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

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

The new player in town

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

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

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

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

Not for everyone

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

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

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

The dangers of loan refinancing

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

The biggest benefit of  federally backed loans

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

Income-driven repayment

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

Other things you need to know

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

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

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

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

Income-based Repayment

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

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

Income-Contingent repayment

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

Income-Sensitive Repayment

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

How To Graduate From College Debt Free

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

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

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

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

Forget those for-profit schools

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

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

Enroll in a two-year or shorter program

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

Choose a low-cost college

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

Reduce the amount you spend on textbooks

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

Live at home

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

Choose your parents wisely

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

College costs continue to skyrocket

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

If borrow you must, hope for a subsidized federal loan

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

Work part-time

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

Build an online business

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

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

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

Join the Peace Corps

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

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

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

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

It’s an investment

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

What not to invest in

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

The five worst

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

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

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

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

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

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

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

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

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

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

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

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


The net/net

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

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

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

Did you know about this and would  you be  eligible?

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

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

In addition to these requirements not all loans qualify only …

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

How Partial Financial Hardship is calculated

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

What’s discretionary income?

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

Pres. Obama’s recent executive order

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

The pros of Pay As You Earn

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

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

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

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

The cons of Pay As You Earn

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

A bigger problemGraduation cap with money

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

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

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

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

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

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

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

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

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

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

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

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

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

How do you feel about your student loan debts?

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

Canoed across Ontario

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

Became a lab rat

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

Got a “sugar daddy”

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

Mystery shopped

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

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

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

To consolidate or not to consolidate?Man having financial problems

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

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

Whatever you do don’t default

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

Send Sen. Tom Harkins a thank you note?

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

Are Student Loans America’s Biggest Rip-off?

frustrated womanEveryone needs to go to college, right? Right. If you want any sort of job today – up to and including clerking or being an executive assistant – you’re told you need a college degree. On the other hand, some people believe that the whole idea that everyone needs to go to college is nothing more than ill-founded social engineering much the same as the idea in the early 2000s that everyone should own a house.

What this has lead to

Most young people who buy into this idea do not have enough money to pay today’s super-inflated college costs. The solution? They borrow the money. This year’s college students graduated owing an average of around $29,000 only to discover that due to the poor job market they have less of a chance than ever of actually getting a good job in a field commensurate with their degrees.

Young and naive

The problem begins when 18 and 19 year olds sign up for student loans without realizing that they’re agreeing to a relationship that’s more unbreakable then a mortgage. Plus, their debt usually starts relatively small with a loan of maybe just $3,000 or $4000 — but then four years later, surprise! That $3,000 has somehow ballooned to $20,000 or more.

Why college costs so much

The reason why colleges cost so much now has very little to do with the quality of the education they offer. In most cases it’s because the schools are building extravagant athletic facilities, hotel-type dormitories and other such embellishments and hiring big name professors as they race to become “prestige” schools. Why do schools raise their tuition and fees year after year? One reason is because most states are cutting back on financial aid to their schools. The other is the “easy money” that’s available through student loans that has become a huge subsidy for the education industry. In fact, in the last six years it spent between $88 million and $220 million lobbying the government. The cost of tuition at both private and public schools is rising faster than almost anything else in the US — energy, health care and even housing. Between the years 1950 and 1970 if you sent your child to a public university it would cost you about 4% of your annual income. Now, in 2010, it accounts for 11%. Moody’s recently released statistics that tuition and fees rose 300% versus the Consumer Price Index between 1990 and 2011

The secret behind the curtain

What the federal government does not want you to know is that it makes an enormous profit under the federal student-loan system — an estimated $184 billion over the next 10 years. Some critics of student loans say that it’s nothing more than a boondoggle paid for by super-inflated tuition costs and driven by the government-sponsored and predatory lending system. A second little secret is that the Department of Education (ED) actually profits if you default on your loans. This is because it makes money on students that default. It’s estimated that the ED collects an average of 100% of the principal on these loans, plus an extra 20% in fees and payments.

Debt collector hollering into micDefaulted loans may be turned over to debt collectors

There’s a third dirty, little secret of student loans that if you do default, your loan will likely be turned over to a debt collector. Student loan debt collectors have powers that would make a dictator envious. They can garnish everything from your tax returns to Social Security payments and from wages to disability checks. If you default on a loan you can also be barred from the military, lose professional licenses and suffer other serious consequences that a private lender could not possibly throw at you.

