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By on July 6, 2017 in Financial Aid

Image by dickdonmedia, pixabay.com

For millions of college students, taking on student loan debt is not an option. Without it, the cost of college tuition would be beyond the reach of most families. This year, students will leave college with more than $30,000 in student loans and many will have trouble making their loan payments at some point in the future. With federal student loans, they have some options that can help get them through difficult times – forbearance, deferment and flexible repayment plans. However, this is not so with private student loans. Students with private loans have to sink or swim with the loan terms they have, which includes no forbearance and no repayment options.

In the context of the massive amount of student loan debt engulfing the U.S., private student loans play a smaller supporting role. Of the $1.4 trillion in outstanding student loans, about $150 billion are private student loans. But, for the 1.4 million students who take out private student loans each year, their financial future can turn out very different than if they had taken out a federal student loan instead.

Why Students Use Private Loans

For many students, private student loans do play an important role in financing their college education. Once a student exhausts all available federal options and still needs funds to cover college expenses, say, room and board, a private loan can fill in the gap. Under those circumstances, a private loan should only be big enough to cover the extra expenses. However, about 70 percent of students who take out only private loans do so because they are not informed of their other options. Of those students who used both federal and private loans, nearly half borrowed less than they could have in safer federal loans.

The key takeaway is that students and parents need to take all the time necessary to inform themselves of their options, especially in terms of their eligibility for federal financial aid. If they think they have a need for a private student loan, they should definitely learn all they need to know about them. Here are five things you need to know about private student loans before signing on the bottom line.

Private Loans Don’t Include Borrower Protection

The most important thing to know about private student loans is they do not have the mandatory borrower protections that come with federal loans. That includes deferment and forbearance options as well as extended and income-based repayment options. Some lenders may offer loan deferment, but it is typically done on a case-by-case basis. And, because private lenders do not offer loan forgiveness under any circumstance, if you get behind on a private student loan, you will be on the hook for as long as you live. Very few lenders will ever agree to a loan discharge, even in the event of a disability.

Many Private Loans Don’t Include a Grace Period

With most private student loans, payments must start once the loan is issued. With federal student loans, payments aren’t required until six to nine months after leaving school. That grace period is critical for college grads who need that time to secure a job. There are some lenders who do offer a grace period, but loan interest begins to accrue from day one of the loan.

Variable Rates Can Cripple You

Federal loans come with fixed rates, making it much easier to predict monthly payments. Many private loans come with variable interest rates. While they can seem very attractive in the beginning, they could easily double or even triple over the length of the loan term. Some lenders offer fixed loans and some may allow borrowers to convert their variable rate loan to a fixed loan. You should avoid, at all costs, variable rate private student loans.

You Need Good Credit to Qualify

With federal student loans, the only eligibility requirement is based on financial need. There are no credit checks. With private student loans, the student or a cosigner will need to qualify based on their credit and financial status. The lowest private loan rates are reserved for the most creditworthy borrowers. So, if you do end up qualifying for a loan with less than great credit, you will be stuck with a much higher loan rate.

You Will Probably Need a Cosigner

The reality is 90% of private student loans require a cosigner. Cosigners take on equal responsibility for loan repayment. Should the student borrower fail to make payments, the lender can go after the cosigner, which in most cases is a parent. A few lenders offer a cosigner release which takes the cosigner off the hook if the student borrower makes on time payments for a certain period of time. However, the lender may require borrowers to be able to qualify for the loan on their own before agreeing to a release. Less than 1% of cosigner release requests are approved.

Private student loans can play an integral role in helping students fund their college education. However, the overwhelming consensus is that students should fully exhaust all possible options in maximizing their federal and state aid. Under certain circumstances, many colleges will step in and either find ways to reduce expenses or supplement federal aid with a college or private grant. Leaving college with student loan debt can make life difficult. There is no reason to increase your burden, if you don’t have to, with an unmanageable private student loan.

Sources:

  1. https://www.uwcu.org/Rates/StudentLoan.aspx
  2. https://www.businessinsider.com/americas-student-loan-debt-facts-2017-4

This article was contributed by guest author Jennifer Loews.

