What's income-based repayment?
It's the newest of six repayment options for federal student loans. It differs from most options in that the other loan payment plans are designed to repay the balance over a set period of time, such as 10 years. Income-based repayment doesn't base payments on a set payoff date. Instead, the payments are based on the borrower's discretionary income. That's calculated by determining how much the borrower's income exceeds federal poverty guidelines for his or her family size and location. The less you earn, the less you pay.
If you pay less each month, doesn't that mean you'll pay for more years and end up paying more interest, too?
Yes. Interest accrues on student loan balances each month and if you're paying less than the interest that's accruing, the balance of your loan could actually rise. For that reason, anyone who could afford to pay more would be advised to, Irons said. But if the loan payments are making it impossible to pay other bills, this gives you the flexibility to help your cash flow without hurting your credit.
Does that mean I'll be paying on my student loans forever?
No. This plan says that any borrower who has faithfully made payments for 25 years can have his or her remaining loan balance forgiven or wiped away at the end of that time.
In addition, if you work for government or a nonprofit and repay your debts under the direct loan program for 10 years, you could have your loan balance wiped out faster under another federal program called Public Service Debt Forgiveness.
How much would I have to pay each month?
That depends on your income, your debt and the number of people in your household. However, the Education Department says if you are single and earning $20,000 annually, the most you'd have to pay against student loans is $47 a month. If you earned $25,000, the required payment would be $109. If you earned $35,000, the required payment would be capped at $234.
Comparatively, if you had $50,000 in student debt at a 6.8% interest rate, you'd have to pay $575.40 a month under the standard repayment plan, no matter how much you earned.
Am I going to be locked out of the program if I earn more?
No. The formula determining whether you qualify looks at your loan payments versus your discretionary income. You could have a substantial income and still qualify if you also have a lot of debt. Borrower's payments are adjusted once annually to reflect changes in income and family size.
Can I do this with all my loans?
The program is only available for federal student loans under the Stafford, Grad Plus and federal consolidation loan programs. It does not apply to parent's loans for students (called Plus Loans), and only applies to Perkins Loans if they're consolidated into the Federal Family Education Loan or Direct Loan programs. It also does not apply to private loans, state loans and loans that are not backed by the federal government.
How do I figure out if I qualify and how much my payments might be?
The Project on Student Debt has set up a website dedicated to answering questions about income-based repayment at www.ibrinfo.org. The site has a calculator that estimates whether you'll qualify for the program and roughly what your payment amount will be.
The Education Department also offers a Web-based calculator on its site that explains all the repayment options for student borrowers. That site is at www.studentaid.ed.gov. (Scroll down and look for "repaying your loans" on the left side of the page. After you click on that, you'll see "repayment plans and calculators." Click again and it will link to repayment calculators for the various options, including standard and extended repayment.)
How do I apply?
Gather your loan information, showing balances, type of loans and lenders. Then contact your lenders. If your lender will not offer income-based repayment, call the Education Department at 1-800-4-FED-AID and look into consolidating your qualifying loans into the Direct Loan program, which is administered by the federal government.
Article written by Kathy M. Kristof
To read full article, click SOURCE
Tuesday, September 22, 2009
Tuesday, September 15, 2009
Benefits of STUDENT LOAN CONSOLIDATION
If you haven’t noticed it, education costs don’t come cheap nowadays. Many students are taking loans to support their way through college. It seems to settle their problem for the time being but things will start to get difficult when they graduate. They are already in debt before they even earn their first dollar. The tips below are to show you why you should consider the student loan consolidation.
1. Lower payment
2. Lower rates
Besides lowering your payment, you can also lower your interest rates by looking for the right lenders. Again, it will prove beneficial to you when you run some researches on the various lenders’ offers.
And be careful for the fine prints and remember to ask for any hidden cost. You don’t want to suffer any extra payment when you are trying to manage your loan. And to help you on that, you can look for online consolidators to calculate your future student consolidation loan base on the current rate of your student loan.