Interest rates are irrelevant

While you may think you’re getting a good deal when you take out a low-interest student loan, nothing could be further from the truth. The reforms that Pres. Obama was able to make in 2010 eliminated the possibility that interest rates would double permanently so it was nice that this was avoided. It was at least theoretically a good thing when the president took banks and middleman out of the federal student-long game so that all loans now come directly from the government. But interest rates are largely irrelevant. Is not the cost of the loan that’s the problem. It’s the principle – due to those staggeringly high tuition costs that have been soaring at two to three times the rate of inflation. This is very reminiscent of the way that housing prices skyrocketed in the years before 2008. And look what happened to the housing market.

The truth about Pres. Obama’s recent executive order

Pres. Obama recently issued an executive order that would make more people eligible for the Pay As You Earn repayment program. If you have what’s termed a “partial financial hardship” your monthly payments would be capped at 10% of your discretionary income. However, you would be required to document your income every year meaning that your monthly payments could increase or decrease annually. Also, it would take you much longer to pay off your loan, which means you would end up paying more interest. This could be of some help if you have the right kind of federal loans and have had trouble repaying them. However, all of these reforms really do nothing to attack the basic problem, which is your balance or the amount of money you owe. There are people well into their 50s who are still paying on their student loans. As of the first quarter of 2012, people under the age of 30 had the most borrowers (14 million) followed by the age 30 to 39 group with 10.6 million who owed on their student loans. In the category of age 40 to 49 there were still 5.7 borrowers and 4.6 million in the age 50 to 59 category.

What should you do?

The whole student loan thing may be a rip-off but that doesn’t mean you should just walk away from yours. As noted above, there is a serious price to be paid if you default on your loans. If you have not already done this, you need to go to the National Student Loan Database System (NSLDS) and check up on your federal loans – how much you owe and to whom. Once you’ve done this you will need to make a plan for paying off your debt as quickly as possible. There are a number of different repayment options available in addition to the aforementioned Pay As You Earn program. For example, there is Extended Repayment, Graduated Repayment and three other Income-Based Repayment programs. It can be seriously confusing and you might need help, If this is the case, National Debt Relief offers a program  designed to help people find the best debt relief program given their student loan debts. It’s a consultation service where we match your specific situation to the best debt elimination program. We take into consideration factors such as your employment, financial capabilities, amounts owed, types of loans and salary. We then recommend what we believe will be the debt relief program given your circumstances. We even prepare all of the paperwork necessary to get you into the new repayment program. This service requires just a one-time payment that we put into an escrow account. There are no other fees or charges. And we don’t take your payment out of the escrow account until you’re totally satisfied with the repayment program we’ve recommended and the paperwork we’ve prepared. In the event you are not satisfied with one or the other, we refund your money. So, this is basically a no-lose proposition.

Two Crazy Ways To Pay Off Student Loans And 9 Conventional Ones

girl-on-chair-with-bubble-400Are you one of the 20 million people who attend college each year? If so, the odds are that you’ll graduate owning money on student loans. In fact, of these 20 million, around 12 million or about 60% borrow money via student loans to help pay their costs. There are about 37 million Americans with outstanding student loans today. And here are even scarier statistics– as of 2012’s first quarter, the under 40 age group had the most borrowers (14 million) followed by 10.6 million in the age 30 to 39 group, 5.7 million in the category of 40 to 49 and 4.6 million in the age 50 to 59 category. I mean can you even imagine that 30 years from now you’d still be paying on your student loans? Ouch.

How much do you owe?

If you graduated this year the odds are you owe around $29,000 as this is the average amount of debt for today’s graduates – which is up from $23,450 just six years ago.

Get the facts

If you graduated in the past two or three months, you’re still in your six-month grace period or that number of months before you need to start repaying your loans. If you’re typical you probably have multiple loans from multiple lenders. If so, you need to go to the National Student Loan Database (https://www.nslds.ed.gov/) as it will have all the information on your federal student loans including.

  • Type of loan
  • Original amount of loan
  • Date the loan was first issued
  • Amount of money distributed
  • The loan holder or servicer
  • Amount you currently owe

Make a plan

The NSLDS also includes a Student Loan Portfolio. Make sure you store all the information about your federal student loans in your Portfolio so you can then make a plan for paying off your debts.

