Tag: Student Loan

Advertiser Disclosure

College Students and Recent Grads, News

3 Reasons to File Your FAFSA Right Now

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

It’s October, and that means college-bound families can start applying for financial aid for the 2018-19 school year. the Free Application for Federal Student Aid, or FAFSA, opened Oct. 1.

Technically, families have until next summer — June 30, 2018 — to submit their FAFSA for 2018-19. But experts recommend filing as soon as possible in order to maximize the amount of aid students can receive. That’s because state, federal and school funding for various types of financial aid is often limited, and can run out.

Don’t leave money on the table. A recent study by social sciences researcher, Michael S. Kofoed at the United States West Point Military Academy found that each year, students who do not file miss out on as much as $9,741.05 in federal grant and student loan money, aggregating to some $24 billion annually.

“To get the most aid, you’re going to want to make sure you are doing it early,” says Jasmine Hicks, national field director with Young Invincibles, a nonprofit advocacy group for young adults.  Hicks has trained college-bound families on what they need to successfully fill out and submit the FAFSA.

Here are a few tips to help you file your FAFSA for the maximum amount of aid available to you.

1) Your state and college FAFSA deadlines might be even earlier than the federal cutoff.

Adding to your list of dates to remember, states and schools have their own FAFSA filing deadlines for grants and scholarships.

For example, for Delaware students to be eligible for state scholarships and grants for  2018-19, they must file their FAFSA by April 15, 2018. But the submission deadline for students who wish to be considered for Delaware State University scholarships and grants is even earlier, on March 15, 2018.

You can check here to see your state’s filing deadline. Be sure to enter your state of legal residence and the school year for which you’re applying for aid to view the cutoff date for your state. Be sure to double-check the deadline, as it could be earlier than the federal filing deadline and some states have different deadlines for different programs.

For example, Alaska’s Education Grant asks applicants to file the financial aid application as early as possible after the Oct 1 open date, since awards are made until the fund is depleted.

But the “official” FAFSA submission deadline for the scholarship is the same as the federal one.

Hicks says families should check a school’s website to check and see if there is a different filing deadline date than June 30, 2018. Some schools may require students to file earlier than June 30 to be considered for institutional scholarships and grants.

2)  The FAFSA is the key to unlocking more than just need-based aid.

If you don’t file the FAFSA, you might also remove yourself from the pool of eligible recipients for state and institutional aid, as well — even if they aren’t income-based. Many aid offerings require a FAFSA.

Here’s a list of all the federal aid for which you need to complete a FAFSA to be eligible:

  • Federal direct student loan
  • Federal work-study program
  • Federal PLUS loan (for parents)
  • Federal PELL grant
  • Federal Supplemental Educational Opportunity Grant (FSEOG)
  • Teacher Education Assistance for College and Higher Education (TEACH) Grant
  • Iraq and Afghanistan Service Grant

And that’s just federal aid. As we mentioned before, states and schools may use information from your FAFSA to determine if they will award you merit-based grants and scholarships. And they may have their own submission deadlines.

3) Financial aid money may run out.

Students may think they have tons of time to submit their application, but, if you wait to file, you may miss out on “free money” due to limited resources. Let’s put it another way: If the funds run out before you submit your FAFSA form, you could receive less money compared with what you would have gotten had you filed earlier — or you might get nothing at all.

If you know you will need scholarship or grant money to fund your education, you should make filing the FAFSA early your first priority. “There’s really no reason to wait,” says Hicks.

Fortunately, it’s become easier for families to tackle the FAFSA.  The Department of Education moved the application’s from January to October, beginning with the 2017 graduating high school class. Prior to the rule change, families could not submit their FAFSA until January for students attending college in the fall. The rule change allows families to submit the FAFSA form earlier, and use older tax information to fill out the form so they are able to meet early deadlines for financial aid.

Students can now use family tax information dating back as far as two years, so applicants no longer have to wait to file until their parents or guardians file their taxes for the current tax year.

On top of that, FAFSA forms now include a new  IRS data retrieval tool, which will automatically pull in your parent’s tax information from two years ago, so you don’t have to shuffle through a stack of papers looking for letters and numbers corresponding to the information you need to input.

Where to get help to finish up your FAFSA

The tax information may be easy to pull in electronically, but the FAFSA has more than 100 questions and isn’t the easiest form to decipher overall.

“Students often think of the FAFSA as a huge and daunting task,” says Hicks. “They don’t feel like they are able to do it or equipped to do it.”

Get help if you aren’t confident in filling out all the information on your own, so you don’t put off filing the FAFSA any longer. There may also be follow-up requests, like income verification, that, if overlooked or left incomplete, could delay your receiving all or part of your financial aid award.

Up to  40 percent of college-bound students who apply and are accepted to college fall prey to a phenomenon called ‘summer melt.’ They never make to campus their freshman year because of mistakes that trip them up in the process. Many of the mistakes have to do with the financial aid process and can be avoided if you get help early on.

Your high school guidance or college counselor may be able to assist you with your application.

If you feel you need more assistance than your counselor can provide, look to organizations or access programs that focus on helping students complete the forms required to give financial aid, like the College Goal Sunday Program hosted by the National College Action Network, or Reach4Success.

Brittney Laryea
Brittney Laryea |

Brittney Laryea is a writer at MagnifyMoney. You can email Brittney at brittney@magnifymoney.com

TAGS: , ,

Advertiser Disclosure

College Students and Recent Grads, Featured

How to Make a Payment On Your First Student Loan Bill

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

How to Make a Payment On Your First Student Loan Bill

So, you just received an email about your first student loan bill and need to make a payment? Don’t panic. Student loan payments are not as big and bad as they seem … if you’re prepared for them.