By on June 26, 2017 in Saving Money

Image by stockunlimited.com

Being a college student nowadays can be overwhelming. Not only do you have to assume the burden of the ever-rising cost of your tuition, but you also have to find a living space that is preferably nicer than a cardboard box. Don’t worry – you are not alone. It’s not easy to learn and study if you are constantly worried about being buried in debt by graduation. While it is rare to eliminate student debt entirely, there are many practical ways for you to cut costs:

Become an RA
In exchange for monitoring the halls, manning the check-in desk, and organizing floor meetings and events, colleges provide RAs with room and board. That’s $8K – $10K on average that can be subtracted from your annual bill. Surprisingly, a lot of people dismiss this option because they are afraid that their peers will view them as “cops.” This is only true if you let it be true. In a way, being an RA is like being a supervisor: if you are cocky and power-drunk without being fair or personable, nobody will like or respect you; but if you always look for the humanity in others, people will see that you are genuine.

Use Budget-Friendly Cleaning Supplies
Every home should have a vacuum, a mop, some dish detergent, a bottle of Windex, and a few white hand towels. If you opt for the store-brand versions of these essentials, you can easily stock up for next to nothing. It’s also worth noting that you can buy a decent vacuum cleaner for under $100. Remember: cleanliness helps to reduce stress, so keep it clean while you pursue your dreams.

Get a Part-Time Internship
When you are strapped for cash, it is tempting to go for a job that “anyone can get.” But college is all about experimenting: instead of going for the same jobs as anyone else, think about the subjects that interest you, and look for a paid internship in that field. For example, if you like psychology, try reaching out to local clinics. If you don’t have a car, consider doing some part-time freelancing online. Most people don’t know what they want to do for a living until long after they graduate. By pursuing internships while you are still in school, you will learn what you like and what you don’t like. Ultimately, these types of experiences will help you develop end goals that you can tailor your education around.

Buy Used Gear
College textbooks are ridiculously overpriced. Few people have need for them when the class is over, and yet year after year, a new version is churned out – complete with negligible changes. Instead of buying new from the school bookstore, look for used versions online. Similarly, if you are living off-campus, browse thrift stores for used furniture.

Shack Up With Your Friends
It’s no secret that rent is cheaper with roommates, but have you thought about sharing your room, too? A lot of landlords offer attractive rates to students who are willing to put two beds in each room. While you may think that you need your own room, remember that it won’t be forever, and if you don’t have to shell out much dough for rent each month, you can use the excess to pay for groceries or a night out with your friends.

This article was contributed by guest author Sammy Dolan.

By on April 22, 2016 in Credit Cards, Financial Aid
Image by stevepb, pixabay.com

Image by stevepb, pixabay.com

Student debt is a hot topic in the world of North American higher education. As colleges and universities continually boost tuition costs, many students tend to get buried in a mountain of debt in order to survive their college years. Financial assistance is becoming increasingly common in the college world, and is one of the key culprits behind the student debt issue; however, many students are not fully aware of how to align their personal finances before and after they start college. This tends to create a downward spiral effect on many students’ well-beings, and is creating an overall negative feeling towards the idea of attending college.

However, student loans are not as excessive as they are portrayed to be. Of course, we have all seen student loans on T.V. that range upwards of $100,000, but the average student loan amount is around $38,400.

So what is causing so many current and former students to be stuck in an unmanageable mountain of debt?

Well, there are many other avenues in the college life that, if not carefully managed, can cause a large impact on a student’s finances. Below I will highlight three of these debt-causing vultures that are constantly circling overhead within the college world:

Credit Cards
Credit cards have always seemed to have somewhat of a dark history. There are countless horror stories of individuals being drowned in credit card debts, and this epidemic has always floated around the college world. The relationship between college students and many students’ credit card debts can be attributed to not fully understanding how exactly to use a credit card. After all, it is not free money.

The truth is credit cards can actually be quite the helping hand to a college student. Understanding that credit card spending should be tracked and paid off on time each month can help skyrocket an individual’s credit score, setting them up for better opportunities in the future. In the world of college, this can mean better student loan interest rates – we all want those.

Not Working
Going to college is stressful, and many students fear the thought of acquiring a part-time job, because it would cut into their ability to do homework or go out on the weekends. While this is understandable, many students see their financial aid as a secondary bank account. Much like credit cards, this can get out of hand very quickly.

It is important to take a step back and look at the big picture – your future. Getting a part time job, in order to avoid unnecessary spending on everyday items, can help a student avoid any added burden on top of their student loan repayments.

Going Out
Having a night out on the town seems to be a weekly tradition throughout the college world, and truthfully, after spending Monday through Friday in a classroom, it is well-deserved. However, it is important to be mindful of spending when doing so. Going out to dinner, buying drinks, and paying for a ride home for you and your friends can easily – and quickly – add up.
Thankfully, there are a number of frugal alternatives for students to still have fun on the weekends without going broke. For example, here in Boise we have a $3 movie theatre, and there is almost always an opportunity to go to a punk show for $5 at a DIY venue. The opportunities are out there, you just have to actively be looking for them.

