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Who’s Really Responsible For the Student Debt Crisis?

graduate chained to student debtWe hear more and more about the student debt crisis. A few politicians argue that there is no student debt crisis though most others say there is. Whether this is a crisis or not, one thing can’t be argued. There is now more than $1 trillion outstanding in student debt. That makes student debt larger even than credit card debt. And it’s not going to get any better in the future, as the graduating class of 2013 owed an average of nearly $30,000

The real problem

The people that say there is not a student debt crisis point to the fact that most people will repay their debts though it may take them 10 to 20 years to do it. The real problem, these people believe is the escalating rate of default on student loans.

The US Department of Education recently released a report that the national two-year cohort default rate on student loans increased from 9.1% for FY 2010 to 10% for FY 2011 and that the three-year default rate increased from 13.4% in FY 2009 to 14.7% for FY 2110. Even worse, the average default per borrower was $16,697 and the total of outstanding loans in default as of the third quarter of this year is $95.9 billion. This, some experts contend, is the true crisis in that this is money that likely will never be repaid and it’s us, the taxpayers, that are on the hook for it.

Who’s to blame?

The easiest people to blame for these problems are, of course, the students. After all they are the ones that took out the loans. However, it’s not quite that simple. We here in the US have basically adopted the idea that everyone should have a college education. As a result, the vast majority of our high schools are dedicated to getting their students prepared for a college education whether they should have one or not. Forty-six percent of those that start college dropout before graduating and one of .the major reasons for this is undoubtedly the fact many of them shouldn’t have been in college in the first place.

Another part of the problem is that most 18-year-olds are not prepared to choose the right majors. Many choose majors that align with their passions such as film and video arts, pre-school education, psychology, anthropology, archaeology, fine arts and music that might be fun and rewarding but that don’t lead to well-paying careers. For that matter, many of the young people who choose these types of careers won’t even be able to find jobs. In fact, as of March 2012, 60% of college graduates were unable to find work in their fields of study.

The colleges and universities

Colleges and universities are also at least partially to blame for the student debt problem, especially the for-profit schools. They are in a competitive business and it’s clear that some of them have enticed students to take out loans they really couldn’t afford. As an example of this, students that borrow similar amounts to pay for their schooling end up defaulting at a much higher rate at for-profit institutions. In fact, 26% of for-profit students that took out loans between $5000 in $10,000 ended up defaulting versus the 10% of students at community colleges that defaulted and the 7% at four-year schools. Private schools are not immune to this either. They, too, must compete for students. The more aid they can offer prospective students, the more they are will attract. This puts pressure on them to accept “marginal” students and for their financial aid offices to promote federal student loans as a way to pay for their educations.

The federal government

It’s also clear that the federal government itself has played a part in creating the student debt crisis. It has not only helped fuel the idea that everyone should have a college education, it’s also made it very easy to get student loans. Every year high school seniors are encouraged by their guidance counselors to fill out and submit the Free Application for Federal Student Aid (FAFSA). This form not only goes to the Department of Education (Ed) it goes to every school for which a student has applied. The process then becomes automatic and sometime in late spring each student receives a notice of the federal financial aid it will receive based on its family’s financial situation. In most cases a large part of this aid will be in the form of federal student loans, which the average family will have a very difficult time not taking.

Not even a chapter 7 bankruptcy can help

If you were to run up $30,000 in credit card and medical debts you would be able to get them discharged through a chapter 7 bankruptcy. In fact, this form of bankruptcy can get almost all unsecured debts discharged except for alimony, spousal support, child support and… student loan debts. That’s right. Our Congress rewrote the law several years ago making student debts “bankruptcy proof.” If you have $30,000 in student loan debts, you have only two choices – to default on the loans or to repay them. And defaulting on federal student loans is a very bad idea. Student loan debt collectors have powers that conventional debt collectors can only envy. They can garnish your wages without going to court, seize your income tax refunds or a part of your federal benefits, deny you eligibility for new loans or grants – or even put liens on your property and bank accounts.

What could helpYes, debt negotiation works

While you can’t get student loan debts discharged through a chapter 7 bankruptcy, the federal government does offer the equivalent of a chapter 13 bankruptcy. If you’re not familiar with this type of bankruptcy its purpose is one of reorganization – to give you time to reorganize your finances and pay off your debtors. The federal government’s equivalent of this are its increasingly liberal loan-modification plans. For example, one of these programs is called Pay As You Earn. You may have read about this program earlier this year when Pres. Obama signed an executive order making as many as 1.4 million more borrowers eligible. This plan permits borrowers who are financially distressed to cap monthly payments at just 10% of their discretionary income and gives them as many as 20 years to repay their loans. Unfortunately, many people who would be eligible for this program are unaware that it’s available to them. In addition, some are not eligible because of technicalities in the program such as past-due payments or loans that started into repayment mode too many years ago. In addition, the companies that service student loans have been less than forthright about discussing these options with their customers. And if you have private loans they are precluded from this program.

Determining your eligibility

If you’re carrying a load of federal student debt, don’t be turned off by the phrase “financially distressed.” What this really amounts to is that your payments will be based on 150% of the federal poverty guideline and your family size. In addition, you must have gotten your first federal student loan after October 1, 2007 and you need to have gotten a Direct Loan or Direct Consolidation Loan after October 1, 2011. Note: If you’re wondering whether or not you would qualify for this program, the government has a Pay-As-You-Earn calculator you could use to determine your eligibility.

If you are not eligible

If you determine you are not eligible for Pay As You Earn, there are two other income-driven programs available that could make it easier for you to repay your student loans. One of these, Income-based Repayment, would cap your monthly payments at 15% of your discretionary income and Income-contingent Repayment caps it at 20%. There is more information on these income-driven repayment programs available on the Federal Student Aid website.

It doesn’t have to be a personal crisis

While student debt may or may not be a crisis, it doesn’t have to be a crisis for you. As you have read, there are increasingly liberal loan modification programs available that could make it much easier for you to manage and pay off those burdensome student loans.

What Those Overly Aggressive Student Debt Collectors Won’t Tell You

Debt collector hollering into micStudent loan debt has become almost out of control as it now totals more than $1 trillion. This makes this debt larger than even America’s total credit card debt. Depending on which source you want to believe students recently graduated from college owing an average of either $24,000 or $33,000. It’s not uncommon for people in their 40s to still be paying on their student loans. And one recent study revealed that 6.8 million Americans have defaulted on their student loans to the tune of $14,103,000.

It’s easy to default

One of the underlying reasons why so many people have defaulted on their student loans is that it’s very easy to do this. You’re considered to be in default when you miss a payment by just one day. However, your student loan servicer probably won’t report you in default until 90 days after you first missed a payment and it likely will be nine months of no payments before you start hearing from a collector.

It can get ugly

Federal student debt collectors have an enormous amount of power. They are entitled by law to garnish your wages without taking you to court, seize your tax refunds or even take up to 15% of certain types of Social Security payments. Plus, unlike other types of debts, there is no time limit on student loan debts. Collectors could literally hound you forever.

They can be too aggressive

The National Consumer Law Center has said it feels the Department of Education is not doing what it should to crack down on debt collection agencies that are too aggressive about seeking payments. The problem is, of course, money. How much these collectors earn correlates strongly with the amount of money they are able to collect from people who have defaulted on their student loans. And here’s the important part, they don’t always tell people about the options that are available to them.

