Back to School?

Public and private schools are back in session, fall is just around the corner, there's a hint of coolness in the air! This is the time of year that the ‘Back to School bug’ often bites us, and why not? It is a great time to either finish your degree or add additional credentials to your resume.

If you are thinking about heading back to college, be sure to get your student financial aid affairs in order. I am not talking about completing the FAFSA or being notified that your new loan has been processed. That’s the easy part. I am referring to those previous loans you used to pay for your education. Many students start a new program or enroll in a new school using federal student loan money. They are excited about their new educational path and everything is running smoothly when, suddenly, they are notified that their loan for the next term has been rejected. Why? They did not take care of their previous student loans and get their student financial aid affairs in order. One or more of their student loans defaulted and that results in a loss of Title IV funds. Over the years, I have worked with many students who had this unpleasant surprise. I have always found these situations very sad because they are preventable!

So, a few tips to follow before you hit the books again. If you are enrolling in college for a second (or third, fourth, fifth) time around, take a few moments to get your ducks in a row; you’ll be glad you did.

• Visit https://www.nslds.ed.gov/. The National Student Loan Data System (NSLDS) is the U.S. Department of Education's (ED's) central database for student aid. In one quick visit, you will find the financial institution that holds each of your loans, as well as the contact information for that bank or lender. The site should also show if the loans are in Repayment, Deferment or Forbearance. You may find a few surprises!
• Call each servicer or lender to make sure your loan payments are current or visit your account on their website. Remember, if you cannot make a payment to bring your loans current, you have other alternatives, including Deferment rights and Forbearance options. (For more information on your rights, visit http://www.cashcourse.org/swfc/SchoolPage.aspx.) However, be sure to get any delinquent issues resolved before you start classes. If your loans are in a delinquent status, many lenders will not process an In-School deferment and your loans will continue on the countdown to default.
• Make sure that your new school faxes a completed In-School Deferment to every lender holding one of your loans. Submitting the deferment form is a service that many schools offer, but it is your responsibility to make sure that the deferment form is received and processed.
• Finally, always open any mail that references student loans and is addressed to you. In today’s turbulent financial market, many student loans are being sold to other lenders or reassigned to other servicers. It takes 270 days of delinquency for a loan to default. You lender or servicer will be making numerous attempts to contact you before the default is processed.

FINALLY - A Student Loan Payment Perfect for ME!

July 1, 2009 brought a truly revolutionary change to the Direct and FFELP student loan programs. The new Income-Based Repayment (IBR) plan finally recognizes that "one size does not fit all". While there have always been payment plan options, they tended to generate monthly payments that were strictly related to your loan balance - in other words, the more you owed, the higher the monthly loan payment would be! For borrowers who have chosen careers in the public sector or had to accept entry level positions for their career path, these options were not enough. Frequently, while borrowers wanted to make payments, they were "forced" to use Forbearance because their only payment options were beyond their reach.

As you know, Forbearance will provide payment relief, but it also allows the loan's balance to grow, often at what seem to be astronomical rates. The interest can add up very quickly. For example, let’s say you have $15,500 in student loans and have a Standard Repayment plan with 120 payments @ 6.8% interest. Your monthly payments are $179 a month. However, if you use 36 months of Forbearance, your monthly payment will increase to $215 and you will pay back an additional $4,367 in interest or 20+% more over the loan’s repayment period. (Source: NCHELP Reference Library, Going Above & Beyond: Delinquency & Default Prevention - Slide 11, http://www.nchelp.org/elibrary/index.cfm?parent=1983) WOW – talk about a snowball effect!

With the new IBR plan, your monthly payment will be based on your specific financial situation, not a preset amount based on your loan balance. For borrowers experiencing partial financial hardship (and with today’s economic challenges many of us are), this plan can allow you to remain in a Repayment Status with manageable monthly payments. This can help create positive input to your credit reports.

So, you are probably wondering "How can I get on this plan?" In order to be approved for the IBR plan, a borrower must provide additional information but the payment will make it well worth the effort. To see if you might qualify for an IBR payment plan, use this simple calculator: http://www.aie.org/Calculators/IBR/index.cfm?cid=tgslcibrpage If this indicates you may qualify for the new IBR plan, hop on the phone and contact your servicer!

It’s Like Money in the Bank!

If you have variable rate student loans (loans issued between 7/1/1988 to 6/30/2006) & you will be entering Repayment between July 1, 2009 and June 30, 2010, this may be the year you want to consolidate those student loans.

Effective July 1, 2009, interest on variable rate Subsidized and Unsubsidized Stafford Loans issued between 7/1/1998 to 6/30/2006 will drop to 2.48%. This could allow you to save from $1,470 to over $5,100 over a 10 year loan period! *

There are a variety of lenders who are consolidating student loans. Just two pieces of advice:

• First, make sure that you are consolidating only your Federal Student Loans, and are consolidating under the Federal Student Loan program. This will allow you to maintain your borrower's rights, including deferment and forbearance rights!


• Next, shop around. Any loan is a consumer purchase and should be made after comparing all rights, benefits and terms or conditions. While most borrower rights, benefits and terms are defined by the Federal Loan program, there may be some discounts or costs that can vary by lender.

Be a wise consumer and check out all of your options before you "sign" or the dotted line (or the electronic "e-signature line")!

*Based on $15,000 balance, with 10 year repayment period, calculated at 2.50%, 4.25% and 8.25% interest rates.