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Why Paying Off Your Student Loans Might Be Your Best Investment By Far

money and graduation cap in chainsIf you’re a millennial you may view the Great Recession about the same way as your grandparents viewed the Great Depression. You saw what could happen as a result of one of the biggest financial meltdowns in our history. Given this, it would not be a surprise if you stayed away from the stock market as if it were a patch of poison ivy.

Investing in stocks

Of course, that doesn’t mean you should avoid the stock market entirely. The thing about stocks is that they tend to increase in value because they represent a corporation’s ability to increase value. We humans are continuously finding ways to generate more value. So, unless companies stop finding ways to get that value, stocks are a pretty darn good investment over the long haul. And since you’re young, this would be a good time to buy stocks, as you will have many years to see them grow in value.

Investing in a house

One alternative to investing in the stock market is to buy a house. After all, isn’t homeownership the great American dream? Unfortunately, it isn’t a really great investment. When you own a home, this leaves you vulnerable if you were to get fired, see your income reduced or your home nosedive in value. Home ownership is really an investment that keeps you stuck geographically and is undiversified, meaning you’ve put all your precious eggs in a single basket..

A better alternative

A third way to invest that can be great for millennials and represents an even better option than investing in stocks or buying a house is paying off your student loans. If you’re a typical millennial you have a huge amount of student debt. Much of your debt probably has a surprisingly high interest rate. For example, the interest rate on the cheapest type of federal student loan is now 4.66%. On the other hand, the most expensive type of loans, Direct PLUS loans, have an interest rate of 7.21%.

When you compare this to the 17%, 19% or even more you’re paying on your credit cards this may not seem very high. But keep in mind that a 30-year treasury bond has a yield or return of only about 3%.
The best way to think about paying down a student loan is as in investment. It’s really the same as buying bonds or stocks. If you have a student loan where the interest rate is 7% and you pay down $1000 of it, you’ve basically gotten a 7% return on your investment.

Comparing this with stocks

The biggest problem with investing in stocks is the way the stock market swings as its typically bigger than what’s called its average return. If you invest in stocks and they plummet, as occasionally happens, and you need to sell quickly – you might take a huge loss. And it just isn’t true that stocks always bounce back.

Paying down student loans is risk-free

In comparison, there is no risk if you pay down your student loans and they offer a better return than you could get with stocks. Of course, there could always be a change in interest rates. If they were to increase a great deal, then 4.66% or 7.21% could look very cheap. Plus, if inflation were to suddenly occur it could reduce the value of your student debt. This means if you were to prepay your loans you could end up looking like a fool. Of course, these possibilities are fairly unlikely. Right now there is not a single sign of inflation, it appears that interest rates will remain where they are for quite some time and the idea of student loans suddenly being forgiven is clearly much more of a myth that a reality. So, if you are a millennial and struggling to repay your student loans, then paying them down is probably a much better investment than putting your money in stocks.

student loan debtHow to pay down those student loans

There are a variety of ways to pay down those loans. Unfortunately, the best and quickest one is probably to take on a second job or a second shift where you work. Or maybe your partner could go to work. There seem to now be a large number of part-time jobs available. While they usually pay only $9 or $10 an hour, you could work 20 hours a week and earn somewhere around $600 a month after taxes. Apply all that money to pay down your student loans and you might be able to become debt free in just five years or even fewer.

If a part-time job isn’t your cup of tea there are other ways to increase your earnings. We know of one young woman who has completely paid off her credit cards selling weight loss products in her spare time. Many people have earned extra money to pay off their student loans by selling stuff on eBay. If you’re into vintage or handcrafted items, the website Etsy could be a good place to earn extra money. Sometimes the best solution is to think outside the box. We know of one woman who spent a year couch hopping from apartment to apartment and saved enough in rent to pay off her student debts. Another lived and taught abroad in a nation that has a much cheaper cost of living than the US. She was able to save enough to completely pay off her student loans in just three years. Plus, she had the fun and experience of living in a foreign country. There is also the story of the graduate student at Duke who lived in his van for a year. While that might not appeal to you a little thinking outside box like this and you could get your student loans paid down in no time at all.

Cancellation and forgiveness

If you join the National Guard you could earn up to $10,000 to pay off your student loans. Volunteer for the Peace Corps and you could get deferment on your federal student loans and your Perkins Loans partially canceled. The way this works is you would get 15% cancelled for each year of service up to 70%. So, serve in the Peace Corps for three years and you could get 45% of your Perkins loans canceled. You could also earn a stipend of $4725 to pay down your loans by serving in AmeriCorps or Volunteers In Service to America (Vista). If you have the credentials necessary to teach and are willing to teach in a low-income school you could earn loan forgiveness. The way this works is that you must make 120 on time payments after which time any of your remaining balances would be forgiven.

You could also earn loan forgiveness by working in the public sector. There is a program called Public Service Loan Forgiveness. You could have almost any kind of job so long as you were working for a federal, state or local government or a non-profit organization recognized as a 501(3)(c) by the IRS. Make 120 qualified on-time payments and just as is the case with teacher loan forgiveness any of your remaining balances would be forgiven.

Paying For Grad School With Student Loans Is A Whole Different Ballgame

smartphone anxietyOne interesting fact is that while enrollment in graduate schools is going down, applications are going up. As of 2012 (the last year for which this information is available) there was about a 1.7% drop in graduate school enrollment for first-time students but a 4.3% increase in graduate school applicants. Why is this? Several reasons have been cited. For one thing, public funding is dropping in the educational area. For another thing, with fewer schools offering funding for students it would appear that those that got accepted chose to not enroll because they didn’t receive any funding. Also, student loan debt has grown to the point where many students could decide not to go to grad school and run up their student debts even further. On the other hand, students with no student loan debt are more likely to go to grad school.

Employers like people with graduate degrees

While graduate school enrollment may be dropping, many employers still favor those that have graduate degrees. There are two reasons for this. First, these people will have specialized knowledge and skills. Second they completed a degree, which shows they are motivated and dedicated individuals.