3. Only one payment
Let’s say you have acquired a housing loan and other possible loans during your studies. And imagine you have to bank in different payments to different companies at different time. Isn’t that a lot of works to do? Wouldn’t it be great that you can make one payment and be free from all the annoying reminders? You can do that when you consolidate the student loan and get your loans taken care of.
4. Relieve stress
Please know that the financial companies will punish you for paying late and surely you don’t want that. It is a stressful job to remember the various due dates for the payments. What if you have more important tasks to attend to?
It is very possible that you will forget to pay the loan. And when you sign up for student loan consolidation, you only pay once to the company to cover all your loans. This frees your mind so that you can focus on your job or something more rewarding.
1. Lower payment
This is by far the best reason for you to consider taking the loan consolidation. It is possible to reduce your monthly payment by 40% - 50% when you make a research on the lenders. Imagine freeing half of the financial load being lifted off your shoulders. You will feel that the air is lighter and your life is not just about paying for loans.
2. Lower rates
Besides lowering your payment, you can also lower your interest rates by looking for the right lenders. Again, it will prove beneficial to you when you run some researches on the various lenders’ offers.
And be careful for the fine prints and remember to ask for any hidden cost. You don’t want to suffer any extra payment when you are trying to manage your loan. And to help you on that, you can look for online consolidators to calculate your future student consolidation loan base on the current rate of your student loan.
3. Only one payment
Let’s say you have acquired a housing loan and other possible loans during your studies. And imagine you have to bank in different payments to different companies at different time. Isn’t that a lot of works to do? Wouldn’t it be great that you can make one payment and be free from all the annoying reminders? You can do that when you consolidate the student loan and get your loans taken care of.
4. Relieve stress
Please know that the financial companies will punish you for paying late and surely you don’t want that. It is a stressful job to remember the various due dates for the payments. What if you have more important tasks to attend to?
It is very possible that you will forget to pay the loan. And when you sign up for student loan consolidation, you only pay once to the company to cover all your loans. This frees your mind so that you can focus on your job or something more rewarding.
SOURCE: Article written by: Michael W
Tuesday, September 8, 2009
Lowest Federal Student Loan Rates Ever
GOOD NEWS!!!
SOURCE: www.herald-citizen.com
SOURCE: www.herald-citizen.com
PUTNAM COUNTY -- Those of you who have Stafford and Plus loans, there's some good news that's just been released -- they are at their lowest rates since the federal student loan program was put in place.
Loans issued after July 1, 1998 through June 30, 2006 can now be consolidated and changed to one loan with a fixed rate.
"Stafford loans in repayment status is now at a fixed rate of 2.48 percent, down from 4.21 percent last year," Landon Vick of Cravens and Company wealth management said. "The in-school grace period or deferment status loan's new rate is 1.88 percent, down from 3.61 percent last year. The new rate for the Plus loan is 3.28 percent, down from 5.01 percent."
These new rates only apply to Stafford and Plus loans.
For more information about consolidation and what it means for student loans, visit www.loanconsolidation.ed.gov.
Loans issued after July 1, 1998 through June 30, 2006 can now be consolidated and changed to one loan with a fixed rate.
"Stafford loans in repayment status is now at a fixed rate of 2.48 percent, down from 4.21 percent last year," Landon Vick of Cravens and Company wealth management said. "The in-school grace period or deferment status loan's new rate is 1.88 percent, down from 3.61 percent last year. The new rate for the Plus loan is 3.28 percent, down from 5.01 percent."
These new rates only apply to Stafford and Plus loans.
For more information about consolidation and what it means for student loans, visit www.loanconsolidation.ed.gov.
SOURCE: www.herald-citizen.com
Secret of Finding Student Loan
The credit crunch and debacle on Wall Street have wiped out those easy-peasy $40,000 college loans that used to be all over late-night TV. And the feds are considering a dramatic consolidation of the educational lending industry that could reduce options still further. But no matter what happens in Washington or on Wall Street this year or next, most students will still be able to borrow enough to cover the bulk of tuition at their local public university at a reasonable cost from the feds.
