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Off To College This Fall? Here’s How To Reduce Student Loans

young man holding empty wallet and booksIf you’re off to college this fall, congratulations! You’re about to embark on what will likely be four of the best years of your life. You’ll learn new things and meet new people that could end up lifetime friends. There’ll be challenges – no question about that – long nights of studying and irascible teachers that must be pacified. However, if you do the work and keep your nose clean then four years from now you’ll have college behind you and will be ready to start your career or move on to grad school.

The most important question of all

You’ve probably already answered the most important question of all, which is how you’re going to pay for your education. If you’re typical you filled out the Free Application for Federal Student Aid (FAFSA) last January and you know whether you’ll be receiving any student aid or if you’ll be required to take out student loans to finance your education. If you were a really great student throughout high school or a gifted athlete you may have received a big scholarship, which is by far the best way to pay for a college education. For example, where we live there is a full-boat scholarship program available that will pay for the entire cost of all four years of college.

If you didn’t win a great scholarship you may have been awarded a work grant or a grant-in-aid. Both of these are good because, unlike student loans, the money doesn’t have to be repaid. These are usually subtracted from your tuition bills, making the cost of college more affordable.

If borrow you must

If the only way that you can finance your education is through student loans what you want to avoid is borrowing everything you’ll need to pay for your entire four years of college. Last year people graduated owing an average of more than $32,000 in student loan debts and many students were forced to borrow even more. If you start life after college owing $32,000 it could take you 10 years or more to pay off those loans. This is a burden that would not only affect you for those 10 years but possibly for the rest of your life.

Where it starts

The problem is that some college financial aid officers are not your friends. What they concentrate on is helping their schools. Some people call this the “used car salesman mentality.” These are financial aid officers who will create any kind of financial arrangements to ensure that you get into and stay in college. The problem is that this is a short-term situation but could end up hurting you over the long term.

The real cost

There is no question about the long-term impact of student loan debt. It’s not only crippling recent graduates it’s also lowering the growth of our economy. This is due to the fact that debt-laden students end up spending years after school struggling to repay their loans instead of buying a home or saving and investing. In addition, many people have become disenchanted by the whole idea of higher education. The question they are asking themselves, and that you might ask yourself, is it worth it. Should you really be running up $30,000, $40,000 or more in student loan debt to earn a degree that might not really help you get a job?

piggy bankKeep your loans to the very minimum

If you’re convinced that you do need a college degree for that “dream career,” the critical thing is to keep your student loans to the very minimum. This may come under the category of, well duh, but the less money you borrow the less you will have to repay.

Talk with your financial aid officer

Before you sign on the dotted line for a student loan be sure to discuss the alternatives with your financial aid officer. It’s possible that there is other forms of aid such as a work grant that could help you reduce the amount of money you will need to borrow. In addition, there might be scholarships available that you were never made aware of.

Get a job

Once you get settled into school you might get a part-time job. College towns almost always have openings in food service and retail. It could be tough to work, say, 20 hours a week while carrying a full course load but it is possible. If you get one of these jobs be sure to use the money to help pay for next semester’s costs. Jobs in food service and retail generally pay about $9 to $10 an hour, which might not seem like much. But if you were to work those 20 hours a week this would be around $150 after taxes or a total of roughly $2100 you would have available to apply toward next semester’s costs.

Graduate in four years

A second important thing you could do to keep those student loans to a minimum is graduate in four years or less. A mistake that many students make is changing majors in mid-stream, which almost inevitably leads to a fifth year of college. If you know what this year will cost you, try multiplying that number by five instead of four and you’ll see how much more debt you’ll end up with. The courses you take in your first year or two should help you decide on your major. But think this through very carefully before you declare because if you were to change your mind during or after your junior year you’ll end up piling on much more debt. You might also think about trying to graduate in less than four years. Of course, it would cost you more to take on maybe 18 credit hours for a couple of semesters instead of the standard 15. But if you got out of college just a semester early you’d more than make up the extra cost in what you would save in living expenses. Plus, this would give you an earlier start on getting a job vs. most of your colleagues.

Don’t switch schools

Do not switch schools unless it’s an absolute necessity. If you do this it will take you longer to graduate, which means you will graduate with more debt. One recent study showed that students that transferred to a new school ended up with about $3400 more debt than those that stayed put.

Finally, here’s a short video, courtesy of National Debt Relief, with good information about student loans and how to determine how much you may need to borrow.

Do’s And Don’ts Of Borrowing Money

man pressing pay later buttonBorrowing money seems to be a practice that we will never stop doing. We know how it almost drowned the average household during the Great Recession. A lot of us have yet to recover fully from what happened. But even if we know that our financial condition is still not as strong as before, we still continue to borrow money because that is how some us can afford to improve our lives. While this can be effective, it has to be approached carefully.

The consumer debt problem of Americans, regardless of what you hear on the news, is far from over. The debt is still as present as ever. In fact, some families may be having difficulties coping with all their debts. If another financial crisis that is similar to the Great Recession happened once more, a lot of households might not be able to recover. It is a scary thought.

According to the data collected in NerdWallet.com, Americans have a total of $11.83 trillion in debt. This is higher than last year by 1.7%. The average mortgage owed per household is $156,333. Student loans are currently at $32,953 while credit card debt is at $15,706 per household. This is a huge load for the average household to carry.

Sure, the highest debt that consumers owe is a home loan – something that is actually helping them increase their personal net worth. But it is still a dangerous debt to have. You need to know the right practices when it comes to borrowing money so you will never have to endanger your financial condition again.

The truth is, debt is not the problem in society. It is how we react to debt that makes it a good or a bad debt. If you know how to manage your credit properly, you do not have to fear that it can ruin you financially.

What to do when you want to borrow money

The key to borrowing money is to do it wisely. Here are 5 things that you need to do in order to be wise with debt.

Do have the right reasons to borrow.

You need to have a valid reason for going into debt. Credit is something that you need to pay back with interest. You want to make that interest worth your while. Having the right reason to be in debt is how you can do that. It is something that you need to think about carefully. If you will borrow money to get the latest gadget even if you do not really need it, you know it is not a good reason to be in debt. But if you will go into debt because you want to put more money into your pocket, that is a better reason. For instance, if you will use credit to upgrade your oven so you can earn extra from baking cookies, it is a great reason to be in debt. If you do it correctly, you might just be able to earn enough so it pays for itself.

