Four Mistakes People Make With Student Loans

Stay smart with a student loan strategy
Going to college is a life-changing experience that can open doors to new careers and increase your lifetime earning potential. If you are looking for a new student loan or are trying to make the best out of the repayment period, make sure you are avoiding these common student loan mistakes.

Not considering private loans
Many would-be-students shy away from private loans because they have heard that they lack the protections and benefits that come with federal loans. While it’s true that federal loans offer a fixed interest rate in contrast to most private loans, it is often possible for a student to get a lower interest rate with a private loan, particularly if a parent cosigns. If you are able to obtain a much lower rate with a private loan, then it’s worth seriously considering whether the security of a fixed rate with a federal loan is worth it.

Ignoring retirement savings
It is understandable, and even laudable, to want to repay student loans as quickly as possible, but undertaking an ambitious repayment plan at the expense of completely ignoring retirement savings isn’t wise.

“A recent report from Morningstar Inc. subsidiary HelloWallet found that someone with a starting salary of $50,000 who pays off a $20,000 student loan ahead of schedule but skimps on retirement savings—by contributing only enough to an employer-sponsored 401(k) plan to receive half the employer’s 3% matching contribution—will wind up with a net worth at age 65 that’s $150,000 below where it would have been had he or she contributed enough to receive the full match and repaid the loan over a longer period, by making the minimum required payment,” states The Wall Street Journal Reporter Anne Tergesen in an article from Sep. 2016.

Not making automatic payments
One of the best steps you can take to make sure the student loan repayment process goes as smoothly as possible is to set up automatic payments. Some people delay setting up automatic payments because they have ambitious goals of paying more than the minimum each month, and want to wait to see what their bank account balance is before determining the payment amount. While it’s great to pay more when you can (as long as you aren’t sacrificing retirement savings), it’s not worth the risk of making a late payment or missing a payment all together. Setting up automatic payments that you can afford each month is the safest bet, and if you find you have extra money after the payment is made, you can always make a supplemental payment.

Paying for assistance
If you are having trouble affording your payments, you may have been tempted by ads that offer to help you figure out your options for paying on a different schedule or seeking loan forgiveness on your federal loan.

“If someone asks you to pay for these services, you are not dealing with the U.S. Department of Education or our loan servicers,” according to Nicole Callahan, a Digital Engagement Strategist at Federal Student Aid in an article for HomeRoom, the official blog of the U.S. Department of Education. “We don’t charge application or maintenance fees. If you’re asked to pay, walk away (or hang up).”

The cost of an education that can help you start a profitable career or get a better job in your current field is money well spent, and you can make sure you are getting the best return on your investment by avoiding these four common student loan mistakes.

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The Benefits of Going to a Community College

Why you should consider starting small
Though they tend to have a subpar reputation, community colleges give prospective students a lot of options and offer a ton of advantages. When deciding on higher education, consider what benefits a community college can give you.

Save money
Tuition is traditionally much cheaper at community colleges, and you’ll also save on room and board since, according to The Princeton Review, there is a community college within commuting distance of 90 percent of the U.S. population.

“Community college tuition is usually thousands of dollars cheaper than tuition for private and public four-year universities. This total cost is only a fraction of the cost of a private college, and still thousands of dollars less than a four-year program at a state college,” the Princeton Review noted. “Plus, even with the relatively low rates, nearly a third of community college students receive financial aid.”

Flexibility
While four-year schools typically require you to be a full-time student, U.S. News & World Report found that about 60 percent of community college students attend school part time, thus gaining flexibility to pursue other interests or handle responsibilities. Additionally, community colleges usually have multiple campus locations and offer courses both day and night, as well as online.

“This makes community college a good option for nontraditional students like parents and older students who wish to balance school with family or career obligations,” says U.S. News & World Report’s Travis Mitchell.

Give yourself a boost
At a community college, you have the opportunity to improve your academic record or to get ahead, which will also give your confidence a boost. This can be crucial to your future since, as Jeffery King writes in U.S. News & World Report, a large number of students do poorly their first two years, which can impact their educational and professional future.

