Student loans
Produced by: Quita Jackson
It seems a lot of people do not understand student loan consolidation. Mortgage Originator Dean Wegner says there is the good, the bad and the ugly on Student Loans. They are the most common extreme "lates" that many people are totally unaware of. Below are the advantages and disadvantages of consolidation.
ADVANTAGES
Reduces your monthly payment up to 60% - If you are in need of more money each month consolidating will reduce your payment, but increase the life of the loan. If you are financially desperate consolidating will increase your cash flow each month.
Simplifies your finances by creating one low monthly payment - When a lender consolidates your loans they combine all outstanding student debt into one loan. This means you only have to make one payment to one lender.
Locks in your interest rate - If interest rates are historically low you must consolidate your student loans to keep the low interest rates.
Interest rate reductions - Most lenders offer interest rate reductions for consecutive on-time payments and monthly direct withdrawal.
Improves your credit rating - If you pay your bills on time your credit score will go up. A good credit score improves you chances for getting a job, house, apartment, and much more.
Flexible repayment plans - There are many different options for repaying your student loans based upon your financial situation. See our section on Repayment Plans
Saves you money - Assuming you get a lower interest rate and pay off your loan in ten years federal student loan consolidation will save you money. See our section on How to Get the Lowest Interest Rate for more information.
DISADVANTAGES
Longer repayment term - before you consolidate your loan the repayment term is usually 10 years. After you consolidate the term usually changes to 30 years.
Increasing the time it takes to pay back your loan will increase the amount of interest you pay over the life of the loan. For example, if you have a $30,000 loan with a 5% interest rate and you pay it off in 10 years versus 30 years you will save yourself nearly $20,000 dollars.
Lose subsidy benefits for Perkins Loans - If you have a Perkins loan that is still in the grace period or deferment you will lose subsidy benefits if you consolidate.
Unpredictable interest rates - Before you consolidate your student loans you have a variable interest rate that will change as major bank interest rates fluctuate. If interest rates are not historically low then you may want to wait until they drop. Once you consolidate your loans you will have a fixed interest rate that will never change. If you locked in your interest rate at a high number you will end up paying thousands more than if you would have waited for interest rates to come down.
If you would like to contact Dean Wegner you can email him at dean@teamdean.com
Saturday, July 19, 2008
Don’t get swamped by student debt
Don’t get swamped by student debt
Are you or someone in your family facing heavy student loan debt?
Recent graduates left college with an average of $19,646 in student loan obligations, according to a study by the Project on Student Debt.
That was up 8 percent from a year earlier, while average starting salaries rose only 4 percent from the previous year, the study found.
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That means the debt that graduates are carrying is growing faster than their initial chances to earn the money to repay it.
There’s no reason to despair, though, according to the Minnesota Society of CPAs (MNCPA), because there are several steps that you can follow to manage weighty student debt.
Lower your payments
If your monthly loan costs are simply too much, one simple and immediate solution is to reduce them by finding out if you can lengthen the amount of time you have to pay the loan—-from 10 years to 20 years, for example.
You should be aware that extending the loan term means that you will end up paying more interest over time, but lowering the monthly payment amount may be your top priority right now.
Remember, that you can always increase your monthly payments later—-and thereby shorten the length of the loan—-if your financial situation improves in the future.
Consider consolidation
Students often sign up for a number of different loans to finance their education.
That may mean you end up writing several checks to different lenders at various points in the month.
When you consolidate, you take out a new loan that is equal to your total debt and use it to pay off all your existing balances. You then can pay just one student loan bill each month.
That will make life easier, but it may not necessarily lower your overall monthly outlay, depending on the new loan terms.
If you do find a consolidation loan that will reduce your monthly payments, make sure to examine the loan terms carefully.
And remember that if you will be paying off the consolidation loan over a longer period, the loan will cost you more in the end, so it may not be the best choice.
Do well by doing good
Do you wish you could make a difference in the world?
It’s possible to cancel some or all of your federal student loan balance by signing up for any one of a number of programs aimed at making positive change.
For example, teaching in an elementary or secondary school in a low-income area can reduce some federal loan totals, while serving a two-year term in the Peace Corps can also lead to a reduction in your loan balance.
