About Tom Melecki

40 years experience in the administration of and rule making for postsecondary student financial aid and loan programs. Tom's experience also includes advising students and their parents, providing personal financial management education to college students, research on college students and their finances, and nonprofit management.

After College: On Student Loans, Neither a Delinquent Nor a Defaulter Be!

Federal Reserve Bank of New York data show that a whopping 10.9% of the nation’s outstanding student loan debt is “severely delinquent” — i.e. it’s borrowers are 90 or more days behind on their payments.

If you’re struggling to repay your student loans, inaction and procrastination are the worst things to do. They make you delinquent and eventually lead to default.

You become delinquent when you fail to make a full payment by its due date. When federal loan delinquencies reach 90 days, Washington notifies all three national credit bureaus, damaging your credit rating. This shrinks your chances of getting apartments, auto and home loans, cell phone plans, credit cards, homeowner’s insurance, jobs, and utilities.

After 9 months of delinquency on federal student debts, maybe less for non-federal debts, you’re in default and facing several painful consequences.

Delinquencies and defaults on institutional, private, and state student loans trigger similar penalties. Exactly what their lenders do to you, and when they do it, depends on the promissory notes (contracts) you signed for them.

If you’ll soon be or are delinquent, you have many options. Explore them and choose the best for overcoming what’s hurting your ability to repay. Contact your loan servicer — whomever you make payments to, your lender or a third-party it hires — to pursue them:

Changing Payment Due Date: Ask about resetting your monthly due date if you get paid after that date or your financial obligations leave you with insufficient funds on it.

Changing Repayment Plan: Federal borrowers generally begin in the Standard 10-Year Repayment Plan. Long-run, it’s the quickest, most cost-effective way to repay. But short-run, it typically requires the highest monthly payments. To reduce those payments, research the six other federal repayment plans, including income-driven plans, and use the Federal Student Loan Repayment Estimator to determine your monthly and total repayment amounts under each.

Consolidate: A Federal Direct Consolidation Loan gives you up to a 30-year repayment depending on your outstanding federal college loan balance. This usually lowers your monthly payments. But it’ll also increase what you spend overall to repay.

Deferment or Forbearance: Meeting certain conditions may entitle you to deferment of your monthly payment obligation. Under other circumstances, you may receive a forbearance, letting you either postpone or shrink your monthly payments for a stated period. There are big difference between deferments and forbearances but, long-term, each raises the total amount you repay, so study them carefully.

Most student loan borrowers never seek help as they approach or are in delinquency. But help is ready and waiting so, if you suffer repayment problems, do your research and run to, not from, your loan servicer!

Today College Affordability Solutions begins its summer break, so this is its last post until August 14, 2019. But feel free to use its Topical Index to find more than 150 articles on higher education affordability strategies to use before, during, and after college. Have a great summer!

Special Bulletin: U.S. House Would Boost Federal Student Aid

The good news is that the U.S. House of Representatives recently passed a bill that would enlarge the federal financial aid programs on which millions of students rely.

HR 2740 is designed to fund programs run by several federal departments, including Education. It would have the following effects on four of the nation’s biggest student aid programs:

Pell Grant: The maximum Pell Grant for high-need undergraduates would increase to $6,345, a $150 upsurge for that award’s maximum in academic year 2020-21 (corresponding expansions would occur for needy students receiving smaller Pell Grants). That’s $150 more than what’s called for in the President’s budget proposal, which would leave Pell Grant amounts unchanged.

Supplemental Educational Opportunity Grant (SEOG): The President proposed to cancel all funds for SEOG, which augments Pell Grants by up to $4,000 for the absolutely neediest undergraduates. Instead, HR 2470 would raise 2020-21 SEOG funding by $188 million, to $1 billion.

Federal Work-Study (FWS): HR 2740 would appropriate $1.4 billion for FWS in 2020-21. This would be $304 million more than current FWS funding; and $934 million above the President’s FWS recommendation. FWS provides part-time jobs to help college and university students needing financial assistance work their way through school.

Public Service Loan Forgiveness (PSLF): The President’s budget proposal would eliminate PSLF for those whose first federal loans get made July 1, 2020, or later. The House bill contains no such provision, so it would keep PSLF going for future borrowers.

One byproduct of all this is HR 2740’s capacity to help all undergraduates needing money for college — even those who don’t qualify for Pell Grants, SEOGs, and FWS. More money for students relying on these federal programs will leave more state and institutional grant funds for all needy students.