You could have your loan discharged

If you defaulted on one or more of your federal student loans and are being harassed, you still do have options although the debt collector may not make this clear to you. You could actually get your federal student loans canceled if you are totally disabled. It’s also possible to get them discharged or cancelled if …

  • You withdrew from school, but the school didn’t pay a refund that it owed you or the U.S. Department of Education
  • Your school falsely certified that you were eligible to receive a loan based on your ability to benefit from its training, and you did not meet the ability
  • You were victimized by identity theft
  • The school signed your name on an application or promissory note without your authorization or endorsed your loan check or signed your authorization for electronic funds transfer without your knowledge
  • The school certified that you were eligible for the loan but because of a physical or mental condition, age, criminal record, or another reason you are excluded from employment in the job for which you were being trained

Loan rehabilitation

Assuming you can’t qualify for loan discharge, you could rehabilitate one or more of your federal student loans. However, this applies only to a direct loan or FFEL program loan The way this works is that both you and the Department of Education agree on a practical and affordable repayment program. Your loan will be rehabilitated after you’ve voluntarily made the agreed-upon payments on time and the loan has been purchased by a lender. Note: Outstanding collection costs may be added to the principal balance.

Once you have had your loan rehabilitated, it’s possible you can regain eligibility for the benefits that were available on your loan before you defaulted. This can include forbearance, deferment, a choice of repayment plans, and loan forgiveness. In addition, you will have removed:

  • The default status that was reported to the national credit bureaus.
  • The default status of your defaulted loan
  • Any garnishment of your wages
  • Any of your income tax refund that had been withheld by the Internal Revenue Service.

How To Make Debt Consolidation Loan EffectiveLoan consolidation

Another option if you’ve defaulted on a federal student loan is loan consolidation. This is where you pay off any outstanding balances you have on your federal loans and end up with a new one that will have a fixed interest rate. You could choose to include a defaulted federal student loan in the new loan but only after you’ve made arrangements with the Department of Education and have made several voluntary payments. This is usually at least three consecutive, voluntary and on-time payments before you are allowed to consolidate the defaulted loan into the new direct loan.

The types of loans that can be consolidated

Almost every type of federal loan can be consolidated but not private loans. Some of the more popular types of federal student loans eligible for consolidation include Direct Subsidized and Direct Unsubsidized loans, Subsidized and Unsubsidized Federal Stafford loans, Direct PLUS Loans and Federal Perkins Loans.

Eligibilty for a Direct Consolidation Loan

As you have read, almost every type of federal student loan can be consolidated. However, there are some eligibility requirements you should be aware of. As noted above, you must have at least one Direct or FFEL Program loan and it must be in a grace period or in repayment. You must make satisfactory repayment arrangements with your loan servicer on the defaulted loan before it can be consolidated. And you must agree to repay the new Direct Consolidation Loan under one of the following

  • Income-based Repayment
  • Pay As You Earn Repayment t
  • Income-contingent Repayment

The interest rate on a Direct Consolidation Loan

These loans have a fixed interest rate. The way it is calculated is by using the weighted average of your existing loans rounded up to the nearest 1/8 of 1%. The easiest way to understand this without doing all the math is that the interest rate on your Direct Consolidation Loan will be higher than the loan with the lowest interest rate you are currently paying but lower than the loan with the highest interest rate.

The options for repaying a Direct Consolidation Loan

One of the best things about choosing to consolidate your federal student loans into a Direct Consolidation Loan is that it offers several options for repayment as indicated above. For example, you could choose Income-based Repayment where your monthly payments would be capped at 15% of your disposable income. Pay As You Earn Repayment was a hot topic recently when Pres. Obama signed an executive order making approximately 1.4 million more people eligible for this program. It’s even better than Income-based Repayment as if you qualify you would see your monthly payments capped at just 10% of your disposable income. How do you calculate disposable income? The short explanation is that it’s your adjusted gross income minus 150% of the federal poverty level times 10 percent.

Income-contingent Repayment

If you are unable to qualify for either Pay As You Earn or Income-based Repayment there is Income-contingent Repayment. It’s designed for people with lower salaries such as those who work in public service. It helps by pegging monthly payments to your family size, income and the total amount of money you borrowed. Its monthly payment is adjusted annually based on changes in the size of your family and your annual income – just as are Income-based and Pay As View Earn Repayment.

Three Facts About Student Loan Debt That May Totally Surprise You

grandma looking shockedStudent loans have become a very hot topic even in politics. We read recently that there even being discussed in the Iowa Senate race where one candidate wants to increase the amount of money available in Pell Grants while the other wants to abolish the Department of Education and get the government totally out of the student loan business. It’s even been debated as to whether or not the student loan crisis is really a crisis though one thing is clear – outstanding student loans now total more than $1 trillion. This makes them bigger than even US credit card debt. But regardless of which side of the debate you come down on there are three surprising facts you need to know about student loans and student loan debt.

1. Your Social Security payments can be garnished

Are you aware of the fact that retirement isn’t going to get you out of repaying student loan debts? In fact, it doesn’t matter whether you’re disabled or retired, if you default on a student loan you can have 15% of your checks garnished. And this is an increasingly common problem. In fact, one leading non-profit group worked this year with more than 1000 Americans that had their Social Security payments garnished to repay their student loans. And for retirees any cuts in their social security benefits can really hurt.

Making matters even worse is the fact that these may have been small student loan debts to begin with but have grown much larger over the years because of compounding interest rates. The amounts taken out of these checks aren’t small either. Social Security monthly checks average $1200 and the amount taken out is typically $180. This can have a serious effect on a retiree’s food, shelter and medication.

Most of these loans are parent PLUS loans owed by a sizable number of boomers and others that were forced to retire earlier than they had anticipated because of the economic downturn.

Bankruptcy can’t help

While you can get unsecured debts such as credit card debts and medical debts discharged via a chapter 7 bankruptcy, the same is not true for student loan debts. Congress changed the law a few years ago making it very difficult to get student debts discharged through bankruptcy. This is only possible if you can convince a bankruptcy judge that you have a very serious financial hardship. In addition, most of these loans cannot be refinanced and are locked in at interest rates of 7% or even more – despite the fact that rates have fallen to below 3% in recent years.

If you have outstanding student loans

If you still have student debt you need to make sure the loan or loans don’t go into default. There are a number of repayment options available that would allow you to lower your monthly payments. If you have been impacted by student loans, the first thing you should do is contact your loan servicer to work out a more affordable repayment plan. In the event this doesn’t work, the US Department of Education has an ombudsman you could contact..

2. Student loan debt can affect your credit score – positively

Your credit score is based on five different components in your credit reports. These include payment history, age of credit, debt levels and get diversity. So if you have a well-managed student loan this can actually have a good impact on your credit scores – assuming you handle them correctly.

The Credit Card Accountability Responsibility and Disclosure Act (CARD) of 2009 specified that young people need to prove the financial ability to repay their debts to get a credit card. If you have student loans and manage them correctly this helps establish a credit history, which can help you access revolving credit, which usually means a credit card. If you have credit cards, a student loan can improve the diversity of your credit profiles, which will also help your credit score.

