Student Loan

The rising costs of college tuition have made it almost a necessity to apply for a student loan today. Students not only have tuition costs, but the cost of books, meals, gas, cell phones, recreation, etc. The variety of student loans enables students to take care of their varying college expenses. A student loan however, is a loan that must be repaid under specified circumstances.

A Direct Student Loan is a loan with a schedule of repayment six to nine months after the student has completed school. The Direct Student Loan is distributed through the school the student is attending, which enables the interest rates to be much lower than a Guaranteed Student Loan.

Guaranteed Student Loans, also known as Stafford Loans have a low interest rate. A student can apply for a subsidized or unsubsidized student loan. A subsidized loan means the government pays the interest for you while you are in school. The subsidized student loan is based on the students financial need. An unsubsidized student loan means you will be charged interest while you are attending school. The principal must start being paid after you have finished school. Both types of student loans need to start repayment six months after the student has finished college.

Federal Parent Loans or PLUS loans as they are known is a student loan not contingent on your income, but lenders do consider personal credit history. Parents or guardians who have a dependent child enrolled in college at least part-time are eligible for the PLUS loan. The interest rate is 9% or less.

Virtually any school or program will allow you to utilize the Direct Student loan, Guaranteed Student loan or PLUS loan. It is very important to thoroughly research all available options for funding long-term education. Your future is tied to your funding, which is your student loan.

By John Williams

 

Student Loan Scandal Dissipates in Congress

By: Gaurav Bhola, MSM, Managing Editor

As the student loan scandal of 2007 fades into oblivion, students and their families are still not any closer to getting the comprehensive reforms Congress and the regulators promised. Last year, an investigation led by New York Attorney General Andrew Cuomo into the college loan practices of private loan lenders and universities finally brought into the spotlight this diabolical coalition. A New York Times expose lead to Cuomo’s inquiry which revealed that some schools were receiving bribes from lenders in return for steering students to their loan programs.

The investigation revealed financial aid officials and other college officers receiving direct kickbacks from certain lenders in the form of trips, stock options, lunches, and so on.

However, the New Year has been dominated by other headlines; the student loan “scandal” seems forgotten. Meanwhile, Cuomo has moved on to greener pastures. And Congress’s impetus has also cooled, even though some action had been taken by them for example ending the government subsidies given to private school lenders.

Still, college and university loan lenders are not out of trouble yet. The U.S. Department of Education is beginning with administrative inquiries and enforcement actions that will become prominent in 2008. In the latter half of 2007, Congress and the General Accountability Office, amplified their oversight of the schools and the private lenders, as the Federal Student Aid (FSA) office sent official letters to 921 colleges whose school loan volume was mostly, if not completely, with one private lender.

The letters were serious in tone and message, intending to remind universities that their actions had to take into account only students’ interests and mustn’t violate the Higher Education Act of 1965 and its amended regulations. Out of the original 921 colleges, 55 colleges and 23 lenders received notification requesting documents and information that may show documentation of improper allurements and inducements of financial aid officials. It is likely that there will be some enforcement action by the Education Department in 2008.

But the U.S. Congress has more power to bring about change than a federal government department. For example, last year Congress passed an amended version of the Student Loan Sunshine Act. by a vote of 414-3, the bill would force colleges and loan lenders to follow stringent codes of conduct; provide full disclosure of school-lender alliances; ban lender gifts to financial aid officers; and protect students from perpetual marketing practices.

The current state of the economy has shifted the focus in Congress from the student loan industry discrepancies. The government is concentrating instead on the credit crunch, housing and mortgage markets. The remedy of the college loan industry is an afterthought, no longer on their radar. While, Congress shows apathy towards the students and their families, certain private loan lenders and colleges rejoice in the legislature’s disinterest.

 

Saving for College

Even at today’s tuition rates, saving for a child’s education may seem like an impossible mountain to climb. For the sake of your child’s future, though, now is the time to strap on those boots and grab that ice axe.