Personalized attention
Students can also get a boost from the smaller class sizes offered at community colleges. More one-on-one time with instructors and opportunity to learn at a personalized pace can be a great support to young college students.

Ease of transfer
Many community colleges have convenient admissions agreements with select larger schools in the area, which make the entire transfer process nearly seamless.

Transition from high school
Community colleges are a great stepping stone to make hesitant students more comfortable.

“Attending a community college can be a good way for students to ease into the world of higher education and learn at their own pace,” Mitchell writes. “This is especially true for students who struggled in high school or anyone who’s unsure if they want to make the significant time investment in college.”

More time to think about career path
The first two years of college are typically a period of exploring career paths and passions. Though most students declare majors right out of high school, many will end up changing directions once they get more experience in that particular area. If you don’t feel strongly about any area of study right away, know that community colleges are a great tool for undecided students to fulfill general education requirements, saving you from taking unnecessary classes and wasting time and money.

Make an informed, conscious decision about your college experience, and get the best possible start to your future.

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Three Things You Need to Do to Your Student Loans Right Now

Stay ahead of this big expense

Recent college graduates already have enough on their plates worrying about getting a job and supporting themselves — the last thing they want to do is stress over student loan repayment. For most, paying off student loans takes a long time, so no matter where you are in that process, there are three things you should stop and do right now.

1. Get organized
Take an inventory of your student loans. You can get a list by signing up at http://www.nslds.ed.gov/. After a short enrollment process, you will have a handy list of all guaranteed loans that were issued to you by the government, as well as those made by private lenders through June 2010. If you have a private nonguaranteed loan, those should all be present and detailed on your credit report, which you can find for free online.

Create a spreadsheet chronicling the name of each lender, the web address, your username and password (ensure your device is locked or encrypted), the loan balance, and the interest rate. The latter will be helpful if you opt to consolidate or pay off any interest early down the road. But be sure to keep your list up to date, as interest rates on student loans can be fixed or variable.

2. Know your repayment options
“The standard repayment schedule extends your loan payments over ten years, or 120 payments,” explained Maggie McGrath of Forbes. “However, if the standard monthly payments aren’t manageable on your budget — or if you’re unemployed or otherwise unable to repay your loans — the federal government has some alternative repayment plans for you, as well as some deferral options.”

Income-based repayment (IBR) and income-contingent repayment (ICR) extend your payment period to 25 years, capping your monthly payments at a fixed percentage of your income. The income on which payments are based and the actual percentage differ between the two plans. Pay-as-you-earn is a 20-year repayment period, with yet another varying percentage of your discretionary income.

You can read about other repayment options from the government here: https://studentaid.ed.gov/sa/repay-loans/understand/plans. Be wary, as these types of programs can cause your interest costs to increase over time, so always pay as close to your original amount due as you can.

3. Be aware of loan forgiveness opportunities
There are three primary programs that forgive the balance of your loan: Public service loan forgiveness, teacher loan forgiveness and Perkins loan cancellation.

“To qualify for forgiveness, your loans can’t be in default, meaning they’ve gone unpaid for more than nine months,” noted higher education expert Brianna McGurran of Nerdwallet. “Also, private student loans don’t offer forgiveness, though some lenders will let you make interest-only payments or take a temporary interest rate reduction if you’re having trouble affording your bill.”

Public service loan forgiveness requires you to have been working for a nonprofit or the government for at least 10 years in roles including, but not limited to, firefighting, teaching, the military and nursing. In the teacher-specific program, you must work full time as an educator for five consecutive years. The Perkins loan forgiveness also cancels the balance of that loan if you’ve worked as a teacher, firefighter, nurse, police officer, school librarian or public defender for about five years or more. For a complete description of eligibility requirements, visit https://studentaid.ed.gov/sa/repay-loans/forgiveness-cancellation.