Finding the best deal

Whenever you apply for a new student loan it results in what’s called a hard inquiry, which can ding your credit score by a few points. Do this often enough and you could see your credit score lowered by 10 or even 20 points. However, student loan inquiries are “de-duplicated” on credit reports just as with mortgages and auto loans. This means you can shop for the best deal among private lenders without hurting your credit score. If you haven’t seen how your student loans are impacting your credit, you can get a free copy of your credit reports via www.annualcreditreport.com or individually from each of the three major credit bureaus. You can also get your credit score free from the three credit bureaus or from independent sites such as CreditKarma.com and CreditSesame.com also offer free credit scores.

Make your payments on time

If you make your student loan payments on time this can strengthen your payment history. On the other had, late payments will damage your credit scores. As you might guess, your goal should be to have a sterling credit history and this should provide you with the necessary motivation to avoid making any late payments or, worse yet defaulting on a loan.

The amount you owe doesn’t matter much

This may seem odd but the amount that you owe on student loans has very little of an impact on your credit score. What really matters is your payment history, which is why it’s critical that you take on a manageable amount of debt and then take advantage of loan repayment assistance when available and necessary.

3. You can get student loans forgivenwoman taking money out of wallet

In the event you have a massive amount of student loan debt it’s possible to get some of it forgiven by doing good. If you volunteer or choose to work in a service-oriented professional job in a lower income community you could see a huge chunk of your federal student loans cancel. In fact, you could knock off thousands and thousands of dollars after just a few years of service. The fact is that programs for loan forgiveness are available to everyone from the Piece Core and America corps volunteers to teachers, nurses, doctors and other young professionals that serve in communities that are in need. You may have to take home lower salaries but you could get some serious help in repaying your student loans.

National Health Service Corps

If you are a nurse practitioner, Dr., dentist, physician assistant, dental hygienist or a mental health professional you could get a big chunk of your educational debt wiped out by choosing to work for two years in an underserved community. In fact, you could get up to $25,000 in student loans repaid each year in exchange for two years of full-time employment. If you choose to serve beyond the two-year contract, you can earn even further loan repayment. And if you are a healthcare professional with really heavy student debt, you could pay down as much as $50,000 in just two years and as much as $85,000 of student loan debt in three years.

Nursing Education Loan Repayment

If you are a registered nurse and agree to work full time (32 hours or more each week) for two years in a non-profit facility that’s in need of nurses, this program repays up to 60% of your student loans. If you choose to work a third-year, you would have the opportunity to repay an extra 25% of your student loans. Just think about this. If you can repay 85% of your student loan debts after just three years, that’s a pretty sweet deal.

Teacher loan forgiveness

When you’re a teacher and make a five-year commitment to teach in a school that’s in need you will get some help with your student loans. However, the best rewards are reserved for those who teach science, math and special education. In fact, if you teach science or math in a low-income high school, you could get as much as $17,500 of your federal Stafford loans canceled. However, again you will need to teach for five years in a designated low-income school.

If you are a special education teacher that works in a designated low-income school for five years you will be eligible for as much as $17,500 in loan forgiveness for your federal Stafford loans. And other teachers who work full time in a designated low-income elementary or high school for five years might be able to get as much as $5000 of your federal Stafford loans canceled.

Public service loan forgiveness

In 2007 Congress passed the College Cost Reduction and Access Act that created a new student loan forgiveness program for public service employees. This program does require something of a commitment as you must work for 10 years as a public service professional. However, the payoff is big – you get all remaining federal direct loans canceled. The public service jobs eligible for this plan include everything from public health and safety to emergency management and from social of law enforcement. To be eligible you will need to have made 10 years of consecutive, on-time repayments of your federal direct loans. This includes Federal direc and then get your remaining loan debt canceled after 10 years of service. So one good strategy would be to consolidate your federal Stafford loans into a new direct consolidation loan and get your remaining loan debt canceled after 10 years of service.

Volunteer program loan forgiveness

If you volunteer for the Peace Corps you can get as much as 70% of your debt canceled after four years of service. If four years seems like too much of a stretch, you could complete a two-year term, which would wipe out 30% of your Perkins loans’ balance. Plus, your payments will be deferred while you are in the Peace Corps. If you volunteer for AmeriCorps you will receive education awards of $4725 for each year you serve. These awards can be used to pay down student loans or for future educational expenses. Even better, some 78 colleges and universities will match AmeriCorps education awards for their students. This means and if you continue your education after you complete your AmeriCorps service, you could see as much as $9450 available to pay your tuition.

Headed For College? Here’s What You Need To Do Beginning Your Sophomore Year Of High School

woman looking at billsYes, you read that right. If you believe you’ll be going to college there are things you should do beginning your sophomore or at the very least your junior year of high school. We know this sounds a bit early but as the saying goes, “the early bird gets the worm.” If you want to get in and then out of college with the least amount of student loan debt, you need to start by beginning a search for scholarships. There are some very good databases of college scholarships you should explore including Collegeboard.com, Collegenet.com and Fastweb.com.

Does your Mom or Dad work for a good-sized company? If so, have him or her ask if it has scholarships for the children of its employees. There are also social organizations such as the Elks, IOOF and Moose that provide scholarships to the children of their members. If your parent does belong to one of these fraternal organizations be sure to check into this.

As you find scholarships you think you might qualify for, create a spreadsheet with the dates that applications become available and when they are due.

Next, draft a list of schools that you think you would like to visit. Use a net-price calculator tool such as the one available on Collegeboard.org on each of the school’s websites to get an idea of what each school might cost your family per year. Don’t forget to make sure that your travel plans fit your budget. For example, if you live in California but would like to attend school on the East Coast you will need to check out travel costs and whether or not your family’s budget could handle them.

Your senior year

In September of your senior year you will need to make a timeline of admission application deadlines and financial aid deadlines. Be sure to include all early-decision or early-action dates. Bear down now and concentrate on researching the college-specific scholarships available for the schools on your list. You also need to begin putting together documents such as bank statements, tax returns, your Social Security card and income tax forms including W-2s and 1099s that you will need when it comes time to fill out the dreaded FAFSA or Free Application for Federal Student Aid.

Depending on which schools you would like to attend, you may need to fill out the CSS profile that becomes available October 1 on the Collegeboard.com website. This is the form used by almost 400 private schools throughout the US. It’s a much lengthier document then the FAFSA and will take you more time and effort to complete.

In December you’ll need to complete your applications and apply for your FAFSA PIN (personal identification number) at fafsa.gov. You and your parents will need to have separate PINs in order to complete the form. You should have your tax return information ready as early in February as possible. This is because some schools require you to submit your tax forms very early. Be sure to check each school’s due dates.

Note: If you are interested in federal student aid you must complete a FAFSA form. The deadline for submitting this form online is June of next year. However, each college and each state may have different deadlines. Be sure to check with the colleges on your list and go to https://fafsa.ed.gov/fotw1415/pdf/Deadlines.pdf for your state’s deadline.

If you complete and submit your FAFSA form in January, you should receive your Student Aid Report in March from the Department of Education. This will summarize your eligibility for federal aid.

Then, hold your breath, in April the admissions notifications will begin to roll in. Be sure to check for “unofficial” financial-aid awards in the student portals on the websites of the colleges you’ve chosen. You may also need to submit additional documents requested by a school such as tax returns.