An average of $60,000

If you decide to go to graduate school be prepared for a bit of sticker shock. It will probably cost you around $60,000 to get a Masters degree. In fact, this is the average amount of money students borrow to get a Master’s degree. When you finish your graduate program and your grace period ends, you may find that you’re repaying bigger and more complicated loans than you did as an undergraduate.

Different repayment options

The good news of ending up with more debt is that you could take advantage of more repayment options. As an undergraduate you could have borrowed as much as $31,000 in unsubsidized and subsidized loans. However, as a graduate you can borrow up to the full amount of whatever it costs to attend the school of your choice. As an undergraduate the Standard 10-year Repayment program might have been good enough for you. But if you end up with $50,000 or more in student loans you could choose a different repayment program. There is Graduated Repayment, Extended Repayment and three Income-driven repayment plans. One of the most popular of the income-driven plans is Pay As You Earn. If you can qualify for this program your monthly payments would be capped at 10% of your discretionary income and you could earn debt forgiveness after 20 years – assuming you make all your payments on time.

They’ll have different terms

When you were an undergrad you might have gotten subsidized federal student loans. This means you were not required to pay interest on them so long as you were in school. But if you go to grad school you can’t get subsidized loans. Plus, the interest rates on unsubsidized loans are higher. In fact, as of this writing they are 6.21% for graduates versus 4.66% for undergrads. There are also PLUS loans for graduate students that have a 7.21% interest rate.

Check it out before you leap

Before you rack up more student loan debts to go to graduate school it’s a good idea to know how much money you owe at this point. If you have multiple loans at different interest rates and different types you need to go to the National Student Loan Data System For Students website to see how much you’ve borrowed and what you owe. Add this amount to the $50,000 or $60,000 you may need to borrow to pay for grad school and you’ll at least how far you’ll be in hock.

You’re not guaranteed a six-month grace period

If you get a Graduate PLUS loan you will not have the same grace period you did when you finished your undergraduate studies. However, you would be eligible for a deferment option post-enrollment, which is roughly the same as a grace period as it would delay your repayment by six months. But here’s an area where you need to be careful. If you used your grace period after you graduated you’re stuck. There is no such thing as a second grace period on undergraduate loans. So you would need to resume repayment immediately after grad school unless you get forbearance.

student loan debtThe big question – should you even go to graduate school?

Too many people have gone to graduate school just because they felt they needed to or, in some cases, because they couldn’t find a job in their field of study. Others believed that getting a Masters degree would help them get a job. However, experts say that none of these are really good reasons to go to graduate school and they can actually make getting a job more difficult and not easier.

Don’t go if you don’t know

If you don’t know what you are going to do with a graduate degree, you probably shouldn’t go to grad school. And you definitely shouldn’t go to graduate school because you think it would make it easier for you to get a job. In fact, this can actually harm your ability to get the job of your choice.

Does this sound counterintuitive? Not if you think of it this way. First, if you plan on a career that doesn’t really require a graduate degree, your prospective employers may think you don’t really want the job as you didn’t go to school for it. They’ll believe that you will leave the minute you find a job in your field of study’

Second, you won’t receive any full-time work experience while you’re in school. When you finish your graduate program, your peers that have been working for a year or two and will be more experienced and better positioned than you.

As noted above, you’re likely to rack up a large amount of student loan debt. This could limit your prospects, as you may feel forced to get a job you don’t really want but that pays more so you can pay back those loans.

Does it truly require a graduate degree?

The best question to ask yourself before you sign up for that graduate program is if the job you want truly requires a graduate degree. If you’re not sure this is true, talk with people who do the kind of work you want to do. Ask them how useful it would be to have a graduate degree. It’s possible they will tell you that the job won’t deliver the payoff you’re looking for and that experience is more valuable. On the other hand, you might learn that it will really help to have a graduate degree. If this is the case you should move on to the next questions such as are there certain graduate programs or schools that will help me the most? You should also ask if there are some programs that will not be of any help at all. Could you enroll in a cheaper program that would still offer the benefits you need? You need to get answers to questions like these before you sign up for grad school.

An internship could be better

If you learn that a graduate degree would not help you in your career, there are much cheaper and less time-consuming ways to figure out what you want to do for a living such as an internship, networking or just trying out jobs that sound interesting. You shouldn’t treat grad school as a way to determine what you want to do in life. If so, it could be a very expensive and long career counseling session where it would be better to get out and start working. Then if you find that you’re pursuing a career path that requires more schooling, go get your Masters degree then.

How To Get A Mortgage Despite Your Student Loans

money and graduation cap in chainsWe’ve all been hearing some really bad news about student loan debt. We hear of new graduates struggling with their finances because of huge amounts of college debt. They are forced to make a lot of personal sacrifices just so they have enough money to pay off this debt. They are stressed because they know they have to keep making payments because defaulting on student loans have major consequences. They can lose their money to wage garnishment. Not only that, their taxes and government benefits are in danger of being taken from them too.

This is probably why a lot of young adults burdened with this debt are choosing to delay a lot of investments like home buying. According to an article published on CNN.com, both Millennials and Gen Xers are unable to buy their first home because of student loans. Home purchases have declined by 8% among consumers between the ages of 20 and 39. According to the data provided, this is causing the housing market $83 billion worth of real estate investments.

If the student loan crisis continues, this trend might continue as well. In case that happens, it is bound to have a huge impact on the housing market. While student loans can be quite a burden, young adults should not let it keep them from making investments that will grow their personal finances.

Two things that will increase your chances to buy a home despite college debt

While it is difficult to buy a new home while you still have student loan payments to meet, it is not impossible to do so. When buying a house, you have to make sure that your finances are in order. You need to make sure that your current financial situation will allow you to be approved of a low interest mortgage loan. If you can do this, then owning a home and paying off your college debt can be managed quite easily.

But first things first, you need to increase your chances of being approved of a mortgage loan. Here are two things that you need to do.

