earn with or without a bachelor’s degree in pharmacy. If the idea of working as a pharmacist behind the counter in a CVS store doesn’t appeal to you, a bachelors in pharmacy can also get you work as a medical scientist doing research to design and develop drugs. The median annual pay for medical scientists is $76,980. So, the few years of graduate training you would have to undergo to become a medical scientist could make this worthwhile.

Finally, here is a short video courtesy of National Debt Relief with more information about hot careers of the future.


The net/net

The long and short of it is that you may decide to major in something you know won’t lead to a great career in terms of money but you’re willing to accept that because you’re passionate about the work. If so, go for it. Being happy in what you do for 40 or 50 years can be more important than how much you would earn. Plus, you can always change your mind once you get out in the work world and try something entirely different as do many people.

Why A Private Student Loan Can Be A Really Bad Option

Surviving Debt Despite UnemploymentThere are basically two types of student loans – private and federal.

There is currently more than $1 trillion outstanding in federal loan debt and about $150 billion in private student loans. This alone should tell you that federal loans are a better choice.

But unfortunately some parents and their children don’t understand the differences between the two and this can lead to trouble in the future.

There may be some reason why you would need to get a private student loan but before you or your parents sign on the dotted line it’s important to know what makes them different from federal loans.

They may require you start repayment immediately

There are subsidized and unsubsidized federal loans. For example, if you come from a low-income family, you might qualify for a subsidized Stafford or Perkins loan. The major benefit of these loans is that you are not required to pay interest on them while you’re still in school. Instead, the government pays the interest for you (hence the term subsidized). Plus, with federal loans you have a grace period after you graduate of six months before you’re required to start repaying the loan (loans).

But if you take out a private loan you may have to begin repaying it immediately and even if you don’t there will be no grace period after graduation.

Higher interest rate

If you’re just starting college there are only “direct” loans available. They are called direct because the money comes directly from the US Department of Education (ED). These loans have fixed interest rates meaning that once you take out the loan your interest will never change. On the other hand, the interest rates on private student loans can be quite high and can vary. Today’s direct federal loans’ fixed interest rate is 4.66% if the funds are distributed on or after July 1, 2014 and before July 1, 2015. In comparison, the best private student loans have interest rates tied to the 1-month LIBOR (IntercontinentalExchange London Interbank Offered Rate), so their interest rates can go up or down every month.

You’ll need a credit check

Direct federal student loans don’t require a credit check (except for PLUS loans). However, most private student loans do require one. This means you would need to have an established credit history, which, as an 18- or 19-year old, you probably don’t have one and will need a co-signer. In most cases that co-signer would be your parent, which would put her or him on the hook to repay the loan if you defaulted on it.

Not tax deductible

The interest you pay on federal direct loans is usually tax-deductible whereas the interest on most private student loans isn’t. For example if you have a “qualified” student loan you may be able to reduce your income subject to taxation by up to $2500 even if you don’t itemize your deductions. This could be a big help when you’re just starting out in life after school.

Won’t qualify for a Direct Consolidation Loan

Most federal student loans can be consolidated with a Direct Consolidation loan. This can be helpful if you graduate owing a lot on your federal loans and are having a hard time making your monthly payments. With a Direct Consolidation loan you would have a lower (maybe much lower) monthly payment and more time to repay it. However, private student loans don’t qualify for a Direct Consolidation loan. If you wanted to consolidate them you would need to get a private consolidation loan, which would probably have a much higher interest rate.

Offer fewer payment options

Federal student loans offer numerous repayment options. There is 10-Year Standard Repayment, Extended Repayment, Graduated Repayment and four different types of Income–based Repayment. Private student loans offer fewer options. As an example of this, if you were to get your loan from Wells Fargo, the only repayment options would be how you make your payments. The loan giant Sallie Mae does offer three genuine repayment options – deferred repayment where you make no payments while you’re in school; fixed repayment where you pay just $25 a month while in school; and interest-free repayment which is when you pay only interest on the loan while still in school.

Don’t include forgiveness

Many federal student loans come with what’s called “forgiveness.” This is where if you make all of your payments and on time for 20 years, your remaining balance(s) would be forgiven or erased. It gets even better if you qualify for Public Service Loan Forgiveness as you could get any remaining balances eliminated after just 10 years. Private student loans, on the other hand, rarely offer forgiveness.