If you take the time to do your homework and gather yourself before — or even while — you are repaying your student loans, the process will seem a lot less scary, and a lot more manageable.

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Direct Subsidized and Direct Unsubsidized Loans for Students

The difference between these two types of student loans

If you or a family member is in the process of applying to schools and seeking information about the various ways to cover tuition and the associated costs, you may have already learned that you can choose between applying for loans that are either subsidized or unsubsidized.

There are key differences between these two types of loans that you should learn to make sure you choose the type that better suits your financial needs.

One of the things that make the loan application process slightly more confusing is that different people or organizations may use different names when referring to the same loan. Direct Subsidized Loans and Direct Unsubsidized Loans are sometimes called Stafford Loans or Direct Stafford Loans, respectively, so if you’ve heard those terms, you should be aware that they are the same and not two additional loans out of four different types being discussed. Regardless of what these loans are called, when trying to figure out which type of loan is which, the most important criterion to look at is whether the loan is subsidized or unsubsidized.

Both loan types are offered by the U.S. Department of Education to eligible students who attend participating schools. They can be used at four-year colleges and universities, community colleges, and trade, technical and career schools.

Qualifying for either type of loan requires the student to be enrolled at least half time at a school participating in the Direct Loan Program. Typically, the student’s chosen program must be one leading to a degree or certificate.

Direct Subsidized Loans offer students slightly better terms. This is because they are intended to go to students with financial need.

The website run by Federal Student Aid, an office of the Department of Education, defines financial need as “[t]he difference between the cost of attendance [COA] at a school and your Expected Family Contribution [EFC],” and states, “While COA varies from school to school, your EFC does not change based on the school you attend.”

Although your EFC will not change depending on your chosen school, your school will be responsible for determining the amount that you can borrow. That amount may never exceed your financial need, however.

The biggest advantage of a Direct Subsidized Loan is that the Department of Education pays the interest on the loan while the student is still in school at least half time. The federal government will also pay the interest on the loan if the student has postponed his or her loan payments with an authorized loan deferral. Furthermore, the six months following the student’s graduation are considered a “grace period,” during which time the federal government continues to pay the loan interest. This is intended to make it easier for students to make payments while searching for a job.

Although the party responsible for paying the loan interest differs, the interest rate itself does not depend on the loan type.

“As of 2013, interest rates charged for Federal Direct Loans began to be tied to the 10-year Treasury note, with an additional margin added on to cover expenses,” states Mark P. Cussen, CFP, CMFC, AFC, in an article for Investopedia. “They do not depend on the borrower’s credit score.”

In order to qualify for a Direct Subsidized Loan, the income level of the student’s family must not be above certain levels. The exact criteria that define low family income and sufficient financial need are detailed in the Free Application for Federal Student Aid (FAFSA). More information about the regulations and processes of applying for student aid with FAFSA can be found at https://fafsa.ed.gov.

While Direct Unsubsidized Loans don’t have an income requirement, the student is responsible for the interest accrued during all periods. One advantage of Direct Unsubsidized Loans is that they are available to graduate students, which isn’t the case with Direct Subsidized Loans. A further advantage is that it is possible to take out more money with a Direct Unsubsidized Loan, so students with very large educational costs to cover may find it necessary to use a loan that is unsubsidized.

The cost of education is rising at an alarming pace, but thankfully there are many financial tools, including Direct Subsidized and Direct Unsubsidized loans, to help students and their families cover it. To delve more deeply into the details of these loans and explore the wealth of information available online for students and their families in the application process, visit https://studentaid.ed.gov/sa/.

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Is a Private Loan Right for Financing Your Education?

The private sector is one option to pay for schooling

In its most recent study,commercialstudentloans_featured the College Board found that the average cost of tuition and fees for the 2015-2016 school year for in-state public, out-of-state public and private institutions was nearly $22,000.

Where do they expect you to get that kind of money? Private loans are one option.

According to Investopedia.com, private loans are funds you can obtain from financial institutions, without government subsidies, that help cover college expenses not met by scholarships, grants, federal loans or other financial assistance.

