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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A Year of College Affordability Solutions

College Affordability Solutions is dedicated to helping families keep higher education spending within their means. It uses this website to highlight postsecondary educational cost-management strategies at the times of the year when you and/or your student are most likely to need them.

21-of-the-most-beautiful-college-campuses-in-amer-2-20243-1428837186-9_dblbigDespite those who’ll try to talk your student out of college, postsecondary education is still worthwhile even if he or she has to borrow to pay for it. But student loans increase the cost of college, so do everything possible to minimize their use.

Over the last year, we’ve covered several approaches to keeping college and college-related debt affordable. Click on any of the links below to learn more . . .

Before College

Various investment and savings programs can help you prepare for college bills. Among these are 529 plans and college savings bonds, but you should explore them all – the sooner the better.

And be sure to apply for financial for every year of college. Complete the Free Application for Federal Student Aid (FAFSA) as soon as possible after October 1 but, by all means, before your FAFSA priority deadline arrives.

Student dependency status plays a big role in who completes the FAFSA. Other family factors do, too. But it isn’t as hard to complete as you’ve heard, especially if you fulfill 5 key steps, gather all the documents you need, and get answers to your last-minute FAFSA questions before doing so.

Long before the FAFSA, your student needs to begin aggressively searching for scholarships. It’s critical to know about the when and where and the how of doing this.

Pay close attention after you file your FAFSA to make sure you handle what happens next. Then carefully assess your financial aid offers as they arrive from colleges.

But it’s not all about financial aid and scholarships. A critical factor in college affordability is for your student to enroll in a college and major that fits him or her well.

During College

Once college begins, you can help your student keep his or her expenses within reason.140815_FF_BestCollegeCard Limited spending and indebtedness is important even with today’s low college loan interest rates.

Some of the most effective strategies for minimizing student borrowing include your student getting through college in 4 years or less while carefully managing money and avoiding rip offs such as the recent “student tax” scam. A little-known but highly-effective cost-saver involves returning unneeded federal loan dollars with 4 months of disbursement.

Help your student keep college more affordable by giving him or her some holiday gifts that’ll lower his or her reduce expenses upon returning to school and by recommending he or she generate funds through seasonal employment instead of borrowing.

After College

Seven out of 10 students borrow before earning their degrees, and over 90% of their loans come from federal loan programs. Fortunately, the government has designed  post-graduation strategies to help keep educational debt manageable.

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Your student needs to understand what happens to college loans after graduation. It’s worthwhile to consider the pros and cons of student loan consolidation, an often-used tactic for reducing monthly debt payments. Equally important is knowing how your student might qualify for forgiveness on all or part of what he or she owes.

Coming in 2017

We’re taking a few weeks off for the holidays, but beginning January 4 we’ll start publishing again about plans for keeping college affordable. Here’s hoping you have the happiest of holiday seasons, and that you’ll rejoin us then!

 Find out more about College Affordability Solutions and its services at https://collegeafford.com, or by calling (512) 366-5354.

Federal Student Loan Consolidation Advantages

If you graduated from college this past spring, chances are you’ll soon enter the time when you’ll be required to pay off your federal student loan debt — i.e. your repayment period. At this point you ought to be asking, “Should I consolidate my federal student loans?”

To consolidate, you need to have at least one Federal Direct Loan or Federal Family Education Loan. You may designate all or some of them, along with your Federal Perkins Loans, for consolidation. The government’s consolidation loan repays the debts you designated. Depending upon how much you owe on your total federal student loan debt, screenshot-from-2016-06-08-135849 you’ll get more time to pay off your consolidation loan than you had to pay off the loans it replaces.

Here are good things that’ll happen if you consolidate:

(1) You’ll Lower Your Monthly Payments: The longer you repay, the lower your monthly payment amount. Use the Federal Student Loan Repayment Estimator to figure out the repayment plans for which you qualify, estimate the monthly payment amount for each plan, and see how long that plan gives you to pay off your debt.

If none of your monthly payments looks affordable, you should consider borrowing a Federal Direct Consolidation Loan. Chances are it’ll give you more years to repay and lower your monthly payments.