Could be a second choice

Most students will do best with a federal student loan as they offer a better deal. However, you might have to look at a private student loan to fill in a gap in your financing. But before you do anything at all, be sure to fill out the Free Application for Federal Student Aid (FAFSA). It will be submitted to the Department of Education and to any schools where you applied for admission. Those schools will ultimately send you a financial aid letter spelling out what you can expect to receive in scholarships, grants and so forth. Once you receive that letter or letter you will know whether or not you will need a private loan.

couple with a financial expertShop around

Back in the 1960s, the singing group The Miracles had a song titled Shop Around. Included in its lyrics were, ” My mama told me/’you better shop around”. This is definitely the case when it comes to private student loans. In the case of a federal student loan, the government basically tells you how much you can borrow, sets the terms for the different types of loans and basically says take it or leave it. This is not the case with private lenders. You should shop as many different lenders as you like but at least a few. That way, you should be able to get the best terms and rates given your particular needs.

When you’re shopping around, don’t choose a loan just on its rate though this is important. Be sure to check out the other terms that could be helpful now or in the future. For instance, if you choose a loan with the repayment option of making interest only payments while you’re in school, you won’t have to worry about taking on those bigger student loan payments right away. You should also check to see if the loan offers flexible payment options after college some, such as Sallie Mae does.

Understand your payments

If you take out a federal student loan it’s important that you know what you’ll eventually be paying on it. But this can be even more important if you choose a private student loan. The reason for this is that with a federal loan with 10-Year Standard Repayment you could plan on paying, say, $150 a month once you graduated. If you then can’t find a job or end up with a lower paying job, you could switch to an income-based repayment plan or an extended plan with lower payments. On the other hand, if you end up in the same place with a private loan, you would still be on the hook for that $150 a month – even if you don’t have a job. You should be doubly sure that you would be in a position to make the minimum payments on your private student loan, even if your life doesn’t go as you had planned.

More shopping around

If you’re are thinking about taking out a private loan to cover, say, a $10,000 gap in funding from the school you’ve chosen, you might be better off shopping around for a more affordable college. Many students now choose to go to a two-year or community college for their first couple of years and then transfer to a more prestigious school. That way they sort of get the best of both possible worlds. They save a lot of money on tuition, which reduces their student loan debt substantially, yet they still graduate with a “prestigious” degree.

The Pros And Cons Of Pay As You Earn For Repaying Student Loans

student holding a past due envelopIf you graduated within the past few years, you probably owe on student loans. In fact, if you’re average you owe more than $25,000. And you’re probably on what’s called the 10-Year Standard Repayment program. This means you have fixed monthly payments at a fixed interest rate and a 10-year term – or 10 years to repay those loans. But there are other repayment plans available that you might not be aware of. One is called Pay As You Earn. When it was originally created payments under this program were capped at 15% of your discretionary income.

Did you know about this and would  you be  eligible?

Many recent graduates aren’t even aware that there are other repayment options such as Pay As You Learn. The upside of this program is that if you qualify your monthly payments would be much less then under 10-Year Standard Repayment and probably lower than those of any of the other available repayment plans. This raises the question of would you be eligible? The answer is that:

  • You must be a new borrower as of October 1, 2007
  • Have gotten a Direct Loan Disbursement on or after October 1, 2011 and
  • Must have a Partial Financial Hardship

In addition to these requirements not all loans qualify only …

  • Direct Consolidation Loans
  • Direct PLUS Loans (does not include Direct PLUS Loans made to parents)
  • Direct Stafford Loans
  • Perkins and LDS Loans (only if part of a Direct Consolidation)

How Partial Financial Hardship is calculated

The way that Partial Financial Hardship is calculated is that it exists when the annual amount due on all of your eligible loans, as calculated under 10-Year Standard Repayment, exceeds all of your discretionary income.

What’s discretionary income?

To calculate your discretionary income you would need to take your monthly Adjusted Gross income and then subtract 150% of the poverty line. If your adjusted gross income were $4280 you would then subtract 150% of the poverty line or $1480. This would yield a discretionary income of $2800. Multiply this by 10% and your monthly Pay As You Earn payment would be $280.

Pres. Obama’s recent executive order

As noted above, when Pay As You Earn was originally created payments were capped at 15% of your discretionary income. However, Pres. Obama’s recent executive order changed this to 10%. In addition, he ordered that some other changes be made so that more people would qualify for Pay As You Earn.

The pros of Pay As You Earn

This repayment program can definitely help low-income borrowers. Its primary benefit is that if you qualify you would have lower monthly payments. You would also have more time to pay off the loan and after 20 years your remaining balances would be forgiven. (Note: Pay As You Earn qualifies under Public Service Loan Forgiveness meaning that if you qualify you could earn forgiveness after just 10 years.)