Do find the best interest rate.

A big mistake is borrowing money without shopping for the best interest rate. There are a lot of lenders out there. You need to know which of them offers the best rate so you can minimize the amount that you need to pay on the interest. The lower the rate, the better it will be for you. Thanks to the digital age, it is easier to know the existing rates in the financial market. You can visit websites like Bankrate.com to compare rates.

Do check if you can afford the payments.

Borrowing any amount of money is not something that you do on a whim. It is a financial decision that you need to think about carefully. One of your considerations should be how you will pay off the loan. If you are unsure how you will pay off the loan, then do not proceed. At least, put it on hold until you are sure that you know how you can afford to pay back what you will borrow.

Do understand the fine print.

Nobody reads the fine print. Really. The small prints are boring and some of the words are hard to understand. While that is unfortunate, you need to read the fine print. There is no shortcut about it. Actually, you need to do more than just read it. You need to understand it. If there is something that you do not understand, ask. You might be signing up for something that you are not ready to deal with.

Do save while paying off debt.

Lastly, you need to keep on saving even when you are in debt. So if you are revising your budget so you can accommodate your new debt, make sure you leave room for savings. We all know what having an emergency fund will help eliminate the need for unnecessary debt. Using credit to buy something that will improve your financial situation is a good idea but it is a better idea to buy it in cash. That way, the return of that investment is greater. So always leave room for savings. You will never know when you will need that fund in the future.

What not to do when you are borrowing cash

If there are rules that you need to do when you are borrowing money, there are also rules when it comes to what you should not do. Here are 5 things that you need to remember NOT to do when you are asking for a loan.

Don’t borrow if you still have other debts.

Before you borrow money, you usually look at your income to see if you can afford paying for it. While that is logical, there is one more thing that you need to look into: how much debt do you still owe? If you still have a lot of student loans, do you really think it is wise to borrow money for a new car? You may want to find debt relief for some of your credit accounts before you add more credit to your name.

Don’t make borrowing your financial solution.

Believe it or not, some people use debt as a way out of a difficult financial situation. This is a desperate move that you need to avoid. If you use debt for emergency situation, that is a very bad idea. This is why one of our to-do rules is to keep on saving even as you are in debt. It is better for you to have an emergency fund so you can avoid borrowing money just to get yourself out of a financial problem. Sometimes, the problems will make your desperate and unable to make wise decisions when it comes to debt.

Don’t forget to pay on time.

Paying on time is one of the important rules of borrowing money. If you cannot pay on time, you will be charged with late fees. Not only that, if you let it go for a long time, your credit behavior will be reported to the three major credit bureaus. That can compromise your credit score and jeopardize future financial transactions. So if you can help it, just pay your dues on time.

Don’t fall prey to bad lenders.

When you are choosing a loan, you are always advised to seek out the ones with the best terms (e.g. low interest rates, etc). Apart from that, you also have to be careful where you will borrow money. There are some lenders offering rates and terms that are too good to be true. Sometimes, it is too good to be true so you need to be very careful. It is best to check what the law says about your rights as a borrower. According to an article published on ConsumerFinance.gov, the Office of Fair Lending and Equal Opportunity is working hard to identify discriminating practices in the financial markets. You may want to check out their website for more information about borrowing money.

Don’t keep borrowing a secret.

On a last note, you need to avoid keeping your debt a secret – especially when you are married or in a serious relationship. Talk to someone about your debt because that can help increase your sense of responsibility about that debt. If someone knows about it, then they are bound to check if you are paying it off. They could be a great adviser when it comes to financial decisions.

To know more about borrowing money, here is a video from Money Talks News with tips on how you can be smart about it.

Is It Smart To Use Your Retirement Money For Your Child’s Education?

golden egg with moneyDo you think that it is a smart move if you use your retirement money for your child’s education? After all, no parent would want to see their kid suffering financially. But does that really mean you need to sacrifice your future just so they can start their own future without any debt?

It is very hard to save for retirement when drowning in debt. That is a fact. So before you do the selfless act that comes naturally for parents, you may want to reconsider using up your retirement funds just to save your kid from student loans.

Although it is the noble thing to do, it may not be the smartest. According to an article published on CNBC.com, Boomerang kids are threatening to ruin their parent’s retirement. When they start moving back to the house or passing on the burden of paying off student debt to their parents, they are endangering the retirement of their folks. This report was taken from the market research done by Hearts & Wallets and shared with CNBC. According to this study, a lot of the parents of boomerang kids are postponing retirement just so they can help support their kid. And what is more troubling about this news is that those who are doing it is part of a big group. In fact, more than one-third of baby boomers provide financial support to their kids – that amounts to 15.8 million households. That is said to amount to $8 trillion worth of assets that could have been invested.

If you are seriously thinking about using your retirement money to help you child avoid debt, you may want to rethink your options first.

Should parents use their retirement fund to keep their child from student loans?

There is an article from MoneyNing.com that discusses this topic. According to the author, parents should not endanger their retirement money just so their kids will be spared. In fact, the article suggested that parents should start saving money early on to take advantage of the compound interest of some college savings funds. They can start early, save a little each month, and still have more than enough to help keep their kids from college debt when they are older. At the very least, this move will help put some money on the table to minimize the need to borrow money.

In our opinion, it is really not smart for parents to use their retirement money to fund the education of their child. So the answer to the title of this article is a big NO. There are two important reasons why parents should be encouraged to be a bit selfish when it comes to their retirement funds.

You deserve to give yourself a bright and comfortable future.

First of all, you really have to reward yourself for all the work that you have done and will still be doing in the future. You are not only working for your own needs, you have been supporting your child during the first 18 years of their life too. That is not an easy task considering the financial difficulties that everyone experienced in the past few years. Although parenthood requires sacrifice, there are some things that you also need to do for yourself. It is true that it is your responsibility to ensure that your child is equipped with the education that will help them support themselves financially in the future. But that does not mean you should choose between your future and theirs. If you want to be logical about it, there is more at stake with your future because you only have so much time to turn things around. You child still has a long way to go to pay up their student loans and save up enough retirement money. You do not have that luxury. That is why it is okay to be selfish by putting your retirement needs first before that of your child.

You need to teach your child how to pave their own way.