One of the most surprising results of the turmoil in the lending markets is how students' loan options have diverged from parents'. Here are the key things both should bear in mind:
DEALS FOR STUDENTS. Students should always start with the feds. The first step: filling out the FAFSA form, the Free Application for Federal Student Aid.
All full-time students who complete a FAFSA and a federal loan agreement provided by their school's financial aid office can borrow at least $5,500 a year through the Stafford student loan program. Students who are at least 24 or whose parents have bad credit can get Stafford loans of up to $9,500 to $12,500, depending on their year. This fall, Staffords will charge no more than 6.8 percent a year in interest plus a 1.5 percent upfront fee, for an average annual percentage rate of 7.1 percent.
Low-income students generally qualify for better deals. Some will receive federal Perkins loans, which charge no interest while students are in school and just 5 percent after they leave. And most needy students will receive "subsidized" Stafford loans, which for the academic year starting this September will charge no interest while students are in school and 5.6 percent after they leave.
Need more? Uh-oh! Dropping out of college is usually far more expensive, in the long run, than sticking it out and graduating to qualify for better jobs, so it can pay to borrow a little extra to make it to commencement. The problem is that students who need more than the government will lend have few good choices, says Greg McBride, a senior financial analyst for Bankrate.com. Here are some possibilities:
Charities and colleges. A few charities, such as Maryland's Central Scholarship Bureau and the Scholarship Foundation of St. Louis, award interest-free loans to a handful of needy students each year. And some colleges, including the University of Minnesota-Twin Cities, are trying to un-crunch credit by making loans themselves. But beware: Lauren Asher, acting president of the Institute for College Access and Success, warns that while many of these are good deals, students shouldn't automatically accept every loan they are offered.
Alternative loans. Banks and other lenders have gotten so picky recently that they've been making only private (or "signature") education loans, often at high variable rates, and only to U.S. citizens with good credit scores (typically those with FICO scores of at least 700). That means most students need at least one employed cosigner to promise to repay their private loans. It also means private loan costs will rise when interest rates bounce back up. But borrowers who can convince lenders that they are responsible and capable of repaying, such as Sarah Kelly of New York City, have been able to find cheap alternative loans. After suffering with $50,000 in private law school loans charging 7 percent a year, the recent New York Law School graduate and her parents agreed to try out a Student Payback contract offered by Virgin Money. Her parents paid off her expensive private loans. In return, Virgin Money withdraws a monthly payment from Sarah's checking account to pay back her parents at a lower rate.
OPTIONS FOR PARENTS. Parents, unfortunately, have to do more legwork, as Gary Krist of Bethesda, Md., the father of a rising Northwestern University freshman, discovered. He was shocked this spring when he saw how several colleges had packaged expensive parent loans into his daughter's financial aid offers. But at least it was motivating: Over the next month or so, he and his wife spent about 20 hours calling up alternative lenders and scouring the Web for better deals.
Federal loans are no bargain. While students can borrow comparatively small amounts of money cheaply from the feds, parents are offered bigger but more expensive loans. The federally backed parent PLUS loan can cover the student's entire cost of college (less any other financial aid). But PLUS loans can cost as much as 8.5 percent a year plus a fee of 4 percent of the loan amount, for a total annual percentage rate as high as 9.4 percent. Shoppers can find discounts, however. Those who borrow directly from the federal government and make automatic electronic payments are charged just 7.65 percent in interest. (After fees, the APR totals 8.55 percent.) And the eligibility criteria are comparatively forgiving, even for parents who are a little behind on their mortgages.
Click here to continue reading this article from Kim Clark for USNews.com : The Secret of Finding Student Loan
One of the most surprising results of the turmoil in the lending markets is how students' loan options have diverged from parents'. Here are the key things both should bear in mind:
DEALS FOR STUDENTS. Students should always start with the feds. The first step: filling out the FAFSA form, the Free Application for Federal Student Aid.
