After College: Use Your Grace Period Wisely

IMG_6400Hey college graduate, did you know they call it “commencement” because so many other things begin once you earn that degree? If you borrowed to pay college costs, your student loan “grace period” is one of those things.

A grace period is something the government gives so you have time to get your finances organized before you must start repaying your federal student loans. For Federal Direct Loans borrowed by students it goes for 6 full months from the day after you stop being enrolled half-time. It runs 9 full months from this date on Federal Perkins Loans.

Notice the reference to full months. For every loan you owe that hasn’t used up its entire 6 or 9 month grace period, you’ll get a full new grace period when you next drop below half-time.

Federal Direct Parent PLUS Loans don’t get grace periods but, working their loan servicers as listed in their National Student Loan Data System (NSLDS) records, parents can defer payment while their students are in school and for 6 months after the students for whom they borrowed drop to less-than-half-time.

A lot happens during your grace period . . .

  • Your loan servicer sends you notices about your first payment due date andIMG_6401 choosing your repayment plan options — stuff you really need to know. So keep your servicer apprised of any changes in your email and mailing addresses. You can find its contact information on NSLDS.
  • You’ll get these notices 60 or more days before your first payment due date. Use those 60 + days to set up a monthly budget including amounts for your loan payments.
  • Interest accumulates on any Federal Direct Unsubsidized Loans you have and, when your grace periods end, outstanding interest is capitalized — added to principal — inflating the amount on which future interest is charged.
  • Payments aren’t required during grace periods, but they’re not prohibited, either. Whenever you can afford to make a payment, send a note with it directing your servicer to apply it first to your outstanding unsubsidized loan interest. Anything left will be used to reduce your loan principal.
  • Institutional, private, and state student loans may or may not have grace periods of varying length. To check this out, review these loans’ promissory notes.

But no matter what loans you have, use your grace period wisely to prepare for making monthly payments on them when that period ends.

Need advice on managing your college debt? College Affordability Solutions has 40 years experience on this subject. Contact us at (512) 366-5354 or collegeafford@gmail.com if we can help you.

After College: Give a Graduation Gift Worth More Than It Costs

About 2 million undergraduates will receive their degrees this year. Almost 70% of them will graduate after having borrowed, on average, over $30,000.

That’s a lot for someone just beginning his adult life and career. But the worst thing is, it probably isn’t all the debt students owe at commencement. Most undergraduates must borrow Federal Direct Unsubsidized Loans — which begin accumulating interest the day they’re made — to supplement their Federal Direct Subsidized Loans and meet their college expenses.

This interest keeps accumulating during each student’s 6-month post-graduation grace period. Students may pay down interest while in school and their grace periods, but most can’t afford to do so. And when the grace periods ends, outstanding interest is capitalized — i.e. added to principal — inflating the principal amount on which future interest gets charged.

Let’s say you’re giving a graduation gift to a fairly typical student who’ll receive his bachelor’s degree later this month. He borrowed the maximum amount of subsidized and unsubsidized loan for each of his 4 years — not unusual given the financial need of students from even middle-income households. By commencement, he’ll owe $19,000 in subsidized loan principal and $8,000 in unsubsidized loan principal.

But when his grace period ends in November, he’ll also owe almost $1,500 more in accumulated unsubsidized loan interest. If all that gets capitalized, he’ll repay a total over $34,000 for the $27,000 he borrowed. And that’s if he uses a 10-year standard repayment plan — the repayment plan that yields the smallest total amount repaid.

This is where your gift comes in. Give your graduate money to pay down some of the interest accumulated on his unsubsidized debt. You’ll actually help him reduce the total amount he repays on his total college debt by more than what you give. Take a look . . .

IMG_6172

The easiest way to do this? Specify that he use your gift solely to pay down outstanding unsubsidized loan interest, which he can look up on the National Student Loan Data System, and send that amount to his loan servicer (also identifiable through NSLDS) with a note saying he wants it all applied to his unsubsidized debt. Your gift will immediately be applied to lower interest on that debt.

Not a “sexy” graduation gift, but it’ll provide value in excess of what it costs, and that’s not a bad deal for you or your student!

For more strategies to minimize what gets paid on student loans, contact College Affordability Solutions at collegeafford@gmail.com or (512) 366-5354.

Before and During College: Summer Can Be Used To Reduce College Costs

Spring semester ends soon. After finals, many students will use the summer to cut their college costs. The payoff for doing so can be huge!

Lot’s of employers need student employees to help manage increased summer activity levels. Others look to student workers to fill in for regular employees on summer vacation.