Two crazy ways to pay off student loans fast

There are a number of “conventional” ways to repay your student loans and some that can only be called crazy.

The first of these is selling shares in yourself. That’s right. You might actually be able to sell shares in yourself – an idea that was first proposed nearly 60 years ago by the economist Milton Friedman.

The way this works is that you’d get people to give you money upfront in exchange for a percentage of your future earnings. These are called Income Share Agreements (ISAs) and new companies such as Lumni, Upstart and Pave are promoting this invest-in-people option to help talented persons get money for their educations. Representative Tom Petri and Senator Marco Rubio have introduced legislation that would increase the use of these investment alternatives by formally defining ISAs.

A second crazy way to pay off student loans is to do what one University of Buffalo graduate did. He had $32,000 in student loan debts with useless degrees in History and English – leaving him with no real job prospects. He was determined to make money and moved to Alaska where he worked as a maid between his fourth and fifth years of college and then went back after he had graduated as a van tour guide. At one point he canoed across Ontario, Canada to transport people called “voyageurs,” and did other odd jobs until he was able to totally pay off his loans in just three years.

9 conventional ways

If you’re not interested in canoeing across Ontario or selling shares in yourself, there re other, more conventional ways to pay off your student loan debts are here are nine of them.

Is A Frugal Budget Really HelpfulMake a Budget

The first important step towards paying off your student loans is to make a budget. This isn’t just an important part of repaying your loans, it’s a critical part of achieving financial independence. When you have a budget, you can allocate money for repaying your student loans and everything else you need to pay for in life. A budget will not only help keep your spending under control, it can serve as a road map for achieving your short- and long-term goals.

Get into a better repayment plan

If you do nothing, you will automatically be put into the 10-year Standard Repayment Plan. As you could guess, you’ll have 10-years to repay your debts with a fixed monthly payment. But that might not be your best option. There are a variety of other repayment plans including Extended Repayment, Graduated Repayment and Income-Contingent Repayment. You should check these out, as one of them could be a much better option – and with lower monthly payments – than the 10-year Standard program.

Ask your employer

This won’t help with current loans but if you’re planning on going on to grad school, your employer might be willing to pay for it. While colleges are most likely to offer this benefit, there are other companies that have pay-for-school programs. Even if your employer doesn’t have such a program, it wouldn’t hurt to ask and you might be surprised at the answer.

Consolidate

If you do have multiple federal loans you might be able to save money with a Direct Consolidation Loan. The interest rate on these loans would be the weighted average of the interest rates on your existing loans rounded up to the nearest 1/8th of a percent. This means it would be higher than your lowest interest rate but lower than your highest. Plus, you’d have many more years to repay the loan so would have lower monthly payments.

Sign up for auto-deductions

If you were to enroll in auto-deduction, your loan servicer will automatically deduct your payment from your bank account every month. The benefit of this is that some loan servicers will give you a discount just for enrolling.

Volunteer

Volunteering in the Peace Corps or AmeriCorps would help you pay off your student loans while doing some good. Both these programs offer some type of education award or partial loan cancellation, plus they will pay your living expenses during the time you’re serving.

Talk with your co-signer(s)

The odds are that the co-signer on your student loans was your Mom or Dad. This means they’re probably also responsible for them. Since they were there to help you attend college, they might be willing to help you succeed in life. If you’re having a tough time repaying your loans, your parents might be willing to supplement your payments or match your funds.

Pay More Than Required Each Month

This might be a bit obvious but the fastest way to get rid of those student loan debts is by paying something extra every month. As you may know when you make a payment, you first pay off whatever interest accrued since your last payment and the rest goes to reducing your principle balance or the amount you owe. If you pay more than required, you could have the extra amount used to pay down your loan principle.

Get Rewarded

There are programs and websites where you earn rewards for paying down debt or spending money. In some cases, the money you earn can be used to pay down your loans. In fact, some of these programs are education specific so you put any credits you earn directly to paying down your debt.

More Help With Student Loans May Be On the Way Or Not

Video thumbnail for youtube video 7 Important Financial Lessons You Could Learn From Watching A TV ProgramYou may not be aware of this but if you got a student loan after July 1, 2010, it is a Direct Loan. If you got your loan prior to this, it was most likely a type of Federal Family Educational Loan (FFEL). The difference between the two is that FFEL loans came from private lenders but were guaranteed by the Department of Education. In comparison, Direct Loans come directly from the US government. There are only four types of Direct Loans versus the many different types of loans available under the FFEL program. They are.