The bad news is that, when HR 2740 passed the House by a 226 – 203 vote, all the “yes” votes came from Democrats while all 196 House Republicans present voted “no” and now HR 2740 goes to the Republican-controlled U.S Senate.

So HR 2740 is likely to be amended to devote less to student aid. After a House-Senate conference committee negotiates to resolve the differences, Congress will pass the final bill and send it to the President, who may or may not sign it into law.

If you want Washington to increase financial aid, contact your U.S. Senators and tell them so. Their email addresses and office phone numbers are at https:www.senate.gov/general/contact_information/senators_cfm.cfm. Make the effort! You really can make a difference!

Got questions about financial aid programs and how they’re funded? Contact College Affordability Solutions for information.

Before College: Education After High School? Oh, Yeah, It’s Worth It!

Oddly enough, some people are still selling the idea education after high school isn’t worthwhile.

Former U.S. Secretary of Education William Bennett is one. Colleges and universities promise personal growth and significant financial returns, but most let their students down, he argues in Is College Worth It?. Old Bill must not have been too disappointed with his bachelor’s degree and PhD, both in philosophy, because he then got a law degree.

In The Case Against Education, George Mason University economics professor Bryan Caplan argues that little of the return on college degrees come from knowledge and skills learned in classrooms. But would Professor Caplan be Professor Caplan without what he learned while getting his bachelor’s degree and PhD in economics?

The Motley Fool says “42% of Americans feel their college degrees weren’t worth the amount of debt they created.” Coincidentally, 42% of Americans also believe in ghosts, aren’t saving for retirement, and cite lack of time as their excuse for not exercising.

Let’s get serious!

Postsecondary learning’s value is overwhelmingly evident, even if it’s only measured in dollars and cents.

Researchers with the Federal Reserve Bank of New York note that, “In recent years, the average college graduate with a bachelor’s degree earned about $78,000 compared to $45,000 for the average worker with only a high school diploma.”

The U.S. Bureau of Labor Statistics’ 2019 Education Pays chart shows “the more you learn, the more you earn” and the less likely you are to suffer unemployment.

What’s going on? According to Georgetown University’s Center on Education and the Workforce (CEW), two-thirds of entry-level jobs once required high school diplomas or less. Today, two-thirds of such jobs require some postsecondary education.

CEW also reports that 20% of today’s “good” jobs — positions paying 25-44 year olds at least $35,000 and 45-64 year olds $45,000 or more — are held by workers with high school diplomas or less; but 24% are taken by workers completing more than high school but not bachelor’s degrees and 56% engage those with bachelor’s degrees or higher.

And postsecondary education’s payoff isn’t all about jobs and earnings. The College Board found that, as education increases, so does parental involvement with children, civic involvement, and voter turnout; while obesity, smoking, and use of public assistance all decline.

Of course, Americans needn’t be doctors, lawyers, or executives to have adequate pay and fulfilling lives. But learning after high school clearly helps make these outcomes more likely.

The big challenge is how to acquire quality postsecondary education while minimizing educational indebtedness. There are ways to do this. For links to over 150 articles on such strategies, see College Affordability Solutions’ Topical Index.

Contact College Affordability Solutions for advice on postsecondary affordability strategies to use before, during, and after college. College Affordability Solutions’ consults with students and parents at no charge.

After College: Easily Avoided Student Loan Repayment Mistakes

Did you borrow student loans to help pay your college expenses? Did you just graduate from college? If your answer to these is yes, this article’s for you.

Here are 5 easily avoided mistakes borrowers make when repaying student loans . . .

(1) Not Knowing Who and How Much You Owe

The Federal Direct Loan Program (FDLP) and Federal Perkins Loan Program make 90% of all student loans, so you probably owe these programs. The Federal Student Aid Information Center can tell you who and how much you owe on these loans.

If you borrowed from your state or private lender, contact the state agency or lender that made your loan(s) for this information. Not sure who to contact? Get help from your alma mater’s financial aid office.

(2) Not Using Your Grace Period Wisely

You get a 6-month post-enrollment grace period during which FDLP loan payments aren’t required, and your first FDLP payment occurs 30-60 days after that. So no need to do anything about these loans now, right? Wrong!

Your federal student loan servicer will send you a repayment schedule this fall. It’ll show when your payments begin and what your monthly payment amount would be under the standard, 10-year federal repayment plan. But payments can be lower if you choose a different repayment plan or consolidate your federal college debts. Research this using Washington’s Repayment Plan and Loan Consolidation web pages, plus its Federal Student Loan Repayment Estimator.