When you have selected a school, be sure to keep submitting signed and dated documents and forms for financial-aid verification. Then check back for your official award letter.

The deadline for committing to a school is generally May 1. Make sure you notify any school where you’re declining an offer.

Finally, comes graduation and summer. In August you will probably receive your bill and this is when you’ll complete any loan documents required.

Financing college

When you compare the financial aid award letter you received against your estimated out-of-pocket costs you may find a shortfall or that amount of money you or your parents will need to come up with to pay for a year of school. Depending on your family’s financial circumstances this may not be a problem. Maybe your parents will be able to just write checks to make up the difference. However, if you’re like the 50% to 60% of students that don’t have parents this well off, you may have to borrow the money in the form of student loans. This is an area where less is definitely more. The less money you have to borrow the more better off you will be. Student debt has become a huge problem here in the US as outstanding loans now total more than $1 trillion. Seven in 10 college seniors or 71% that graduated this past year had student loan debts and they averaged $29,400 per borrower.

Too easy to get

One of the biggest problems with student loans is that they are just so easy to get. In most cases all you have to do is sign a promissory note and off you go. It’s sort of like writing a check that you may not have to cash for two or even three years. But the day will come when you will have to start repaying those loans, which can be a big drag on your life – especially when you’re just starting out in your career. Of course, this assumes you will be able to start out in your career, as according to one study, some 47% of recent college graduates were unable to find their first jobs in fields related to their majors. This could at least partially explain why about one in seven people default on their student loans within three years after graduation.

graduate chained to student debtHow to avoid student loan debt

Fortunately there are things you can do to either avoid having to take out student loans or at least minimize the amount of money you have to borrow. What many students now do is go to a community college for the first two years and then transfer to a more prestigious school. Regardless of where you go to school, you will probably be required to take about the same basic courses those first two years so you basically have nothing to lose except maybe $40,000. This is the difference between going to a community school for two years and then our state university for two years vs. going to that same state university for four years.

A second alternative is to choose a cheaper school. If you shop around you might find a school in your state that would be cheaper to attend then either your state’s university or a private college. As an example of this, it costs $26,933 for an in-state student to attend our state university but only $18,743 a year to attend a smaller university located in the western part of our state. For that matter, you could attend that school for two years and then transfer to our state university, graduate with a degree from it and save some money in the bargain.

Third, you could live at home – assuming you choose a college or university in your city or town. This might not sound like much fun but it would slash your college costs dramatically. As you have read, it costs $26,933 for an in-state student to attend our state university, which of course includes room and board and incidentals. If you were to live at home you would pay only the cost of tuition, which is $10,240 a year. Even when you add incidentals and textbooks to this, you’d be cutting the cost of your education by nearly 50%.

Finally, work part-time. Almost all college and university towns have an ongoing need for part-time workers. If you land the right kind of job you might earn enough to make up the gap between your financial aid and you’re out-of-pocket costs to graduate debt-free. And as Martha Stewart would say, “it’s a good thing”.

5 Financial Moves For Students Entering College

student with a notebook and calculatorWhen you are going into college, there are a lot of financial moves for students that you need to do. There is no such thing as being too young to implement the right financial habits that will set you up for a debt free future.

It is a sad scenario that most students feel like they need to borrow high student loans to get a job in the future. That is not true. You need a college education. That is the truth. But you do not have to borrow a lot of money just to get the higher education that will qualify you to earn a higher income.

Our students are mostly misinformed or completely ignorant of what they are facing before going to college. This is why they can easily be encouraged to sign in on those student loans that will keep them in debt for the next decade or so. It is very important that we educate these students or that they seek out on their own certain financial lessons that can set up their future correctly.

While the student loan debt scenario should raise some concerns about the nation’s future, there are efforts to help steer the next batch of students from the same fate. According to the data published on the website of the Council for Economic Education (CouncilForEcoEd.org), 17 states have already added personal finance in their course requirements. High school students are encouraged to take these personal finances lessons before graduating so they are educated on financial moves for students entering into college. Not only that, economics courses are also being set as a requirement before graduation in 22 states.

The data showed that only 6 of the 50 states implement testing the knowledge of students when it comes to personal finance. Somehow, this might help students be more aware of how they should manage their finances when they get into college. It might even help if they have specific lessons about student loans and their options to minimize the load of this debt.

5 moves you must make before going to college

While it is difficult to demolish student loan debt this is not impossible to do so. Some students have actually graduated without getting any debt at all. It is mostly a combination of their parent’s planning and preparation but the student themselves also did their part by learning how to manage their money wisely.

You may feel overwhelmed when your parents are not able to help you pay for college but do not be discouraged. Although you will need to borrow student loans, it does not have to ruin your financial future. You just have to make these 5 financial moves for students so you can head off any potential financial problems while you are getting your degree.

  1. Plan your finances. Everything should start with a plan. And take note, you should not stop with just one plan. The first that you need to create is a budget plan. This will help you identify how much money you have – whether it will be coming from your student loan or the funds that your parents have saved up for you. You need to determine the expenses that you will be making on a daily or weekly basis when you get to college. This will help you estimate how much you can afford to spend. You should also make a spending plan so you are guided on where your money should go to on a daily, weekly or monthly basis. Comparing it with your budget plan will help you decide if you need to add more money or cut back on some of your expenses. Lastly, for those who borrowed student loans, you may want to create a plan that will help you pay it off in the future. You can start paying off the interest on your student loans while you are still in school. That will help keep your debt payments to a minimum when you graduate.
  2. Build up your emergency fund. Nobody is exempt from emergency situations. Even if you are still young, you should be prepared to finance any unexpected event while you are still in school. It may be a sickness or a sudden expense that you have to make in the house where you are living. It can even be car repairs or the delayed release of your funds. It is always best to have an emergency fund so you will not be too stressed when something happens. Start with a small amount and gradually build it up as you get extra money.
  3. Apply for an account in a local credit union. Given your lack of credit history, it may be difficult for you to enjoy the products and services that traditional banks offer. But joining a credit union may be more beneficial for you. They are more customer oriented and do not usually ask for fees to maintain your checking account. They also have higher interest rates for savings accounts and lower rates for borrowers. Check out the local credit union near the school you will go to and see if their products are something that you can maximize.
  4. Work on your credit. It is a great idea to start developing your credit management while in school. If your parents helped you apply for a credit card, or you applied for a student or secured card, use it wisely and pay it off immediately. That way, you can build a strong credit history that will allow you to borrow money in the future with very low interest rates.
  5. Get a side job. One of the most common financial moves for students is getting a part time job. You may want to see if you can get a job waiting tables or in the retail industry as a sales crew. You can tutor or get work in the campus where you study. There are so many options for you to get the extra finances that you can utilize while you are still studying. Not only will this be beneficial in your finances, it is also something that you can put in your resume. According to an article published on UTDallas.edu, some college students have graduated without any student debt because they worked while in college. Some started their own business after high school while others entered paid internships. These students got their degree without incurring debt and were offered jobs immediately after graduating – no doubt because of their work experience in school.

Financial habits to develop while in college

As you work on these financial moves for students, you should also think about developing certain habits while you are at it. There are various habits that you can form while in college that will help set up your financial future. These habits will not only help you stay away from student and credit card debts, it will also train you to make smart financial choices all your life.

Here are some of the habits that you may want to form while you are in college.

