Category Archives: Loans

Federal Student Loan Update

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On October 25, 2011, the White House, Office of the Press Secretary, made an announcement regarding changes to help Americans to better manage their student loan debt.  There are two main parts of the change; both deal with loans in repayment.

One of the five repayment options Federal student loan borrowers have is called Income Based Repayment (IBR).  This repayment looks at the borrower’s income, household size and amount of debt to establish a monthly payment of no more than 15% of the borrower’s discretionary income (based on the poverty level).   If the borrower is on IBR for twenty five years making on-time payments, they can have whatever is not paid off forgiven. 

Obama changed two main provisions of the IBR plan: (1) the cap will be at 10% of the discretionary income, which will monthly lower payments and (2) the loan can be forgiven after twenty years of on-time payments.  The change would take effect July 1, 2012.  In order to find out more about IBR, visit www.ibrinfo.org.

The second provision relates to consolidating federal loans.  Beginning January 1, 2012, through June 30, 2012, borrowers will be able to apply for a “Special Direct Consolidation Loan”. Borrowers who qualify can see their interest rate reduced up to 0.5 percent, potentially saving hundreds in interest.  This option will only be available for six months and not all borrowers will be eligible.

To qualify for the “Special Direct Consolidation Loan”, the borrower must have:

  1. At least one student loan held by the Dept. of Ed.  This could be a Direct Loan or a PUT Loan (a loan that was original held by a bank but sold to the Dept. of Ed through ECASLA of 2008).

AND

  1. At least one federal student loan (FFEL) currently held by a bank (example: Bank of America, Discover, AccessGroup, SallieMae, Citibank, All Student Loan, Wells Fargo, etc.). This could also include a FFEL Consolidated Loan.

Borrowers can look into who holds their loans by going to www.nslds.ed.gov.  By logging in to this site, you can see a listing of your federal loans, find out who the current servicer is, and find out if the loan held by the Dept. of Ed or a bank.

Questions???

What does this mean for me? 

  1. If you are a current MIIS student taking federal loans, started attending after June 2010, and did not have any undergraduate debt, you do not qualify for this consolidation program. 
  2. If you are a current MIIS student taking federal loans, have federal debt incurred before 2008 from a bank/lender and will enter your grace period or repayment period by May 2012, check out www.nslds.ed.gov to verify your loan status as you may qualify.
  3. If you have already consolidated with DirectLoans, you do not qualify for this consolidation program. 

 Are the Income Based Repayment changes available to all borrowers?

  1. No. The new IBR plan is not available to borrowers who graduated or are planning to graduate before July 2012, and do not plan on taking any additional loans.  Borrowers would need to have taken a loan after July 2012 to qualify.  Borrowers cannot be in default to qualify for this repayment plan.  

 What happens to the debt after it is forgiven after the twenty five year period or twenty year period with Income Based Repayment?

  1. The amount forgiven is added to the borrower’s taxable income during the year it was forgiven.

 How do I apply for the Special Consolidation?

  1. Borrowers will be contacted directly by a Direct Loan servicer if they qualify.

Which loans can be included?

  1. Loans held by the Dept of Ed, FFEL Subsidized and Unsubsidized Stafford Loans, FFEL PLUS Loans, and FFEL Consolidated Loans.  If you have a federal Perkins loan, you cannot include this loan in the special consolidation as you could in the regular consolidation.  Private loans cannot be included.  Keep in mind that the FFEL loan is a federal loan originally disbursed by a bank.

 Are you still confused?

  1. Check out the press release or visit StudentAid.gov for more information.

Sources:

1. http://www.whitehouse.gov/the-press-office/2011/10/25/fact-sheet-help-americans-manage-student-loan-debt

2. http://www.whitehouse.gov/the-press-office/2011/10/25/fact-sheet-help-americans-manage-student-loan-debt

3. http://www.nytimes.com/2011/10/27/your-money/student-loans/explaining-new-federal-student-loan-rules.html?_r=1&ref=ronlieber

Choosing A Lender

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1. Explore the lender’s borrower benefits: Does the lender offer you various benefits? These benefits may include a low origination fee (a lender can charge up to 1%), a low default fee (a guarantor can charge up to 1%), and reduced interest rate for ontime repayment or auto debit payments. Is it possible to lose these benefits, and if so, what circumstances can lead to the loss of benefits?

2. Test drive the lender’s customer service: Call their 1-800 numbers. How long did you have to wait before speaking to a representative? How long were you placed on hold, if at all? Ask the customer service representatives a few questions.
For example: Do they sell their loans? The lender themselves may have excellent service, but if they sell your loans on the secondary market, will the company that bought your loans offer this same exemplary service?
OR What are their hours of operation? Are these hours compatible with your needs? What online resources are available if you cannot reach a customer service representative?

3. Visit the lender’s website: Look for borrower education, debt management resources, and online payment options. Do they offer education tools such as repayment calculators or tutorials that answer your questions and respond to their needs? Can you make online payments if you’re living outside the US?

5 Fundamental Student Loan Truths

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student-loantruths
  1. Everyone knows scholarships and grants are the preferable way to finance an education. For most graduate students, loans are a fact of life. It’s commendable that you’re working hard to further your education and improve your future. But there’s often a big difference between what you are eligible to borrow and what you can afford to repay.
  1. The market value of an item is 7-9% more when using student loans. Remember to add this to all of your purchases.
  2. Filing bankruptcy is no longer an option for students. Federal Stafford, Perkins and Graduate Plus loans are not discharged when you file bankruptcy.
  3. Do student discounts really help? Face it, that 10% discount, with your 7% student loan is translated into a 3% discount. Sure you’re saving, but if you don’t need it immediately, don’t buy it. Wait a few months for it to go on sale. But remember you’re better off paying twice as much for something you need than paying ½ price for something you don’t need.
  4. You can run, but you can’t hide! Should you decide to default because you’re overseas, don’t plan on returning, working for an American company or organization, reclaiming your retirement benefits, or applying for another loan. Your credit will be ruined and your wages could be garnished.