Before and During College: Prepare for Rising Student Loan Interest Rates

The Federal Direct Loan Program (FDLP) provides 89% of all postsecondary educational loans. Unfortunately, FDLP loans will soon become more expensive to borrow.

FDLP interest rates are set every May for loans made from July 1 through June 30. The 2018-19 rates will be 0.6% higher than in 2017-18, making this the third year in aIMG_2154 row during which they have risen.

Note: FDLP loans are “made” from July 1 through June 30 if, during this period, any portion of their initial installments go directly to students or are applied applied to what they owe their institutions.

Higher rates increase borrowing costs. For example, what if the lower 2017-18 interest rates versus the higher 2018-19 interest rates were to remain in place for the next four years? Depending on the borrower’s choice of repayment plan, the total amount repaid to the FDLP under the higher rates would jump by up to:

  • $2,755 for undergraduates borrowing the maximum amount each year for four years;
  • $7,144 for parents borrowing the national average of $10,226 per year to help their undergraduates earn four-year degrees; and
  • $7,338 for two-year master’s degree students borrowing $25,000 per year.

Why are rates rising? Federal law ties the interest charged on each FDLP loan to the rate at which the government auctions off 10-year Treasury notes every May. The rates at which such Treasury notes are auctioned rises as the economy improves, which it’s been doing since late 2015, so FDLP interest rates have been rising, too.

And assuming there’s no economic recession for the next few years, future FDLP interest rates will climb even higher.

Good news? Federal law fixes FDLP interest rate until loans are totally repaid, so their interest rates never rise. This helps make FDLP loans better than the “variable rate” educational loans offered by many private lending institutions.

Still, rising FDLP rates make college less affordable unless borrowing is reduced. Fortunately, there are ways to do this and still get a quality education, including, but not limited to:

So make plans now, because it’s going to be more important than ever to minimize college debt for 2018-19!

College Affordability Solutions brings 40 years of personal college finance and student loan experience to it’s no-cost consultations with customers. Contact it at (512) 366-5354 or collegeafford@gmail.com for such a consultation.

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Before College: Get Ready for What It’ll Cost . . . Now!

Parents and students are often shocked by college costs, especially late in high school, when there’s little time to generate significant amounts to help cover these costs.

It’s well known that postsecondary institutions charge tuition, and that there’ll be expenses for books and class supplies and room and board while students attend college. There are other charges, too. But it’s the total cost that seems to catch families by surprise.

So let’s look at the most recent data about the average cost of college attendance for an academic year (fall through spring). And for a sense of how these costs grow, look at what they were 10 years ago:

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Yes, over the last decade the average cost of a year at college rose 25% at public 2-year institutions, 38% at public 4-year universities, and 36% at private 4-year universities.

At this rate, if today’s 8-year old begins college in 10 years, her freshman year will cost approximately $22,000 at a public 2-year, $35,000 at a public 4-year, and $69,000 at a private 4-year institution.

She may be able to reduce expenses by, for example, living at home while taking classes. But she’ll still encounter 5-figure costs:

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Sallie Mae’s most recent How America Pays for College report indicates that nearly 90% of 2016-17 families know their children are college-bound in preschool. But in 2016-17 only 13% of college parents had 529 plans to help cover postsecondary expenses and just 8% could devote parental savings to these costs.

The result? Sallie Mae’s report indicates that, in 2016-17 alone, 33% of undergraduates borrowed an average of $8,835 in federal loans and almost one out of 10 of college parents took out Federal Direct Parent PLUS Loans, at an average of $10,226 per loan, to help pay postsecondary expenses.

Many of today’s postsecondary parents lost their jobs, income, and savings during the 2007-09 Great Recession. This really limited what they could save for college.

But in general, Americans are now better off. Unemployment in March was 4.1% — less than half the March 2010 rate of 9.9%. And U.S. Median Household Income has risen steadily to be almost 20% higher than in 2010.