Another reason why you should not use your retirement savings to fund your child’s education is because you need to teach them to be responsible with their money. Times are hard. It is not like you are in abundance now. You need to let your child experience that reality. An article from QZ.com finds fault in the way baby boomers practiced the concept of helicopter parenting. This means they try to micromanage the routine and behavior of their child. Their intentions are good because they only want to pave the way for their child to experience success. However, the methods used are not really teaching their children to own up to their lives. Too much sheltering will leave you with a child who will always be dependent on you. Do you really want that on your plate while you are retired? More importantly, can you really retire if your child continues to depend on you?

How to help with college finances without compromising your retirement savings

Of course, as a parent, you will not really leave your child without any help. You will assist them to ensure that they will not graduate from college drowning in debt. However, you need to think about how you can do that without compromising your own retirement money.

Here are a couple of tips that we have for you.

  • Guide your child in selecting the right loan. If you are not going to use your retirement funds to finance the education of your child, that means they would have to borrow student loans. There many options to get financial aid. You need to be patient and sit down with your child to discuss with them their options. Make sure that you research not just the type of loans that they can borrow, but the repayment options too. You need to make a decision on the loan based on how easy it will be to pay off in the future. In essence, educating them is more beneficial than using your retirement money.
  • Teach your child how to manage their money wisely. Once you have helped them select the right loan, the next lesson you need to teach them is money management. What they will learn from you will be something that they can carry with them until adulthood. When it comes to teaching your child about proper financial management, you can start with budgeting, saving and smart spending. You should discuss with them credit and how to manage it properly – especially if you will allow them to use credit cards.
  • Let your child work part time. Apart from teaching them how to manage their money, you should also encourage them to work part time. A college student has a lot of time in their hands – even those who have a full load. Help them seek out job opportunities so they can keep the need for loans to a minimum. If they can pay for their board and lodging plus daily needs, they only have to borrow money for their tuition. That will keep the student loan from being too burdensome. Not only that, they will learn how hard it is to earn money – that will teach them how to practice smart spending.
  • Split the expense with your child. Of course, you have the option to split the expense with your child. Choose a comfortable amount based on how much retirement money you have. When we say comfortable, it has to be an amount that you know you can replace before you retire. You can offer to pay for the tuition of your child for the first two years and then let them borrow or work for the money to pay for the rest.

Keeping your child from student debt problems is not really that hard. Sometimes, all you really need to do is to educate them to help them make smart decisions about their loans. It does not really require you to spend anything but you will be giving them something much more valuable – your time.

Tips For Picking The Best Student Loan

student loan debtIf your child is a senior in high school we don’t have to tell you that it’s now the season for college financial aid. This means that among other things if you haven’t yet completed and submitted your FAFSA (Free Application for Federal Student Aid), you need to get cracking – even if you’re not yet sure whether or not federal aid will be the best option for your child. Most students do choose to get federal aid because the loans provided by the US Department of Education generally have the best interest rates and offer a number of attractive repayment options. But today, some of the banks that provide private student loans have made changes that make their loans more appealing. This can be especially true if you or your parents are creditworthy. In this case a private loan might have a better interest rate than those of federal loans.

Note: If you’d like more information on filling out a FAFSA and what to do to get the maximum amount of federal student aid, watch this brief video courtesy of National Debt Relief.

Why have the private lenders made changes in their loans?

There are several reasons for this. First, there has been a lot of pressure on these lenders to make changes. Second, it’s because they are looking to attract young customers that may be with them for their lifetimes and will eventually need mortgages and other financial products. Some of these lenders are now offering refinancing options that can actually lower the interest rate on student loans as well as modifications designed to help those of their borrowers that are having a tough time making their payments.

When you should get federal loans

If you’re borrowing on your own with no help from your parents, your best bet will always be federal loans. They’re cheaper because everyone gets the same fixed rate. Also, as mentioned above they have better repayment terms. If after you graduate you find that you are unable to repay your loans because you’re unemployed or have a low salary, you could qualify for repayment options that would keep you out of default. Also, federal loans could be a much better choice if you find you need to modify your payments after you graduate. Are you going to school to become a teacher or social worker? Federal loans offer a number of benefits including loan forgiveness in public-service jobs. With this translates into is that you would not have to pay back the full amount of whatever you borrow.

Hope you’ll get subsidized loans

The best federal loans are those that are subsidized. This means that while you’re in school the federal government will pay the interest on them. This includes both Stafford loans and Perkins loans. However, they are needs based meaning that you will have to demonstrate a financial need. If you qualify you could get a subsidized Stafford loan for the next school year where your interest rate would be just 4.66% plus an origination fee. However, be aware that there will probably be an interest increase on Stafford loans so that Perkins loans may once again be the cheapest federal education loan.

When a private loan might make sense

If your parents have a credit score of around 740 on the FICO scale a private loan might make sense. The reason for this is that if your parents were to get a Parents PLUS loan or if you’re a graduate student and need one of these loans the interest rate will be 7.21% plus an origination fee. If you go to a private lender you should qualify for a better rate. Be sure to note whether the loan has a fixed or variable interest rate. One of the best things about federal loans is that their rates are fixed. On the other hand, loans from private lender have both fixed and variable rates. The variable rates are the lowest just as they are with variable rate mortgages. However, this means the interest rate could increase in the years ahead. If you want a ballpark estimate of the interest rate you would pay over the lifetime of the loan just add four percentage points to the variable interest rate you’re being offered.

Compare the fees

There is currently a 1.073% origination fee for Stafford loans and the origination fee for a Federal PLUS loan is 4.29%. In comparison, most private loans don’t charge any fees these days. So if you were to amortize 4% in fees over a 10-year period, it will come out about the same as if you were to pay a 1% higher interest rate.

Things to keep in mind about federal loans and their repayment options

If you get a federal loan, you may be able to postpone repayment for three years or longer through what’s called deferment or forbearance – assuming you have a financial hardship such as medical expenses or unemployment. If you are unable to pay your monthly bills in full because of low income, you could apply for Income-based repayment or Pay As You Earn repayment. Income-based repayment would cap your monthly payments at 15% of your discretionary income while Pay As You Earn would cap them at 10% of your discretionary income. For that matter, if were unemployed, your monthly payment would be zero because 10% of nothing is nothing.