(2) You May Expand Your Repayment Options: A consolidation loan may qualify for repayment plans for not open to your individual federal loans, but which may be helpful to you.

(3) You’ll Maximize Loan Forgiveness Benefits: If you’re starting a career as a public school teacher or in another form of public service, you should pursue the Federal Direct Teacher Loan Forgiveness or Public Service Loan Forgiveness Programs. The lower your monthly payments, the more you’ll get forgiven by these programs. Conversely, consolidating a Federal Perkins Loan can have disadvantages.11-3-is-student-loan-consolidation-right-for-you

(4) You’ll Simplify Repayment: As its name implies, all your consolidated debts get combined with one loan servicer (a company the government pays to collect your debt(s) and give you loan-related assistance). The result? A single monthly payment and just one party to contact if you need help.

(5) You Pick Your Servicer: The government picks the servicer for all your other federal education loans. But under consolidation you make this selection. As you do, think about whether your current servicer(s) have met your needs and ask friends about experiences with their servicers.

(6) You Get One Fixed Interest Rate: All debts you consolidate will get the same interest rate. It’ll average out to the rate for each consolidated loan, rounded up to the nearest one-eighth of 1%. It’ll be fixed for the life of your consolidation loan. If you have old federal loans whose interest rates change annually, consolidation will bring that to an end.no_fees

(7) You Incur No Costs: You pay nothing for anything related to consolidating your loans.

Consolidation’s a good thing for most borrowers. But it’s also got some disadvantages. Definitely consider these before deciding whether to consolidate your federal student loan debts.

College Affordability Solutions can help you better understand the pros and cons of federal student loan consolidation. Call (512) 366-5354 or email collegeafford@gmail.com.

 

Federal Student Loan Consolidation Disadvantages

Consolidating your federal student loans has many advantages. There are also some disadvantages to be considered before making the choice to consolidate:

(1) You May Pay More in the Long Run: Consolidating generally lowers your monthly thrm34yz8xpayments by giving you extra years to repay. But the longer you take to repay, the more of your lifetime income that goes to repayment.

The “Total Amount Paid” column on your Federal Student Loan Repayment Estimator can show how much you’ll on your loans and consolidated versions of your loans.

On the other hand, federal loans may always be prepaid without penalty, and paying your debt down faster than required will reduce your total amount paid.

(2) No More Perkins Cancellation/Discharge: If you consolidate Federal Perkins Loan debt, your access to the Perkins Loan Cancellation and Discharge programs goes away. These programs write off all or part of your Perkins debt in return for working in certain occupations, with a portion of the debt written off annually. These programs are the surest way to have student debt cancelled or discharged so, if you borrowed Perkins Loans, think carefully before consolidating them.

(3) Monthly Payments Could Start Earlier: Normally, federal student loan payments aren’t required during a 6-month grace period that begins when you graduate, withdraw, or drop below half-time enrollment. But consolidation repayment starts 60 days after the loan is made. If you’re applying for consolidation before your grace period ends, you may keep the full period by asking for repayment to be delayed until that period ends.

(4) Federal Loans Only, Please: State and private education loans aren’t eligible for federal consolidation. And, oh yeah, you’ll need to resolve any federal loan defaults you might have before you may consolidate them.

(5) Beware of Private Consolidations: Banks and other financial services companies can page_federal_versus_privateconsolidate your federal student loans, but you probably don’t want them to. Why? You’ll likely lose all or most of the benefits of borrowing from the government. Check this out carefully before you even consider private consolidation.

(6) For Your Loans Only: A borrower may only have his or her own federal loans consolidated. This means students and parents cannot consolidate their federal educational debts, nor can spouses.

(7) All Consolidations Are Final: You can’t reverse the process. Once a Federal Direct Consolidation Loan pays off your other federal student loans, those debts no longer exist.

Despite these drawbacks and limitations, there are lots of advantages to consolidating federal student loans. Don’t take a pass on consolidation before reviewing them.

