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.

 

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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.

During College: Strategies for Your College Finance Plan

Your College Finance Plan (CFP) needs strategies for you and you student toIMG_9592 implement before, during, and after college. Let’s look at the “During College” phase.

Research at a major university indicates that, looking back, almost 4 out of every 10 seniors conclude part or all of their student loans weren’t essential for their educations. Therefore, some of these strategies focus on personal money management so students can spend and borrow less of the interest-bearing educational debt that, over time, increases college costs. These include:

IMG_9555Also, the faster your student gets her degree, the less cost and debt she’ll incur. Still, the latest national data show that only 39.8% of undergraduates earn their bachelor’s degrees within 4 years. Here are some strategies that’ll help your student graduate on-time, if not before:

 

Look here for why you need a CFP. You can find summaries of strategies for your plan’s “Before College” phase here. And next Wednesday there’ll be samples of “After College” strategies for your CFP here.
Beginning October 16, check this website every Wednesday for a more detailed account of a strategy you may want to use in your CFP’s before, during, or after college phase.

Before, During, and After College: You Need a Plan!

About 4 million babies will be born in the U.S. this year. Naturally, their parents want each of them to enjoy the American dream. Now, more than ever, that dream includes, even depends on a good education beyond high school.

But the dream is unraveling. It’s coming undone as the rising cost of college outpaces all but the wealthiest families’ ability to pay for it.

In 1998, the total cost of a year at a state college or university averaged $10,458. That was 27% of IMG_9377U.S. median household income. Eighteen years later this cost was $24,610, or 42% of median household income. At this rate, freshman year public college expenses for 2017’s newborns will average $33,224 — an astounding 56% of median household income.

Small wonder educational debt for recent college graduates averaged $34,000, or that 44 million Americans owe $1.4 trillion in such debt. Nor is it surprising that, in 2015, there were a million fewer students in college than in 2010; the first ever 5-year drop in our nation’s college enrollment.

How to ensure your child can afford college when he or she is ready to attend? It won’t be simple, and it won’t be easy. But a College Finance Plan (CFP) can help.

A CFP is like a mortgage — a decades-long undertaking. You (the parent) and your student (son or daughter) are its key players. It involves nothing exotic or fancy; just strategies to be adopted before, during, and after actual college enrollment. You’ll want to start implementing these strategies as early as you can, and stick to them.

A CFP won’t make college free, or even inexpensive. But collectively, its strategies can help make college costs more manageable so your student can access the best possible postsecondary education.

Want a quick look at strategies you should consider for the “Before College” phase? See Before College: Strategies for Your College Finance Plan. A review of “During College” strategies will be posted on this website October 2, and “After College” strategies will be outlined here October 9. IMG_9373You’ll also find more in-depth discussions of individual strategies here through the end of academic year 2017-18.

No matter where you and your student are in the college-going process, itake concrete steps to keep the cost of a postsecondary degree within your means. Start building your CFP now!

Got questions about college costs and how to deal with them? Contact College Affordability Solutions at (512) 366-5354 or collegeafford@gmail.com for help at no charge.

Before College: Strategies for Your College Finance Plan

It’s best to begin your College Finance Plan’s (CFP’s) “Before College” phase when your child is born, if not before. But don’t give up if you didn’t. Instead, get going as soon as you can.

Consider initiating these strategies as your student gets closer and closer to college:

Birth through Junior High:

  • Invest and Save. Let time multiply your money, even if you can only put away a little. For example, a $50 month deposit into a 1% savings account beginning at birth will yield $14,820 through college commencement.
  • Prepare Your Child to Pursue Scholarships. Some scholarships are awarded IMG_9375based on grades and test scores, some stress essay and interview responses, and others go to students with strong resumes. So help your student do well academically, develop verbal and written communication skills, and persist in extracurricular and leadership activities she enjoys.
  • Identify a General Career Direction. He needn’t decide on cardiovascular surgery by age 15, but helping him develop in broad subject areas about which he’s passionate can save your student from being among the 80% who change majors — some two or three times — generating extra costs for extra courses.

High School through Junior Year

High School Senior Year:

  • Apply for Aid. Filing the FAFSA is a necessity. If your student’s seeking institutional or state aid, too, other application forms may be required.
  • Analyze Affordability When Selecting a College. Public data can help project what you’ll pay for a degree from each school to which your student is accepted.
  • Select a Good Fit. Fit helps reduce the chances of your student transferring, which amplifies tuition costs for repeating courses not accepted by his new school.

Why implement a College Finance Plan? Go to “Before, During, and After College: You Need a Plan!” for answers. A review of “During College” strategies will be posted on this website October 2, and “After College” strategies will be outlined here October 9. More in-depth discussions of individual strategies can be found here through the end of academic year 2017-18.