Refinancing federal loans

A few banks and non-banks are now offering to refinance any combination of private and federal loans. But if you were to consolidate your federal and private loans into one of these new loans you would give up all the benefits offered by federal loans such as debt forgiveness for public service jobs and income-based repayment programs. The upside is that you might be able to get a better interest rate by consolidating federal student loans through a private lender than with a Federal Direct Consolidation Loan.

Consumer running while carrying a briefcaseWhich makes the most sense if you’re a parent?

It doesn’t make much difference whether you cosign on a private loan for your child or get a parent’s PLUS Loan, you’ll still be required to take over the loan or loans if your child can’t or doesn’t make the payments. So that means as a parent you would be on the hook either way. On the other hand if your child takes out federal student loans only he or she will be responsible for repaying them and you as the parent will be off the hook. So no matter how tempted you might be to cosign on a loan or take out a Parent PLUS loan, it’s really better for you financially to let your child get the loans. This can be especially true if you’re nearing retirement. Students today are graduating with an average of nearly $30,000 in student loan debts and that’s probably a burden you might not want to assume as you near those golden years. You could always choose to help your child repay his or her federal loans when and if it makes sense to you financially. But you would not be committed to repaying that $30,000 or whatever.

Why You Should Be Paying The Interest On Your Unsubsidized Student Loans

student loan debtDo you have subsidized or unsubsidized student loans? It’s important to know which type you have and the difference between them. If you don’t know whether you have subsidized or unsubsidized loans it’s easy to find out. All you need to do is go to the National Student Loan Data System website as this is where you will find all the information regarding your federal student loans including their type, when the funds were disbursed and how much you owe on each – if you have more than one loan.

The one very big difference

The big difference between subsidized and unsubsidized federal student loans is that the government pays the interest on your subsidized loans while you’re in school. These loans are generally needs based. If you don’t qualify for needs-based loans, you will have an unsubsidized loan, which means you will be required to pay the interest on them while you’re in school. To make matters even worse, if you don’t pay the interest on unsubsidized loans it will continue to accrue and will be capitalized or added to your balance owed. You will then end up paying interest on interest and of course your balance or the amount you owe will grow.

Your best option

What all this boils down to is that if you have unsubsidized loans you should try to pay the interest on them instead of letting it accrue. The good news is that the interest on these loans is usually fairly low. For example, it could as little as $50 a month though you’d be better off paying as much as you can. We know that if you’re carrying a full 15 credit hours a semester it can be tough to take on a part-time job but you just might have to reprioritize and let your social life slide a bit as you probably don’t have much cash just sitting around. Downgrading your social life may not sound like much fun – to pardon the expression – but it’s a lot better to graduate owing as little as possible versus the average student loan debt of last year’s graduates. It was either $26,000 or $30,000 depending on which source of this information you choose to believe. That’s a lot of money these graduates will have to repay and this could have a negative effect on their lives for years to come.

About the same as a new pair of shoes

When you stop to think about it paying off your student loan interest at the rate of $50 a month is about the same as buying a new pair of shoes. You should be able to easily do this by getting a job either on- or off-campus. While these jobs typically pay minimum wage or a bit more it still wouldn’t take many hours a week or month to accumulate that $50. Where we live the minimum wage is currently $8 an hour. At this rate you might need to work less than seven hours a month to pay the interest on your unsubsidized student loans. Of course, if you were to work more hours you would have more money available to pay on those loans. Plus, working a part-time job would allow you to earn some extra cash for living expenses and also builds your resume, which could help when it comes to getting a job after you graduate.

restaurant-3_lShould you work on or off-campus?

Just as there are only two types of student loans there are only two types of jobs – on-campus and off-campus. There are pros and cons to both of these. One of the most popular of the on-campus jobs is those available through the Federal Work-Study Program. Unfortunately, this is also a needs-based program, as you would have to demonstrate a financial need, be enrolled in a degree program and maintain satisfactory academic process. The downside of an on-campus job like this is that with some schools the money you earn automatically goes towards your tuition fees. In others you’ll receive a paycheck just as if you worked off-campus. You could then use the money to pay the interest on your loans and to help with your living expenses.

The advantages of an on-campus job

One of the biggest advantages of an on-campus job is that if you go to a relatively small school you should be able to just walk from class to your job. In addition, it’s usually fairly easy to get an on-campus job. This can make it a lot easier to work 15 or even 20 hours per week. Plus, you might be able to get a job where you would work a couple of hours per day between classes instead of a four or eight hour shift at an off-campus job.

The pros and cons of an off-campus job

If you go to school in an urban area there is practically an unlimited number of possibilities for a job. You could work in a restaurant or clothing store or for a doctor or lawyer as an office assistant. For that matter, you could even create your own job by mowing lawns, babysitting or running errands. With all of these different options available, it’s likely you would be able to earn more than with an on-campus job. And you can use the money anyway you please instead of it automatically going to pay for part of your tuition.

An off-campus job can also be very good work experience. These jobs give you better exposure to the “real world” than working in your school’s library or some other on-campus job. If you were able to get a job working retail or as an office assistant this would look very good on your resume. You could also look for jobs that would be more related to your career when you graduate.

The biggest downside of an off-campus job is that transportation could be a problem. You would need to have a reliable ride, good public transportation or a car to get to that job. The cost of getting to and from your job could quickly reduce the amount of money you would get by working off-campus. In addition, you would probably be required to work a full four or eight-hour shift and you could find it hard to successfully juggle your classes and those shifts.

So which would be better?

The answer to this question is some “depends.” It will depend on whether or not you feel the convenience of working on-campus outweighs the additional income you would earn working off-campus. It may also depend on whether you would be able to get that perfect off-campus job that would be a boost to your career and would make sacrificing your social life worthwhile. Of course, there’s nothing that says you couldn’t do both at the same time or both off and on. The important thing is to weigh your options and make sure that whatever choice you make will help you earn your degree and ultimately start a career.

6 Key Facts You Need To Know About Online Education

Girl with one hand on laptop, the other giving a thumbs upIf you watch television for more than 30 minutes a day you’ve undoubtedly seen at least one ad for online education. One of our state universities seems to run them almost continually. These commercials make it seem as if an online education would be a great option for many people. If you’re a working person then getting your degree online would mean you could take classes when they would best fit your schedule. Stay-at-home moms with small children could also benefit from the flexibility offered by an online education. It’s also very tempting to think that you could get a bachelors degree while sitting in front of a computer in the comfort of your own home versus having to get in your car and drive to classes several times a week.