Reduce your debt to income ratio

First tip is to lower your debt to income ratio. The rule is, the lower the percentage, the better it will be for you. That is because you have a lower debt compared to your current income. According to ConsumerFinance.gov, the ideal debt to income ratio should be 43% or lower.

To compute, you need to get the sum of all your monthly debt payments and then divide the total by your monthly income. Your incomes should be the gross amount – meaning your income before your taxes and deductions are removed. If your debt to income ratio is below 43%, it will allow you to get a Qualified Mortgage. This is a loan category that provides a lot of stable features that will make your home loan more affordable compared to other conventional loans.

If your student loans are causing your debt to income ratio to go beyond 43%, there is something that you can do to lower that. Try to switch to a repayment program that allows you make smaller payment contributions. For instance, if you are using the standard payment method – wherein you pay the same amount throughout the duration of the debt, you may want to change that to a graduated payment method. A graduated repayment method allows you to make smaller payments first and that gradually increases over time. The lower payments at the beginning of the repayment program could help you lower your debt to income ratio.

There are other repayment plans that you may want to look into that will help you lower your monthly debt payments. Do your research so you can see which of them you can use.

Improve your credit score

The second tip is to improve your credit score. According to Bankrate.com, the credit score is a very important number in home buying. It will help determine your interest rate for a home loan. A high credit score will benefit you every time you take loans because you can get a low interest on that loan. A good score makes you creditworthy. That means you can be trusted with a loan because you have a good record of paying back what you owe without being late or defaulting. For instance, a FICO score of 740 or higher can get you the best rates. A score of 700 will still be favorable (around 4.5%) but if you go two points down to 698, that could cost you thousands of dollars because you will be given a higher interest rate. Your interest rate will probably be 4.875% and that can cost you a lot of money throughout the duration of the loan. The lower your score, the bigger interest you will end up paying.

Now your student loans can help you improve your credit score – but only if you pay it off responsibly. The rules are quite simple. Make sure you are never late and that you always pay the required amount each month. If you do this even for just a couple of months, you will see improvements in your score.

It is very important that you choose the right financial aid to help you buy your own home. Here is a video from the Bank of America with some options for a home loan – especially when you cannot afford to get a conventional loan.

How to manage your finances to take care of both student debt and mortgage

There is a study that showed how student loans are not really the main cause of delayed homeownership among Americans. While that may be true, it is still a factor to consider.

In case you have successfully improved your finances and you were approved of a low interest mortgage loan, here are some tips that should help you manage your finances. These two loans are quite significant so you may want to make sure that it will not overwhelm you.

  • Have a solid payment plan in place. This is very important. You need to prioritize paying off these two loans. Defaulted student loans have serious consequences and unpaid mortgages could lead to the foreclosure of your home. Check on this payment plan every now and then to check if it is still affordable or not. If you find yourself stretching your budget too thinly, talk to your lenders for a better payment plan.
  • Spend only on what is very important. While you have huge amounts of debts, the more you need to be responsible with your spending. Choose to spend only on what is very important. If you can live without it, make the sacrifice and choose to put your money towards your debt payments or your savings.
  • Hold off taking on more debts. There are other debts that you can take. Credit cards and auto loans are some of them. Do not take in more unless you have paid a huge chunk off of your student or mortgage loan.
  • Have an emergency fund. You should also have an emergency fund in place. This will help you continue making payments even as unexpected expenses arise. It will also give you the security of knowing that you are financial prepared even if you have huge amounts of debt.
  • Increase your income. Lastly, you may want to try and earn more money. While some mortgage loans have prepayment penalties, student loans do not have them. You can pay as much as you can early into the repayment program so you can shorten your term. That should help you decrease your interest payments and save more in the long run.

Wiping Out Student Loan Debt Through Bankruptcy – The Pros And Cons

hands chained while holding coinsStudent loan debt recently surpassed credit card debt as it now stands at over $1.3 trillion dollars.

Does this represent a crisis or not?

Unfortunately, the answer to this depends on which financial experts you ask.

Some say that student loan debt is like the mortgage bubble and will soon burst. But others say it will never cause our economy to crash.

Millions of people trapped

Student loans do bear a resemblance to the housing crisis in that they have millions of people struggling to pay them back just as the mortgage crisis left millions of people
underwater – or owing more on their houses than they were worth. However, many experts say that student debt might be a problem for individual borrowers but won’t affect our economy, as there’s no bubble that could burst. One senior economist noted that the way that student loans have grown is important but this is its only similarity to the mortgage crisis. He went on to say that student loan debt and mortgage debt were growing at about the same rate per year but that’s where the resemblance ended.

A crisis for individuals

Student loan debt can certainly represent a crisis for some individuals. There are people stuck with $50,000 or more in student loan debt, people in their 50s that still owe on their student loans and people that have been forced to default on them. One example of what this can mean is that a person owing $30,000 in student loan debts at 6% would have a monthly payment of approximately $333 and for 10 long years. These debts have caused many young adults to forgo buying a house, having children or even getting married.

How did this happen?

There is no one simple reason why there is all this student loan debt. Part of the reason is clearly the increased cost of going to college. Just in the decade from 2002-03 to 2012-13 alone the tuition and fees at public four-year institutions rose at an average rate of 5.2% per year above the rate of inflation. And the cost of room and board increased by 2.6%. This means there was an average annual growth rate of 3.8% in total charges.

A second reason why student loan debt has grown so enormously is because how easy it is to get federal student loans. For example, just about anyone can get a Stafford loan, as they don’t require any kind of credit check. These loans have low interest rates and borrowers are not required to start repaying them until after graduation. Some Stafford loans are even subsidized meaning that the government pays the interest on them so long as the student is in school.

“Everyone needs to go to college”

A third reason why we have more than $1 trillion in student loan debts is because of the pervasive advice that everyone should go to college. The unanticipated consequence of this idea is that many kids go to college, find out it’s not for them and drop out owing thousands of dollars.