If you’re enjoying job security and prosperity, now is the time to start saving all you can for college — even if it’s only a small amount.

Ah, you may ask, but won’t my savings reduce my child’s eligibility for federal student aid? Yes. But the reality is that 62% of that aid comes in the form of loans.

So every dollar you save today can help your student — and you — reduce college debt in the future!

Next Wednesday: Why 529 plans are the best way to save for college.
Until then, contact College Affordability Solutions at (512) 417-7660 or collegeafford@gmail.com for free consultations about issues related to financing your child’s college costs.

 

During College: You Should Be Protesting If Your Student’s Not Detesting Cryptocurrency Investing!

It’s bad enough that 75% of college students gamble. But now another perilous student behavior has emerged. A recent survey by The Student Loan Report indicates that 21% of student borrowers invest in cryptocurrencies such as Bitcoin.IMG_1834

As a responsible parent you of course advise your student not to gamble. But also urge him to stay away from cryptocurrency investments!

Unfortunately, these investments are easy to make. After loan and other aid money pays tuition and fees for an academic term, your student gets the remainder to cover that term’s books and other necessary expenses. Now he could have up to a few thousand dollars in hand.

He can invest these funds — hopefully in a safe and secure bank account, but also in high-risk opportunities such as cryptocurrencies. Wherever he invests, he’ll still need to pay for necessities like books, housing, and food as the term progresses.

IMG_1779What makes cryptocurrencies so dicey for college students? It’s what investment professionals call “volatility.” Cryptocurrencies can become really volatile really fast!

For example, Bitcoin’s value on January 10 was $14,890.72. But by February 5 it’s value dropped to $6,914.26 — a 54% loss! So if your student bought a $2,000 share in Bitcoin on January 10 and sold this share just 25 days later, he lost $1,080 of his investment! Meanwhile, thousands in costs for the term remain to be paid.

Some call Bitcoin the potentially biggest “bubble” in history. A $1,080 loss from his IMG_1782limited pool of funds could easily place your child among the 52% of college students facing high levels of food insecurity, or the 12% college students who are homeless.

Difficulty paying for basic needs undermines academic performance, and money shortages have long been among the most common reasons why students leave college without degrees, so cryptocurrency financial losses could also end up placing your student among the 25% who drop out every year.

Far better for your student to spend as conservatively as possible and, toward the end of the term, if he has money he doesn’t need, return it to the government. For every $100 of his spring Federal Direct Unsubsidized Loan he returns within 120 days of its disbursement, Washington will immediately cancel all fees and interest applicable to that $100. The result is that for every $100 he returns, the total amount he’ll ultimately repay on this loan will be cut by up to $191!

There’s an old saying, “Never gamble unless you can afford to lose the money.” If your student needs loans and/or other financial aid to help pay for college, he certainly cannot afford to lose money on erratic investments such as cryptocurrencies!

College Affordability Solutions has 40 years of experience in counseling students and parents on ways to manage their dollars for college. Call (512) 366-5354 or email collegeafford@gmail.com for a no-cost consultation.

Before and During College: Parent Loans — Helpful Today, But a Potential Curse Tomorrow

IMG_1169Federal Direct Parent PLUS Loans. They’re often the way families fill the gap between their resources, financial aid, and costs their undergraduates incur at college. But parent PLUS loans have their pros and cons.

Parent PLUS loan advantages:

 

  • There’s no PLUS borrowing limit other than the cost of attendance for the student for whom you borrow (i.e. your “beneficiary”) minus her other financial aid.
  • The interest rate on each academic year’s PLUS loan is fixed so, unlike this rate on many private loans, it’ll never go up.
  • The only fee is a 1.069% federal loan fee.
  • Amounts you repay within 120 days of disbursement reduces principal and IMG_1150cancels interest and loan fee on that principal.
  • Your payments may be deferred while your beneficiary is enrolled at least half-time and during her 6-month post half-time grace period.
  • Payments may also be postponed under other federal deferment and forbearance programs.
  • Should you die or become totally and permanently disabled, or if your beneficiary dies, your PLUS debt will be discharged.

