Special Direct Consolidation Loans

As you may (or may not) have heard, the U.S. Department of Education will offer Special Direct Consolidation Loans to eligible borrowers, beginning in January 2012. As with traditional consolidation loans, this program is intended to assist borrowers with loans split among loan servicers by simplifying the repayment process, resulting in one monthly bill and payment. However, this program does not offer borrowers a traditional federal Consolidation loan and cannot be used to resolve defaulted loans.

The window for this special, short-term consolidation opportunity will close June 30, 2012. For borrowers to participate, they must meet two criteria:

o They must have at least one student loan held by the Department of Education (either a Direct Loan or a Federal Family Education Loan [FFEL] owned by the Department and serviced by one of the Department’s servicers).

o They must also have at least one commercially-held FFEL loan (a FFEL loan that is owned by a FFEL lender and serviced either by that lender or by a servicer contracted by that lender).

PROS of the Program: Borowers could receive a possible .5% interest rate reduction - which could mean huge savings!

o The U.S. Department of Education will give a 0.25% interest rate reduction from that rate as of the date of consolidation.
o They will also give an additional 0.25% interest rate deduction if the borrower chooses to repay his or her consolidation loan by auto-debit from the borrower's bank account.

Based on a 10 year repayment period, 6.8% interest rrate and 20,000 in debt, the savings could be as high as $ 611.00 (http://www.aie.org/paying-for-college/finance-tools/college-loan-calculator.cfm#).

Another positive feature: Borrowers could receive credit for previous Income-Based Repayment (IBR) payments. If a borrower made any payments on his or her lender-held FFELP loan(s) under an IBR plan prior to consolidation under this program, those payments will count toward the required number of payments for loan forgiveness if the borrower remains under the IBR plan. By consolidating into a Special Direct Consolidation Loan, any previously lender-held FFELP loan(s) will become a Direct loan and may be eligible for PSLF if the borrower meets the additional eligibility requirements - another HUGE potential savings.

BORROWERS IN GRACE: You should note that you may lose part of the grace period upon consolidation if you consolidate a lender-held FFELP loan that during the grace period,

Beginning in January 2012, the DOE servicers should begin contacting eligible borrowers. However, if you are interested and want to get started immediately, you may contact the DOE servicer currently servicing your ED-held loan(s) for assistance.

As with any consumer decision - investigate your options, do your research and make an informed decision. For more information, you can call 1-800-4-FED-AID (1-800-433-3243) or visit:
http://studentaid.ed.gov/PORTALSWebApp/students/english/specialconsolidation.jsp

One Final Note of Caution: Please let your school know if you consolidate your student loans. Many schools offer their students support while in repayment and consolidating may disconnect the school's linked access to their borrower's accounts.

Don’t Let the Season Carry You Away!

TrueCredit.com Survey Reveals U.S. Consumers are Trimming Holiday Spending Credit Experts Share Shoppers’ Insights and Offer Easy Tips to Avoid Overspending: “While clipping coupons and bargain hunting are effective ways to pinch pennies, now more than ever, consumers need to plan for long-term savings,” said Lucy Duni, vice president of consumer education at TrueCredit.com by TransUnion. “During the holidays, it’s important for consumers to take a holistic approach to their spending, to ensure they don’t rack up debt that will impact their credit long after the holidays are over.”

The experts at TrueCredit.com compiled a list of helpful tips and insights to help consumers navigate the holiday shopping landscape:

Wallet Makeover: Surprisingly, the survey found 55 percent of people say they do *not* feel they’re more at risk of ID theft during the holiday shopping season. As more shoppers hit the stores, so do identity thieves, so it’s important for consumers to protect themselves. To reduce your risk, do not carry extra credit cards, your Social Security card, birth certificate or passport with you unless needed.

Check it Twice: Before you shop this holiday season, check your credit report to get an up-to-date view on your balances and to ensure everything is accurate. After the holidays, check your report again to make sure there isn’t any fraudulent activity on your report.
Trim the Tree: Talk to your friends and family about scaling back on extravagant gifts to ensure the holiday season is more economical for everyone. Try making a list of people you plan to buy gifts for and set a spending limit for each one.

Buyer Beware: According to the survey, more than half of Americans have between one-to-five retail credit cards, and 2 percent say they have seven or more! Avoid the temptation to sign up for every credit card you are offered while shopping. While the promotion may be enticing, it can also make it easier for you to rack up more debt.

Go Green: Go to the ATM and take out the amount of cash you plan to use for the day. Put it in your wallet. When your wallet is empty, stop shopping.

Eyes on the Prize: Maintain good spending habits and a healthy credit report during the holidays and throughout the year. Budgeting ahead for holiday and other spending extravaganzas can help limit financial stress while also keeping your debt accumulation to a minimum.