• Direct Subsidized Student Loans
• Direct Unsubsidized Loans
• Direct PLUS Loans
• Direct Consolidation Loans

What this change means to you

If you have a Direct Subsidized Student Loan or a Direct Unsubsidized Loan, you have several different repayment options.

Standard Repayment – This is where you have equal monthly payments over the term of your loan, which will be 10 years.

Extended Repayment – Gives you 25 years to complete repayment but you would need to owe more than $30,000 and not have an outstanding balance on a Direct Loan as of October 7, 1998.

Graduated Repayment –With this plan your payments would start out low and then go up every two years. The term of these loans is the same as Standard Repayment or 10 years.

Income-Contingent Repayment – This plan would enable you to meet your Direct Loan obligations without suffering an undue financial hardship. In this program, your monthly payments are recalculated yearly based on your AGI or adjusted gross income, plus your spouse’s income, the total amount of your direct loans and the size of your family.

If you chose Income-Contingent Repayment your monthly payment would be the lesser of these two:

1. Your monthly payment if you were to repay your loan in 12 years multiplied by an income percentage factor that will vary with your annual income, or
2. Twenty percent of your monthly discretionary income

Income-Based Repayment – This plan bases your monthly payments on your income if you have a partial financial hardship. It’s possible that your monthly payment will be adjusted every year. The term of the loan is the same as Standard Repayment or 10 years. In addition, Income-based Repayment caps your monthly payment at a percentage of your discretionary income. Also, if you choose Income-Based Repayment and you have a remaining balance after 25 years of qualifying repayment, that balance will be forgiven.

Pay As You Earn – This plan would likely have the lowest monthly payment of any repayment plan based on your income. However, your payment will increase or decrease every year depending on your income and family size. To qualify for this plan, you will need to show that you have a partial financial hardship.

Payments will be capped at 10%

Pay As Your Earn is where you might or might not get new help with your student loan debt. President Obama just signed a memo directing the Secretary of Education to propose new regulations that would give those with Direct Loans the opportunity to cap their payments at 10% of their income – rather than the current 15%. This change could affect nearly five million student loan borrowers. This action will also increase the President’s Pay As You Earn program by making it available to those who took out student loans before October 2007.

The President also called on Congress to pass Senator Elizabeth Warren’s bill that would allow students to refinance their loans at today’s lower interest rates. Raising the taxes of millionaires – the so-called “Buffet Rule,” would finance this. In addition, he announced that the Department of Education (ED) would begin renegotiating contracts with those companies that service federal loans to have them provide more incentives to help more borrowers keep from falling behind on their payments.

Here, thanks to National Debt Relief is a brief video with more information oabout President Obama’s executive order.

The push back

It seems unlikely that Senator Warren’s bill will pass as Republican lawmakers stopped previously attemps to pass the “Buffet Rule.” They also attacked Warren’s bill on other grounds. Senate Minority Leader, Mitch McConnell, pointed out that Warren’s bill does not make college anymore affordable, reduce the amount of money that students would have to borrow or do anything about the job market that college graduates face in today’s economy.

What you could do

If you are out of school and repaying your student loan debts but are not in the Pay As You Earn Program you might think seriously about switching to it. As noted above, this would cap your monthly payment at 10% of your discretionary income. The way you calculate discretionary income is by subtracting 150% of the poverty level from your total income. The idea behind this is that the 150% accounts for the money you must spend to pay for basic living expenses.

The Federal poverty level guideline for 2014 is $23,850 annually for a family of four. You would add $4060 for each additional person to compute the poverty level for larger families. You would also subtract $4060 per person for smaller families. As an example of this, a single-person household would be considered poor if his or her income was $11,670 or less.

Would you qualify?

This is just a rough example but let’s suppose yours was a family of four with an annual income of $50,000. Multiplying $23,850 by 150% yields $35,775. Subtract this from your annual income of $50,000 means your discretionary income would be $14,225. If your monthly payment were capped at 10% it would be just $142.

If you want to switch

If you want to make the switch you will need to contact your loan servicer. Its advisors will discuss your options with you and then help you switch to Pay As You Earn – if that turns out to be your best alternative.