Why there’s no way out

Student loan debts are unsecured debts. This means borrowers are not required to put up an asset in order to get them. This makes them the same in many respects as credit card debt. The big difference between the two is due to the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA). What it changed is that bankruptcy could no longer be used to wipe out either federal or private student loan debts. The one exception to this is if the borrower can prove to a bankruptcy judge that he or she has what’s called an undue financial hardship, which is almost impossible to do. In other words once you take out a student loan you’re pretty much stuck with it – until you repay the money or get a job that offers federal student loan forgiveness such as teaching in a low income area or working in the public sector.

The pros of BAPCPA

The proponents of this act argued that it was necessary in order to prevent bankruptcy abuse – that people would borrow thousands of dollars, wait a couple of years after college, declare bankruptcy and walk away with a “free” education. The losers under this scheme would, of course, be US taxpayers as they would be footing the bill for these deadbeats.

Supporters of this bill also said that this would lead to cheaper loans so that more people could go to college. Part of this turned out to be true. It encouraged more people to go college but the loans didn’t get decidedly cheaper.

The cons of BAPCPA

Of course, the biggest con of this act is that it leaves people mired in debt defenseless with no ability to get it eliminated. It can be argued that these people got their student loans with their eyes wide open. They knew going in that they would have to repay them someday. However, 18- and 19-year-olds are not know for their maturity and are capable of making bad decisions – one of which could be borrowing thousands of dollars. To make matters worse, many of these students choose majors that will never pay off financially– leaving them not only deeply in debt but in careers that will cause them to be low earners practically forever.

The hardest hit

However, these are not the people that are hardest hit by their student loans debts and by the BAPCPA. These are people that bought into the idea that everyone should have a college education, went to school for a couple of years and then decided higher education wasn’t for them. This left them stuck in debt and without a degree to show for the money. Others that have been hard-hit are those that fell for the advertisements of predatory for-profit schools, borrowed money to finance their schooling and then discovered that their degrees were basically worthless leaving them both unemployed and buried in debt.

There are options

If you’re stuck under a pile of debt there is one good bit of news. You should be able to find a federal loan repayment program that would at least ease your burden. If you’re typical you didn’t pay much attention to your loans after you graduated so you’re probably in what’s called Standard 10-Year repayment. If so and if you find your payments too burdensome you could switch to one of the other five repayment programs available. One of the most popular of these is called Graduated Repayment. Choose this program and your payments would start out low and then gradually increase every two years. A second option is Extended Repayment, which would give you up to 25 years to repay your loans. You would have a much lower monthly payment but, of course, would pay more in interest because of the loan’s longer term. Plus, you would still be paying on your student loans in your late 40s.

There are also three income-driven repayment programs. One of these, Pay As You Earn, would cap your monthly payments at 10% of your “disposable” income. If you find you’re not eligible for this program, you could choose Income-Based or Income-Contingent repayment, which would cap your monthly payments at 10% or 15% respectively of your disposable income.

For more information about federal loan repayment options and about effectively managing you student loans debts, be sure to watch this short video courtesy of National Debt Relief …

In summary

Whether you borrowed all that student loan money for good reasons or it was a big mistake, the same holds true. You can’t get rid of it by filing for a chapter 7 bankruptcy but there are other options that could at least reduce some of your pain.

Hey, Recent Graduate. The Grace Period On Your Student Loans Is Over And It’s Time To Pay Up

frustrated womanIf you graduated or quit school this past May or June, your six-month grace period is about to expire and Uncle Sam wants to start getting his money back.

Have you actually sat down to determine how much you owe on your student loans? Given the fact that they’re parceled out one semester at a time and that you might have gotten several different types of loans, it wouldn’t be surprising if you didn’t know exactly how much you owe. Fortunately, there is an easy way to figure this out and that’s the National Student Loan Data System (NSLDS). Go to its website, log in with your student ID and you’ll be able to see all of the information about your federally backed student loans. This will include the date the funds were disbursed, the amount you borrowed on each loan, the amount you owe and the type of loan. You can save all this information to your student loan portfolio, which is a good idea, as this will make it much easier to access the data in the future.

Look into deferment

If you don’t yet have a job or are a member of the “underemployed,” you could think about applying for a deferment or forbearance. A deferment would give you a temporary 12-month “timeout” before you would have to start repaying your loans. If you have a Direct Subsidized Loan, a Federal Perkins Loan, and/or a Subsidized Stafford Loan, the government will pay the interest on it during that 12-month period.
If you don’t qualify for a deferment, you could try for forbearance. This would also give you 12 months where you would not have to make your payments or it could mean a reduction in your interest rate. However, the interest charges will continue to accrue on both your subsidized and unsubsidized loans as well as any PLUS loans.

How do you get a deferment or a forbearance?

If you want to apply for a deferment and have a Direct Loan or FFEL Program loan you will need to call your loan servicing company. For Perkins loans contact the school you were attending when you got the loan. Forbearance is a bit different in that there are two types – discretionary and mandatory. You will need to discuss this with the company that services your loan as it will decide whether to give you a discretionary forbearance. On the other hand mandatory forbearance is just that. Your loan servicer must give you forbearance if you are serving a dental or medical internship, employed in a national service position, or teaching in a program that qualifies under teacher loan forgiveness.

Note: There are some other circumstances where you would be eligible for a mandatory forbearance and you can learn about them by clicking here.

Understand your repayment options

Assuming you did not choose another repayment plan you were automatically put into Standard 10-Year repayment. Under this plan you will have a fixed monthly payment and 10 years to repay the loan. If you believe you would have a hard time making those payments, there are alternatives. One of the most popular of these is Graduated Repayment. Choose this program and your payments would start low then increase gradually every two years. This can be a good option if you are just starting out in your career and are a low earner. The idea here is that your salary will also grow over the years so that it will be easier for you to make those payments as they get bigger.

A second way to reduce your payments is through Extended Repayment. Under this program you are given up to 25 years to repay your loans instead of the standard 10. While this would lower your monthly payments dramatically, you would end up paying more interest over the life of the loan because of its longer term.

