During College: Save by Prepaying Unneeded Loan Funds Within 120 Days of Disbursement

So your student’s currently in college? And he borrowed a Federal Direct Unsubsidized Loan for this fall? He can save a lot on that loan by prepaying during the next 6 weeks. This is worth considering, because only 38.6% of college seniors look back and feel all they borrowed was essential to continuing their education.

Federal regulations say any prepayment received within 120 days of disbursement must be used to reduce that disbursement’s principal — and interest and loan fees on the prepaid principal must be automatically cancelled, too.

IMG_9849For example, a college freshman prepays $100 of his fall 2017 Federal Direct Unsubsidized Loan within this 120 day period. This’ll reduce the total amount he must repay by an additional $175. Actual savings will depend on his choice of the federal repayment plans he’ll be offered — a choice he’ll make after leaving school.

These regulations also apply to upperclassmen. Their savings may be a bit less, but they’re still significant.

How to do this? First, your student should check with his financial aid office to see if it’ll submit his prepayment for film. If so, he should follow its directions. Otherwise:

  • Do Some Research: The National Student Loan Data System has his most recent Federal Direct Unsubsidized Loan disbursement date (i.e. “Loan Date”). It’ll also identify his federal student loan servicer and its mailing address.
  • Meet the 120-Day Deadline: He’ll write a check to his loan servicer for the amount IMG_9854he wants to prepay and mail it 7-10 days (for delivery and processing) before the 120th day after disbursement.
  • Direct the Prepayment’s Application: To make sure his prepayment goes 100% to his most expensive federal loan — that Federal Direct Unsubsidized Loan — he should write “Apply to [INSERT LOAN DATE] Unsubsidized Loan” on his check’s memo line before mailing it.

But be careful. You student should only prepay funds he doesn’t need to finish the current term. So if he doesn’t already have a spending plan, help him build one when he’s home for Thanksgiving. More about this next Wednesday.

The right to prepay at any time without penalty helps make federal loans superior to most other forms of credit available to America’s college students. And prepaying within 120 days of disbursement saves extra money, making them even better!

College Affordability Solutions offers 40 years of experience in a wide variety of student finance issues, including student loan debt management. Contact us at (512) 417-7660 or collegeafford@gmail.com for cost-free consultations.

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After College: Save by Prepaying During Your Grace Period

Did you get your bachelor’s degree this past spring? While in college, did you borrow Federal Direct Unsubsidized Loans? If so, you’re fast approaching the last day of your 6-month “grace period.” The next day what you’ll repay on those loans could easily multiply.

IMG_9822Lenders charge interest on student and other loans they make, and what borrowers repay equals the principal amount they borrowed and the interest they’re charged. Interest on your Federal Direct Unsubsidized Loan installments began building when you received them, and any of this interest outstanding at the end of your grace period gets added to those loans’ principal.

It’s a legal practice called “capitalization.” Many lenders do it, including the government on Federal Direct Unsubsidized Loans. Once capitalized, your outstanding interest gets added to your principal. This inflates the total amount you repay because, the greater your principal, the more interest you get charged as you repay it.

Fortunately, this can be prevented — if you can afford it — by prepaying your IMG_9824outstanding interest before capitalization occurs. Say you borrowed the maximum allowable Federal Direct Loan amount during each of the last 4 years. Assuming you earn the average starting salary for a 2017 graduate, every $100 you prepay during your grace period reduces the total amount you’d repay by an additional $94 to $113.

Here’s what to do:

  • Get Information: Identify your grace period end-date and get a projection on the interest you’ll owe on that date. Your federal student loan servicer should be able to supply both and, if necessary, you can obtain its contact information from the National Student Loan Data System.
  • Prepay Before Your Grace Period Ends: Prepay as much interest as you can. Ask your servicer how to send this prepayment electronically, or mail it a check 7-10 days before your grace period ends.

Any payment made before it’s due is a prepayment. You can prepay any time without penalty on Federal Direct Loans. Prepayments reduce outstanding interest first, then loan principal. So if you can prepay even more than interest during your grace period you’ll also diminish your loan principal, further shrinking the total you end up repaying.