Parent PLUS loan downsides include:

  • The highest interest rate of all federal college loans. Currently 7.0%, this rate’s expected to rise on PLUS loans borrowed for the next few academic years. But with fixed rates, PLUS interest is still likely to be lower than variable rate private education loans.
  • To borrow a PLUS loan, you (or a cosigner) must have a sound credit history. IMG_1152Your credit history isn’t “sound” for PLUS if (1) when your credit report runs, you don’t owe over $2,085 that’s 90 or more days delinquent, or (2) for five years before your report runs, you’ve had no charge-offs, bankruptcies, defaults, foreclosures, repossessions, tax-liens, wage garnishments, or write-offs.
  • PLUS debt isn’t legally transferable to anyone else unless it’s privately refinanced.
  • Parent PLUS debt isn’t easily forgiven. Bankruptcy generally won’t discharge it, and it’s not eligible for the federal teacher loan forgiveness program. But, in addition to the discharges described above, it is eligible for Public Service Loan Forgiveness.

IMG_1151Borrow parent PLUS loans only as a resort, especially if you’re approaching retirement. Why? The Government Accountability Office recently found 17% of 65-74 year old parent borrowers had defaulted on such loans — subjecting themselves to expensive collection fees and the confiscation of their Social Security benefits and tax refunds. So while PLUS can be helpful today, it can be a curse tomorrow.

Note: College Affordability Solutions will be on “spring break” next week and so won’t be posting a blog. But look here again on Wednesday, March 21, for another post on issues related to keeping college affordable.

Contact College Affordability Solutions at (512) 366-5354 or collegeafford.gmail.com if you’re looking for a no-cost consultation on strategies for minimizing college costs.

After College: Help! I Can’t Make My Student Loan Payments!

You’re repaying loans you borrowed to pay for college. But you often find yourself IMG_1086choosing between paying for essentials and making monthly loan payments. What should you do?

You’re in luck if, like 90% of today’s college borrowers, you borrowed federal loans. Washington offers multiple ways to get relief from your predicament. The question — which is best for you?

IMG_1087If you’ve not already done so, consider replacing your federal loans with a Federal Direct Consolidation Loan. These offer longer repayment periods and lower monthly payments if you owe more than $7,500. But look into consolidation’s advantages and disadvantages before going this route.

You can also tell your loan servicer will change your repayment plan. To check out how this’ll affect your payments use the Federal Student Loan Repayment Estimator. IMG_1090It already knows your loan balances and can tell you the repayment plans for which you’re eligible plus monthly payment amounts in each available plan. It can also determine how consolidation would impact your loan repayment.

If the reason you can’t afford monthly payments is temporary, look into getting a deferment to postpone your payments for up to a year. You’re entitled to deferment if you’re:

No deferment? Another temporary solution is asking your servicer for a forbearance. You’re not entitled to forbearance. It depends on your situation. But you can totally postpone or partially reduce your payments while in forbearance.

But be careful about deferment and forbearance. During the former, interest continues to build on your unsubsidized and PLUS loans. During the latter, interest keeps building on all your loans. Unpaid interest from these periods then gets capitalized (added to principle) when your deferment or forbearance ends.

If your trouble making payments is because of your monthly due date, ask your servicer if you may change your payment due date to another day that works better for you.

Act fast, because missed and late payments have really bad consequences.

College Affordability Solutions offers 40-years of experience working with various educational loan repayment strategies. Call (512) 366-5354 or email College Affordability Solutions for a no-cost consultation.

Special Bulletin: Your College-Related Tax Breaks Survived a Congressional Move to Eliminate Them

In November College Affordability Solutions urged you contact your members of the U.S. House and Senate in opposition to certain provisions within the House tax bill that was then working its way through Congress.