When saving money, time and discipline are your most powerful tools. If you set aside a little each week when your little one is young, you can build a substantial sum by the time junior becomes a college freshman. In reality, many parents aren’t able to save consistently until their children are older. For these moms and dads, the availability of specialized college savings programs helps maximize savings quickly.

College Savings Plans: The Options
The following programs offer advantages over traditional savings accounts.

Section 529 Plans. There are two types of Section 529 Plans: the college savings plan and the prepaid tuition plan. The first is a tax-advantaged investment account. The latter allows for purchasing tuition credits that essentially lock-in current tuition rates.

Coverdell ESA. The Coverdell ESA, also known as the educational IRA, offers advantages including tax-free earnings and certain qualified tax-free distributions.

Rebate Programs. Some institutions offer loyalty rebates that help maximize your college savings over time. Two examples are BabyMint and Fidelity Investments’ 529 Plan credit card. Both allow you to earn rebates through purchases of everyday products and services; these rebates are automatically transferred into your designated college savings account.

College student loans
There will be times when saving enough in the time available isn’t realistic. Don’t panic-you have contingency options. There are many college student loan programs available that can help fund that tuition shortfall. Talk to your child’s counselor about federal student loans, and to your bank about private student loans and student loan refinancing. Depending on your situation, some government student loans may be almost automatic. Later, you can consolidate student loan debt as appropriate to your financial situation.

Now that you’re in your boots, you’re ready for the college-financing climb. It may be late in the season, but you won’t regret starting up that mountain now.

By: Catherine Brock

 

Reap Some Rewards: Get a Scholarship

Most high school graduates think that scholarships are reserved for superstar football quarterbacks or academic wunderkinds. Fortunately, for the 99.9 percent of high school graduates who don’t fall into those two categories, there are hundreds of different scholarships available. Even if you don’t finish first in the race for grants, there are student loan options that can help overcome tuition hurdles.

More scholarships than you can shake a syllabus at
The volume of scholarship opportunities has boomed in recent years. There are new scholarships based on a variety of categories, including:

Academics. (Generally given to students with high Grade Point Averages and excellent standardized test scores.)

Athletics. (Not only traditional sports like football and basketball, but less popular endeavors like golf, crew, and track can score you some aid.)

Financial need. (Based on a student’s finances. Can help low-income grads to attend prestigious universities.)

Demographics. (Local organizations award hometown heroes grants on a yearly basis.)

Other options include scholarships based on military service, the arts, and various occupations. Do some surfing on the Internet. You’ll be surprised at how many different types are available, including scholarships for left-handed students and the Klingon Language Institute scholarships. Don’t be afraid to boldly research where no man (or woman) has gone before.

Create a fallback plan
If none of these scholarship programs work out, there are plenty of student loan packages available to you. A student can choose government programs, such as the Stafford Loans (given to students) and the PLUS Loans (for parents). There are also private student loans, which compete with government loans in terms of rate, but generally involve less paper work.

The early bird catches the worm when it comes to scholarships; so if college looms, it’s best for a student to start a scholarship search early. Check with local lenders regarding the best time to apply for a student loan. Consider both options, and you’ll have passed this crash course in financing a college education. Besides, it never hurts to have a bird’s eye view of your financial options.

By: MortgageLoan.com

 

U.S. ready for emergency student loan advances

The U.S. Education Department will be ready to process emergency advances for student loans by June 1, the Wall Street Journal said on Monday, citing a letter to be sent Monday to state agencies that would enforce the program.

Under the plan, the Education Department would temporarily be allowed to pump liquidity into the sluggish secondary market for federally guaranteed student loan debt.

The move comes under a student loan market stabilization plan that is aimed at helping lenders who have warned of a potential loan shortage in coming months as millions of students seek financial aid for college.

The plan, expected to be signed into law, is also meant to let the Education Department funnel capital for loans to state guaranty agencies under a “lender of last resort” program for students and for colleges if they faced loan shortages from other sources.

Education Department officials were not available immediately for comment.
U.S. ready for emergency student loan advances: report

(Reporting by Aarthi Sivaraman; Editing by Quentin Bryar)

NEW YORK (Reuters)

 

Student loan plan goes to Bush

WASHINGTON (Reuters) – The Bush administration will get broad price-setting powers under a student loan market stabilization plan given final approval on Thursday by the U.S. Congress, lifting the stock prices of student loan providers.