There are also three income driven repayment programs – Pay As You Earn, Income Based and Income Contingent. As you might guess from their names all three of these programs base your monthly payment on your income. Pay As You Earn was in the news recently when Pres. Obama issued an executive order that made about 3 million more people eligible for the program. If you are one of them you could see your monthly payments capped at 10% of your disposable income. Income Based repayment also has eligibility requirements and caps your monthly payment at 15% of your disposable income. Income Contingent repayment basically has no eligibility requirements and also caps your monthly payment at 15% of your disposable income.

One of the biggest benefits

One of the biggest benefits of federally backed loans is that you can always change repayment programs. As an example of what this means, you could start with Graduated Repayment, wait six years until your payments have grown larger and then change to Income-based Repayment.

Look for ways to save

The best way to save on your monthly payments is to switch to a repayment program with lower payments. However, there are some other ways to save money on those payments. For example, you could save a bit if you sign up for auto pay where your payments are automatically taken out of your checking account each month. Also, you can deduct as much as $2500 of the interest you paid on your federal and private student loans on your federal income taxes.

Consider consolidation

Finally, you could consider consolidating your loans. There are several reasons to do this. First, you would then have just one monthly payment to make in place of the multiple ones you’re making now. Second, you would likely have a lower interest rate and you would definitely have more years to repay the loan, which translates into lower monthly payments. While there is a lengthy explanation of how the interest rate is calculated if you get one of these loans, the simplest way to put it is that your new interest rate will be higher than the lowest interest rate you’re currently paying but lower than the highest.

How To Make Debt Consolidation Loan EffectiveGet a private consolidation loan?

You could also opt for a private consolidation loan. The interest rates on these loans are very low right now so you might be better off with one of them. However, as with many things in life, it’s important to shop around so that whether you get a federal loan or a private loan, you get the best deal and a payment you can live with –as you will need to live with it for as many as 25 years.

Think before you consolidate.

Don’t rush out to get either a Federal Direct Consolidation loan or a private loan until you understand the downside, which is that you would lose the perks that come with other types of federal loans. For example, you would no longer be able to change repayment plans. You wouldn’t be eligible for deferment, forbearance, forgiveness or loan cancellation. And you won’t be able to take advantage of any of the income-based repayment plans.

The one thing not to do

As you have read there are a number of different ways to handle your student loans but there is one thing you should definitely not do and that is miss a payment or be late making a payment. With federal loans you are considered to be in default the day after you miss a payment. This won’t be reported to the credit bureaus for 90 days but when it is reported it will have a serious effect on your credit score. Plus, the government can get very ugly when it comes to collecting arm defaulted student loans. It can garnish your wages without having to go to court, seize part of your income tax refunds or even prevent you from getting a professional license.

10 Things That College Admission Counselors Won’t Tell You

student with a notebook and calculatorIf you’re a high school senior or even a junior the time is near – when you’ll need to apply for admission to the colleges or universities of your choice. You’ll also soon to need to fill out the dreaded FAFSA or Free Application For Federal Student Aid. While the deadline for submitting the FAFSA is not until June 1, the earlier you complete and submit it the better. And, yes, you need to fill it out and submit it even if you don’t intend to get any federal student aid. The reason for this is your FAFSA will be sent to all the schools where you apply for admission and it will be used in determining whether to award you a scholarship, a work-study grant or some other form of financial help.

There are other things you need to know besides the importance of filling out your FAFSA and here are XX that college admission departments just won’t tell you.

1. It pays to be nice to your teachers

Given today’s skepticism about the value of GPAs and test scores, there are admissions department that are weighing more heavily on the recommendations from high school teachers and counselors. And it when it comes to recommendations the most useful ones are the ones that show that you’re intellectually curious and that you contribute to class discussions.

2. We only sound as if we were exclusive

Admission was offered to less than one-third of the applicants in 2013 by 100 US colleges. This can make a school look “exclusive” and it is believed that some schools try to manipulate this rate. The way they do this is by encouraging high schoolers to apply for admission even though they have no intention of intending. In addition, some schools count incomplete applications to increase their applications-to-acceptances ratios.

3. Politics can play a role

Whether we like it or not, the NACAC says that about 33% of colleges and universities consider race as a factor in accepting students. Some of our states have banned racial admission preferences but their schools have been accused of using workarounds against those bans. Unfortunately or fortunately – depending on your parents – one practice that is usually considered legal is “legacy.” This is where the kids of wealthy alumni or powerful lawmakers get special considerations in the application process.

4. We don’t trust it

In this era of “helicoptering” parents, many schools worry that the essays submitted by some students weren’t written by them. The way they weed out ghost writing is by asking students to supply other pieces of school writing that were graded by a teacher. One retired dean of admissions said that “if the essay looks like it was written by Maia Angelou but the school work looks as if it came from Loman, this will definitely raise eyebrows.

5. We prefer students that can pay full price

How many college freshmen come from outside of the US? In 2013 it was 10%. Colleges love these people because most of them pay full tuition. At publicly funded state schools, the higher tuition charged out-of-state students often works to subsidize the education costs for those who live in the state. As an example of this, the in-state tuition at the University of California – Berkeley is $13,000 a year. But for an out-of-state student or foreign resident, tuition is about $36,000 a year.

6. We need you more than you need us

Would you like to do some negotiating when it comes your tuition? This year the number of high school graduates leveled off at 3.2 million. And it’s expected to stay at that level until about the year 2020. As a result, more colleges will be chasing fewer students. If you are accepted to more than one school, you may be able to do some horse-trading on the cost of your tuition. In fact, you could view it as about the same as if you were to go to an automobile dealer and try to negotiate a better rate for a new car.

7. We laugh that you obsess over class ranking

Less than 20% of admissions counselors think of class rank as being “considerably important.” However, it is more likely to come into play at larger schools where it’s just not possible to do detailed reviews of applicants.