State and private loans may not have as many options as federal loans, but call your lender(s) about what they can do.

(3) Letting Your Contact Information With Your Loan Servicer Lapse

Student loan borrowers who fall behind on payments often complain they never heard from their loan servicers. This is usually because their phone numbers or mailing and email addresses changed, but they never told their servicers. Nevertheless, their repayment obligations took effect. Avoid the legal but heavy-handed collection tactics accompanying student loan delinquency and default by emailing or phoning your servicer whenever your contact information changes.

(4) Hiding From Your Servicer

When you owe someone money you can’t pay, its natural to avoid them. But it’s dumb, too. Student loan lenders and servicers have many options to help you lower, postpone, or even cancel your payments. If you get into a bind, call them first.

(5) Only Paying Required Amounts Although You Could Pay More

Required monthly payments are the minimum amounts needed to eliminate debts by the end of repayment plans. But interest always builds on loan principal, so paying more than required monthly amounts, or making extra payments each year, reduces what you repay and eliminates your college debt faster.

Need help mapping out how to manage your student loan debts? Contact College Affordability Solutions for assistance. All of our consultations with students and their parents are free.

Before College: Get Your New College Student Ready to Handle Their Finance’s

If you have a child heading to college in the Fall, congratulations! You have survived the application process, the agonizing wait for acceptances, and the storms of the final year (almost). With any luck, your child is ready and waiting to get out of the house and take on their own life. But have you prepared them financially?

Young people are so sure that they know everything, but in the world of finances they may have little understanding of critical things like budgets and debt. Especially in their first semester before they get their feet on the ground, new students can be easy targets for lenders and vendors. One business owner near a campus referred to each Fall’s arrival of new freshmen as “the restocking of the herring” in the school.

It is important, ideally at the beginning of the summer, to sit down with your child and write out the plan for their college finances, discuss what you will pay for and what they are responsible for, and work out how they will manage the pieces that they are in charge of. Doing it now gives them a chance to work through the whole summer (and save that money), and it also gives them and you a chance to start thinking about how to set things up.

Firstly, at the big picture level, write out the numbers for the whole school year:

• Tuition and fees (subtract any scholarships):

• Room:

• Board (food):

• Books:

• Travel home:

• Personal expenses:

• TOTAL:

In addition to the numbers, write down who will be responsible for each item. Even if your child is paying entirely for their own college, go through this exercise with them to help them understand the full picture.

The first five items can be fairly easy to get accurate numbers for, but the last tends to be the most difficult. Personal expenses can vary from almost nothing to really any large number, depending mostly on what you and/or your student decide. The biggest question is typically whether or not they will have a car. Owning and maintaining a car can cost easily $6,000 per year, including insurance, gas, parking, maintenance, fees, and any tickets or accidents, so if money is an issue, this is a good one to skip. Beyond that, make your best guess together for what their personal expenses might be. Lastly, help them plan for where the money will come from, and how to manage it.

Putting together a plan for college costs at the beginning of the summer can take a lot of pressure off both you and your child, and give you a chance to prepare in advance. Best of luck to both of you for this big transition!

Today’s guest author is Linda Matthew, an Accredited Financial Counselor® and the owner of MoneyMindful Personal Financial Coaching, with which College Affordability Solutions has partnered since 2016. Linda has clients all through the U.S. and Canada. She is also the parent of one college graduate and one current college student.

Linda’s new book, Teach Your Children About Money, describes age-appropriate methods for helping youngsters learn about themselves and different ways to manage their money. It also has a special section just for college.

Go to the MoneyMindful website for more about Linda, to arrange a free consultation and to order your copy of Teach Your Children About Money.

Before and During College: Hey Parents, If You Really Need a Federal PLUS Loan But Have an Adverse Credit History, Here’s What to Do

Melissa’s a widow with three children and a $50,000 per year income. She’s proud of her oldest, Madison, a daughter who’ll start at the state’s flagship university in August.

The total cost of attending the university during Madison’s first year is predicted to be $29,000.

With two children still at home, Melissa can afford to give Madison just $200 a month for each of her nine months at school. So Madison’s determined to save $3,000 from her summer job and earn another $3,000 from part-time jobs while enrolled.

Madison’s financial aid for the year consists of grants and scholarships totaling $9,500, plus the $5,500 maximum a freshman may borrow from the Federal Direct Loan Program (FDLP).