In summary – yes, college can be a stressful time – both mentally and financially. However, being financially responsible and acknowledging how to conquer your student debts can be a lifesaver – both during and after your time in college.

Thank you for reading. Let’s keep the conversation going! What are some financial tips you have for your fellow college-goers? Tell me about them on Twitter (@trvshlvrd_rr).

This article was contributed by guest author Taylor Tomita.

By on December 28, 2015 in Financial Aid
Image by GotCredit, Flickr

Image by GotCredit, Flickr

When preparing to apply for colleges and choose your major, it’s important to consider what kinds of debts you are getting into and how you are going to get out of them. Of course, for many, money will be a huge obstacle to obtaining higher education. With tuitions rising higher than inflation, there is cause to worry that many students get in over their head in debts that are near impossible to pay back.

It’s important to understand all the options available to you as far as paying back your loans, even before entering college your first year. There are certain fields and professions that make it easier for new graduates to wipe away debts in the long term at a fraction of the total repayment rate. If you prepare for those jobs ahead of time, and know what you are getting into, you can make the most of your college education to ensure you have the skills needed to succeed in those areas after graduation.

For example, most federal loans can be forgiven after 10 years of graduation and also offer low monthly minimum payments if you consistently work in the public sector or are working at either a Title 1 school, or elementary or secondary school operated by the Bureau of Indian Education (BIE). If you are planning to be an educator of any kind this is something to consider ahead of time.

Also, if you know you are going to be working in one of these situations after graduation then you can plan your studies accordingly, giving additional focus and attention to skills that will help you where you are going. In this way you might minor in ethnic studies so as to be more informed and sensitive to the issues facing the population you are planning to serve after graduation. Or choose to take language classes that might help you better communicate with students and parents.

In the case of doctors and dentists there are similar programs that help wipe out your student debts if you serve in underprivileged areas for certain amounts of time. The programs vary from state to state which is why it’s important to study up ahead of time and make a plan for yourself post-graduation.

You may not be able to work in a school or hospital in your hometown to start, but if you’re prepared to travel and are ready to live and work in new communities that you’ve worked hard to understand, then it will make the transition easier and the payback of loans that much more efficient.

Be aware of these loan forgiveness programs before you sign up for your student loan. Often times private bank loans are not forgiven so be sure you know what your options will be post-graduation.

Federal Loan Forgiveness Programs

The Public Service Loan Forgiveness Program
In 2007, congress created the Public Service Loan Forgiveness program to reward citizens who have chosen relatively lower paying jobs in the public sector, or work at non-profit organizations. This program forgives the remainder of a loan after 10 years of regular monthly re-payments. As an example, here is how the Public Service Loan Forgiveness program might work:
“Borrower is earning $40,000/year with a family size of four. The loan balance is $48,000, with an interest rate of 6.875%. Borrower could qualify for an income based payment of $52/mo. After making 120 qualifying payments, borrower would have paid $6,240 in student loan payments, and the balance of $48,000 – $6,240 = $41,760 would be forgiven. This does not include interest that would also be forgiven, and assumes that the person’s income and family size will not change for ten years.” ~Student Debt Relief

Teacher Loan Forgiveness Program
Arguably the most beneficial of all the forgiveness options is the Teacher Loan Forgiveness program – as certain qualifying teachers are eligible for both full forgiveness of the remaining balance after a 10 year term and principal reduction of up to $17,500. As mentioned above, an eligible teacher is one who is not currently defaulting on their loan and who is also working at either a Title 1, elementary or secondary school operated by the Bureau of Indian Education (BIE).The ten year Teacher Loan Forgiveness program is part of the public service loan forgiveness program, but in most cases teachers qualify for and receive benefits of both programs.

State-specific Debt Forgiveness Programs
In addition to federal student debt forgiveness programs there are also numerous state-specific programs that will alleviate all or part of your debts for certain types of service. Everything from volunteer firefighting, to dentistry, to volunteer work can help pay down your student debts.

Where loan-forgiveness is not an option, it may be suitable to consolidate loans into one lower monthly payment to at least avoid defaulting. This will put student borrowers in the position to seek out better employment and other opportunities for loan forgiveness in the long term.

Always read the fine print on any loan you are considering and consult with professionals regarding your long-term options before making any decisions about forgiveness or consolidation. Weigh the pros and cons of any option and also prepare to utilize the creative ways to pay off the loans after graduation so you’re not saddled with debt for the next three decades.

This article was contributed by guest author Barney Whistance.