Prepaying during your grace period will save you money in the long run, giving you more to invest and spend on other things. So use your grace period to prepay as much as you can!

Look here next Wednesday for how currently enrolled students can save even more in the total amount they repay.
Seeking ways to manage the repayment of your student loans? Consult College Affordability Solutions at no charge. Contact us at collegeafford@gmail.com or (512) 366-5354 to do so.

 

After College: Strategies for Your College Finance Plan

We’ve discussed why students and their families need College Finance Plans (CFPs) and IMG_9739summarized strategies to use in your CFP’s “Before College” and “During College” phases. Let’s review some “After College” strategies.

Almost 70% of college graduates borrow. They leave averaging more than $34,000 in student loan debt. Hence, most strive to keep their initial monthly payments as low as possible. Toward this end:

Ex-students also strive to reduce the overall amount they repay to free up money for other uses. To IMG_9744do this:

  • Prepay: Cut the total interest you repay by prepaying – i.e. paying early or paying extra — whenever possible.
  • Reassess Your Repayment Plan: Annually compare monthly payment amounts under your current plan to such amounts under other repayment plans. Switch plans if you can afford to pay more each month. This’ll create big savings.
  • No Negative Amortization: Some federal repayment plans allow you to pay less than the monthly interest charged on your debt. It’s better than defaulting, but you’ll pay more in the long run.
  • Use Loan Forgiveness: Washington offers some generous forgiveness plans on its loans. Pursue them if you qualify.

Being late or delinquent on your student loan payments generates extra fees and penalties. To avoidIMG_9747 this:

  • Call Your Servicer: Ask to change your repayment plan or due date or to explore repayment deferments and forbearances if you have problems making your whole payment on time.
  • Dispute Servicer Errors: There are steps you can take if your loan servicer causes you repayment or other problems.

It’s your debt. Manage it aggressively to avoid problems and save money.

Look here next Wednesday morning for a more extended review of a strategy for your CFP. Need some personalized guidance on one or more of these strategies. Contact College Affordability Solutions at (512) 366-5354 or collegeafford@gmail.com for a no-charge consultation.

Before and During College: A Car on Campus Can Create Colossally Causeless Costs

IMG_8107Most colleges and universities have vast student parking lots, sometimes unpaved areas on the outskirts of campus, generally poorly patrolled and supervised. Apartments near campus may also feature parking lots or nearby on-the-street parking.

The automobiles students bring to college quickly fill such parking places. And what could be more natural? Any young person anticipating the freedom of being on his own will also look forward to the convenience that comes with having a car.

But a vehicle at school also needlessly inflates college-related costs and educational debt. Consider:

  • Parking Fees: One large university near us charges its students as much as $796 per year to park on campus. Increased borrowing to pay this fee for four years at today’s federal college loan interest rates can inflate the total amount repaid by more than $4,000.
  • Maintenance and Upkeep: Gasoline, oil changes, and other auto-related expenses add up as the academic year goes along. Such costs can be deferred, if not skipped altogether, when your student’s car stays at home.
  • Damage and Vandalism: Cars sitting on the street and in remote, under-supervised lots are more prone to damage — from hailstorms, slashed tires, frozen batteries, collisions if others carelessly reverse or cut corners too closely, etc. Sometimes your student may need to pay for a tow job to the nearest repair shop just to get his car working again.

Most campuses are either small enough to cross on foot or have shuttle bus systems that are free to their students. And the municipal transit systems in many college towns also allow students to ride free or at reduced rates.

IMG_8108Your student may ask, how will I ever get home if I don’t have my car? This may be valid. But reasonably-priced bus services and trains often run between your state’s major colleges and large metropolitan areas. And if public transportation isn’t available, your student can probably get a ride straight to your door by offering to share gasoline expenses with a fellow student.

Now if a student commutes from home or to a job at an off-campus location not served by public transportation, a car may be necessary. Otherwise, a vehicle at college is an expensive and unnecessary luxury. So counsel your student to cut his college costs by leaving those wheels at home!

College Affordability Solutions offers guidance on a wide array of strategies to keep higher education costs, and higher education borrowing, as low as possible. Email collegeafford@gmail.com or call (512) 366-5354 for such guidance.

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.