The downsides

Unfortunately, there are downsides to Pay As New Earn that you need to be aware of before you make the switch. For one thing, you will end up paying more interest because you’ll be repaying your loan over a longer period of time. Second, you will be required to submit documentation annually to set your payment for that year. If you don’t your monthly payment will be changed to whatever you would be required to pay under the 10-year Standard Repayment Plan and will no longer be based on your income. Plus, any unpaid interest will be capitalized – or added to your balance owed.

Third, only Direct Loans are eligible for the Pay As You Earn repayment plan. You can take into account any FFEL program loans you have to determine whether or not you have a partial financial hardship but these loans will not be eligible for the Pay As You Earn Program. If you have these types of loans and still want to make a change, you’ll need to choose another plan such as the Income-Based Repayment plan.

Finally, if you have any loans forgiven after the 20-year time period you will be required to pay taxes on whatever amount was forgiven.

We can help

As you may have learned from reading this article, the whole subject of student loan debt is complicated and complex. However, National Debt Relief recently initiated a program to help people find the best debt relief program given their student loan debts. This consists of a consultation service where we match your specific situation to the best debt elimination program. We take into consideration your employment conditions, specific situation, financial capabilities and salary and then recommend the debt relief program that would be best for you.

A program where you can’t lose

In addition, we will do the paperwork required to get you into the new program. National Debt Relief charges only a one-time, flat fee for this service. When you pay our fee we put it into an escrow account. There are no maintenance fees or any other charges. We do not withdraw your payment from the escrow account until you’re satisfied with your paperwork and our recommended debt relief program. If it turns out that you’re not satisfied with our paperwork or with the debt relief program we recommended, we will not withdraw your payment and you will not be charged a single cent. In other words it’s a no lose situation. We either get you into a better debt relief program or you pay us nothing

Has The Department of Education Asked You To Consolidate Your Loans?

Video thumbnail for youtube video 6 Tips For Simplifying Your Financial LifeDid you recently receive a call or letter from the US Department of Education (ED)? If you have some type of federal loan, you probably did — thanks to reforms recently made to the Health Care and Education Reconciliation Act.

$400 billion outstanding

Did you know that all federal loans are now Direct Loans? This includes the $400 billion still outstanding in Federal Family Education Loans (FFEL). The problem with these loans is that they offer fewer options for repayment and are unreasonably costly for taxpayers. Plus, there are about six million student loan borrowers that have at one FFEL loan and a Direct Loan. This means they must keep track of and make at least two different monthly payments — which, in turn, puts them at a greater risk to default.

The ED wants you to consolidate

The ED is encouraging those of you that have two loans to move their guaranteed FFEL loan into their Direct Loan. If you have split loans, this program actually requires you to do nothing. In January of 2012 the ED began reaching out to borrowers that qualified to let them know of this new opportunity so you may have already heard from the ED.

The consolidation initiative

This consolidation initiative will keep the conditions and terms of your loan identical — except, of course, you’ll be required to make just one payment a month. If you take advantage of this program you will also get a half of a percent reduction to the interest rate on part of your loans, which could translate into reduced monthly payments and a savings of hundreds of dollars in interest. Any FFEL loans you consolidate would have their interest rates reduced by 0.25%, plus your entire consolidated FFEL and Direct Loan balance would have an additional 0.25% interest rate reduction.

What this could mean

Here’s an example of what this could mean if you were to consolidate your FFEL loans into a Direct Loan. Let’s assume you’re repaying two $4,500 FFEL Loans at 6% as well as a $5,500 Direct Loan at 4.5%. If you repay those loans under Standard Repayment, you will pay $4,330 in interest until you’ve paid off your loans in full. But if you were to consolidate those FFEL loans into a Direct Loan, you would save $376 in interest payments and would be required to make just one payment a month rather than two.

Here’s a more dramatic example. Let’s assume you are repaying a $32,000 FFEL Consolidation loan at 6.25% and a Direct Unsubsidized Stafford loan at 6.8%. If you re these loans under Standard Repayment you will pay a total of $13,211 in interest. However, if you were to consolidate that FFEL loan you would save $964 in interest.

Struggling with your student loan debts?