 College Affordability Solutions can help you better understand the pros and cons of federal student loan consolidation. Call (512) 366-5354 or email collegeafford@gmail.com.

Beware of the”Student Tax” Scam!

Warning! Scammers are calling college students and their parents pretending to be employees of the Internal Revenue Service (IRS). They’re demanding payment toward what they call a “student tax!” The thing is, there’s no such tax and that’s not the IRS calling. So don’t give them and penny and don’t share any information with them!

Beside the reference to a nonexistent tax, how can you tell it’s a scam? Remember, the IRS never calls to demand the immediate payment of taxes owed, and it never requires payment by one particular method — not by credit card, not by debit card, not by gift card, and not by wire transfer! If the party on the other end of the line does any of this, you’re dealing with a dirt ball who’s trying to swindle you.

Some of these calls may be robocalls, and sometimes they come as voice mails. Often the scammers use “spoofing” technology so the number on your caller ID looks like it’s coming from the IRS. It’s not!

By the way, federal education loan borrowers are also getting calls demanding immediate payment on their debts by credit card, debit card, etc. These, too, are con games. If you’re not sure, get the name and phone number of the company that’s supposedly calling you, and then find “NSLDS for Students” on the web to confirm the name and number of the company Washington actually hired to manage the loans it made to you.

If some crook tries to swindle you about any of this, call the U.S. Department of the Treasury Inspector General’s office at 1-800-366-4484 right away to report it! You could also call the U.S. Department of Education Inspector General’s Hotline at 1-800-647-8733. Above all, don’t become one of the more than 8,000 Americans who’ve lost over $44 million in the last three years to these rip-offs!

There’s a special place in hell awaiting the scumbags who try to scam money from honest people. But if you’re a college parent or student, the best thing you can do for now is to make sure these slime buckets don’t make off with your money or your information. Instead, tell them to stick it, hang up, and call the Inspector General!

College Affordability Solutions wants to help you keep your money for college safe. Suspicious about a call you’ve received? Call (512) 366-5354 or email collegeafford@gmail.com for help.

Save Money: Return Excess Federal Loan Funds

Hanging onto unnecessary federal loan funds is a losing proposition — even if your student is “saving” them to use next term. At current interest rates, no savings account will pay more than the interest building up on those loans, and federal loan funds can’t be safely invested to earn as much as they cost in interest.

So as your student gets a feel for his or her fall college expenses, here are some tips for saving money on federal loan funds borrowed to pay those costs:

(A)  Return unneeded loan funds within 120 days: If your student figures out he or she won’t need them, he or she may contact the financial aid office and ask about how to best return the loan funds not needed for the term*. When this is done within 120 days of the funds being disbursed — i.e. paid toward tuition and fees or turned over to your student, whichever is earlier — Washington cancels its 1% loan fee, plus any interest that piled up on the returned amount. It’ll be as if those funds were never borrowed!

If your student received funds from multiple federal loans, the returned amount will pay them down in the following order — (1) Federal Direct Unsubsidized Loan, (2) Federal Direct Subsidized Loan (3) Federal Perkins Loan; and (4) Federal Direct Parent PLUS Loan.

(B)  Reduce next term’s federal loan(s) if that’s affordable: If your student is scheduled to get federal loan funds for the next term, this is a good time to consider whether or not all those funds will be needed to cover that term’s tuition and other expenses. If not, advise your student to tell the financial aid office to downsize that term’s loan(s).

(C)  Amounts returned can usually be re-borrowed if necessary: What if your student’s expenses turn out to be higher than expected? He or she can always go back to financial aid and request more loan funds, generally up to the amount that was returned. And interest won’t begin building until the new disbursement date for the re-borrowed funds. Note: Your student needs to request these funds at least two weeks before they’re needed. It sometimes takes that long for the funds to arrive from Washington.

 * Sometimes financial aid offices will return unneeded loan funds for students and sometimes they will give students guidance on how to return such funds themselves.

College Affordability Solutions offers 40 years of experience with federal student loans. Call (512) 366-5354 of email collegeafford@gmail.com if you’re interested in getting its advice on your federal loans.