That bill was supposedly designed to cut taxes. But it would have done away with IMG_0428deductions and exemptions that reduce taxes for you and other students and parents by over $18 billion a year — money that helps pay college costs.

The original House bill was remarkably partisan. It was written by Republican House members without input from Democrats, and it got 227 Republican votes but no Democratic votes

Fortunately, the Senate also opposed eliminating college-related tax deductions, exclusions, and exemptions. It made sure they remained unchanged in the final bill, which is now law. So don’t ever think your voice doesn’t matter — constituent pressure clearly helped preserve these tax breaks!

Here are the college tax benefits that were preserved in the final bill:

  • If you’re a student, you still won’t be taxed on money you use from your College Savings Bonds to pay your educational expenses.
  • Parents, you may keep on making deposits into your Coverdell Education Saving Accounts to build up money for college.
  • The first $5,250 you use from your Employer-Provided Educational IMG_0429Assistance program to pay higher education costs will continue to be untaxed.
  • The Lifetime Learning Tax Credit remains unchanged. So you may keep reducing what you’ll pay in federal income taxes by up to $2,000 a year based on what you spend on tuition, required fees, books, and supplies for any student (including you) taking courses to get a degree or improve job skills.
  • The Scholarship and Fellowship Exclusion will continue to omit from federal taxation what your scholarships and fellowships pay toward your college costs.
  • Borrowers, you’ll still be able to claim your Student Loan Interest Deduction of up to $2,500 for student and/or parent loan interest you pay each year.
  • Your $4,000 per year Tuition and Fee Deduction remains unchanged.
  • Are you or will you be a graduate student? If so, any Tuition Reduction you receive in connection with a graduate assistantship or fellowship still won’t be subject to taxation.

Congratulations on keeping these benefits! But stay active and alert. More bills impacting college affordability will come before Congress soon.

Contact College Affordability Solutions by calling (512) 366-5354 or emailing collegeafford@gmail.com.

After College: Things to Do As Your First Student Loan Payment Comes Due

If you graduated from college last spring, chances are your obligation to begin repaying your Federal Direct Loans has begun. If you’ve not yet heard from the student loan servicer Washington hired to collect your payments, you need to contact it immediately (see below) because you’ve got some important things to do:

Choose Your Repayment Plan. Your servicer sent you a notice by email, U.S. Mail,IMG_0410 or both. This notice invites you to select the repayment plan that works best for you at this point in time. If you don’t select a plan, you’ll automatically be assigned a Standard Repayment Plan under which you’ll pay off your Federal Direct Loans within 10 years by paying the same amount every month.

No matter what your repayment plan, you can change it by contacting your servicer. However, if you’re paying under an income-based or income-contingent plan, you can switch only after making payments for at least three months.

Decide How to Pay. You may pay by cash or check. But the most convenient way to pay is to give your servicer permission to draw your monthly payment out of your bank account via “electronic funds transfer.”

Your Payment Due Date. Your notice will also tell you the date on which your first payment is due. This date is in January for most spring graduates.

Payment must arrive at your servicer within 15 calendar days of this date or you’ll be behind in your payments. But remember, if you’re mailing your payments, assume it’ll take the post office about 10 days to deliver them.

IMG_0411You’ll have the same payment due date every month. However, if at any time this date doesn’t work for you, you may contact your servicer and request a different payment due date provided you’re not behind in your payments.

If You Can’t Afford to Make Payments. Call your servicer. Describe the issues affecting your ability to pay. Ask if you qualify to postpone your payments through a deferment or forbearance. But remember, postponing payments often IMG_0412generates additional interest on your Federal Direct Loans, so you’ll spend more to repay them in the long run.

Contacting Your Servicer. Access your records in the National Student Loan Data System to find your loan servicer’s contact information.

You’ve got lot’s of options. Make well-informed, wise choices to help set yourself up for a smooth and successful repayment experience.

Need advice about your student loan payments? Contact College Affordability Solutions at (512) 366-5354 or collegeafford@gmail.com for a no-charge consultation.