  • Budgeting. This is something that you can practice if you implement the first of the financial moves for students that we discussed earlier in this article. You can apply this all throughout your life to ensure that you have full control over your finances.
  • Saving. This includes saving for your emergency fund and any expensive item that you want to buy. Make it a habit to pay for your expenses in cash. That way, you will not be working to pay for past expenses. You will be working to pay for future expenses. It will be a less stressful life.
  • Setting financial goals. Setting goals is a great way for you to make the right decisions because you know where you want to take your finances. It should be easy to make your decisions aligned.
  • Spending wisely. You have to understand that being a smart spender does not only mean you are saying no to the expenses that you cannot afford. It also means saying no to the expenses that you do not need – even if you can afford to pay for it in cash.
  • Investing. You do not have to be old to learn how to invest. The earlier you start, the more gains you will have in the future. When you have your emergency fund in place, put your extra money into investment funds.

Financial moves for students will help you set up for a wealthy future. Don’t you want to look back in your college years as something that helped propel you towards a better life? After all, a college degree will help you earn more as compared to those who skipped getting a higher education. According to NYTimes.com, The value of getting a college degree is rising each year. Although the cost is also rising, your ability to get a high paying job can compensate for that. Even if you had to go through college through student loans, it is possible for you to minimize that debt and get more out of it through the development of proper financial management skills.

If you need help with any of your student loans, National Debt Relief can help. Their consultancy service will assist you in choosing and applying for the right student loan debt relief program. The service also includes helping out with the documentation. The consultation involves a one time service fee that will be put in an escrow account. If you are satisfied with the paperworks, that is the only time this payment will be released. There are is no upfront or maintenance fees.

How To Keep Student Debt From Ruining Your Life

graduate chained to student debtIt is estimated that some 20 million students are going to college this fall and that unfortunately some 12 million of them will be required to take out student loans to pay for their educations. Unless you’ve been hiding under a rock, you probably already know that student debt stands above $1 trillion making it even larger than our national credit card debt. Colleges and universities are not making things any easier either. The average tuition has increased 27% at public universities and 14% at private schools in the past five years, which would help explain why people are graduating owing an average of $25,000 or more.

But regardless of whether you’re just starting college or are already in school, there are things you can do to keep student debt from ruining your life.

Choose the most affordable school you can

In the event you’ve already started college this advice may come too late. But if you’re still a high school senior you should try to choose the most affordable school you can. This may not be the most prestigious of colleges but what many people have found is the secret is to go to an affordable school for four years and then get their graduate degrees at a more prestigious college or university.

Another way to keep from piling on so much debt it would ruin your life is to go to a community college for two years and then transfer to a more prestigious school. Whether you start at a two- or four-year college you’ll probably be required to take basically the same courses for the first two years so you really have nothing to lose by starting at a local community college. As an example of what this can mean, the cost to attend one of our local community colleges for a year is $6832 while the cost for an in-state student to attend our state university is $26,933. Do the math and you’ll see you would save approximately $40,000 by doing your first two years at the community college.

Choose your major carefully

Even if you’re already in college it’s not too late to consider changing majors if you’ve chosen one that would doom you to being a low earner for years. Recent studies have shown that if you get a degree in child and family studies, elementary education, exercise science, broadcast journalism or animal science you will be a low earner for life. For example, even the mid-career salary for a person with a major in child and family studies is just $37,200 and for elementary education it’s $45,300. The starting salary for a person with a major in exercise science is $32,600 with an estimated mid-career salary of $51,000 while the mid-career salary for a broadcast journalism major is just $68,800. Now compare this with the $100,000 or so that you will spend on your education and ask yourself the question would one of these majors be a good investment.

Also be careful about the college you choose

Believe it or not there are colleges that offer better values just as there are automobiles that are better values and the names of some of the schools might astonish you. For example, Harvard University is considered to be a good value because nearly 60% of its students receive need-based grants so that the average cost to them is just $15,486 a year. Brigham Young University is also considered to be a good value because the average cost of attending there for a year if you receive need-based grants is just $12,367. And the cost to attend the Massachusetts Institute of Technology for a year averages just $19,957 assuming you qualify for need-based grants. Now compare this to the cost of attending our state university for a year of $26,933 with little or no opportunity to get grants and you should be able to see why it’s important to be careful about which school you choose.

Score some scholarships

Fortunately, scholarship money being handed out by foundations, corporations and other private-sector benefactors has also risen as has tuition at universities and colleges. There are websites available that can help you and your family find scholarships for which you might qualify. However, it’s important to search early. If you’re a student your parents should check with their employers to see if maybe they offer its employees’ children scholarships. Don’t be afraid to aim high. Even though the competition for big scholarships can be very tough, you should give it a shot. They payoff can make it worth the effort. This is also an area where choosing a private school could be better than a public university. While it’s very difficult to score a scholarship from a public school it should be easier to get one from a private institution – just as it’s easier to get needs-based grants. As an example of this, the small private college I attended now costs – at least theoretically – a little more than $37,000 a year. However, 100% of its students receive scholarships or grants so that the true cost of attending it is clearly much less than the $37,000.

What to do if you’re already deep in student loan debt

If you owe $20,000, $30,000 or more in student debt you can still keep this from ruining your life. For one thing, you could get a federal Direct Consolidation loan, which could lower your monthly payments dramatically by giving you more time to pay off your debt. The other advantage of this is that you would have just one monthly payment to make a month versus the multiple payments you’re currently making. The interest rate on these loans is computed as the weighted average of the loans you’re consolidating rounded up to the nearest 1/8th of a percent. The simplest way to think of this is that if you get a Direct Consolidation loan, your interest rate will be higher than the lowest interest rate you’re currently paying but lower than the loan with the highest interest rate.

Choose a different repayment program

You might also be able to make your life easier by changing repayment plans. There are six available in addition to the 10-Year Standard Repayment program. Three of these are income-based meaning that your monthly payments would be based on your income and family size. One of these is Pay As You Earn, which would cap your monthly payments at 10% of your discretionary income. Pres. Obama recently signed an executive order that makes about 1.6 million more people eligible for this program and you might be one of them – if you got your first federal student loan after October 1, 2007 and it was a Direct Loan or a Direct Consolidation loan you received after October 1 of 2011. The eligibility requirements for Pay As You Earn can be a bit confusing so be sure to watch this short video to learn more about them,

Other repayment options

In the event you aren’t eligible for Pay As View Earn, there are other options that could keep your student debt from ruining your life. The Income-based Repayment program would cap your monthly payments at 15% of your discretionary income or if you just recently graduated you might choose Graduated Repayment. This is where the payments start smaller but then gradually increase every two years.

The long and short of it is that you can get a good college education without it ruining your life. However, you will need to make some smart decisions when it comes to choosing a school and choosing a major. There are also options available that can make things easier in the event you have a considerable amount of student debt. As the old saying goes, “you don’t need to know a lot about money to be good with money.” The important thing is to think things through and make decisions that will enhance your life and not ruin it.

How To Avoid The New Student Debt Relief Scams

appearingDid you graduate a few years ago owing $20,000, $30,000 or even more on your student loans? That can be a pretty big burden when you’re just starting out in your career and are a low earner. Or worse yet, maybe you haven’t been able to find a job in your field of study and have become one of those “underemployed” – a fancy way of saying you’ve had to settle for working as a barista at Starbucks or as a call center employee. But then, Eureka! You receive a call from a friendly-sounding fellow who says that no sweat, he can get you out from under that load of student debt. He may even say he can get you a debt consolidation loan that will lighten your load and at zero interest. Would that sound like a great deal or what?