But there are some key things you should know before you sign up for online education and here are six of them.

Key fact #1: It may not be as cheap as you think

While you might think that getting your degree online will be cheaper than going to a traditional brick-and-mortar school, this may not necessarily be the case. Some sources have found that getting a degree online can actually be more costly than getting a degree from a traditional college. U. S. News recently did an analysis of about 300 programs and found that it’s more costly on a per-credit basis to take an undergraduate course online than a comparable course on-campus. In fact, this analysis revealed that one credit towards a bachelor’s degree on an online basis cost $277 compared with $243 per credit when attending a traditional brick-and-mortar college. There was also a study done by the American Association of State Colleges and Universities that found similar results. Four hundred public universities were involved in this study and it concluded that more than 60% charged the same tuition for courses that were taught face-to face as for courses taught online. However, 36% of the schools charge more for online tuition.

The reason for this is that if a school doesn’t already have an online program then creating one requires a significant investment. Online courses generally cost more to develop and require more time to teach effectively. Many members of a school’s faculty are used to teaching face-to-face and require a good deal of support and training to teach well online.

Key fact #2: You may not get the same quality of instruction

Schools that are using their own faculty for online courses generally find it’s difficult to make it less expensive without cutting corners. Faculty members that are full time are expensive. As a result, some schools hire instructors for their online programs that don’t receive benefits and who may not have advanced degrees. This becomes something of a crapshoot as you could have a very excellent instructor in one course and a very mediocre one in another. Colleges have to watch their costs these days and it can be very tempting to have their online courses taught by what are called “adjunct professors,” which is a fancy term for people that are recruited to teach specific courses and that come from the world of business – and are not faculty members at all.

Key fact #3: There may be hidden costs

When you take online courses in the comfort of your own home you definitely eliminate one cost – room and board. However, there can be some unpleasant surprises when pursuing an online degree. For one thing, you could end up paying more if you earn your degree by taking a class here and a class there. This is sometimes called tiered tuition. As an example of this, one online university has a lower per-credit tuition rate if you’re taking seven or more credit hours a term. This also accomplishes two things. It saves money and it can help you get your degree quicker.

It’s also possible that your school has separate tuition rates for in-state and out-of-state students even for their online programs. This is something you should carefully research before signing on the dotted line. The difference can be pretty steep, too. One of the schools with higher tuition rates for online students that reside out-of-state is Daytona State. It charges just $92 per credit for in-state students as compared with $560 per credit for students that live out-of-state.

There can also be many fees. As an example of this almost all online degree programs charge a technology fee but the amount of this varies widely between schools. Students taking courses online at one university are charged a $40 technology fee for each of their sessions while at another school the technology fee runs $120 per course. You should also keep your eyes open for graduation fees, assessment fees and yes, even parking fees.

Key fact #4: Not every online program is 100% online

Another thing to be careful of is that not all online programs are entirely online. There are programs, especially at the graduate school level, that require you to also do an in-person residency. For example, one South Carolina student that was working towards a master’s degree online at Gonzaga University was surprised to learn he would be required to do a three-day residency on campus. Since Gonzaga University is located in Spokane he was forced to take three flights to get there plus there were hotel and other expenses. This meant that his three-day campus residency ended up costing him at least $1000.

money and graduation cap in chainsKey Fact #5: Make sure you know how you will pay for your online degree

Before you choose an online degree program it’s important to consider how you will pay for it. While an online degree might cost less than going to a brick-and-mortar school, it will still be an expensive purchase and you should shop around to see where you would get the best value for your money. One of the best things about online learning is that there is no restriction as to the choices available. You could live in the far northwest and take online courses from a school located in Florida and vice versa.

It’s especially important to make sure the quality of your program is high if you’ll need federal student loans or private loans to pay for your online schooling. For one thing, you’ll need to make sure that a recognized national or regional accreditor has accredited your program. This is one way to make sure that it meets at least minimum standards. This also increases the odds that any credits you earn will be transferable if you change your mind and decide to attend a different school midway through your degree program. There are schools that are actually beginning to refuse to accept transfer credits from online programs regardless of accreditation. This is because they believe some online programs have very low standards.

Key fact #6: Borrow as little as you can

Whether you use federal funds or private loans to pay for your online degree it’s critical to borrow as little as possible. Student loans will stay with you until you repay them. The standard repayment plan for Direct Federal Student Loans is 10 years at a fixed interest rate. As of this writing it is 3.86% for both Direct Subsidized and Unsubsidized loans. What this translates into is if you were to borrow a total of $20,000 to pay for your online degree your monthly payment would be approximately $193. Fortunately there are ways to drive this down through what’s called Income-driven Repayment. You can learn more about these options by clicking on this link. The fact is that getting federal student loans can actually be too easy. So if you think an online education is for you, be sure to pick a program that will deliver the maximum amount of value at the least possible cost so you can keep your borrowing to the very minimum.

Restarting Your Education? Check Out These Four Important Tips

This year resolutions conceptHave you made your New Year’s resolutions for 2015? Is one of them restarting your education? The problem with New Year’s resolutions is that it’s easy to get a full head of steam going at first but much more difficult to complete them as the months go by. If one of your resolutions is restarting your education to complete your degree it’s important to understand that any student loans you had before haven’t gone away. They’re like that Roach Motel where roaches checked in but they never checked out. Once you have student loans, there’s no getting away from them. They will stay with you until you repay them or if you could get them canceled (more about this later).

Given the fact that your goal is to return to school this year it’s important that you do it the smartest financial way you can. As a nontraditional student there are three things to understand that would help you do this.

1. Get any existing loans in order

If you borrowed money when you were in school before it’s important to know the status of your loans. The website National Student Loan Database System has all the information on any federal student loans you had including the type of loan, when the money was disbursed, the last payments you made and your balances. When you check out your status in this database you may find you have some problems. If so, you will need to get these taken care of before you can get any additional federal aid. This is especially important if you find you have a student loan in default. Unfortunately, it’s very easy to default on a student loan because all you have to do is be one day late on a payment.