If you’re struggling with your student loan debts, as are many Americans, there’s a free online tool that could help. It’s called the Student Debt Repayment Assistant and is available on the website of the Consumer Financial Protection Bureau (CFPB). This tool will first ask you whether you have federal or private loans. If you have only federal loans, it will next ask if you’ve ever missed one or more payments on your federal loan. Assuming you haven’t, the tool will then ask whether or not you believe you can make your full payments — considering your other living expenses. If you are struggling with your debts and answer, “no,” the Student Debt Repayment Assistant asks if you are on active duty in the military. Answer “no” to this question and it will suggest that you move to Income-based Repayment (IBR).

The benefits of IBR

If you choose to move to IBR (based on this tool), you would get several benefits. For one thing, if you work in a profession where you have a moderate salary and a lot of debt, and stay enrolled in IBR for 25 years, you could see any remaining balances cleared (eliminated). Second, with IBR you can pay more if you want to, which would save on interest and enable you to repay your loan faster. If you work in a public service job for 10 years, you could be eligible for loan forgiveness. But the most significant benefit of IBR is that you’d probably have a much lower monthly payment – because your payments would be based on your income, the state where you live, your debt load and the size of your family.

Here’s an example of what this could mean. Let’s suppose you’re currently paying $208 a month on a $20,000 student loan debt. If you were to move to IBR, had an income of $30,000 a year and a family of three, your payment could drop to just $28 a month. You read that right. Just $28 a month.

The disadvantages of IBR

You’ve probably heard that old adage that there’s no such thing as a free lunch. This is definitely the case when it comes to IBR. It has two significant “prices” or disadvantages. The first is that it will take you much longer to pay off your loan — probably 30 years vs. 10 years in Standard Repayment — and you’ll pay more in interest. But if you’re having a tough time repaying your student loans you might be better off switching to IBR to get that lower monthly payment even if it means it will take you a lot longer to repay your loan.

Would you be eligible for IBR?

If you used the Student Debt Repayment Assistant and were told you would qualify for Income-based Repayment it’s important to understand that this may not be the case. While the Student Debt Repayment Assistant tool can be helpful, you may not be eligible for IBR despite what it says. The reason for this is because to qualify you must show you have a partial financial hardship. The way this is defined is that the monthly payment you’re currently making under a 10-year Standard Repayment Plan needs to be higher than what you would pay monthly under IBR.

Lower monthly paymentsMan counting money

If you have newer loans you might be eligible for the Pay As You Earn (PAYE) repayment program that offers even lower monthly payments than the IBR program.

Even more options

In addition to IBR and PAYE, there are Income-Contingent Repayment and Graduated Repayment. While all of these plans have many things in common, they do have different eligibility requirements and provide different levels of debt relief.

Finding the best program

As you have read there are a number of ways to deal with student loan debts, plus others such as loan deferment and cancellation that we haven’t covered. Fortunately, there is a simpler way to determine which of these programs would be best for you. The company National Debt Relief recently introduced a consulting program where it will match your situation to the best student debt elimination program given your financial situation. In addition, National Debt Relief will do all the paperwork required to get you into that new program. There is just a flat, one-time fee for this service, which is deposited into an escrow account. National Debt Relief will not withdraw its fee from this account until you have approved both your paperwork and its recommended student debt relief program. If you don’t like the program National Debt Relief recommended or are unsatisfied with your paperwork, your money will be returned and you will pay nothing.

Study Shows an Increase in Household Debt

House with cash on the roofHousehold debt is a combination of all loans and debt a family would have. This includes mortgage loans, credit card debt, student loans, and even credit card debt. There is nothing wrong in having most of these on your list, even all of them. The idea is to properly manage the payments to allow you to still live your life the way you want to and not just live to work to make payments.

Online.wsj.com recently shared an article illustrating that there in an increase in household debt. This is a steady increase starting from July  2013 to January to March 2014. According to the Federal Reserve Bank of New York, the current numbers on  household debt is at $11.65T from $11.521. This figure shows a $129 billion increase between January and March 2014.

Mortgage in household debt

Housing is still on top of the list of household debt. Even with tough mortgage problems, housing loans still makes up the bulk of total debt in the US household. The mortgage industry now stands at $8.2T showing strength with a $116B increase. The jump from $8.08T shows as well a decrease in consumers getting into foreclosure. This is a big factor in a decline in the mortgage industry.

More than foreclosure, the increase in the industry also shows that new loans are on a slide. It has lowered to $332 billion for three quarters straight. Part of this is how the market is being priced. Most are on still a bit more than what the mass buyers can afford. With prices still at a high level, taking our new mortgage loans are still not very affordable for would-be new homeowners.