Watch out for predators

Former Presidential advisor Rahm Emanuel once said, “never let a crisis go to waste.” This could be the slogan of the scam artists that have picked up on the student debt crisis and are not letting it go to waste. These scamsters had seen that many young people are feeling desperate and confused about their student loans and have created new student debt relief scams you could fall for if not careful.

The scams

There are two very popular scams. The first is debt relief firms that make big promises of what they can do to restructure your loans so long as you are willing to pay their upfront fees. Some of these fees are so steep they would be equal to a very high interest rate if they were applied, say, to a $10,000 student loan. These companies often want you to turn over your personal information including your passwords, Social Security numbers and the personal identification (PIN) numbers of your student loan accounts.

The second type of scam is the loan consolidation scam. This is where they promise to get you a federal debt consolidation loan if, again, you agree to their fees. One of the easiest ways to spot this scam is if they ask you to provide a power of attorney. It‘s just not routine to have to provide a power of attorney to get a loan. As a matter of fact there’s never a reason to do this unless there is a clear need for it such as dementia or Alzheimer’s. The reason why a shady debt relief agency wants your power of attorney is so that it can apply for a federal consolidation loan for you. They’ll ask for all of the information that you would have to input into the website of FedLoan Servicing and then complete the application for you acting as if it were the borrower. But there is only one way to consolidate loans with a Direct Federal Consolidation loan. This is via the online consolidation application available on the US Department of education’ s website. (loanconsolidation.ed.gov). And completing this application is very simple and something you could certainly do yourself for free.

Second, a scam artist may try to get you to believe you that you can’t consolidate your loans yourself. In truth the Fedloan Servicing application is pretty straightforward. And Fedloan Servicing improved it recently to make applying for the loan even easier. It will take you just 30 minutes or less. If you have any questions about the application process you can always call Fedloan Servicing directly and get help.

A “unique” service

A second sign that you are probably speaking to a scam artist is if he offers you the “unique service” of a year of no payments after you consolidate with the new loan. The fact is that there is nothing exclusive about this at all. All the scam artist is doing is putting your loans into forbearance. Again this is something you can do yourself online free at the Fedloan Servicing website.

Third, you may be talking to a scamster if he offers only loan consolidation. He will push this as the only solution regardless of what student debt issue you have. In doing so, he neglects to tell you there are options besides consolidating. In fact, there are a number of different repayment programs available to you even if you’re a bit past due on your payments.

He’s very pushy

Shady debt relief agencies also tend to be very pushy and use sales tactics. They will try to rush you into consolidating your loans and might even have a “special offer” to get you to make a fast financial decision. It’s important to keep reminding yourself that what they are most concerned about is their financial bottom line and not your best interests.

Lying salesman or businessmanMost of these agencies will also be less than honest or ambiguous about what they charge. They will try to finesse the issue by telling you that their fees vary based on the amount of work involved and how much debt you have. They may also claim you will need to pay monthly fees in addition to an upfront lump sum payment– all just to consolidate your debts. If the so-called debt relief agency is ambiguous or less than honest about its fees, this is a huge warning sign regarding its lack of ethics.

Finally, many of these agencies will have a website they hide behind. You will not see pictures of their representatives or find direct phone numbers you could use to contact them. They don’t want to form a personal relationship with you. Their goal is to preserve their anonymity so that if you run into trouble or change you mind you can’t contact them.

What you could do yourself

As you have read if your goal is to consolidate your loans with a Direct Federal loan this is a fairly simple process you can do yourself. You can also restructure your debt yourself by changing to a different repayment program. To do this you will need to first go to the federal student loan database (https://www.nslds.ed.gov/) to get information about your loans such as their type, when the funds were disbursed, what you’ve paid so far and how much you still owe. You should save this information to your student debt portfolio for future reference.

With this information in hand you will need to next check out the federal loan repayment (https://studentaid.ed.gov/repay-loans#repayment-plans) programs to determine which ones you would qualify for and would give you the best terms and lowest monthly payments. One the most popular of these is Pay As You Earn. You might have read about this program recently when Pres. Obama signed an executive order making about 1.4 million more people eligible. If you are one of these people you could see your monthly payments capped at 10% of your disposable income.

If you find you’re ineligible for Pay As You Earn there is another program called Graduated Repayment. If you are currently a low earner but know that your income will increase in the years ahead this can be a very good option. It allows you to start with low payments that gradually increase every two years.

There is also a program called Income-based Repayment where your monthly payments would be capped at 15% of your disposable income – again if you would be eligible.

The last step

If you are able to find a better repayment program than what you currently have, the final step in the process is to contact your lender and discuss this with it. Your representative should be happy to help you through the process of changing repayment programs and might even suggest a better option than the one you chose.

Best of all, none of this will cost you a single cent let alone a big upfront payment or monthly fees.

2 Factors That Will Keep Your College Debt From Ruining Your Life

graduate chained to student debtCollege debt will never be a prerequisite to getting a college degree. All it really takes are good planning skills from parents and great financial habits from the student. While a lot of students are not financially well off to be able to get assistance from their parents, that does not mean they can let student loans ruin their lives.

You do not need to hear some really bad news about student loan debt to decide that you need to make a smart choice about it. You owe it to your future self to make a wise choice about your finances period. Regardless if you are still in school or you have rich parents, you need to learn how to manage your money so you can go out into the world and make yourself wealthy through your own efforts.

College loans will be more costly this year

Getting a higher education without college debt seem like a tough thing to do – but it is not impossible. There are a lot of students who have gone through this phase in their life without having to borrow a single cent.

But if you think that is impossible for you to do because you do not have enough time to save up for your tuition fee, that is alright. You can borrow money to pay for your college education, but make sure that you will do it correctly. More than ever, the situation now requires each and every student who will borrow money to be wise when it comes to taking out student loans.

According to an article published in Forbes.com the interest rate for school year 2014-2015 will be higher than last year. It is expected to rise by 0.8%. It may seem like a small percentage but the bigger the loan, the bigger interest amount you will be forced to pay off. The article said that the Stafford Loan that is an aid reserved for undergraduates will go up from 3.86% to 4.66%. The rate for the Direct unsubsidized loans for graduate students will rise from 5.41% to 6.21%. Direct PLUS loans for both parents and graduate students will increase from 6.41% to 7.21%.

All of these data will really make life a lot harder for students who need a loan to go through college. But even if you are trying to wrap your head around this financial difficulty, you might be comforted to know that all is not lost. With some effort, discipline and self control, you can focus on two factors that will help keep college debt from ruining your future.

Your degree determines if you can afford your student loan payments

The first factor involves the degree that you choose to study. If you need to borrow money to get a particular degree, you must ensure that it will lead you to a career that can afford to pay it off. It does not matter if you study medicine, education or political science, you need to repay student loans.

Let us lay them out for you and connect how this is important in relation to your student loans.