This leaves Madison $800 a month short of what she needs. So Melissa consulted the financial aid office. She came away convinced that borrowing an FDLP Parent PLUS loan of $7,000 is the only way to send Madison to the university.

Unlike other federal college loans, the U.S. Education Department (ED) runs a credit report on each PLUS applicant. It disqualifies anyone with an “adverse credit history.”

ED would consider Melissa’s credit history “adverse” if her credit report shows that:

• She’s 90 or more days delinquent on one or more debts which, collectively, equal over $2,085; or

• During the last two years, she had more than $2,085 in debt placed in collection or charged off; or

• In the last five years she:

• Defaulted on a debt, suffered a foreclosure, or had something repossessed; or

• Had a federal student loan debt charged-off or written-off; or

• Was subject to a wage garnishment or tax-lien.

Melissa can still qualify by undergoing PLUS credit counseling and:

1. Obtaining an endorser (who agrees to repay the loan if Melissa can’t) without an adverse credit history. Madison, the loan’s beneficiary, can’t be the endorser.

2. Providing documents convincing ED that her adverse credit rating is based on inaccurate information.

3. Sending documentation that persuades ED her adverse credit situation is subject to “extenuating circumstances.” Example? If Melissa defaulted during the last five years, providing ED with a letter from the debt’s current owner or loan servicer confirming she met its conditions for resolving her default could prove an extenuating circumstance.

For more guidance, see ED’s Document Extenuating Circumstances (Appeal) instructions on the Federal Student Aid website.

Even if she qualifies for a PLUS loan, Melissa should tap any other financial resources available to her instead of borrowing it. PLUS is the costliest FDLP loan. It generates debt. But it doesn’t improve Melissa’s earning potential at all.

Nevertheless, because incomes and grants haven’t kept pace with inflation, PLUS has increasingly become a necessity for college parents such as Melissa.

Contact College Affordability Solutions for free consultations on strategies that can help make postsecondary education more affordable before, during, and after college.

Before and During College: Federal Student Loan Interest Rates Drop for 2019-20

Here’s some good news for students and parents borrowing to pay for college — Federal Direct Loan Program (FDLP) interest rates are dropping effective July 1.

The U.S. Education Department (ED) hasn’t yet announced this, but the New York Times and other reputable publications such as Forbes have run stories about it based on expert analysis.

These reductions leave interest rates above their 2017-18 levels, and at best they’ll reduce borrowing costs for the typical FDLP borrower by a few dollars a month. So don’t let the new interest rates motivate you to borrow more than you absolutely need. Nevertheless, it’s better to have an interest rate decrease than an interest rate increase.

Some of the most common questions borrowers have about FDLP interest rates are:

How long may I borrow at the interest rates that begin this coming July 1?

Each FDLP interest rate year runs from July 1 through June 30. The 2019-20 rates apply to loans made — i.e. first applied to what you owe your school or released directly to you or your bank account — on or after July 1, 2019 all the way through June 30, 2020, even if portions of those loans are made after June 30, 2020.

I understand each year’s loans are at “fixed” interest rates. What’s this mean?

The rates on loans you get each year will never change. For example, a 2018-19 FDLP unsubsidized loan you borrowed at 5.05% will still have a 5.05% interest rate when you finish repaying that loan.

If my interest rates on FDLP loans never change, what’s the rate on my combined loans?

It’s a “weighted average” interest rate that reflects the interest rate of each of your loans as a share of your total debt. So if you borrowed a subsidized loan of $2,000 at 4.45% in 2017-18 and $2,000 at 5.05% in 2018-19, the weighted average interest rate on your combined debt of $4,000 is 4.75%.

Will the FDLP interest rate reductions apply to private student loans?

No, but they may influence private lenders who compete with the FDLP to cut their interest rates.

How are each year’s FDLP interest rates set?

They’re based “the highest priced 10-year Treasury notes auctioned at the final auction held prior . . . to June 1.” Then there’s an add-on of 2.05% for subsidized and unsubsidized loans for undergraduates, 3.6% for unsubsidized loans for graduate and professional students, and 4.6% for all PLUS loans regardless of their borrowers. There are also maximums past which interest rates may not go — 8.25% for undergraduate subsidized and unsubsidized loans, 9.5% for graduate and professional student unsubsidized loans, and 10.5% for PLUS loans.

Contact College Affordability Solutions if you have additional questions about the federal student loan programs in general or their interest rates in particular. As with all of College Affordability Solutions’ services for college students and their families, you’ll not be charged for this.