Over the last 4 years — from the summer after high school graduation through the summer before his senior year — Jack banked about $2,000 a year from his summer IMG_6029jobs. This allowed him to forgo the $2,000 per year in Federal Direct Unsubsidized Loan he would otherwise have needed to borrow for the costs of attending his university. It cut the principal and interest he’ll pay each month on his student loans by a third. It’ll also reduce the total amount he repays on those loans under the “standard” 10-year repayment plan by a whopping $11,200. That’s a darned healthy bite out of Jack’s borrowing costs.

IMG_6030Another cost saver is attending summer school at a community college close to home so the student doesn’t incur expenses for room and board. This is particularly effective during the summers after student’s freshman and sophomore years, when they’re likely to pick up courses that’ll count toward degree requirements at their universities.

Jill took this approach. Over two summers, she completed a total of 15 credit hours at her local community college. Tuition and required fees there were $117 per credit hour, versus $321 per credit hour at the university Jill attended fall through spring.

In doing this, Jill reduced the number of semesters it took to fulfill her university degree requirements from eight to seven. This cut her costs at that institution by $4,825 in tuition and fees and by $5,220 in room and board. So for $1,760, Jill cut her costs by $10,045 — a net savings of $8,285.

And the good news is that this isn’t an either/or proposition. Summer work? Summer community college classes? Many students do both!

Jack and Jill still get lots of summer “down time.” They still get to see friends they missed while away at school. And they still get to eat that good home cooking and to be with family. But their summers are also highly productive, because they significantly reduce the cost of their degrees — and what’s not to like about that?

Looking for strategies to keep college more affordable? Feel free to contact College Affordability Solutions at collegeafford@gmail.com or (512) 366-5354.

Before College: It’s Good to Work as a Freshman, Just Not Too Much

 

Your daughter’s freshman year financial aid offer includes a work-study award which’ll provide her a part-time job while she’s enrolled. Should she or shouldn’t she accept this award?

Many parents don’t want their children to work at school, especially during their first year. Moms and dads worry about their children adjusting to totally new environments and rigorous, college-level course loads. They reason that the pressure of jobs will be too much.

Such concerns are sometimes legitimate. But research shows they’re often wrong. In fact, studies have long shown that freshmen who work while taking classes earn higher GPAs and persist at higher rates than freshmen who don’t. The key is to control the student’s work hours. Ten to 14 hours a week seems to be optimal for most freshmen.

On the other hand, GPAs fall and dropout rates rise as students work more and more hours beyond 14 per week. These “over-workers” report that they find it difficult to attend classes, meet with professors, and get to the library. Think about that last point — no other on-campus service is open longer each day than the library so, if your student can’t get there, she probably can’t access other academic support services.

But working 10-14 hours a week can have several positive effects. It helps reduceXBD201407-00853-03.TIF reliance on loans. It allows students to pay some of their own costs, giving them the motivation that comes from “investing” their blood, sweat, and tears to “earn” an education. And working students typically become better time managers.

On-campus work can provide students with a “home base” at colleges that sometimes seem overwhelmingly large. And on-campus supervisors know their employees are students first, then workers. This tends to make them more tolerant of schedules that work around exams and tests.

IMG_5891Finally, working while enrolled usually helps with job and graduate school searches. Many ex-supervisors — including faculty members — are willing to provide references, and college employment demonstrates “real world” experience, strengthening the student’s resume even if the work she did wasn’t related to her career choice.

So you may want to advise your student to accept work-study. Absent such an offer, point her toward the student employment office when she gets to campus to seek other part-time positions. Don’t let unfounded fears stop her from taking advantage of the many positive outcomes associated with working a controlled number of hours per week.

College Affordability Solutions brings 40 years experience to advising families and students on higher education funding strategies. Feel free to contact us if we can assist you.

Before College: Make Decisions Now That Will Minimize College Debt

Soon after the upcoming college commencement season you’ll begin hearing it. “Who got me into all this debt?” or “My school made me take out all those loans!”

There’s truth in this. College costs keep rising. Grants and scholarships aren’t keeping up. But two other parties also contribute to rising collegiate debt — the student and, often, his parents.

Is your student spending conservatively — e.g. buying used textbooks from an online discount bookstore, not buying all his textbooks but accessing some through the campus library’s ebook collection?

Many off-campus residences sell themselves as “high amenity” facilities. But they’re IMG_5814also high rent. Is living in a new high-rise with a rooftop pool and granite countertops really necessary? Can your student survive someplace that’s older, plainer, and less costly? Can he split rent with one or more roommates, eat out less often, put a brown bag lunch in his backpack and cook more meals at home?

Does he absolutely need an automobile at school? He’ll likely pay hundreds to put it in some remote, vandalism-prone parking lot. Instead, can he use campus shuttle buses and municipal transit lines? Can he share rides home?

Can he work part-time? Contrary to popular belief, students who work 10-14 hours per week while enrolled perform better academically than students who don’t work at all.