  • Your degree will tell you the career path that you can take. The best way to choose a college degree is to determine what type of career you can work on for the next few decades of your life. Do you picture yourself being a teacher, a doctor, a lawyer or a businessman? Or do you see yourself being an inventor or a scientist? You want to look at the career you want to have before you choose the appropriate degree that will allow you to qualify for that career.
  • Your career will determine how much you will earn. Thanks to the Internet, you can easily see how much professionals are earning these days. If you want to be a doctor, you can check out the average earning potential. You can narrow it down to specialty and even location.
  • The expected earnings of your intended career should define if you can afford to pay off your college debt. Finally, once you know that national average, you should be able to make a smart decision as to whether you can afford the student loan payments that you are trying to apply for.

It is as simple as this: if you have chosen to be a teacher by profession, why would you put yourself through $100,000 debt when the average salary of a teacher is only $30,000 to $40,000 annually? At least, this is true when you are just starting your career. It does not make sense to pay so much when your salary is not expected to be at par with what you have to pay off.

Huffingtonpost.com revealed that 51% of Americans who have college debt through the Education Department (Direct Loans) have difficulties with their payments. A lot of those who are not making payments have said that the cause of that is financial hardship. Do not be a part of this statistic by making a wise choice about your degree in the first place. If your chosen career can only pay yourself this much income, then know the limit of student loans you can borrow. That will keep your debt from eating more than half of your monthly salary and making your life a living hell.

Your college expenses will set the pace for your financial future

The second factor that you need to look into is your college expenses. How you spend your money while you are studying will set you up for a life of debt or financial success.

According to CollegeBoard.org, the undergraduate budget for SY 2013-2014 are as follows:

  • Public 2-year Commuter: $15,933 ($3,264 tuition fees; $7,466 room and board; $1,270 books and supplies; $1,708 transportation; and, $2,225 other expenses)
  • Public 4-year In-State On-Campus: $22,826 ($8,893 tuition and fees; $9,498 room and board; $1,207 books and supplies; $1,123 transportation; and, $2,105 other expenses)
  • Public 4-year Out-of-State On-Campus: $36,136 ($22,203 tuition and fees; $9,498 room and board; $1,207 books and supplies; $1,123 transportation; and, $2,105 other expenses)
  • Private Nonprofit 4-year On-Campus: $44,750 ($30,094 tuition and fees; $10,823 room and board; $1,253 books and supplies; $990 transportation; and, $1,590 other expenses)

It may be safe to expect that these will the expenses that students of SY 2014-2015 will go through. The thing is, you do not have to borrow all the money needed to completely finance your way out of college. It is understandable if some students will find it hard to fully demolish student loan debt. But that does not mean you cannot lessen it.

Here are some tips that you can use to lower your college debt.

  • Get a part time job. You can probably pay for your daily expenses through the money that you will earn. Or, you can build up your emergency fund so you do not have to be financially short when an emergency strikes.
  • Budget your money. Learning how to budget is very important because it allows you to identify your finances and decide where it should go to. You can prioritize your expenses and make sure that your money is not wasted an only spent on the important purchases.
  • Study hard. Another way to lower your expenses is to just study hard. You may be able to qualify for a scholarship the next year so make sure your grades are up.

Here is a video from ABC News about how you can increase your source of cash and lower your expenses while you are in college.

If you need help with student loans, National Debt Relief offers a consultation service that will help you select the right debt relief program to make your payments easier. The company can help you find the right program based on your financial situation, employment conditions and college debt. National Debt Relief will even help with the documentation. There is a one-time service fee involved that will be deposited in an escrow account. When you are happy with the service and the paperworks, only then will the payment be released.

Why Student Loan Debt Is Like The Ghost Of An Old Relationship

Broke woman student holding books and empty walletAlmost all of us have ghosts that continue to haunt us. For some of us it might be the ghost of an old relationship while for others it might be the ghost of a failed business or the ghost of those stocks you should have sold before they crashed. Whichever the case it may feel as if that ghost will never stop haunting you. Unfortunately, student loan debt is just like your ghost. It can and will haunt you forever.

There’s just no escaping it

You’ve probably heard that old saying that there are only two sure things in life – death and taxes. Well, you could actually add a third to that – federal student loan debts.

The fact is that there is basically no way to escape federal student loan debts. It’s not even possible to get these debts discharged in a chapter 7 bankruptcy unless you can prove a serious financial hardship and have a sympathetic bankruptcy judge. Why can’t you discharge these debts in a bankruptcy? It’s because Congress changed the law several years ago to protect us taxpayers whose money fund these loans. People have even fled the US to escape their student loans only to find they were arrested when they tried to return to America.

The government has more powers than a rabid collection agency

If you owe on student loans you can literally be pursued to your grave. This is because there is no statute of limitations on collection activities as there are on most other unpaid debts. In addition, the federal government has powers that any private collection agency wishes they had. If you go into default on a student loan, the government can seize your tax refunds, garnish your wages without getting a court order or even take part of your Social Security checks.

Miss just one payment and you’re toast

It’s much easier to go into default on a government-backed loan than you might think. If you miss or are late on just one payment you are in default. However, your lender will probably not report you to the three credit bureaus until you are 90 days past due. If this happens your entire balance will be due immediately, collection fees can be added to your balance, you will lose your eligibility for any more federal loans and any unpaid fees or interest can be capitalized. If this happens they will be added to your outstanding balance and you’ll end up paying interest on them as well.

What happens to your credit report is really horrible

A default on a student loan can be one of the very worst things to appear on your credit report and can be worse even than late payments. If this happens

  • You may not be able to lease an apartment, buy a home or get any credit cards
  • The interest on your existing loans or credit cards may increase
  • You may not be able to open a checking account
  • Your car and home insurance may cost more
  • You may be denied a job

What to do, what to do?

If you have a student loan or loans that go into default there are three options. The first is to repay those loans. A second option is what’s called loan rehabilitation. You could do this if you have a Direct Loan or FFEL Program loan. What this requires is that you and the Department of Education must agree on an affordable and reasonable repayment plan. Your loan would then be rehabilitated after you have made the payments you agreed to on time and a lender has purchased one of your loans. If you choose this option, make sure you understand that outstanding collection costs could be added to your outstanding balance. If you are able to successfully rehabilitate your loan, you may regain those benefits you had before you defaulted. This could include forbearance, deferment, loan forgiveness and a choice of repayment plans. There are some other benefits of loan rehabilitation including:

  • The default status on your defaulted loan will be removed
  • Your new status will be reported to the national credit bureaus
  • If your wages are being garnished, it will stop
  • If any of your income tax refund is being withheld by the internal revenue service, you will receive it

Loan consolidation

The third option for dealing with student loans in default is to get a debt consolidation loan. This would allow you to combine all of your outstanding student loans into one new one with a single monthly payment and a fixed interest rate. However, you cannot include a defaulted federal student loan into the new loan until you’ve made arrangements with the Department of Education and a few voluntary payments. In most cases you will be required to make three consecutive, on time and voluntary payments before you can consolidate.

If you’d like to know how to do a Direct Consolidation loan yourself, watch this short video courtesy of National Debt Relief.