Under Pay As You Earn there is also an interest payment benefit. In the event your monthly payment doesn’t cover the interest that accumulates on your loans each month, the federal government will pay the difference for as many as three consecutive years on:

  • Direct Subsidized Loans
  • The subsidized portion of any Direct Consolidation loans

In addition, capitalization of your interest would be postponed until a Partial Financial Hardship no longer exists and the amount of your capitalized interest would be capped at 10% of your original debt.

The cons of Pay As You Earn

Unfortunately, there are also some cons to this program. For one thing, if you take more time to pay off your loans, you will pay more interest. You must submit documentation proving your income annually so that your payments might go up or down every year. As noted above, only Direct Loans are eligible. And if you do earn loan forgiveness after 10 or 20 years, the money that is forgiven will probably be taxed and at your normal tax rate.

A bigger problemGraduation cap with money

Some experts believe that while repayment programs such as Pay As You Earn can make it easier for people to repay their student loans that they are basically just bandages and do nothing about the real problem, which is the ever increasing cost of college.

According to the Labor Department the price index for college tuition grew by almost 80% between August 2003 and August 2013. There are several reasons for this. First, most states have cut back on financial aid to their schools. In fact, states spent $2353 or 28% less per student on higher education in 2013 than they did in 2008, Every state but North Dakota and Wyoming are spending less per student on higher education than they did prior to the Great Recession. And in many states those cuts have been severe. Eleven states cut their funding by more than 1/3 per student and two of them (Arizona and New Hampshire) cut their spending on higher education per student in half.

Second, many schools have spent lavishly on new athletic facilities, dormitories that resemble upscale hotels, other new buildings and on big name professors so they can become “elite” colleges and universities.

What to do if you’re just starting out in school

If you will be starting college this or next fall, the best student loan is no loan at all. If you and your parents can figure out a way to pay for your education without borrowing money so that you could start life after college without a cloud of debt hanging over you this is the best option by far. However, if you’re like most students, you will have to borrow money to finance your schooling. So what should you do?

First, always be on the lookout for “free” money in the form of grants, scholarships, work-study options and work grants before taking out any student loans. Depending on your athleticism or field of study you might qualify for a sports or academic scholarship at your school. There are also many scholarships available from other sources such as your state and community groups. As an example of this where we live there is a scholarship for boys and girls who worked as golf caddies and another underwritten by a local foundation that pays for a full four years of college including tuition, room and board and even miscellaneous expenses.

Second, once you’ve gotten a loan and are in school be sure to meet with a financial aid counselor so you will understand your loan and how you will be expected to repay it. Third, create a budget to help keep your spending under control so that you won’t have to borrow any more than is absolutely necessary.

Finally, if possible get ahead on your payments while you’re still in school. If you can make interest-only payments on any unsubsidized student loans this will lower your overall balance and might even shorten the terms of your loan — or the number of years required to repay it.

College can be some of the best years of your life. And most experts believe that its cost is still a good investment as studies have shown that college graduates earn 84% more than high school graduates over the course of their lifetimes. This is up from 75% in 1999. In addition, Georgetown University researchers estimate that by the year 2018 a full 63% of American jobs will require some kind of postsecondary education or training. This means that if you don’t have a college degree or some type of specialized training you could be shut out of 63% of all available jobs.

What Crazy Thing Would You Do To Pay Off Your Student Loans?

Video thumbnail for youtube video 6 Tips For Simplifying Your Financial LifeThe statistics are overwhelming and appalling. Students graduated from college this year owing an average of more than $29,000. Student loan debt now totals more than $1 trillion. Sixty percent of recent graduates have been unable to find jobs in their fields. Graduates age 24 and younger face a very uncertain job future and many experts say it’s only going to get worse – even though employment numbers continue to improve.

Will you be 50 and still paying on your student loans?

Here are more scary statistics. There are 10.6 million people ages 30 to 39 that are still paying on their student loans, 5.7 million ages 40 to 49 and worst of all, 4.6 million people age 50 to 59 that still owe on their student loans.

How do you feel about your student loan debts?

How would you describe how you feel about your student loan debts? Some people say they feel as if they were stuck in a trap with no possibilities of escape. Others say they feel as if they were sinking in quicksand or living under a big, black cloud. Then there are those who were so tired of paying on their student loan debts that they found some wild and crazy ways to quickly repay them.

Canoed across Ontario

One guy will call Stan was so desperate to repay his student loans that he moved to Alaska and took a job as a tour guide. Over the next three years, he took some other odd jobs. For example, he once canoed across Ontario, Canada transporting “voyageurs” (people who lived and dressed as if they were fur traders in the 18th century). Stan eventually decided to go back to school but he was so determined to not take on any new debt that he not only slept in a 1994 Ford Van on the Duke Campus he even cooked his meals in it.

