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.

 

Special Bulletin: Does National Collegiate Student Loan Trusts Supposedly Own Your Loans? Make Them Prove It!

If you borrowed private student loans for your postsecondary education, and if an organization called National Collegiate Student Loan Trusts (National Collegiate) asserts you owe loan payments to it, double check everything it says about how much you owe and whether it actually owns your loans.

The New York Times reports that courts across the United States have dismissed IMG_7740many educational loan debts supposedly owed to National Collegiate because its was unable to prove that it had actually purchased those loans from lenders who originally made them. And in at least one case, a court dismissed part of a college graduate’s debt after finding that some loans for which National Collegiate was billing her were for enrollment at a school she never attended.

Note: National Collegiate is a “secondary market” that buys private student loans after they’re made, giving it the right to collect what borrowers owe in principal and interest on those loans. It has been particularly aggressive in going to court against private student loan borrowers unable to repay their debts.

National Collegiate contracts with American Education Services to provide its borrowers with services and do routine collections on its loans. The Times reports it uses a collection agency called Transworld Systems to collect debts when borrowers fall behind on their payments.

If any of your private student loans are being collected by either of these companies, determine whether National Collegiate Student Loan Trusts says it owns them. To do this, contact American Education Services and/or Transworld Systems to inquire. If they list National Collegiate as the owner of any of your loans, double check your records to confirm whether you actually borrowed them. If not, ask for documents proving you borrowed the loans and establishing what the courts call a “chain of title” to prove National Collegiate’s ownership.

Note: There are no reports of any federal or state student loans being dismissed by IMG_7739courts because of the irregularities described above.

Never stop making payments on and debt you really do owe. This can cost you big bucks and ruin your credit rating. And never, ever, use false or misleading information to try to get out of any of your debt obligations. That’s called a criminal offense called fraud!

But if there are questions about debts National Collegiate Student Loan Trusts says you owe it, retain a law firm or seek help from your local legal aid society if necessary. Don’t get ripped off!

We’re on summer vacation at College Affordability Solutions, but this issue was too important to ignore. Join us next month when we again begin publishing regular weekly blogs.

After College: If Your Student Loan Servicer Mistreats You . . .

The U.S. Education Department (ED) is the lender to which you owe what you borrowed under the Federal Direct Loan Program (FDLP). But ED doesn’t collect payments, answer questions, or provide help related to your FDLP debts. It’s contracted those jobs to one of nine private companies called a “loan servicer,” something many lenders do for their student and other consumer loans.

IMG_6914Loan servicers are usually very helpful. However, in one year alone there were over 30,000 documented complaints about them denying or discouraging the use of loan deferments, forgiveness, and repayment plans to which borrowers were entitled; inappropriately charging late-payment fees or increasing interest rates; losing or misapplying loan payments; and otherwise doing injustices to student loan borrowers.

If your servicer messes you over, here’s what you should do:

  1.  Go to ED’s Federal Student Aid website and review the applicable section under “How to Repay Your Loans” to make sure you understand your rights and responsibilities as a federal loan borrower.
  2. Call your servicer for help in resolving the problem. If necessary, speak with someone in management. Keep detailed notes — date, time, names, what you said, what they said, etc.
  3. Problem not resolved? Submit a complaint on the Consumer Finance Protection Bureau’s (CFPB) website. The CFPB is an independent agency under current IMG_6917federal law. It has the authority to investigate servicers, fine them, and require them to repay the money borrowers lost due to their errors. The CFPB also maintains a publicly accessible database about complaints regarding loan servicers and other financial companies — a database that can be used to determine which servicers ED hires in the future.

The U.S. House recently voted for HR 10. This bill that would end the CFPB’s independence and shut down public access to its complaint database. Also, Education Secretary Betsy DeVos has proposed taking servicer misconduct out of the criteria used to award future federal loan servicing contracts.

Nobody’s sure if the U.S. Senate will agree with HB 10 or the DeVos recommendation. So if you have federal student loans call, email or write letters to your Senators now. Tell them what you want them to do regarding these proposals.

And if you ever are mistreated by a federal student loan servicer, be aggressive in standing up for yourself and seeking relief. It’s your right, not just as a borrower, but as a citizen!

This is College Affordability Solutions’ last regularly scheduled blog for the 2016-17 academic year. But we’ll start up again in early August with more strategies to be used before, during, and after college for helping to optimize higher education affordability. Have a great summer. We’ll be back soon!