Final Tip: If you are lucky enough to get that lovely green stuff for a gift (otherwise known as cash), consider giving yourself a real gift and make an additional payment to your student loan principal. Remember, since interest is "fee simple" the faster you pay your principal down, the less your loan will cost!

To see the full results of TrueCredit.com’s survey and learn more about credit management, log onto www.gotruecredit.com and visit the learning center.

A Temporary Window of Opportunity is Closing Soon: Do You Need to Take Action Now?

When President Obama signed the Health Care and Education Reconciliation Act of 2010 (HCERA), Public Law 111-152, on March 30, 2010, the bill included temporary changes to the conditions under which a borrower may consolidate loans into a Federal Direct Consolidation Loan. These changes apply only to a Direct Consolidation Loan that is made based on an application received by the U.S. Department of Education on or after July 1, 2010 and before July 1, 2011.

Borrower Eligibility Under the HCERA Temporary Consolidation Authority
If a borrower's Consolidation Loan Application and Promissory Note is received by the U. S. Department of Education before July 1, 2011, the borrower may consolidate a loan that has not yet entered repayment status, including a loan that is in an in-school status, if the borrower meets the following requirements:
1. The borrower has one or more loans from two or more of the following categories: (i) FFEL Program loans that are held by an eligible lender; (ii) FFEL Program loans that have been purchased by the Department ("PUT" Loans); and (iii) Direct Loan Program Loans.
2. The borrower has not yet entered repayment on one or more of the loans in any of the categories in #1.
3. The borrower is not consolidating any loans other than loans from the categories listed in #1.

Interest Rate Calculation for Loans made under the Temporary Consolidation Authority
For any Direct Consolidation Loan made to a borrower under the temporary consolidation authority, the interest rate will be calculated as follows:
1. Unless the borrower is consolidating certain loans that have a variable interest rate (see below), the interest rate on the Direct Consolidation Loan is the lesser of (a) the weighted average of the interest rates on the loans being consolidated, or (b) 8.25% (that is, the interest rate is calculated in the same manner as the interest rate for a regular consolidation loan, but without the rounding up to the nearest higher one-eighth of one percent).
2. If one or more of the loans a borrower consolidates is a Federal Stafford Loan (subsidized or unsubsidized), a Direct Subsidized Loan, or a Direct Unsubsidized Loan with a variable interest rate that is lower during the in-school, grace, and deferment periods, the interest rate on the Direct Consolidation Loan is the lesser of (a) the weighted average of the interest rates on the loans being consolidated, rounded to the nearest higher one-eighth of one percent, or (b) 8.25% (that is, the interest rate is calculated in the same manner as the interest rate for a regular consolidation loan).

Factors for Borrowers to Consider Before Consolidating
Because a Direct Consolidation Loan enters repayment on the date the loan is made, there are important factors a borrower needs to consider before deciding to consolidate loans into a Direct Consolidation Loan under this temporary authority.

Grace Period: There is no grace period on a Direct Consolidation Loan made under the temporary authority. The 6 month grace period is a unique feature of the Federal Student Loan Program, designed to allow borrowers to become established in their new careers before they begin repayment on their student loans. As with an in-school deferment, the interest is paid on the borrower’s subsidized loans while they are in grace. This can amount to a significant savings.

If a borrower consolidates while still in school on at least a half-time basis and before the loan has entered the grace period, the borrower will not receive a grace period on that loan after the borrower ceases to be enrolled on at least a half-time basis. However, the borrower will be eligible for an in-school deferment on the Direct Consolidation Loan while enrolled at least half-time at an eligible institution. (Note: If the borrower’s loans enter grace before June 30th, and wants to wait to consolidate until the end of the grace period by completing Item 17 in section C1 of the Direct Consolidation Loan Application and Promissory Note. Another word of caution, borrowers who delay applying until their loans enter the grace period and whose application is received by the Department before the July 1, 2011 deadline may receive the modified interest rate associated with the temporary authority, provided that they are not consolidating certain variable interest rate loans, as explained above.) Contact Direct Loans for information regarding the effects of consolidation on your student loans. Call 1-800-557-7392 or on-line @ http://loanconsolidation.ed.gov/ .

PLUS Loans: Borrowers with Federal PLUS Loans or Direct PLUS Loans that were first disbursed on or after July 1, 2008, are eligible to defer repayment of these loans for a 6-month period that begins on the date the borrower (or the dependent student on whose behalf the borrower obtained the loan) ceases to be enrolled at least half-time. Parent PLUS borrowers are also eligible to defer repayment while the dependent student is enrolled in school on at least a half-time basis.

If a PLUS borrower consolidates a PLUS loan while the borrower (or the dependent student) is still enrolled in school at least half-time, or during the 6-month post-enrollment deferment period, the borrower will lose eligibility for these deferments. Again, for detailed information on Consolidating and its effects on your personal loans, contact Direct Loans. Call 1-800-557-7392 or on-line @ http://loanconsolidation.ed.gov/ .