Contact College Affordability Solutions at (512) 366-5354 or collegeafford@gmail.com for free help if you have questions about your CFP.

Before and During College: Beginning October 1, File Your 2018-19 FAFSA ASAP!

IMG_8872If you’ll have a student in college between July 2018 and June 2019, apply for financial aid on October 1 or as soon thereafter as possible. That’s when the 2018-19 Free Application for Federal Student Aid (FAFSA) first becomes available to you on the government’s secure FAFSA website.

Why hurry? Regardless of institutional FAFSA deadlines, some schools quietly use FAFSA submission dates to determine the order in which they award institutional grants and scholarships, so those submitting FAFSAs early may have a better shot at these limited funds. Also, if your FAFSA data are selected for verification, early submission gives you more time to gather and supply documents you need.

No worries if your student doesn’t yet know where she’ll attend college next year. She can direct her FAFSA to 10 different institutions, and more later if needed.

The 2018-19 FAFSA needs 2016 federal 1040 data. The easiest, most accurate way to get this is to use the IRS Data Retrieval Tool (DRT). For 2018-19, there’ll be an opportunity to do this in the FAFSA’s student and parent Financial Information sections.

If you previously submitted a FAFSA but your student qualified for nothing but federal loans, why submit again? Two reasons. First, even small changes in your family and financial situations can impact eligibility for need-based grants, scholarships, and part-time work study jobs. Second, your student won’t re-qualify for past loan awards without a new FAFSA.

There are online answers to various FAFSA questions you may have including, but not limited to:

All colleges require the FAFSA, but some may require other forms to apply for state or institutional aid. Check on this with the financial aid office wherever your student may attend.

Two final notes:IMG_8873

  • If you don’t yet have an FSA ID, you’ll need it to do the FAFSA. Establish it at FAFSA.ed.gov.
  • Be sure to do your FAFSA at FAFSA.ed.gov. Otherwise, you may get scammed into paying a fee to submit this free form.

Hard to believe it’s already time to apply for next year’s financial aid, isn’t it? But remember, the early bird gets the worm . . . and better yet, the financial aid!

College Affordability Solutions brings 40 years experience to advising families on issues related to financial aid. Got questions? Call (512) 366-5354 or email collegeafford@gmail.com for a no-fee consultation.

After College: Pick Your Federal Student Loan Repayment Plan Carefully

If you graduated this past spring after borrowing Federal Direct Loans, your loan servicer will soon contact you about how to repay them. You can pick from as many IMG_8761as seven different repayment plans.

There’s information about these plans on the government’s federal repayment plan website. To see how each plan will work for you, use the government’s Federal Student Aid Repayment Estimator. Here’s a quick summary:

  • Standard Repayment: You get a standard plan if you don’t select any other repayment approach. It offers fixed monthly payments for up to 10 years (30 years for Direct Consolidation Loans). It’s the quickest way to eliminate your debt, and you’ll repay the least amount possible over time. But it’ll also generate the highest monthly payments of all the plans at your disposal.

Other plans lower your monthly payment amounts but generally increase the total amount you repay:

  • Extended Repayment: This is available only if you owe $30,000 or more in Federal Direct Loans. You’ll get a 25 year repayment period, but no loan forgiveness when it ends.
  • Graduated Repayment: This begins with low monthly payments that increase every two years regardless of your income. Your repayment period will be 10 years — 30 years if you consolidate. But there’s no loan forgiveness after 10 or 30 years.
  • Income-Based Repayment (IBR): Depending upon when you borrowed your IMG_8763first Federal Direct Loan, IBR sets your payment amount at 10% to 15% of each year’s Adjusted Gross Income (AGI) for a 20 to 25 year repayment period. If you still owe money when your repayment period ends, it’ll be forgiven.
  • Income-Contingent Repayment (ICR): ICR payments equal 20% of each year’s discretionary income, with debt you still owe after 25 years forgiven.
  • Pay As You Earn (PAYE): PAYE requires monthly payment amounts equal to 10% of your discretionary income every year for 20 years. Anything you may then owe will be forgiven. Discretionary income resets every 12 months based on your family income and size. Spousal college debt and AGI are also factors if you’re married and filing jointly.
  • Revised Pay As You Earn (REPAYE): REPAYE is identical to PAYE, except it gives you 25 years to repay and to await the forgiveness of any remaining loan balance.

Don’t forget, you can change repayment plans any time, so pick a plan and then, as your financial situation evolves, decide whether to switch to another plan.

College Affordability Solutions offers no-charge consultations on student loan repayment strategies. Contact us at (512) 366-5354 or collegeafford@gmail.com.