If you do find you are in default on a federal student loan you will be ineligible for any more federal student aid. You will also lose the benefits that come with federal student loans including Extended Repayment, Graduated Repayment and Income-based Repayment. Plus, a loan default is one of the worst things to have in your credit reports.

What to do if you have a loan in default

There are three different ways you can get a student loan out of default. They are loan consolidation, loan rehabilitation and, of course, loan repayment. If you were to choose to rehabilitate your Direct Loan or FFEL Program loan, the Department of Education and you must agree on an affordable and reasonable payment plan. (Note: if you have a Perkins Loan you will need to contact your school.) Your loan will have been rehabilitated when you have voluntarily made the payments you agreed to and on time and a lender has agreed to buy your loan. If you are able to and is and is one of the back-to-school problem with New Year’s resolutions is that it’s easy to get going for a do this before the last day of classes of your school year you may be able to retroactively get aid for the entire year. Of course, if you need to rehabilitate a loan this may mean you’ll have to delay the start of your schooling.

2. Understand the differences between federal and private student loans

As eager as you might be to restart your education you need to be careful the type of loan you sign up for. There are really only two types. They are private loans and federal loans. Private loans are just that. They come from private lenders such as a credit union or bank. Two of the biggest private lenders are Wells Fargo and Discover. However, as a general rule these loans do not come with the same repayment benefits as federal loans. They generally have a fixed interest rate and a fixed term. In comparison, federal student loans offer a number of different repayment options as well as postponements, cancellation and loan forgiveness. If for some reason you can’t get enough federal aid to cover your schooling you may have to get a private loan. However, it’s best to exhaust your options for federal student loans first and then shop around for the best deal you can find in a private loan.

3. Be smart about which program you choosestudent loan debt

You’ve probably seen dozens of advertisements for different kinds of degree programs. The important thing is to do the research so you will know what to expect before you sign up for any one of them. Your goal should be to borrow sensibly for the educational program that will be best for you. For example, since you’re returning to school you might decide to take a different route to your degree such as attending a community college first to complete your lower-level course requirements. While this can be an excellent option just make sure that your credits will transfer.

There are also a huge variety of online programs and for-profit colleges available but again be sure to do your research before you sign up for any of these. You should be especially careful in the case of for-profit schools. As an example of why this is true, the federal government recently forced Corinthian College to shut down 97 of its US campuses by withholding access to any more federal money. The school was in trouble financially plus the government thought its ads and claims were misleading. The Department of Education has also targeted schools such as ITT Technical College and the Art Institutes chain.

4. Know it’s possible to get federal loans cancelled

As noted above another benefit of a federal student loan is that it’s possible you could get it canceled. In fact all of your federal loans will be canceled if you become totally and permanently disabled. You may also be eligible to have your loans canceled or discharged if the school falsely certified that you would be eligible to receive the loan based on your ability to benefit from its training or if it signed your name on a promissory note or application without your authorization. You could also have your federal loan canceled if the school certified your eligibility but due to a mental or physical condition, age, criminal record or other reason you would be disqualified from employment in the occupation in which you were being trained. And you might be able to get your Direct Loans or FFEL Program loans canceled if you withdrew from a school but it didn’t pay a refund that it owed to the lender or to the US Department of Education.

What You Need To Know About Student Loan Deferment And Forbearance

young man holding empty wallet and booksAre you struggling with student loan payments you can’t afford? You are not alone. A lot of borrowers are feeling the same way.

This type of debt has become one of the most dangerous credit obligations. The main reason is the aggressive collection methods for those who default on their loans. One of the biggest mistakes that you can ever make on this credit obligation is not to make payments.

According to an article published on NOLO.com, the consequences of defaulting on your college debt are as follows:

  • Ruined credit history.
  • Increase in loan balance since interest will continue to accrue and collection fees will all be capitalized on your balance.
  • Legal suits filed against you.
  • Wage garnishment, and threatened Social Security benefits and tax refunds (at least for federal student loans).

There are probably more negative consequences apart from these and this is why defaulting on this type of debt is highly discouraged.

Fortunately, there are options for you to avoid defaulting on your student loan debt. Of course, you will have to qualify for them as you cannot just tell them that you are having a hard time paying off what you owe from school. You need to prove to them that you are in a financially difficult situation.

What happens to your college debt when in deferment or forbearance?

Even if your finances cannot afford to continue making payments towards your student loan, your lenders do not really care about that. All they really care about is how you will repay your student loans. No ifs and no buts. If you choose to ignore it, you will only be making things worse. This is why you have to talk to your loan servicer or private lender about your options. And two of the options that they will offer you is either deferment or forbearance.

Of all the choices that you have to stop making payments (or at least reducing them) without defaulting on your loans, these two are most encouraged options. Let us define them both.

Deferment

Deferment is a time when you are officially allowed to stop sending payments towards your student loans. When we say official, it means you will not be charged with late penalty fees and your account will not be deemed as a defaulted loan. Of course, this is only temporary. It will end at some point (sometimes up to 3 years) and once that period ends, you are expected to pay your loan as usual.

It is important to note that most student loans will continue to accrue interest while in deferment. If you have subsidized federal loans, this means the government will pay for your interest while you are in deferment. In this situation, deferment will really benefit you. However, if you do not have a subsidized loan, the benefits will not be as extensive. The interest that you will not pay during this period will be capitalized and added to your outstanding balance. That means, after your deferment is done, you will find that your loan balance has grown. The longer you stay in deferment, the bigger your debt becomes.

Forbearance

Forbearance, on the other hand, is your option when you do not qualify for deferment. This is when you are allowed to stop or lower your monthly payments without being charged with late penalty fees. This can go as long as 12 months. The difference with a deferment scenario is your interest will always accrue – regardless if you have a subsidized or unsubsidized loan.

Obviously, the better option here is deferment but that would depend on the type of student loan that you have, your financial situation and your reason for deferring on your loans.

According to an article published on HuffingtonPost.com, a lot of borrowers are in deferment or forbearance as of the first half of 2014. Specifically, 18% are in deferment while 15% are in forbearance. It is hard to determine the main reason for borrowers to opt for these two temporary student loan relief. The records kept by the government is not really complete or organized enough to provide this data.

Scenarios that allow you to postpone or reduce your student debt payments

As mentioned, not everyone can be approved for deferment or forbearance. Here are the specific requirements as provided by StudentAid.ed.gov.

