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

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

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

College loans will be more costly this year

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

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

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

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

Your degree determines if you can afford your student loan payments

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

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

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

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

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

Your college expenses will set the pace for your financial future

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

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

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

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

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

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

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

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

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

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

There’s just no escaping it

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

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

The government has more powers than a rabid collection agency

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

Miss just one payment and you’re toast

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

What happens to your credit report is really horrible

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

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

What to do, what to do?

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

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

Loan consolidation

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

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

The repayment options

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

If you are not eligible

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

Graduated repayment

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

It can be complicated

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

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

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

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

Three months to zero hours

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

Move back in with dear old Mom and Dad

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

Do the math

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

Join the Peace Corps

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

Flee the country

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

Enlist in the French Foreign Legion

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

Join the Military

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

Volunteer for AmeriCorp/Vista

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

smiling womanIt doesn’t have to be 10 years

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

Check out the other options

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

How To Know If You Should Consolidate Your Student loans

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

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

The options

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

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

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

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

Calculating your interest rate

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

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

The application process

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

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

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

Repaying your Federal Direct Consolidation Loan

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

Private student consolidation loans

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

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

Check out other options

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

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

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

Shop around

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

Advice and counsel

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

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

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

The new player in town

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

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

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

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

Not for everyone

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

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

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

The dangers of loan refinancing

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

The biggest benefit of  federally backed loans

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

Income-driven repayment

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

Other things you need to know

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

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

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

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

Income-based Repayment

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

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

Income-Contingent repayment

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

Income-Sensitive Repayment

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

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.

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