“You can apply for a private loan at any time and use the loan proceeds towards college expenses in addition to tuition (books, computer, transportation),” Katie Adams writes in her Investopedia article.

Benefits of Private Loans
Obtaining a private loan is an attractive option to pay for college for a number of reasons:

  • The application process is easy. Most loans do not require you to complete the FAFSA or a federal aid application. If you’ve ever filled one of those out, you know that this is a huge advantage for private loans, as the FAFSA can be painstakingly brutal. Above and beyond the quickness and ease, it is also convenient. “Typically you can apply for a loan online or by phone – no in-person meetings are necessary,” Adams says.
  • Loan funds are available immediately after you are approved.
  • You are usually allowed a co-signer. This is a plus because it can help lower interest rates and improve your chances of approval.
  • Interest on a private loan may be tax-deductible.
  • Fees are low or nonexistent. Most loans do not include a prepayment penalty, or a fee assessed if the loan is prepaid within a certain period of time.

There are potential downsides as well. You will typically have to pass a credit check to be approved, so having adequate credit history is important. You could possibly get around this point by having a co-signer, as mentioned above. Furthermore, private loans tend to have higher interest rates than federal loans, which could affect the amount you borrow and, in turn, have an impact on where you obtain your loan.

“Worse, student loans are not like credit card debt and mortgages, which can be canceled if you file for bankruptcy,” reads the College Loan Center page on the U.S. News & World Report website. “Most bankruptcy courts will not cancel them unless your situation is extremely dire. In addition, most private loans come with floating interest rates, so payments will rise if interest rates rise, which they generally do from time to time.”

What About a Federal Loan?
The official website for Federal Student Aid lists Direct Subsidized Loans and Direct Unsubsidized Loans, Direct PLUS Loans (for graduate and professional students or parents) and Federal Perkins Loans as your options for government-enabled student loans.

Benefits of federal loans include a low, fixed interest rate and flexible repayment options; plus, there’s no prepayment penalty. You also don’t need to pass a credit check for these loans. On the other hand, drawbacks of federal loans include low amount limits, the dreaded FAFSA, limitations on how funds are utilized, strict enrollment stipulations and a small loan fee.

In the end, a private loan may be the only option available for some, in which case it does carry merit to explore it as an education-funding alternative.

“College payments are going to be a substantial investment into the future of an individual. Schooling decisions go beyond just the financial numbers and move into the territory of bettering oneself,” Adams says. “Even so, finances cannot be ignored. Exploring your options can save headaches and money now and in the future.”
Stop by today to find out more about the options we have in store for you.

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FAFSA Changes

What to know about the new FAFSA schedule

The process for applyingfafsachanges_featured for financial aid has been changed, so if you are planning on filling out the Free Application for Federal Student Aid (FAFSA) soon, here is some information you need to know.

On Sept. 14, 2015, President Obama announced a new set of regulations that would change the schedule for applying for student aid through the FAFSA process. These changes will impact millions of students who will submit an application when the 2017-18 cycle begins.

Now, students who are submitting a FAFSA will have the opportunity to do so three months earlier than students in previous years could. Instead of submitting the 2017-18 FAFSA on Jan. 1, they will be able to get the process over with in the fall and submit it as early as Oct 1. There is no change to the schedule for the 2016-17 FAFSA, which became available Jan. 1, 2016.

“The earlier submission date will be a permanent change, enabling students to complete and submit their FAFSAs as early as October 1 every year,” states the website maintained by Federal Student Aid, an office of the U.S. Department of Education.

Families that have gone through the process in previous years now need to get used to this new schedule. Furthermore, it means that earlier income and tax information must be used when filling out the applicable financial information.

“For example, on the 2017-18 FAFSA, students (and parents, as appropriate) will report their 2015 income and tax information, rather than their 2016 income and tax information,” states the Federal Student Aid website.

This change doesn’t just mean you need to pay extra attention when reporting tax information; it has far-reaching implications for families looking to plan their taxes and educational finances most effectively.