8. You could be admitted but not stay admitted

One sad fact is that about 22% of colleges and universities revoked at least one admission offer in 2009, which is the most recent year that was studied. The most common reason for these were final grades followed by disciplinary issues and then lying about application information. For that matter, the postings put on social media have prompted some universities to reconsider their offers.

9. All grades are not equal

Have you taken college prep courses? If so, the grade you got in them will probably be given more weight than other grades. The reason why schools are becoming more skeptical is due to what’s known as “grade inflation.” The College Board, which is the organization that administers the SAT has research showing that the average GPA for all high school seniors increased from 2.64 in 1996 to 2.90 in 2006 despite the fact that SAT scores remained about flat. This was seen as proof that there are teachers using grades to reward good effort instead of achievement.

10. Were wondering about the SAT

For almost as long as anyone can remember the SAT has been the big benchmark in forecasting how students will handle college-level work. However, today many people argue that the SAT gives wealthier students an unfair advantage as they could afford those pricy test prep classes. In fact, around 800 of America’s 2800 four-year colleges now consider the SAT to be optional. The NACAC endorsed a study done recently that looked at the performance of 123,000 students that had been admitted to college between the years 2003 and 2010. What this study found is about 30% of the applicants had not taken either the SAT or ACT … and that there was no significant difference in college GPAs or graduation rates between those who took on of these tests and those that took neither.

Young black college graduate with tuition debt, horizontalTo borrow or not to borrow, that is the question

Another decision you’ll have to make besides choosing a college or university is how to fund your education. Generally speaking about 50% of students graduating from college needed to borrow money to pay for their educations. Of course, it’s much better if you don’t have to borrow the money and can start plus, life after college free of debt. If this is just not possible, be sure to get federal student loans and not private loans. Student loans have a number of advantages over private ones, such as the ability to change payment programs. For example, instead of staying in the Standard 10-year Repayment program you could switch to Graduated Repayment where your payments would start low and then gradually increase every two years. This can be a real boon if you’re just starting out in your career and are a low earner. Or you could choose one of the income-driven repayment plans such as Pay As You Earn that would tie your payments to your disposable income. Plus, federally backed student loans also offer options such as loan forgiveness, deferment and cancellation that are normally not available in private loans.

Study Shows: Student Loan Is Not The Main Reason For Delayed Homeownership

hand with keys and a house made of moneyThere are many reasons why you would want to demolish student loan debt. People believe that it is one of the reasons why a lot of young adults are struggling today. It is blamed for a lot of financial difficulties – not just for the new graduates but also for their families too.

We hear stories of parents sacrificing their retirement money just to help their children get a higher education. We hear of graduates who are forced into careers they do not want to pursue but has to because it has the salary that can help them afford their payments. There are also young adults who are forced to delay a lot of milestones in their lives like marriage and parenthood.

Despite everything that we read on the news, things seem to be getting worse. According to an article published on WSJ.com, the class of 2014 has the highest student loan debt compared to previous years. The average debt now stands at $33,000 per student. This report was taken from the government data about this particular loan. This is actually double the amount of what graduate from 20 years ago had to deal with.

College debt is a devastating situation for a lot of students and new graduates but you have to hold back on blaming it for a lot of financial difficulties today. For instance, student loans are blamed for the lack of young homeowners today. Well a recent study have proven that it is inaccurate to blame everything on student loans. While it is a contributor, it is not the whole reason why a lot of Americans are still struggling to regain what they lost after the Great Recession.

Study reveals that there is more to delayed homeownership than college debt

The study that we just mentioned is titled “Is Student Loan Debt Discouraging Home Buying Among Young Adult?” This study was conducted by Jason Houle of Dartmouth College and Lawrence Berger of the University of Wisconsin-Madison.

The study published on APPAM.org mentioned two important trends that lead most people to blame college debt for the lack of interest in owning homes among young adults.

The growth of student loans in the past few years.

The first reason is the rise in student loans in the past few years. Not only has it grown, but it is noted to have grown substantially. The study revealed that both the proportion of young adults that have debt and the average debt per debtor is also increasing. According to the data gathered, it is revealed that student loans is the only consumer debt that grew during the Great Recession. This is attributed to the fact that the other type of debts can be discharged by bankruptcy. It also surpassed credit card debt – which consumers consciously did not use to keep their debts to a minimum. Now, college debt is already in second place when it comes to the most amount of debts – mortgage being the first on the list.

Decrease of home buyers among young adults.

The next reason why student loans are being blamed for delayed homeownership is the fact that young adults are not as aggressive in buying their first house. At least, they are not as aggressive as they used to. This decline happened just as the student loan debt increased. Since this is the main debt of young adults, a lot of people are assuming that the rise in this credit obligation keeps them from making investments – including buying a home.

The study revealed that these two reasons, while they may seem logical is not accurate. They pointed out that the downward spiral of homebuying among young adults came first – before the rise of the student loan debt.

The study also revealed that the New York Federal Reserve tried to analyze the link between the college debt and mortgage loans. The report used data from Equifax and was authored by Brown and Caldwell. This particular study reported three findings:

  1. Young adults with student loans are historically, more prone to own a home. It is assumed that this is the case because these are the people who got a college education – thus have the financial capabilities to get a home loan. A lot of those who do not have student loans are those who did not attend college.
  2. After the Great Recession, the reverse happened. More non-student loan debtors owned homes compared to those who owed college debts.
  3. Those with student loans during the post-recession period had lower credit scores – which contributed to their inability to qualify for a home loan.

Again, these findings sought to put the blame on student loan debt for the inability of young adults to own a home.

However, the study done by Houle and Berger mentioned that this conclusion is not as accurate as it should be – thus giving student loans the benefit of the doubt. First of all, it is pointed out that it is unclear if the difference between debtors and non-debtors only lies with their student loans. We think that Houle and Berger would like to point out that there are other factors differentiating these two – like lifestyle, employment, etc. These factors could also cause young adults to forego home ownership. They also noticed that the difference is mostly focused on characteristics – not the debt itself. The authors said that to make a more accurate comparison, all college graduates should be compared – those who got student loans vs those who did not. This apples to apples comparison could make for a more accurate connection between college debt and homeownership.