All full-time students who complete a FAFSA and a federal loan agreement provided by their school's financial aid office can borrow at least $5,500 a year through the Stafford student loan program. Students who are at least 24 or whose parents have bad credit can get Stafford loans of up to $9,500 to $12,500, depending on their year. This fall, Staffords will charge no more than 6.8 percent a year in interest plus a 1.5 percent upfront fee, for an average annual percentage rate of 7.1 percent.
Low-income students generally qualify for better deals. Some will receive federal Perkins loans, which charge no interest while students are in school and just 5 percent after they leave. And most needy students will receive "subsidized" Stafford loans, which for the academic year starting this September will charge no interest while students are in school and 5.6 percent after they leave.
Need more? Uh-oh! Dropping out of college is usually far more expensive, in the long run, than sticking it out and graduating to qualify for better jobs, so it can pay to borrow a little extra to make it to commencement. The problem is that students who need more than the government will lend have few good choices, says Greg McBride, a senior financial analyst for Bankrate.com. Here are some possibilities:
Charities and colleges. A few charities, such as Maryland's Central Scholarship Bureau and the Scholarship Foundation of St. Louis, award interest-free loans to a handful of needy students each year. And some colleges, including the University of Minnesota-Twin Cities, are trying to un-crunch credit by making loans themselves. But beware: Lauren Asher, acting president of the Institute for College Access and Success, warns that while many of these are good deals, students shouldn't automatically accept every loan they are offered.
Alternative loans. Banks and other lenders have gotten so picky recently that they've been making only private (or "signature") education loans, often at high variable rates, and only to U.S. citizens with good credit scores (typically those with FICO scores of at least 700). That means most students need at least one employed cosigner to promise to repay their private loans. It also means private loan costs will rise when interest rates bounce back up. But borrowers who can convince lenders that they are responsible and capable of repaying, such as Sarah Kelly of New York City, have been able to find cheap alternative loans. After suffering with $50,000 in private law school loans charging 7 percent a year, the recent New York Law School graduate and her parents agreed to try out a Student Payback contract offered by Virgin Money. Her parents paid off her expensive private loans. In return, Virgin Money withdraws a monthly payment from Sarah's checking account to pay back her parents at a lower rate.
OPTIONS FOR PARENTS. Parents, unfortunately, have to do more legwork, as Gary Krist of Bethesda, Md., the father of a rising Northwestern University freshman, discovered. He was shocked this spring when he saw how several colleges had packaged expensive parent loans into his daughter's financial aid offers. But at least it was motivating: Over the next month or so, he and his wife spent about 20 hours calling up alternative lenders and scouring the Web for better deals.
Federal loans are no bargain. While students can borrow comparatively small amounts of money cheaply from the feds, parents are offered bigger but more expensive loans. The federally backed parent PLUS loan can cover the student's entire cost of college (less any other financial aid). But PLUS loans can cost as much as 8.5 percent a year plus a fee of 4 percent of the loan amount, for a total annual percentage rate as high as 9.4 percent. Shoppers can find discounts, however. Those who borrow directly from the federal government and make automatic electronic payments are charged just 7.65 percent in interest. (After fees, the APR totals 8.55 percent.) And the eligibility criteria are comparatively forgiving, even for parents who are a little behind on their mortgages.
Click here to continue reading this article from Kim Clark for USNews.com : The Secret of Finding Student Loan
Tuesday, September 1, 2009
STUDENT LOAN CONSOLIDATION: Lower Costs and Better Repayment Options
SOURCE: www.online.wsj.com
NEW YORK (Dow Jones)--This could be the right time to consolidate student loans.
A number of programs and interest rates change after July 1, offering a chance to lower costs and get better repayment options. That's good news for students, who are graduating with on average about $23,000 in debt, and of course for parents still supporting them.
Similar to refinancing, consolidating of student's federal loans can be done for no fee. It's also a good opportunity for advisers to discuss college costs with families. The financial crisis and tighter credit have left even high networth investors less confident about college savings.
If someone consolidates during the grace period - which is typically six months after graduation - the Stafford loan rate could drop to 1.88% from 3.61%. Someone already repaying loans could see the rate drop to 2.4% from 4.21%. The PLUS loans rate could drop from 5.01% to 3.28%, says Mark Kantrowitz, publisher of FinAid, a Website that tracks the college financial aid industry. Consolidation, he says, locks in the lower rates beyond the coming year.