Personal Financial Decisions Require Research, Analysis and Thoughtful Decisions
You have probably already received mail concerning your student loans and the June 30th deadline for this one-time opportunity. There are many benefits to consolidating, including: lower payments, combining multiple servicers & payments into one location/payment, and the return of deferment or forbearance rights on older loans that may have exhausted these options. However, as we all know, there are no perfect solutions that will work for everyone. As with any personal financial decision, make sure that you evaluate and weigh all of the facts before you make a decision.

Finally, there is one disadvantage a SWFC student or former student will encounter if you decide to consolidate your loans. As you know, SWFC’s Financial Literacy staff monitors the accounts of our loan borrowers and help students if their loans become delinquent. We gather our documentation based on an ID that identifies your loans as originating with SWFC. Once the loans are consolidated, this ID link is removed, so we no longer automatically have access to monitor the status of the consolidated loans. In an effort to help our former students who want to take advantage of student loan consolidation, we have established a special process to assist SWFC borrowers with their consolidated student loans. If you have questions regarding consolidation and your student loans, please contact us @ helpwithloans@swfc.edu and we will be happy to help you gather the information you need to make an informed decision regarding consolidation and your student loans.

Tax Refund? Be Sure to “Pay” Yourself First!

So you received a tax refund check – Lucky You! Getting a lump sum of money is fun. Sometimes I think that dreaming of all the ways you could spend it are the biggest part of the fun – a well deserved vacation, a shopping spree, down payment toward a car……you can spend days dreaming and planning. However, before you make your final decision, think about “paying” yourself first! Seriously, would you like to would you like to make 47% on an investment? Sounds like a ponzi scheme or something but the savings are real and you can turn part of your tax refund into some serious money for yourself.

If you follow this Blog, then you know that I am a huge proponent of making small additional payments to “chip” away you student loan debt. However, paying larger sums toward your student loan will also help, significantly – even if it is only a one-time payment! Let’s look at two scenarios, to see how making a lump sum payment can benefit you. Each of these will be based on a $20, 000 loan debt, at 6.8% interest, with standard 10 year repayment plan.

Scenario 1: Payment of $1,000
No Extra Payments -----------------------With Extra Payments
Monthly Payment $230.16 -----------------.-Monthly Payment $1,230.16

10 years Pay-off time ============ --==7 years 8 months Pay-off time

$7,619.28 Interest Paid Inte=====..===rest$6,149.15 Interest Paid

Advantages of Additional Payments:
2 years 4 months Time Saved

$1,470.13 Total Interest Savings

Balance Schedule for Scenario 1:
Year ---No Extra Pymt ---With Extra Pymt
2011 ---$18,553.54 --- ===$18,553.54
2012 =-$17,005.60 =====-$17,005.60
2013 -=$15,349.06 ==.== .$15,349.06
2014 --.$13,576.29 ===..=-$12,524.12
2015 =-$11,679.15 =====-$9,489.03
2016 =-$9,648.90 ======$6,240.99
2017 =-$7,476.21 =====-=$2,765.07
2018 = $5,151.09 ====== $0.00
2019 =.$2,662.83 =====.,,$0.00
2020 =.$0.00 ======.==$0.00

Scenario 2: Making $500 additional Payment
No Extra Payments ================With Extra Payments
$230.16 Monthly Payment ===========$730.16 Monthly Payment
Pay-off time 10 years ==============..Pay-off time 8 years 8 months

$7,619.28 Interest Paid =============-$6,733.53 Interest Paid

Advantages of Additional Payments:
1 year 4 months Time Saved

$885.75 Total Interest Savings

Balance Schedule for Scenario 2:
Year =-No Extra Pymnt =With Extra Payments
2011 =-$18,553.54 =====$18,553.54
2012 =-$17,005.60 ====-$17,005.60
2013 =-$15,349.06 ====-$15,349.06
2014 =-$13,576.29 ====-$13,050.21
2015 =-$11,679.15 =====$10,584.09
2016 =-$9,648.90 ====.=$7,944.95
2017 =-$7,476.21 =====.$5,120.64
2018 =-$5,151.09 ====.=$2,098.19
2019 =-$2,662.83 ====.=$0.00
2020 =-$0.00 =======-$0.00

If you would like to see how different amounts of “lump” sum payments can help you clear those loans faster, visit http://www.mortgagecalculatorsplus.com/calc-additionalpayment.php .

PAY YOURSELF FIRST – You Deserve It! It is tempting to splurge and spend your tax refund check on something fun or frivolous – I am not talking about using your whole refund to pay toward your student loans. I am a believer in having your cake and eating it too. However, if you will take just a small amount and pay toward your student loan debt, you can significantly shorten your repayment period. Think of all of the ways you could spend the money you currently have to pay on your student loan monthly payments once they are GONE! Now that’s something fun to dream about!