The latter, is what the authors of this study did. Although they acknowledge that their scope is limited, they did conclude that blaming student loans for the delayed homeownership of young adults is unjustly inaccurate. The authors did admit that there is a modest association but there are also other factors affecting the lack of homebuyers among young adults. For instance, a high percentage of Whites own homes while Blacks have a higher percentage of not owning homes. Not only that, the background of the respondents in their survey seem to have influences in their decision to own a home or not. Certainly, the economy also plays a role in hindering young adults in buying their own home.

So what does this study mean? Does it imply that student loans can still be considered as a good debt?

The student debt scenario is still a major concern

If you consider the fact that student loans can help young adults get a better earning opportunities, then yes, it is still a good debt. However, that does not mean student loan debt cannot jeopardize the future.

It is still a form of debt so it will have the power to ruin your financial future if you are not careful with it. Paying off your student loan debt is very important because it can destroy your future in ways that other debts cannot. Watch the video below to understand the costs of not paying this credit obligation.

If you need help in paying off your student loans, National Debt Relief can help you out. They offer a consultation service that will allow you to choose the right debt relief program that will help you pay off this debt. This service includes analyzing your type of student debt, employment history, etc. You will only be required to pay a one-time service fee – no maintenance fee or upfront costs will be charged to you. This fee will be placed in a secure escrow account and will only be released if you are satisfied with the paperwork done for you.

Common Misconceptions About College Without Student Loans

student loan and financial aidAre you trying to determine how to pay for your college education? This is one of the most controversial debts today because it is not only compromising the finances of the youth, it is also jeopardizing the future of the economy.

A lot of our youth are graduating from college with a lot of debts to their name. Student loans get most of the graduates through to college and that is one of the biggest debt problems that they are facing. They accumulated this debt even without a proper job yet. That is why their first decade of earnings will have to carry the burden of paying off these college debts.

With their money tied up with debt, they are unable to make investments early on in their life. It is difficult for them to buy a house, a new car and other things that will make their lives more comfortable. Some of them are even delaying life events like marriage or parenthood because they know that they have to prioritize paying off these student loans.

This is why a lot of incoming college students today are trying to find ways to go to college without having to apply for any college loan.

This issue came further into the limelight when Germany recently announced that all their universities will be free to all students – local and international. According to the article published on Thinkprogress.org, higher education across the country is now free for all. The tuition fee was actually already low to begin with. But with this announcement, it is not more possible for financially struggling students to get an education.

Of course, not everybody is open to the idea of going to another country to get an education. Some parents are not ready to let their kids go too far while other kids are just too immature to be left alone in a new country.

That only means they must find a way to try to go to college without getting into any, if not a lot of student loans.

The good news is, there is a way to go to school without college debt – as long as you know the difference between fact from fiction.

Common myths for those who want a college degree without the debt

According to an article published on WSJ.com, the Class of 2014 is now the most indebted class. The average debt that a graduate has to pay off is at $33,000. This will take more than the standard decade to pay off for some graduates. If compared to the debt 20 years ago, this average debt is almost double than what they had to pay back then.

Getting into college without student loans is not impossible but you need to understand your options. Some incoming college students can actually qualify to get higher education without debt – but they failed getting it because they believed in a couple of misconceptions.

Misconception 1: Community colleges do not have scholarships.

Despite the fact that they charge really low tuition fees, that does not mean these colleges forego scholarships. They still give this away to qualified students. Even if it is a $1,000 scholarship, it will still help you spend on other expenses apart from your tuition fees and books. Anything that you save here can be put aside to grow in an investment fund for two years. That way, you can use the money to pay for your schooling once you enter into a state or for profit university.

Misconception 2: The only way to avoid student loans is to go to a community college first.

In truth, going to a community college will decrease the chances of you needing a student loan. However, this is not the only way. There are a lot of schools out there that offer scholarships to qualified students. State universities offer great scholarship programs if you have the talent and grades to qualify for it. You may want to ask your high school counselor to give you a list of scholarship programs that you can apply for so you can identify the schools that you can qualify to go to. If you do qualify, you do not have to go through the hassle of going to two schools just to complete your education without student loans.

Misconception 3: Students can only financially prepare for a debt free college education.

This is true – you need to be financially prepared to go to college without debt. However, that is not entirely true. There are students who can go to college even if they or their parents did not prepare financially for it. If they did good in school, it will be easier for them to get a college education without the need to borrow money.

Misconception 4: Filling out the FAFSA is only to get help for student loans.

According to StudentAid.ed.gov, the federal government’s student aid program offers financial aid in various forms. If the parents of the child serves in the military, he or she is qualified to get aid from the government. You can also apply for work study and tax benefits to lessen the load. If you get a grant, it will help you pay for your college education without borrowing money at all. So do not skip that FAFSA (Free Application for Federal Student Aid).

Strengthen your financial position despite student debt

It is really a dream of high school students to go to college without student loans. However, the reality for some students is, they cannot escape borrowing money to go through college. Sad as it may seem, there are those who really have no choice about it. While a lot of scholarships and grants are there, not everyone qualifies for it.

So if you are one of these unlucky few, do not lose hope. There are still ways for you to demolish student loan debt – or at the very least, minimize the negative effects of the debt to your financial future. Here are some tips that we have for you.

  • Get a job. Believe it or not, you will not spend every waking moment of your college life studying. You will find a lot of free time that you can use to earn some decent money. You can use this money to help pay off some of your expenses. Or you can use it to grow your savings. If you borrowed money, you can pay it off while you are still in school. That should lessen the amount that you have to pay off when you graduate.
  • Do not accumulate more debt. Some college students get into trouble because not only do they have student loans, they also have credit card debts. There are many things that you can do to cut credit card debt but it all begins with you being wise about how you use it. We are not really saying that you do should not use your credit card. You can do so to help you build up your credit score. However, make sure that you can pay it off immediately so you do not accumulate a balance on it.
  • Budget your money. Whether your money is coming from student loans, your parents or your part-time job, make sure you learn how to budget it. That way, you can prioritize your payments and eliminate those that are unnecessary. It will also allow you to monitor if you are going beyond your means or you are doing alright with your money. Through your budget plan, you can see if your money is already running short. You can do something about it before you run out.