"These rates are historically low rates, and we are unlikely to ever see rates this low again," he says.
Until July 2006, interest rates on federal students were at variable rates that could potentially climb to 8.25% for Stafford Loans and 9% for Plus Loans. The consolidated interest rate is a weighted average of the interest rates on the loans at the time of consolidation, rounded up to the nearest one-eighth of a percentage point. It cannot exceed 8.25%.
After 2006, the rates became fixed. The unsubsidized Stafford loans are now 6.8%. The subsidized Stafford loan is decreasing each year from 6.8% to 3.4%. (It is scheduled to return to the 6.8% rate if Congress does not act). The Plus Loans are now fixed rates at 8.5% for FFEL PLUS Loans or 7.9% for Direct PLUS Loans.
Another benefit to consolidation is that it is a requirement for some deferred repayment plans. Borrowers typically have from 10 to 25 years to repay loans, depending on the repayment plans they choose.
Extending payments may ease monthly expenses in the short term, but it could add significantly to the cost of the loan.
For example, repaying $230 a month at the Stafford rate of 6.8% will add $7,619 in interest to a $20,000 loan repaid over 10 years, says Kantrowitz. In contrast, extending that to 20 years with payments of $153 a month would add $16,640 to the $20,000 loan for $36,640.
Another option for grads after July 1, is a new income-based repayment plan. The program doesn't require consolidation, but it caps monthly payments at a certain percentage of the borrower's income.
"It's actually a very good plan for people experiencing financial difficulties," says Kantrowitz. "It's better for you than a forbearance."
Only a few companies still consolidate private loans. That's worth considering if the borrower's credit score has significantly improved - say more than 100 points - and may enable them to get a better interest rate.
Another potential benefit to consolidating a private loan is that it could enable someone to remove a co-signer such as a parent or relative from potential liability. This typically requires regular payments of 24 to 48 months.
SOURCE: www.online.wsj.com
NEW YORK (Dow Jones)--This could be the right time to consolidate student loans.
A number of programs and interest rates change after July 1, offering a chance to lower costs and get better repayment options. That's good news for students, who are graduating with on average about $23,000 in debt, and of course for parents still supporting them.
Similar to refinancing, consolidating of student's federal loans can be done for no fee. It's also a good opportunity for advisers to discuss college costs with families. The financial crisis and tighter credit have left even high networth investors less confident about college savings.
If someone consolidates during the grace period - which is typically six months after graduation - the Stafford loan rate could drop to 1.88% from 3.61%. Someone already repaying loans could see the rate drop to 2.4% from 4.21%. The PLUS loans rate could drop from 5.01% to 3.28%, says Mark Kantrowitz, publisher of FinAid, a Website that tracks the college financial aid industry. Consolidation, he says, locks in the lower rates beyond the coming year.
"These rates are historically low rates, and we are unlikely to ever see rates this low again," he says.
Until July 2006, interest rates on federal students were at variable rates that could potentially climb to 8.25% for Stafford Loans and 9% for Plus Loans. The consolidated interest rate is a weighted average of the interest rates on the loans at the time of consolidation, rounded up to the nearest one-eighth of a percentage point. It cannot exceed 8.25%.
After 2006, the rates became fixed. The unsubsidized Stafford loans are now 6.8%. The subsidized Stafford loan is decreasing each year from 6.8% to 3.4%. (It is scheduled to return to the 6.8% rate if Congress does not act). The Plus Loans are now fixed rates at 8.5% for FFEL PLUS Loans or 7.9% for Direct PLUS Loans.
Another benefit to consolidation is that it is a requirement for some deferred repayment plans. Borrowers typically have from 10 to 25 years to repay loans, depending on the repayment plans they choose.
Extending payments may ease monthly expenses in the short term, but it could add significantly to the cost of the loan.