You can apply for deferment, at least this is true for federal student loan borrowers, if you are in the following situations.

  • You are enrolled at least half-time in a qualified college or career school.
  • You are still studying in relation to your graduate studies or in a rehabilitation training program for disabled individuals.
  • You are unemployed or unable to find work (can avail of up to 3 years of deferment).
  • You are currently experiencing economic hardship (can avail of up to 3 years of deferment).
  • You are currently serving an active duty in the military during a war, military operation or national emergency.
  • You are a member of the National Guard/Armed Forces Reserve or you were called to duty while enrolled at least half-time (current or within 6 months of enrollment) – as long as the period is within 13 months following the end of your active duty or return to enrollment.
  • You are within a period of service that qualifies for a Perkins Loan discharge or cancellation – applicable to Perkins Loans only.

All of these (except for the last one) are applicable to Direct, FFEL and Perkins Loans.

When it comes to forbearance, there are two types that you can avail and the qualifications will depend on them.

  • Discretionary Forbearance. This is when the lender decides if you will be allowed forbearance. Usually, you will be approved if you can prove financial hardship or illness that leaves you unable to work and earn money.
  • Mandatory Forbearance. This is when your specific situation requires the lender to grant you forbearance. These situations include internship or residency (medical or dental), you received a national service award after serving a national service position, your teaching profession qualifies you for a teacher loan forgiveness, you qualified under the US Department of Defense Student Loan Repayment Program, or you are a member of the National Guard. It is also possible to get forbearance approval if your student loan monthly payments amount to 20% or more of your monthly gross income.

Tips when postponing or reducing payments on your college loans

Even when you qualify for deferment or forbearance, you need to know a couple of tips first before you can really demolish your student loan debt. Here are a couple of tips that you can follow.

  • Check if you can at least pay the interest of your loan. Deferment is really beneficial for those who have subsidized student loans. That means the government takes over the interest payments. If your loan is unsubsidized, that means your interest is accruing while in deferment. In forbearance, your interest accrues even if you have subsidized or unsubsidized loans. As mentioned, this means you will have a bigger balance at the end of the deferment or forbearance period. If you can pay the interest, you can keep it from accruing or capitalizing on your principal balance.
  • Live a frugal life to strengthen your finances. Being approved of deferment or forbearance on your student loans mean you are in a financial hardship. To help maximize the benefit of these two, you need to adapt a frugal lifestyle to lower your expenses significantly. That way, you can increase your extra money thanks to either the deferment or forbearance and your lower expenses.
  • Research on repayment plans that you can use after. As mentioned, this is a temporary arrangement on your student loan accounts. It will end. And when it ends, it will not be towards forgiveness. That means you still need to pay off what you owe. Make sure that while you are in deferment or forbearance, you take this chance to research on the repayment options that you can use. If that means going into a public service career, then you need to be aware of what you need to do to qualify for these.

6 Important Student Loan Resolutions For 2015

National Debt Relief now offers Student Loans ConsolidationThere‘s a brand new year upon us and with it comes the need to make some New Year’s resolutions. By this we don’t mean the standard lose weight, give up smoking or get a new job. What we mean is that if you’re a college student or will be entering college next year there are some resolutions you need to make for 2015 that are specific to your situation. If you choose to make these resolutions you can graduate from college either debt-free or owing very little in student loans. This is important because student loan debts can be a drag on your life for the next 10 years if not longer. Recent college graduates owe an average of anywhere from $16,500 to $30,000 depending on which source you want to believe.

Even if you were to graduate owing just the $16,500 that’s a lot of debt to have to pay back when you’re just starting work. For that matter, you may not even be able to get a job as the Economic Policy Institute recently reported that about 8.5% of college graduates between the ages of 21 and 24 were unemployed. Or you could end up part of the roughly 44% of recent graduates that had a BA degree or higher but were in a job that technically did not demand a bachelor’s degree and were, thus, “underemployed.”

Resolution #1: I resolve to check out all possible alternatives

Go back and read the previous paragraph. Suppose you were unable to get a job or became underemployed. While this might be bad news it would be even worse news if you owed $16,000 or more in student loans.
Before you sign up for any student loans check out the options. Assuming that you didn’t get a big fat scholarship from your school you should go to a website such as The College Board where you could search for information on thousands of different college scholarships, grants and internships. There is also CollegeNET, which is a searchable database of more than 600,000 awards. Does your mom or dad belong to a fraternal or social organization such as the Elks, Moose or Rotary International? These organizations often have scholarships available to the children of their members. The company that your mother or father works for may have scholarships available to the children of their employees. All these alternatives are certainly ones you need to check out before you start borrowing money.

Resolution #2: I resolve to get a part time job

Almost every college student will qualify for some sort of financial assistance. For example, if you are unable to get a full ride scholarship you might be offered a part scholarship or a grant of some kind. Beyond this, you need to think seriously about getting a job to supplement whatever financial assistance you’ve been given. There’s hardly a college town that doesn’t have part-time jobs available from waitressing to sales clerking in mall stores. These jobs generally don’t pay a lot per hour but if you were to work 20 hours a week at eight dollars an hour you’d be earning better than $600 a month pretax. This could go a long way towards paying your tuition and maybe even put a dent in the cost of your room and board.

Resolution #3: I resolve to live at home – for at least two years

While most high school graduates can’t wait to go away to college it’s better to stay at home at least for your first two years. When you live at home you basically eliminate all room and board charges, which can cost from $7500 to $9000 per year depending on whether you attend a public or private university. Many of today’s smart students are living at home and attending a two-year college before going away to school. Your first two years at college will consist mostly of taking “basic” courses that are generally the same whether you attend a two- or four-year school. If you were to do this you would save around $15,000, which might be $15,000 less in student debt. If you’re lucky enough to live in a town with a good four-year college or university then living at home for those four years could save you as much as $30,000.

Resolution #4: I resolve to understand student loans

One of the biggest downsides of student loans is that for most people they are just too darn easy to get. All you generally need to do is walk into your school’s financial aid office, sign a paper called a note and presto! You have money available to pay for your next semester. If you will be required to take out a student loan or loans you need to know the different types. All federal student loans are now called direct loans because they come directly from the Department of Education (ED). These loans come in two types. They are either subsidized or unsubsidized. Subsidized loans are where the federal government covers the interest on them while you’re in school at least half time or are in a period of deferment. These loans are based on financial need, which is determined by your college or university. In comparison, unsubsidized student loans are not needs based but require that you do pay the interest on your loan or loans during all periods that you be in school.