Became a lab rat

Here’s an idea you may not want to emulate. Another recent grad, will call him Robert, volunteered to become a human lab rat by taking part in paid medical studies. In one of the studies, Robert spent two weeks in a room with a bunch of other people. He was given arthritis pills every day and provided urine and blood samples every hour so researchers could learn how effectively the medication was being absorbed into his bloodstream. In another study he received breast cancer medication via injections so that researchers could determine how his heart reacted to it. While the drug companies doing the studies give him insurance to cover any complications caused by the drugs, Robert noted that being a human lab rat was still scary.

Got a “sugar daddy”

If you’re like me you’ve probably never heard of the website SeekingArrangement.com. It’s where young women can find “sugar daddies” or rich, older men willing to pay for their companionship. One young woman’s sugar daddy paid her full tuition of $1500 a month at the California school she attended. Believe it or not this is on the low end compared to what most college women on the site earn. There are 350,000 “sugar babies” on the SeekingArrangement site about 41% of which are college students. According to SeekingArrangement, these young women average $4200 a month – not small change by any stretch of the imagination.

Mystery shopped

Many people have earned extra money to pay off their student loans faster by mystery shopping. Despite what you might think, there really are legitimate mystery shopper jobs. If you sign up with one of the companies that offer these jobs your initial assignments will probably not pay very well – between $6 and $15 per assignment. But if you stick with the program, you’ll eventually get better paying assignments. For example, one mystery shopper was assigned to opening night at a local racetrack. He not only received general admission for two, valet parking and money for a couple of bets but also a buffet dinner and two alcoholic beverages and was paid $60 for his time.

You don’t want to be a lab rat or a sugar baby?

If you’re not interested in finding some crazy way to pay off your student loans there are alternative repayment plans that could help. If you’re typical you’re probably on the 10-Year Standard Repayment Plan. But there are other repayment plans available that would yield lower monthly payments. Pres. Obama recently signed an executive order making more people eligible for the Pay As You Earn repayment program. If you qualify for this program your monthly payments would be capped at 10% of your discretionary income. However, to qualify you would need to show that you had a “partial financial hardship.” If you are unable to do this there are still other repayment options including Income–Based Repayment, Extended Repayment and Graduated Repayment. Each of these programs has different eligibility requirements and includes different types of federal loans. You can learn what these are by clicking here.

To consolidate or not to consolidate?Man having financial problems

If you, like many Americans, have multiple types of federal loans there is yet another option called a Direct Consolidation loan. The benefits of consolidating your loans include the fact that you would have only one payment to make a month and you would have a lower monthly payment because you would have 30 years to repay the loan. Of course, if you were to choose this option you would make many more payments and would end up paying a lot more interest. In addition, you could lose the benefits that came with your original loans such as deferment and those repayment options. Also, not all federal loans are eligible for consolidation. Here are the ones that are:

• Direct Unsubsidized Loans
• Direct Subsidized Loans
• Unsubsidized Federal Stafford Loans
• Subsidized Federal Stafford Loans
• PLUS loans from the Federal Family Education Loan (FFEL) Program
• Direct PLUS Loans
• Supplemental
• Federal Perkins Loans
• Loans for Students (SLS)
• Federal Nursing Loans
• Health Education Assistance Loans
• Some existing consolidation loans

Whatever you do don’t default

The sad fact is that about 15% of people with student loans go into default within the first three years. Whatever you do, don’t let this happen. You are literally in default the day after you miss a payment. However, this won’t be reported to the three credit bureaus until you’ve been in default for 90 days. When this happens your credit score will take a serious hit. Plus, your account could actually be turned over to a debt collector and trust us, you don’t want this to happen. Student loan debt collectors can literally make your life a living hell. They can garnish everything from your tax returns to Social Security payments and from wages to disability checks. If you default on a loan you can also be barred from the military, lose professional licenses and suffer other serious consequences. And if any of your loans do go into default you will be hit with extra fees and interest charges and will end up owing even more.

Send Sen. Tom Harkins a thank you note?

You may not be aware of this but it’s all but impossible to get student loan debts discharged through bankruptcy. If you owe $25,000 on student loans, you owe $25,000 on student loans and there’s not much you can do except repay the money However, Sen. Tom Harkins recently introduced a bill that would allow people who have student loans from private lenders to get them discharged through bankruptcy. This is only a small percentage of those who have student loans – like 10% to 15%. And the bill is unlikely to get passed until after the midterm elections. However, if you have a boatload of private loan debt, there may be help on the way.

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