Credit cards usage in  household debt

Credit card is next on the list but consumer habits are changing leading to a decrease in the use of plastic credit. Since 2002, it is now at $659 this quarter. This amount went down by as much as $24 billion from the previous quarter. Year on year, same quarter last year was just a few point up from this quarter. This shows that credit card use in decline.

Gallup.com also confirmed this with a study that shows the decrease in the reliance of a credit card in the US economy. The study revealed that 48% pay the full amount when their bills come in. This is one perfect example of financial literacy. Making the credit card work in your favor. This is an 11% increase compared to data last 2004. Back them, only 37% paid their credit card in full.

This data also goes to show that the number of people leaving balances in their credit card has gone down. It is now only at 33% compared to 45% in 2004. Less and less people are putting off payment for the full amount. This is most likely because of the awareness on how interest payments and other finance charges are blowing up their payments more than it should be

The data also shows that more and more people are dumping excess credit cards and learning how to live off on a few plastic credits. The survey revealed that credit card ownership is at an all time low in 2014. From 2002, 17% of the respondents did not own a credit card. In 2014, that number went up to 29%. There was a 12% increase over the last 12 years showing steady and consistent decline in credit card ownership.

Digging deeper, it showed as well that consumers who carry 5 to 6 different credit cards went down from 12% to 9% in the same years. This again shows a steady 0.25% decrease every year from 2002 to present. Those that carried 7 and more credit cards also decreased from 11% to 7% showing a consistent decline of about .33% every year.

All these shows that from 2002, the average credit card ownership of US consumers went down from 3.3 to 2.6 in 2014. If the data was to exclude those that did not own a single credit card, the data would still go down from 4 to 3.7 in 2002.

Credit card ownership at a glance is:

  • No credit card highest in 2014 at 29%
  • Having 1 to 2 credit cards lowest again at 33% in 2014
  • Having 3 to 4 credit cards lowest in 2014 at 18%
  • Having 5 to 6 credit cards lowest in 2014 at 9%
  • Having 7 or more credit cards lowest in 2014 at 7%

Student loans and car loans

Student loans has taken up quite a big chunk of the debt industry when it broke into $1T total recently. This could even go up as Wnd.com  broke the story that government-funded student loans are about to increase according to an analysis of the the Congressional Budget Office.

A lot of college students and working professionals deal with student loans everyday of their lives. It is that one loan that you carry from college all the way as you walk to your first job interview and even up to the time you already have kids of your own. This is why a lot of debt collectors are earning a lot from student loans.

The balance for car loans grew as well to $875 billion with a $12 billion increase from the past. Getting a car of your own is just as much an American dream as getting a house is. Having a car of your own now is a necessity more than anything. And it is not cheap to get a car. Most first time car buyers forget that the cost does not stop in the purchase price. Gas cost should be a major consideration as well as maintenance cost. All these and more should be considered before getting a car loan.

Effects on the US Economy of credit card use

Financial literacy has a lot to do with reduced dependency of consumers with credit cards. Knowing how many card you have to carry and being able to pay for the purchases you charge is a sign of a being financially responsible. The lower number of credit card users who leaves balances in their statement goes to show as well that more and more consumers are beginning to understand how interest payments are making them pay more.

The financial crisis in 2008 was mainly due to the fact that people over borrowed and had little funds to pay it back. It started a vicious cycle of more borrowing because of living expenses and the need to pay off loans and getting and borrowing again to cover the same recurring expenses. It is only now that the economy is getting back up on its feet with the consumers leading the way.

The US economy is consumer driven. About 70% of the economy is dependent on the purchasing movements of the consumers. The more the people purchase, the better the economy is. Any sign of slowdown in the purchases of US consumers has a direct effect on the performance of the US economy.

The trend that has to be closely monitored is the combination of the slowdown in credit card ownership and a slow wage growth. The availability of using credit and the lack of funds to actually pay for credit purchases could have an adverse effect on consumer spending.

Financial literacy does not restrict purchase and limit household debt. It guides the consumer in making the right choices and makes them realize the importance of saving up for emergencies and retirement as well. It also shows the importance of dealing with debt payments and how it affects their everyday lives. Dealing with loans and debts and budgeting them are crucial in being able to financial freedom.

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