Volunteers for AmeriCorps and VISTA may qualify to postpone loan payments while they are involved in the program and receive stipends that can be used to pay down student loan debt.
Health professionals who spend two years working with the National Health Service Corps serving communities that have a shortage of medical help can qualify for loan forgiveness of up to $25,000 a year.
In addition, many law schools have loan forgiveness programs for newly minted attorneys who take jobs in public interest law.
If you have a strong interest in making a difference, then that commitment can also help you relieve some of your student loan obligations.
Ask a CPA
Whether you are seeking to reduce your regular payments or manage your overall student debt obligation, your local CPA can provide advice on the best way to accomplish your goals.
Consult him or her about smart ways to handle your debt or about any of your other financial questions.
Information and resources are available to the public on the MNCPA Web site, www.mncpa.org, including tax and financial planning information for individuals and small businesses.
A free CPA referral service is also available on the Web site or by calling 800-331-4288.
The MNCPA is part of the national 360 Degrees of Financial Literacy campaign to help Americans’ improve financial literacy.
Are you or someone in your family facing heavy student loan debt?
Recent graduates left college with an average of $19,646 in student loan obligations, according to a study by the Project on Student Debt.
That was up 8 percent from a year earlier, while average starting salaries rose only 4 percent from the previous year, the study found.
RELATED CONTENT
Add a comment
That means the debt that graduates are carrying is growing faster than their initial chances to earn the money to repay it.
There’s no reason to despair, though, according to the Minnesota Society of CPAs (MNCPA), because there are several steps that you can follow to manage weighty student debt.
Lower your payments
If your monthly loan costs are simply too much, one simple and immediate solution is to reduce them by finding out if you can lengthen the amount of time you have to pay the loan—-from 10 years to 20 years, for example.
You should be aware that extending the loan term means that you will end up paying more interest over time, but lowering the monthly payment amount may be your top priority right now.
Remember, that you can always increase your monthly payments later—-and thereby shorten the length of the loan—-if your financial situation improves in the future.
Consider consolidation
Students often sign up for a number of different loans to finance their education.
That may mean you end up writing several checks to different lenders at various points in the month.
When you consolidate, you take out a new loan that is equal to your total debt and use it to pay off all your existing balances. You then can pay just one student loan bill each month.
That will make life easier, but it may not necessarily lower your overall monthly outlay, depending on the new loan terms.
If you do find a consolidation loan that will reduce your monthly payments, make sure to examine the loan terms carefully.
And remember that if you will be paying off the consolidation loan over a longer period, the loan will cost you more in the end, so it may not be the best choice.
Do well by doing good
Do you wish you could make a difference in the world?
It’s possible to cancel some or all of your federal student loan balance by signing up for any one of a number of programs aimed at making positive change.
For example, teaching in an elementary or secondary school in a low-income area can reduce some federal loan totals, while serving a two-year term in the Peace Corps can also lead to a reduction in your loan balance.
Volunteers for AmeriCorps and VISTA may qualify to postpone loan payments while they are involved in the program and receive stipends that can be used to pay down student loan debt.
Health professionals who spend two years working with the National Health Service Corps serving communities that have a shortage of medical help can qualify for loan forgiveness of up to $25,000 a year.
In addition, many law schools have loan forgiveness programs for newly minted attorneys who take jobs in public interest law.
If you have a strong interest in making a difference, then that commitment can also help you relieve some of your student loan obligations.
Ask a CPA
Whether you are seeking to reduce your regular payments or manage your overall student debt obligation, your local CPA can provide advice on the best way to accomplish your goals.
Consult him or her about smart ways to handle your debt or about any of your other financial questions.
Information and resources are available to the public on the MNCPA Web site, www.mncpa.org, including tax and financial planning information for individuals and small businesses.
A free CPA referral service is also available on the Web site or by calling 800-331-4288.
The MNCPA is part of the national 360 Degrees of Financial Literacy campaign to help Americans’ improve financial literacy.
Focus on Finance: Some student loan rates set to fall on July 1st
Focus on Finance: Some student loan rates set to fall on July 1st
The U.S. Department of Education recently announced that interest rates on variable rate student loans will drop by 3% on July 1st. That's the good news. Whether you are able to benefit from this annual rate set is another question. Monday morning on KARE 11 First Edition, Dan Ament with the Ament Consulting Group at RBC Wealth Management, discussed student loan consolidation.