For example, repaying $230 a month at the Stafford rate of 6.8% will add $7,619 in interest to a $20,000 loan repaid over 10 years, says Kantrowitz. In contrast, extending that to 20 years with payments of $153 a month would add $16,640 to the $20,000 loan for $36,640.
Another option for grads after July 1, is a new income-based repayment plan. The program doesn't require consolidation, but it caps monthly payments at a certain percentage of the borrower's income.
"It's actually a very good plan for people experiencing financial difficulties," says Kantrowitz. "It's better for you than a forbearance."
Only a few companies still consolidate private loans. That's worth considering if the borrower's credit score has significantly improved - say more than 100 points - and may enable them to get a better interest rate.
Another potential benefit to consolidating a private loan is that it could enable someone to remove a co-signer such as a parent or relative from potential liability. This typically requires regular payments of 24 to 48 months.
SOURCE: www.online.wsj.com
Tuesday, August 25, 2009
Changes to Student-Loan Terms - CONSOLIDATION LOANS
Recent Changes to Student-Loan Terms
Federal legislation has made several changes in federal student-loan programs terms. The following are highlights of the major changes.
Consolidation Loans
Loan consolidation permits federal student-loan borrowers to bundle multiple student loans into a single loan, and depending on the borrower’s total education debt, extend the period for paying back the loan.
In-school consolidation. You no longer may consolidate your student loans while you still are attending school at least half time. The law eliminated a provision that had permitted you to request that your loans enter repayment early. You now will have to wait until you are in the grace period after you leave school (or drop below half-time enrollment) or in repayment on your loans before you may consolidate them.
Spousal consolidation. Spouses no longer may include their loans in a single consolidation loan.
Reconsolidation. With a few exceptions, if you already have consolidated your loans, you may not obtain a subsequent consolidation loan. The exceptions are that you subsequently take out a loan eligible to include in a consolidation loan, that you decide to include additional eligible loans within 180 days after receiving your consolidation loan, or that you decide to add eligible loans that you did not include in the original consolidation loan. The law added another exception that permits borrowers with Federal Consolidation loans to obtain a Direct Consolidation loan for the purpose of obtaining income-contingent repayment, but only if the lender has requested assistance from the loans' guarantor to help the borrower avoid default.
Tuesday, August 18, 2009
STUDENT LOAN CONSOLIDATION Calculator
FinAid's Loan Consolidation Calculator can help you understand the tradeoffs of consolidating your loans. It compares the reduction in the monthly loan payment with the increase in the total interest paid over the lifetime of the loan. It also shows you the interest rate on your consolidation loan.
Despite the switch to fixed interest rates on Stafford and PLUS loans eliminating a key financial incentive to consolidate, there are still several reasons to consolidate your education loans. These include having a single monthly payment, access to alternate repayment plans, the PLUS loan interest rate loophole, and the ability to reset the 3-year clock on deferments and forbearances. But consolidation can cut short the grace period, although the grace period loophole can work around this problem. It is best to avoid consolidating Perkins loans, because you lose several valuable benefits. Beware of extending the term of your loan, as this can increase the total interest paid over the lifetime of the loan; you can stick with standard ten-year repayment.
Before consolidating, always evaluate the benefits provided by the current holder of your loans. The loan discounts offered by originating lenders tend to be superior to those offered by consolidating lenders, since consolidation loans have tighter margins. Also, if you received a fee waiver or rebate from the originating lender, you may have to repay that discount if you consolidate with another lender. It may be possible to get some of the benefits of alternate repayment plans without consolidating, such as extended/graduated repayment with a loan term of up to 25 years and a single monthly payment, if you have more than $30,000 in federal education loan debt accumulated since October 7, 1998 with the lender. (This is due to a little known provision of the Higher Education Act, in section 428(b)(9)(A)(iv), and the regulations at 34 CFR 682.209(a)(6)(ix).)
You can change the repayment schedule on your loan once per year. So consider starting off with standard ten-year repayment on your consolidation loan. You are not required to start off with extended repayment. If you find it difficult to afford the payments, you can always switch to extended repayment later.
SOURCE: www.finaid.org
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