QUICK PRIMER ON EDUCATIONAL TAX CREDITS

By popular demand, we are repeating an article from last January:
SWFC Financial Literacy Department's
QUICK PRIMER ON EDUCATIONAL TAX CREDITS

There are four tax benefits for college education expenses:
· Tuition and fees tax deduction
· The American Opportunity Credit
· The Hope Credit
· The Lifetime Learning Credit.




The Tuition and Fees deduction will reduce your taxable income. The Hope Credit, Lifetime Learning Credit and American Opportunity credit can reduce your tax bill. The American Opportunity credit replaces the Hope credit for 2009 and 2010, and provides a partially refundable credit. Taxpayers should investigate all of their options and choose the credit that will give them the lower tax responsibility; however, they cannot claim more than one credit or a credit and deduction for the same expenses. You cannot “double dip”. The education tax credits are calculated on IRS Form 8863 (PDF).

The American Opportunity Tax Credit is a refundable tax credit for undergraduate college education expenses. This credit can provide up to $2,500 in tax credits on the first $4,000 of qualifying educational expenses. Forty percent of the credit (up to $1,000 maximum) is refundable. This is unique to the American Opportunity Tax Credit. The tax credit is scheduled to have a limited life span and, unless Congress extends the credit to additional tax years, it will be available only for the 2009 and 2010 tax years.

The Hope Credit is a tax credit for college students in their first two years of college. It provides a tax credit of up to $1,800 on the first $2,400 of college tuition and fees. The Hope Credit can be claimed on your tax return if you, your spouse, or your dependent are a first-year or second-year college student, is enrolled at least half-time at an eligible education institution, and you were responsible for paying college expenses. If you missed this credit in the past, it might be possible to file an amended tax return for the year(s) in question.

The Lifetime Learning Credit is a tax credit for any person who takes college classes, even if you took only one class. It provides a tax credit of up to $2,000 on the first $10,000 of college tuition and fees. The total credit is limited to $ 2,000 per return, but you can claim the Lifetime Learning Credit if you, your spouse, or your dependents are enrolled at an eligible educational institution and you were responsible for paying college expenses.

If you use the Income Based Repayment plan (IBR), you can also file IRS form 4506-T to allow the IRS to release your AGI information directly to your loan's http://www.irs.gov/pub/irs-pdf/f4506t.pdf


A final word of caution – Patience is a virtue that can pay BIG $. Do not fall victim to so-called "instant" or "same-day" refunds. These are actually short term bank loans, and most have exorbitant fees. According to Brendan Conway (Contributor to The Christian Science Monitor / March 2, 2009), in some cases, that means a mind-boggling 1,300% when calculated like a credit-card’s annual percentage rate. Electronic refunds are generally processed within 15 days and a refund returned by mail will usually be received within 3 to 4 weeks.

A QUICK REFERENCE GUIDE
American Opportunity Credit

1. $2,500 in tax credits on the first $4,000 of qualifying educational expenses.
2. Up to $ 1,000 may be refunded.
3. Can be used for Education expenses paid with borrower funds (student loans).
4. Can be claimed for the first 4 years of post-secondary education expenses.
5. Available ONLY for 2009 & 2010. Applies to all four years of undergraduate college education.
6. The American Opportunity credit also features an expanded definition of qualifying expenses.

Hope Credit

1. $1,800 of qualifying educational expenses paid for each eligible student.
2. Can reduce taxes to $0. Excess funds cannot be refunded.
3. Can be used for Education expenses paid with borrower funds (student loans).
4. Available ONLY until the first 2 years of post-secondary education are completed.
5. Available ONLY for 2 years per eligible student.
6. Student must be pursuing an undergraduate degree or other recognized education credential.
7. Student must be enrolled at least half time for at least one academic period beginning during the year.
8. No felony drug conviction on student's record.

Lifetime Learning Credit

1. Credit of up to $2,000 based on qualified tuition and related expenses paid for all eligible students. (This can reduce taxes to $0. Excess funds cannot be refunded).
2. Can be used for Education expenses paid with borrower funds (student loans).
3. Available for all years of post secondary education and for courses to acquire or improve job skills.
4. Available for an unlimited number of years.
5. Student does not need to be pursuing a degree or other recognized education credential.
6. Available for one or more courses.
7. Felony drug conviction rule does not apply.
   
   This information is provided by SWFC to increase student awareness of possible Education Tax Credits and Deductions. We are not Tax Preparation experts. Students interested in using any of these credits or deductions should consult a Tax Expert or the IRS.
   
   IRS Form 8863Publication 970, Tax Benefits for Education