The House of Representatives voted 388-21 to approve the bipartisan legislation that next goes to President George W. Bush, who is expected to sign it into law.

Bush said he was pleased Congress had quickly passed the measure he says could potentially help millions of students.

“By granting the Department of Education greater authority to purchase Federal student loans, today’s action should ease the anxiety many students may feel about their ability to finance their education this fall,” Bush said in a statement.

The plan is aimed at helping lenders such as Sallie Mae get through a rough patch in the capital markets.

Hit hard by subprime mortgage crisis fallout, lenders have warned of a potential loan shortage in coming months as millions of students seek financial aid for college.

Under the plan, the U.S. Education Department would temporarily be allowed to pump liquidity into the sluggish secondary market for federally guaranteed student loan debt.

That would assist lenders, such as Sallie Mae, which depend on that market to raise new capital to make new loans.

The bill would also let the Education Department funnel capital for loans to state guaranty agencies under a “lender of last resort” program for students and for colleges if they faced loan shortages from other sources.

Some college financial aid experts are concerned about the leeway the administration will get under the plan.

“This is an industry that has taken the taxpayers to the cleaners for years,” said Barmak Nassirian, associate executive director of the American Association of Collegiate Registrars and Admissions Officers.

Robert Shireman, executive director of the Project on Student Debt, a financial aid research and advocacy group, was more charitable about the widely supported plan.

“I don’t see what Congress has done as a bailout. I see it as securing backstops we already have in existence,” he said.

How the Education Department carries out the plan will largely determine whether or not it begins to look like a bailout for the $85 billion student loan industry, he said.

SALLIE MAE SHARES RISE

Sallie Mae shares closed up 7.8 percent. More diversified lenders also rose. In broadly bullish New York Stock Exchange trading, Bank of America Corp rose 4.9 percent; Citigroup Inc, 4.2 percent and JPMorgan Chase & Co 3.4 percent.

Sallie Mae Chief Financial Officer Jack Remondi told Reuters in an interview the legislation “gives the department pretty broad authority to do different things.”

“It could involve everything from buying perhaps participation interest in loans to actually buying whole loans. They will have to decide which direction,” he added.

In a related matter, Federal Reserve Chairman Ben Bernanke told Senate Banking Committee Chairman Christopher Dodd that Congress might want to revisit the issue of government subsidies paid to student loan providers.

Bernanke’s April 25 letter to Dodd, a Connecticut Democrat, was made public on Thursday. In it, Bernanke said recent student loan market problems stem from many causes, including cuts made last year by Congress in lender subsidies.

“Congress may well wish to revisit the question” of whether setting hard subsidy levels for loan providers is the best approach, Bernanke said, suggesting a more flexible policy in which subsidies could adjust according to market conditions.

Student loan plan goes to Bush
Thu May 1, 2008 7:53pm EDT
By Kevin Drawbaugh and Rachelle Younglai

(Editing by Andre Grenon, Phil Berlowitz)

 

When Not to Consolidate Student Loan Debt

To a college graduate, the call to “consolidate” is almost as familiar as her school fighting song. But consolidating student loans might not be as warranted as it was in years past-especially in light of recent rate changes.

Most college students spend a great deal of time with advisors. They receive guidance on class work and their various areas of study. The smart student should also seek out guidance on financial matters- especially if she has student loans.

For the last several years, students have been told to consolidate their loans before a July 2007 rate hike took place. Now that the deadline has passed, many factors need to be considered before initiating a loan consolidation.

Rate matters

The first thing that you want to do is compare the rates of your current loan with today’s market. When you consolidate your student loans, a weighted average of all the interest rates of the loans is taken and rounded up to the nearest 0.125 percent.

To find out what your new monthly payment would look like after consolidation, meet with a lending official and/or do it yourself with an online loan calculator. You may discover that the new rates don’t justify a refinance. You’ll also want to see if the rates on your current loans are fixed. If they are, it may not make sense to refinance everything just so that you have the convenience of one loan payment. If you’re uncertain about the terms on your loan, review your portfolio with a lender. Many will be happy to help you, free of charge.