Resolution #5: I resolve to not ask my parents to get Parent PLUS Loans

These loans are unsubsidized and available to the parents of dependent students as well as graduate/professional students. They are to help pay for educational expenses up to what it costs to attend the school minus any other financial assistance. Since they are unsubsidized, your parents would be required to pay the interest on them during all periods that you are in school. There are several reasons why you should not ask your parents to take out one of these loans. First, the interest rate is currently 7.21% for loans disbursed after July 1, 2014. In comparison your parents might be able to get a home equity line of credit with an interest rate as low as 2.99%. But second and more importantly do you really want to stick your parents with a pile of debt that could take them 10 or 20 years to pay off? Assuming that your parents are in their early 40s, a Parent PLUS loan could keep them tied up in debt until they were ready to retire.

Resolution #6: I resolve to graduate in four years

Did you know that according to a recent study only 19% of students graduate in four years? This might explain why so many of them graduated owing $16,000 or more. If you were to take an extra year to graduate this would increase your cost or debts by at least 20%. You could avoid this by buckling down, taking a full 15 credit hours or more a semester and graduating in four years. For that matter, if you’re really smart and a hard worker you might be able to graduate in just three years, which would reduce your costs dramatically. And if you don’t think that going to college for a fifth year will have serious consequences, watch this short video on the true cost of not graduating in four years …

Older Americans And Student Debts — A Bad Combination

Elderly coupleAre you one of the estimated two million Americans age 60 or older that still owe on their student loans? It can be tough to be saddled with student debts when you’re in your 30s or 40s but it can be lots worse if you’re in your 60s. You could even find that those old student debts are jeopardizing your Social Security benefits. This is because Uncle Sam can be a very unforgiving relative as our government has the right to seize portions of the Social Security checks of those that failed to repay their federal student loans. In fact, over the past year the government has withheld the Social Security benefits from 140,000 borrowers that were delinquent on their student loans. To make matters worse the federal government relies more and more on private collection agencies to go after delinquent borrowers and these agencies can make a person’s life nothing short of a living hell.

 You could be shocked

If you’re 60 or older and one of those two million Americans that still owe on their student loans you could be shocked when your Social Security check arrives and you find it’s been slashed by $100 or more. If you’re typical you depend a lot on that check to either support you or to supplement your savings. A $100 hit might not seem like much to some people but for those living on Social Security it could mean buying fewer groceries or having to cut back on some other necessity of life.

 If you’re not in default

If you are in default on a student loan meaning that you just quit paying on it some years ago that’s one thing. If your loans are in good standing but you’re struggling to meet your payments you could opt for Income-driven repayment. There are actually three Income-driven repayment programs available one of which would set your payment at no more than 15% of your discretionary income. In case you’re wondering about your discretionary income Uncle Sam defines it as the difference between your adjusted gross income and 150% of the federal poverty line, which corresponds to your family size and the state where you live.

There is an even better Income-driven repayment program called Pay As You Earn that would cap your monthly payments at just 10% of your discretionary income. However, this program is available only to those that took out loans very recently. And if you have older Federal Family Education Loans you would not be eligible for this program. However, you could use a similar one called Income-sensitive repayment. This is where you choose a monthly payment amount between 4% and 25% of your monthly income. Unfortunately, you can only use this plan for five years. But you could consolidate your existing Federal Family Education Loans into a new Federal Direct Consolidation Loan and this would then make you eligible to take advantage of the Income-based repayment plans.

 Did you take out Parent PLUS loans to help your child?

If you did take out Parent PLUS loans things get a little stickier. These loans are technically not eligible for Income-based repayment but if you were to consolidate them into a Direct Consolidation Loan, they would then become eligible for the Income-contingent Repayment program. While this program also bases your payments on your income and family size your payments would generally be higher than those under Income-based Repayment.

 If you are in default

If you just stopped paying on a federal student loan some years ago you are in default. This means you could see up to 15% of your social security benefits garnished. Sadly enough, according to the GAO (Government Accountability Office) more than 150,000 people receiving Social Security benefits saw their Social Security garnished in 2013 as a result of their student loan debts. And of this group 36,000 were over the age of 65.

The good news

If your Social Security benefits are being garnished you could take advantage of some of the options outlined above to reduce the amount being taken out of your check. Under certain circumstances, your payment could be as few as zero dollars. But you will first have to get your loan or loans out of default – either through consolidation or rehabilitation. If you want to do this you will need to contact your lender or loan servicer to discuss your options. Consolidation is fairly self-explanatory but rehabilitation is a bit trickier. To get a loan or loans rehabilitated you and the US Department of Education would have to agree on an affordable and reasonable payment plan. You would then be required to voluntarily make those payments on time and a lender has purchased your loan. At that point your loan will have been rehabilitated and you would again be eligible for benefits such as the Income-driven Repayment programs.

Private student loans

Stamp Shows Consolidated Loan approvedIf you cosigned on a private student loan for one of your children then, as you may have learned, you’re on the hook for repaying it. Since private student loans don’t offer the same repayment options as federal student loans you should consider either refinancing or consolidating it. Both Wells Fargo and Discover recently announced that they’d be offering modifications on private student loans for borrowers that are having a tough time financially. You could also contact your lender and see about postponing your payments although your interest will continue to accrue and you may be charged a fee for this.

The worst-case scenario

Failing everything else there is always the “nuclear option” of filing for bankruptcy. Although it is very difficult to get student loans discharged through bankruptcy it is not impossible. There’s what’s called the Bruner test. It’s a three-part test the bankruptcy judge would use to determine whether or not to discharge your student loans. The first part of this is that you must be able to show that you cannot maintain a minimal standard of living based on your current income and expenses if you are forced to repay your loan(s). Second, you must be able to demonstrate that this situation is likely to persist for a large portion of your repayment period. And third, you must be able to show that you have made what’s called a good-faith effort to repay your loans.

 It may not be easy

Repaying student loans may not be easy at any age but it can be particularly difficult if you’re an older American. However, if you learn about the alternatives and options available to you this can go a long way towards earning you some peace of mind as you head into 2015.

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