The repayment options

As noted above one of the options to get a loan or loans out of default is to repay them. When you graduated or left school you were automatically put into 10-Year Standard Repayment unless you were smart enough to choose another program. Assuming you didn’t, you have six other repayment options. One of the most popular of these is Pay As You Earn Repayment. You may have read about this recently when Pres. Obama issued an executive order that made about 1.4 million more Americans eligible for this program. What makes it so popular is that it caps your monthly payments at 10% of your disposable income that exceeds 150% of the federal guideline given the size of your family. Since this program is based on your income, it can change each year as your income increases or decreases. It also includes loan forgiveness, which means that if you make all of your monthly payments and on time for 20 years but still have a balance remaining, it will be forgiven or eliminated.

If you are not eligible

There are other income-based repayment programs. For example, if you are not eligible for Pay As You Earn, you could switch to Income-based Repayment that would cap your monthly payments at 15% of your discretionary income, which is defined as the amount that your adjusted gross income is above the poverty line. This repayment program is also based on the size of your family and can increase or decrease every year depending what happens to your income.

Graduated repayment

Another popular repayment program is called Graduated Repayment. This is where your payments start out low but then gradually increase every two years. This program can be especially helpful to young people who currently have low incomes but that will increase in the years ahead.

It can be complicated

Whether or not you would be eligible for one of these repayment programs will depend on a number of factors including which types of federal loans you have and when you got them, as well as your income and family size. National Debt Relief recently inaugurated a new service designed to uncomplicate this. The way it works is that a National Debt Relief counselor analyzes your financial picture including your earnings, family size, debts, earnings potential and more. He or she will then review your student loan portfolio to see if there is a repayment program that would be a better fit than the one you currently have. If so, National Debt Relief will draw funds into an escrow account under your control and begin the student loan relief process by working directly with the Department of Education (DOE) to attain final approval on the best repayment option given your financial circumstances.

If this idea appeals to you, be sure to go to our new student debt consolidation page for more information or call us as 1-888-455-5007.

Revealed: Six Surefire Ways To Pay Off Your Student Loans Fast!

couple looking at a laptopThose student loans seemed like such a good idea at the time. All you had to do was sign a piece of paper and bingo! You were good to go in school for another semester. But then according to that legendary fighter, Rocky Balboa, “You wanna dance, you gotta pay the band, you understand? If you wanna borrow, you gotta pay the man.” And if you danced your way through school by borrowing money you’re now going to have to pay the band.

Three months to zero hours

If you graduated in May of this year, your grace period will likely end in November and you will need to begin paying back those student loans. If you’re typical you’ll want to get those loans paid off as fast as possible. So what can you do?

Move back in with dear old Mom and Dad

We understand that one of the last things you want to do is move back in with your parents … back to that old bedroom with those Pearl Jam posters and those tacky Star Wars curtains … and that dinky little study desk. But and here’s the biggest but – this is the number one way to pay off those college debts fast.

Do the math

If you don’t believe us, just do the math. Let’s suppose you owe $25,000 at 6% interest. While $25,000 is actually a bit below the national average for college graduates we’ll use this for the sake of our example. We’ll further assume that your net annual income is $30,000. If you live rent free with your parents you should be able to easily devote around 30% of your income to paying off those student loans. Do this and you would have that $25,000 paid off in three years and a month. And if you were to up those payments to 40% of your take home (net) salary you’d be debt free in a little more than two years. Just imagine. By November of 2016 you’d have all your student loans paid off and would be ready to go out, get your own place, maybe buy a new car and start living debt free.

Join the Peace Corps

You might remember the old Peace Corp slogan, “The toughest job you’ll ever love.” It was created back in the 1990s and as great a line as it might be, it doesn’t tell the whole story, which is what volunteering in the Peace Corp could mean to you personally. While this might make you a better person there are other more tangible benefits. For example, certain of your federal student loans may be eligible for deferment while in the Corps and for Public Service Loan Forgiveness. If you have Perkins loans they may be eligible for partial cancellation. Plus, when you complete your service, you will be given a “readjustment” allowance of $7,425 (pre-tax) that you could use any way you wish (hint: you could use the money to pay off some of your loans?).When you return to the U.S. the Peace Corps will also provide you with assistance related to jobs and education. It publishes online job announcements, information about graduate schools and articles related to possible careers and hosts career events throughout the year in Washington, DC and across the country. It will even help you translate you field experience for prospective employers.

Flee the country

Another way to get rid of those onerous student loans fast is to leave the country. There are countries where you could earn decent money but that have very low costs of living. You might be able to get a job teaching English somewhere in Central America or the West Indies that would pay well but where it costs next to nothing to live. For example, we read recently that a couple can live well in Nicaragua for $995 a month. If a couple can live well on this amount, just think would you could live on if you were single. Let’s suppose you could earn $2,000 a month teaching math to kids or as a software engineer. Go to the Bankrate Pay Down Debt calculator, plug in the amount of your student loans (again, let’s assume $25,000 at 6%) and your payment of, say, $600 a month, and you’ll be debt free in three years and 11 months. Boost that monthly payment to $800 and you’d be debt free in a little less than three years. Plus, you’d have had the experience of living somewhere exotic for three or four years – with lots of stories to share with your friends and family members when you get back to the states.

Enlist in the French Foreign Legion

This is by far the most radical way to get rid of student debts but here’s the deal. If you join the French Foreign Legion you would be given the opportunity to visit foreign lands. Plus, the Legion actually encourages people to choose a new identity. You could go from being Alex Hatfield to being Serge Simpson with the stroke of a pen and leave all your student loans behind. If you serve just one stint in the Legion you can apply for French citizenship, which would give you protection from those nasty creditors. In addition, you would be eligible for the French state run health care system, which we understand is pretty great.

Join the Military

You don’t have to join the French Foreign Legion to escape your student loan debts. You could enlist in the U.S. Army, Navy or Air Force as the military offers some great education resources. This includes the Montgomery GI Bill, which can cover more than half the cost of a college education. If you’re facing some heavy debts, the Army National Guard offers some sweet options including the Student Loan Repayment Program, which will pay as much as $50,000 of your loans – depending on your field of study. In addition, being in the Guard is only a part time proposition — every other weekend and two months in the summer – so you could still work a full time job and use some of the money you earn to pay down your student loans.

Volunteer for AmeriCorp/Vista

Vista would place you with a nonprofit group or groups while Americorps would put you in a variety of jobs from environmental cleanup to teaching school. In either case, you would earn a stipend of up to $7,400 for a one-year stint along with $4725 to pay off your student loans.

smiling womanIt doesn’t have to be 10 years

Unless you chose some other repayment plan, you were automatically placed into 10-Year Standard Repayment. This means you will be required to pay off your loans in 10 years at a fixed interest rate. But as you read in this article, there are a number of ways to get those loans paid off in less than four years. While some of them are on the exotic side (think French Foreign Legion) there are others like working abroad that could be both fun and financially rewarding. If none of these appeals to you, you could still make things easier by switching from that 10-Year Standard Repayment Plan to a different option. As you might have read Pres. Obama recently signed an executive order that makes many more people eligible for the Pay As You Earn repayment program. If you could qualify for this plan your monthly payments would be capped at 10% of your disposable income. It will take you the same number of years to pay off your loans but your monthly payments should be a lot lower, which would take some of the sting out of repayment.

Check out the other options

There are a number of other repayment plans available you might want to check out. In addition to Pay As You Earn there are three other income-driven programs, along with Extended Repayment and Graduated Repayment. Talk with your lender and you might be able to find the one repayment program that would be best for you given your earnings and financial circumstances.

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