“To secure the best aid offer, you may need to tweak the way you manage income and assets that have an impact on financial aid,” says Kaitlin Pitsker in an article from Kiplinger’s Personal Finance. “For example, if you plan to realize capital gains on your stocks or bonds, you’ll want to do so before January 1 of your student’s sophomore year of high school to avoid having the money count as income on the FAFSA – a year earlier than on the old timeline.”

Students frequently pay for school using a combination of sources. Money obtained through the FAFSA process is often supplemented by savings accounts from family members, such as 529 educational savings plans. Grandparents who hold 529 savings plans should be aware that the new FAFSA schedule also impacts them.

“Previously, withdrawals from such accounts counted as student income during the first three years of college,” states Pitsker. “Now, distributions made during the last two years aren’t reported on the FAFSA. So if you can, delay cashing in on the grands’ generosity until those final years.”

While adjusting to the new schedule, make sure to reach out to your financial institution for answers to any questions you have about paying for your child’s education. You can also refer to the table outlining these changes that is provided by the Federal Student Aid website at https://studentaid.ed.gov/sa/resources/2017-18-fafsa-process-changes-text.

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Colleges That Don’t Make Students Take Out Loans

Are student loans a thing of the past?

Each year, more and more studentsCollegeLoans_062816 are graduating from college with thousands of dollars in student debt that they’re responsible for paying back. A 2014 study by The Institute for College Access & Success (TICAS) found that nearly 69 percent of students graduate with an average student loan debt of $28,950.

However, according to Edvisors, a college finance website, more than 70 schools have adopted “no-loan” policies, where grants replace loans within their financial aid packages. Additionally, other colleges have eliminated loans for those students who are eligible for financial aid. At these schools, the number of students who borrow is much smaller, and college graduates have loan balances that are much lower than the national average of nearly 70 percent (according to TICAS).

While these policies don’t necessarily eliminate loans in their entirety, the financial aid package is based on the school’s estimate of what the family can afford to pay. If a family chooses not to pay the full amount, the student must borrow money to make up the difference. Also, some students borrow to cover costs that aren’t included in their financial aid packages, such as health insurance or laptop computers.

Schools that don’t make students take out loans typically have a smaller number of students who borrow, and the college graduates who do take out loans have balances much smaller than the national average.

According to Kiplinger in May of 2015, these five schools are among the best when you want to graduate with minimal student loans:

Yale University
Students who are eligible for financial aid—families with incomes of as much as $200,000—can utilize Yale’s no-loan program. According to Kiplinger, the total annual cost to attend Yale is $60,850 and the average need-based aid is $44,268. However, the percentage of students with loans is 16 percent.

Vanderbilt University
In 2009, Vanderbilt decided to take on a no-loan policy. All students who are eligible for financial aid are able to use the policy. Almost half of students at the university receive need-based aid, and 87 percent of students take four years to graduate, which minimizes costs. The total annual cost is $60,294, and the average need-based aid is $39,373. The percentage of students with loans is 22 percent.

Davidson College
This liberal arts college provides 100 percent financial aid through grants and campus jobs to the 46 percent of students who receive need-based aid. The average need-based aid is $33,717, and the total yearly cost is $59,146. The percentage of students with loans is 22 percent.

Princeton University
As the first school to employ a no-loan policy back in 2001, Princeton has an average student debt that is very low compared with that of other colleges. The total annual cost to attend Princeton is $59,165, with the average need-based aid reaching $37,183. The percentage of students with loans is 24 percent.

Offering need-based financial aid to over 60 percent of attendees, Harvard also meets all of those students’ demonstrated financial need, all without loans. Families who make between $65,000 and $150,000 annually are generally expected to give a maximum of 10 percent of their income. The average need-based aid is $41,975, and the total yearly cost is $59,607. The percentage of students with loans is 26 percent.

Digging yourself into debt while going to college isn’t necessary. Contact us today to find out what the best steps are for your individual situation.

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