Act quickly for student debt consolidation

Consolidation works most effectively if the transaction occurs within six months of graduation. That stretch of time is considered a grace period for students-they receive a price break if they start repaying their loans during that time. When the grace period ends, the interest rate on the loan increases by nearly 1 percent.

Unfortunately, if you choose the rate discount, you’ll have to start repaying the student loans almost immediately after graduation. However, there are lenders willing to hold the package until the end of the grace period. Check with your bank to see if they have the same policy.

Long-term costs vs. consolidation

Ultimately, you’ll need to determine your top priority. If you need low monthly payments on your loans, you may want to consider refinancing and stretching out your loan terms. However, if you’d like to be rid of a monumental debt as quickly as possible, you can opt to keep your loans at their current rate and pay down your principal.

As any academic advisor will tell a student, there are many variables to consider when making a decision. When it comes to student loans, take a good look at your current financial situation and consider your short-term job prospects. Don’t jump at the easy money that a consolidation can bring. The best advice dictates that you understand all the factors at play before you make your consolidation decision.

 

Four Ideas for Student Loan Consolidation

To consolidate or not to consolidate? Hamlet might have asked this question if he had graduated from college with student loans. If you’re considering a loan consolidation, you’d be wise to follow a few simple tips.

The great thing about graduating from college is that you don’t have to worry about homework hanging over your head. On the flip side of the coin, you may have something far worse to be concerned about-a student loan payment.

Many graduates consolidate their loans to lessen the pain of repayment. But no financial transaction should be taken lightly. Not only must you carefully analyze your current situation and goals, you need to consider what types of student loans are on the market. Here are some student loan consolidation tips to keep in mind.

1. Shop until your payment drops

You don’t have to stick with the same lender if you’re going to consolidate your loans. Shop around and look at different opportunities. Rates may not vary, but you could find that different lenders offer different discounts (see next tip). You may also find that the lender that you’re currently with has included extra charges that you don’t need to pay. It’s always wise to comparison shop, no matter what your purchase.

2. Go discount shopping

As you’re shopping for the best consolidation package, ask about discounts. Lenders today offer them for a variety of items, including everything from making a payment on time, to using automatic withdrawals from your checking account. Lenders highly value graduates who can make their student loan payments on time, primarily because so few of them do. Discounts for on-time bill paying might include reducing your payment by one full percentage point if you can rack up a 36-month consecutive payment streak.

3. Tame the terms

By extending the repayment term of your loan, you can lower your monthly payment. For most graduates struggling in an entry-level job, that’s a very enticing prospect. But don’t judge a payment book by its cover-an extended loan term can be as frightening as term papers. Those lower payments don’t come cheap-you’re going to get whacked long-term by higher interest costs. Ask your lender to tell you the difference in long-term interest costs for loans with different repayment terms. The results will startle you.

4. Do a reality check

Most importantly, don’t choose a lower loan payment just so that you can buy a really cool car. Unless you’ve landed an exceptionally high-paying job out of college, you’ll probably have to choose more of a utilitarian vehicle until you can afford a nicer ride.

As a graduate, it’s great to be free from the constraints of endless exams and required reading. Unfortunately, the financial equivalent to academic pain is waiting in the wings. Repaying a student loan will be a concern of yours for a long time to come. Make sure that the debt isn’t with you one day longer than necessary by carefully shopping for the right consolidation loan.

 

Credit Unions Offer Themselves as Partial Solution to Looming Student Loan Crisis

In the last six months alone, since legislators eliminated over $21 billion in subsidies to student loan lenders in the Federal Family Education Loan Program, at least 44 FFELP lenders have stopped originating federal student loans.

This exodus of lenders from the federal student loan program, combined with the current credit and liquidity crunch resulting from an epidemic of defaulted mortgages, may leave many college students scrambling for money for school this fall.