Parents? You probably think your Expected Family Contribution (EFC) is too high. But EFC is based on a reasonable assumption — that you’ll max out your own financial 20091030family5049resources before asking your neighbors to pay for financial aid to send your student to college.

So can you downsize your vacations; maybe even turn some into “staycations?” Can you get another few years out of your car? Do you really need to hire out the house cleaning or yard work? Or can you redirect such discretionary spending to support your student?

Most colleges offer the maximum loan amounts for which students are eligible. But your student need not accept all that debt. Minimize his costs and maximize your EFC, then reject any loan amount you don’t expect to need. If you miscalculate, what you turn down can be reinstated later.

Remember, students who borrow to live like professionals while in college often live like students while paying off their debts after college! Keep this from happening to your student by downsizing or rejecting loan offers now.

College Affordability Solutions helps families identify strategies for minimizing higher education debt. Contact us at collegeafford@gmail.com or (512) 366-5354 to learn more,

During College: Spring Break, Not Spring Bankruptcy

Soon it’ll be spring break, an opportunity for fun, travel, and memories. Many college students consider it a right of passage, and many families want them to enjoy it.

But spring break can be expensive. College students spend well over $1 billion on it every year. But using government loans to pay for it will, even at today’s record low interest rates, cost at least $19.78 in interest for every $100 spent.

There’s still a lot of school left after spring break. So help your spring breaker be tough-minded and disciplined about spending decisions. For example:

  • Travel: The farther away the destination, the costlier the travel — especially img_5569if it involves high March air fares. For example, one major airline’s coach fares show a mid-March round trip Denver to Cancun (2,693 miles) costing $2,333 while its airfare from Denver to San Diego (1,078 miles) is $859.
  • Lodging: The more friends your student bunks with, the lower the cost for shelter, especially if they’re splitting the cost of a short-term rental house instead of hotel rooms.
  • Food and Beverages: Renters can prepare some of their own meals instead of eating out. And caution your student not leave an open tab anywhere. It’s also important to scrutinize meal and bar bills to avoid accidental or “moocher” charges.
  • Purchases: Clothing, swimsuits, footwear, etc. — urge your student to pack it, not buy it there at inflated prices. He or she should also take that student ID because it may generate some discounts.

More and more students are also saving by skipping those stereotypical beech and ski trips. Satisfying but much less expensive activities are out there. For example:

  • Your student can get some friends together for camping or an amusement park visit.
  • img_5570Volunteering can create lifelong memories while helping make the world a better place.
  • Spoil your student with his or her own comfortable bed and favorite meals while he or she comes home to enhance career prospects through job shadowing, searching out summer internships, or applying for post-graduation employment.

Spring break can be a great time — if your student can avoid overspending that generates a self-inflicted wound leading to a ramen noodle diet until finals end.

You can contact College Affordability Solutions at (512) 366-5354 or collegeafford@gmail.com. 

After College: “Late” and “Missed” are 4-Letter Words for Your Student Loans

If you graduated from college last spring after borrowing federal student loans, your loan servicer has already let you know the first of your monthly payment due dates. img_5066Chances are that date is this month.

This date is important. Pay on or before it and you’ll build a positive credit rating. Pay after it’s passed, or make no payment, and you’re immediately a delinquent borrower. Then your loan servicer may report your delinquency to the major credit bureaus right away (they must report it you when you’re 90 days delinquent). You’ll have an adverse credit history that’ll result in higher interest rates if you’re img_5065even able to borrow for a car or house; may stop you from renting an apartment or signing up for a cell phone or utilities; and could even stop you from getting a job.

As soon as you become delinquent, your loan servicer may also add collection costs equal to 18.5% of your debt to what you owe.

Fail to make any payment within 30 days of its due date and you’ll also pay a late fee equalling 6% of what you owe. Miss nine monthly payments in a row and you’re in default — at which point a government-hired collection agency will require you to repay your whole debt immediately. The government may also confiscate up to 15% of your salary and wages, your tax returns, and any money it owes you. It can also get permission from a judge to take real estate and other property you own. Finally, you’ll never be able to borrow another federal student loan while in default.

Fortunately, it’s easy to make your federal student loan payments on time. Enroll in an automatic debit plan and your payment will be deducted from your bank account on the same date every month. You’ll also reduce your interest rate by 0.25%.

If your monthly due date doesn’t work for you, contact your loan servicer and ask to change it. Do the same if you need to change your repayment plan to lower your required monthly month amount.

Need to postpone your payments for a while? You can do this without becoming delinquent. Contact your loan servicer and ask for a deferment or forbearance.

So don’t ever let yourself run late on your monthly payments or, worse yet, miss them altogether. Both produce nasty results, and they’re way too easy to avoid!

College Affordability Solutions has extensive experience with the ins and outs of student loan repayment. Call (512) 366-5354 or email collegeafford@gmail.com if you need confidential advice on managing your college debt.