FAQ'S ON STUDENT DEBT CONSOLIDATION
Variable vs. Fixed rate student loans - Congress set a fixed rate for Stafford and PLUS loans originating after July 1, 2006. If your loan originated before that date, you had a variable rate loan. Recent grads could very well have both types of loans outstanding. The rate change announced affects the variable rate loans issued before July 1, 2006. That rate will drop from 6.62% to 3.62%. Unfortunately, the fixed rate loans issued after July 1, 2006 will not see a similar adjustment.
How often do variable Federal student loan rates change? Federal student loan rates are adjusted every July 1, based on rates for short-term Treasury bills, which have been rising all year. The rate used for the July adjustment is determined by the Treasury auction in May.
Does the rate on my consolidated loan fluctuate or is it locked in? When you consolidate Federal student loans, you turn a variable-rate loan into a fixed-rate loan under the federal student loan program. You can lock in the interest rate for a repayment period up to 30 years. When you consolidate, you lock in the weighted average rate of all your loans. By extending the term of the loan, you reduce your monthly payments, a useful feature for recent grads with little extra cash. You can always increase your payments later: There are no penalties for paying off your loan early. Note that privately-backed loans are not eligible for consolidation under the Federal program. They can, however, be consolidated but at a variable rate plan.
Who should consolidate? Not everyone can consolidate. First, the Federal Consolidation Loan Program pertains to Federally-backed student debt only. Most lenders require a minimum of $7,500 in loans, and some set the minimum balance at $10,000. You are only permitted to consolidate your loans once.
The Credit Crunch has affected the student loan market too. Understand that the landscape of lenders that was once available and competing for student debt offerings has dwindled significantly. If you are pursuing a loan consolidation for your variable rate loan portfolio
Loans outside the box. Traditional student loans are not the only way you can secure funds to pay for college. There are alternatives but with each comes additional risks.
The U.S. Department of Education recently announced that interest rates on variable rate student loans will drop by 3% on July 1st. That's the good news. Whether you are able to benefit from this annual rate set is another question. Monday morning on KARE 11 First Edition, Dan Ament with the Ament Consulting Group at RBC Wealth Management, discussed student loan consolidation.
FAQ'S ON STUDENT DEBT CONSOLIDATION
Variable vs. Fixed rate student loans - Congress set a fixed rate for Stafford and PLUS loans originating after July 1, 2006. If your loan originated before that date, you had a variable rate loan. Recent grads could very well have both types of loans outstanding. The rate change announced affects the variable rate loans issued before July 1, 2006. That rate will drop from 6.62% to 3.62%. Unfortunately, the fixed rate loans issued after July 1, 2006 will not see a similar adjustment.
How often do variable Federal student loan rates change? Federal student loan rates are adjusted every July 1, based on rates for short-term Treasury bills, which have been rising all year. The rate used for the July adjustment is determined by the Treasury auction in May.
Does the rate on my consolidated loan fluctuate or is it locked in? When you consolidate Federal student loans, you turn a variable-rate loan into a fixed-rate loan under the federal student loan program. You can lock in the interest rate for a repayment period up to 30 years. When you consolidate, you lock in the weighted average rate of all your loans. By extending the term of the loan, you reduce your monthly payments, a useful feature for recent grads with little extra cash. You can always increase your payments later: There are no penalties for paying off your loan early. Note that privately-backed loans are not eligible for consolidation under the Federal program. They can, however, be consolidated but at a variable rate plan.
Who should consolidate? Not everyone can consolidate. First, the Federal Consolidation Loan Program pertains to Federally-backed student debt only. Most lenders require a minimum of $7,500 in loans, and some set the minimum balance at $10,000. You are only permitted to consolidate your loans once.
The Credit Crunch has affected the student loan market too. Understand that the landscape of lenders that was once available and competing for student debt offerings has dwindled significantly. If you are pursuing a loan consolidation for your variable rate loan portfolio
Loans outside the box. Traditional student loans are not the only way you can secure funds to pay for college. There are alternatives but with each comes additional risks.
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