In an effort to help avoid a student loan crisis before it starts, a group of credit unions serving students in California, Texas, and Wisconsin is lobbying for federal subsidies that would allow credit unions to provide significantly more loan capital for students.

Last September, federal legislation set two lender subsidy rates on federally guaranteed student loans, one rate that applies to for-profit lenders and a second for state-chartered nonprofit agencies, explains Paul Basken of The Chronicle of Higher Education.

When those rates were set, credit unions, which are essentially nonprofit banks, were left out of the picture, neither subject to the for-profit lender rate nor eligible for the nonprofit rate which is guaranteed only to state-chartered lenders.

Now, writes Basken, as more for-profit bank and nonbank lenders abandon the FFEL program each week, the credit unions seek legislation that would make them eligible for the nonprofit subsidy rate (“Credit Unions Will Lobby Congress for Loan-Subsidy Benefits Accorded to Nonprofit Lenders,” April 4, 2008).

A Viable Source for More Student Loans?

Credit unions currently provide less than 1 percent of all FFELP loans, according to Mark Kantrowitz, publisher of FinAid.org, a financial aid website.

However, credit unions could offer significantly more volume at some institutions, Michael K. Kim, vice president for student services at the USC Credit Union, told The Chronicle.

The USC Credit Union provided 30 percent of all federal student loans at the University of Southern California last year, and Kim believes the USC Credit Union could double its student loan lending to $200 million to provide financing for any students unable to find another lender.

Although Kim thinks the credit union might find a way to double its student loans even without the nonprofit subsidy, the nonprofit rate would help.

One of the key selling points in the credit unions’ lobbying efforts, Basken writes, may be the fact that credit unions have a ready pool of capital — their customer deposits — from which to lend. In contrast, nonbank lenders, who don’t hold funding capital, must find external funding sources for their student loans and thus have been more vulnerable to the liquidity crisis that’s followed the fallout in mortgage lending.

Joining Kim’s Southern California credit-union group in lobbying Congress next week for the nonprofit subsidy rate are the UW Credit Union, serving universities in Wisconsin, and the University Federal Credit Union, which serves more than 100 colleges and employers in central Texas.

More, but Still Not Enough

An advisor from Senator Edward Kennedy’s office recently expressed support for the credit unions’ request that their proposal for inclusion in the nonprofit subsidy rate be added to the legislation for reauthorization of the Higher Education Act currently before Congress.

Kantrowitz believes that the credit unions’ subsidy proposal is reasonable since they’re nonprofit entities whose earnings don’t benefit outside investors.

On the other hand, he says, the additional loan volume credit unions could provide for the federally backed student loan program will likely not be enough to staunch the tide of students that may potentially be unable to find lenders this fall.

Kantrowitz further points out that among the 100 largest lenders in the federal student loan program, only three are credit unions.

“If credit unions can double their volume, that’s a 5-percent solution,” Kantrowitz says. “It could be part of the solution, but not even close to the entire solution.”

 

Bank of America Backs Out of Private Student Loan Business

On April 17, Bank of America Corp. notified student-loan packager First Marblehead Corp. that it would no longer offer private student loans, focusing instead on providing federal student loans. Bank of America’s announcement comes amid increasing unsteadiness in the federal student loan market, where nearly 50 non-government lenders in the last six months have suspended their federal student loan programs.

Bank of America exercised its right to terminate its agreement with First Marblehead after The Education Resources Institute, the Boston-based nonprofit that guaranteed the loans packaged by First Marblehead, voluntarily filed for Chapter 11 bankruptcy protection on April 7, 2008.

Bank of America’s decision delivered yet another financial blow to First Marblehead, whose shares have already been on a downward spiral over the past few weeks, tumbling 37 percent on April 8 alone, the day after TERI filed its bankruptcy petition.

Shares in First Marblehead fell another 17 percent to $3.37 on the heels of Bank of America’s announcement, with the stock down nearly 91 percent over the past year. The loans originated by Bank of America accounted for about 15 percent of First Marblehead’s total revenue for the 2007 fiscal year, according to a Boston Business Journal article (“First Marblehead Loses Major Customer, Revenue Source,” April 18, 2008).