If you need help with your student loans, National Debt Relief offers counseling to those who want to solve their debts. The service includes helping the borrower find the best debt relief option that will help them pay off their student loans. The company will even help you with the documentation. This will only cost you a one time service fee that you do not have to repeat. It will be placed in an escrow account that will only be released when you are satisfied with the paperworks done by the company. There are no upfront or maintenance fees.

Borrowing Money For College Is A Bad Idea For A Reason You’ll Never Guess

Three tough decisionswoman thinking

If you or your son or daughter is nearing college-age, you have some difficult and confusing decisions ahead of you. Three of the most important are choosing a school, determining how to finance its cost and deciding on a field of study. These are difficult decisions to make because making the wrong ones could have a very negative affect on you or your child’s entire life.

Should you or your child even go to college?

We have heard it drummed into our heads over and over that every child should have a college education. Unfortunately, this is simply not true. We are all different, we all have different skill sets and we all have different abilities. So the first question you need to ask yourself or your child is whether she or he really needs to go to a four-year college. He or she might be better off in a two-year community college or in a trade school. You need to have a frank discussion with your child regarding his or her interest in college and whether or not they are committed enough to make it worth investing in what today’s four-year college education costs.

STEM or something softer

When choosing a college or helping your child choose a college you need to think about whether he or she would be best choosing a major in one of the STEM (science, technology, engineering, math) curriculums or in something softer. Study after study has shown that a STEM major will lead to a higher paying career than most other majors. However, again it’s important to factor in your interests, skills and abilities. Not everyone is cut out to be a math or engineering major regardless of potential earnings. On the other hand, if your child’s or your interest lies in areas such as photography and television arts, fine arts psychology or pre-K education you need to understand that he or she likely won’t be able to earn more than $25,000-$30,000 right out of school, which will make paying back any student loans very troublesome.

Food for thought

While this may not apply to psychology or social studies majors, a study of people in engineering and science and their earnings revealed some very interesting findings. What this research found is that the biggest single thing that has the most affect on salaries is variations in GPA or grade point average, And that students borrowing money for college generally end up with lower grades than those that didn’t have to borrow money and that this is the most important reason why they end up earning less. What this translates into is that borrowers don’t end up earning less due to financial restrictions or demographics that require them to go to inferior schools. In fact, students that are required to borrow money to finance their educations are 50% more likely to choose a more expensive program or a private school. This means they are betting more on the advantages they will benefit from these programs in their futures.

What are the results of this? It’s that non-borrowers that are disadvantaged and that attended lower-ranked schools leave schools with salaries that are more than 10% higher than those that were required to borrow money to finance their educations.

The reason for this

It all really boiled down to grade point average. Those that borrowed money had dramatically poorer grades than non-borrowers and this completely eliminated the positive advantages of attending a better school.

Why do the students that borrow money have lower grades?

The answer to this has been hotly debated. It could be due to the fact that there is the stress of debt that often requires them to get a job to help finance their educations. It’s also very possible that those who borrow money to finance their schooling are overestimating how important school quality is on their prospects for employment. Or it could be that borrowers faced more anxiety when they were trying to get a job and ended up taking one that paid less or was more secure instead of waiting for a better one.

Another possible explanation is that going into a very competitive program may not be in you or your child’s best interest. There is research showing that in the more competitive math, technology and science programs there is a higher dropout rate than those fields that are less competitive. The ugly truth is that the smarter are your peers, the dumber you may feel. And the dumber you feel the more likely you are to drop out.

man carrying dollar signThe moral: Reconsider borrowing money to finance your schooling

The net/net of all this is that when it comes to your future your grades are more important than where you went to school. For whatever reason, it’s clear that students that borrow money will end up with worse grades. So the best bet for you or your child is to avoid student loans like the plague and just do the very best you can do in your studies.

Student debt is like the Roach Motel

You’ve probably seen that advertisement for the Roach Motel where roaches check in but they never check out. Unfortunately, the same thing is true of borrowing money for college. It’s very easy to get into but virtually impossible to get out of. Our federal government in coordination with our colleges and universities has made taking out student loans so easy it’s very difficult to avoid taking them. But our government isn’t so nice when it comes to repaying those loans. Six months after you graduate from college you will be required to start paying them back no matter how painful it might be. You were automatically put into what’s called 10-Year Standard Repayment unless you were smart enough chose another program. If you are in 10-Year Repayment you will have a fixed monthly payment for 10 long years. And, of course, the more you borrowed the higher your monthly payments will be. For example if you borrowed $10,000 at 6% interest, your monthly payment would be $111.10. And if you were in debt to the tune of $20,000, your monthly payment would be $222.04 for those 10 long years. That could be enough to keep you from buying a car or putting together a down payment on a house.

Not even bankruptcy can save you

In 2005 our Congress in its infinite wisdom changed the bankruptcy code to make both federally backed and private student loans non-dischargeable in a bankruptcy. This means that student loans can’t be written off or forgiven unlike other private debts. This puts them on the same level as alimony and child support payments – totally non-negotiable so that they stick with you forever. For whatever it’s worth there is one exception to this, which is if you were able to prove to your bankruptcy judge that you had a severe financial hardship. You would need to be able to show and prove you can’t maintain even a minimal standard of living if you are forced to repay your student loans and that this problem is likely to continue for most of the repayment period of your student loans. You would also need to show the bankruptcy judge that you had made really good faith efforts to repay your loans. Barring this, you’re stuck and you will need to repay those loans whether it’s for 10 years or even longer.

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.

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