If you’re facing your first student loan payment due date and have no idea how to make a payment – or you don’t know if you can even afford a payment – this guide is for you.

Where did this student loan bill come from?

For the first six months after you graduate, your student loans are in a six-month grace period. That means you won’t have to make any payments. When that grace period ends, it’s time to start paying back your loans.

Here is an example from the FedLoan Servicing (PHEAA) website.

FedLoan Servicing (PHEAA) website

Get to know your loan servicer

The loan servicer is the company you will pay each month. The government has contracts with nine different loan servicers. You may have all of your loans with one servicer or several.

The servicer handles all of the billing and services associated with your loan, such as alternative repayment and consolidation. They can also give you general information about how, when, and how much to pay each payment period.

You can find out who your loan servicer is by creating an account or logging in to the federal student aid site. When you’re logged in, you’ll have access to information about your loan servicer and how to contact them.

It’s important to understand who they are and how to get in contact with your servicer. Be sure you sign up for electronic notices and add their email to your “safe” list so your important correspondence won’t wind up in your spam filter. Maintaining a good relationship with your servicer by responding to emails, letters, and calls from them and making each payment on time is helpful in the event that your circumstances change and you need to ask for deferment or forbearance.

Making your first payment

All of the loan servicers allow you to make payments online, by mail, or over the phone. Some servicers, such as Great Lakes, FedLoan Servicing, and Nelnet, even let you pay with a mobile app. You can go to your loan servicer’s website and create an account with them to find your payment options. The amount you pay will vary depending on the principle, length, interest rate, and the repayment plan that you choose.
screenshot 1

BONUS: Many servicers offer up to .25% off of your loans’ interest when you set up automatic payments.

How much should I pay each month?

You should at least make your minimum payment, if you can. Many people will have multiple loans to repay, and you should at least meet the minimum payment for each loan. If you miss a payment, you will badly damage your credit score. That can make it difficult to get approved for new credit, get an auto loan, or even be approved to rent an apartment.

When is my bill due?

Your due date will be on your first bill statement. Lenders often allow borrowers to choose a due date that better suits their finances.

Should I pay more than I owe?

The quicker you pay back your loan, the less you will pay in interest charges. Use this tool to see how making larger or smaller monthly payments will impact the cost of your loan. You can make larger payments if you want to pay off your loan faster, but make sure you have paid off expensive debt like credit card debt first. Credit card debt likely has a much higher interest rate than your federal student loan debt, and it doesn’t come with all the flexible repayment perks as your student loans.

If you have extra cash on hand — after you have met your minimum payment requirement, you’ve met all of your other debt obligations, and you’ve set aside cash for savings  — it could be wise to put it towards your student loan debt.

Target the loan that has the highest interest rate with extra payments you make. As pictured on PHEAA’s site below, you can specify exactly which loan you would like to pay. Speak to your servicer before you make extra payments so that your extra birthday money or cash from your tax refund doesn’t go toward the accrued interest for your other loans. Tell them the money is not intended to be put toward future payments, but toward the principal of the specified loan.

screenshot 2

What if I can’t afford my payment?

Don’t avoid your loan servicer because you can’t afford the monthly payment. You have options.

Standard repayment plans for federal student loans are set up to last a period of ten years. If you can’t afford your payments, you might be eligible for a longer income-based repayment plan that will give you a longer period to pay back your loans and reduce your monthly payment amount. Enrolling in an income-based plan can reduce your payments to as low as $0 per month. If you are an employee in the public or nonprofit sector, you may qualify for public service loan forgiveness. The program allows your balance to be forgiven after making 120 consecutive payments.

Find out more about all the different types of repayment plans here.

If you have private student loans, the federal programs will not be available to you. Your best bet is to either refinance your debt at a lower interest rate or call your lender to see if you can work out a more affordable payment.

What if I miss a payment?

Your loan will be considered delinquent if you don’t make a payment by the due date. It stays delinquent until you make up the missed payments. The loan will go into default if you go more than 270 days (9 months) without making a payment. If the loan goes into default, you may face some pretty stiff consequences, including wage garnishment. Wage garnishment allows your lender or debt collector to take a portion of your paycheck automatically every pay period.

A last resort: deferment and forbearance

If none of those payment options work for your situation, you can ask your servicer about delaying payments by placing your loans in deferment or forbearance.

Deferment

If you are having a hard time making your loan payment each month, you can ask your servicer to put the loan in deferment status. Deferment allows you to delay making a payment on your loan for up to three years, or longer if you’re actively serving in the military. If you have a subsidized loan or a federal Perkins Loan, the government will cover your interest payments during deferment. If you have an unsubsidized loan, your interest will continue to accrue.

Forbearance

You can apply for forbearance if you don’t qualify for deferment. Forbearance allows you to delay or cut down the amount of your loan payments for up to one year. The interest will still accrue on your loans, but you’ll get a break from paying each month. There are two types of forbearances: mandatory and discretionary.

You’ll need to keep making payments on your loans until your servicer grants your request for deferment or forbearance. If you stop making payments before deferment or forbearance is approved, your loans will become delinquent and you might default on them.

Brittney Laryea
Brittney Laryea |

Brittney Laryea is a writer at MagnifyMoney. You can email Brittney at brittney@magnifymoney.com

TAGS: ,

Advertiser Disclosure

College Students and Recent Grads, Featured

(RISLA) Rhode Island Student Loan Authority Refinance Explained

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

(RISLA) Rhode Island Student Loan Authority Refinance Explained

Rhode Island is one of several states that has launched a student loan refinance program over the last few years. Refinancing your student loans is essentially paying off your current loans (federal or private) with another loan that has a better interest rate. A refinance can save you a bundle on interest. In some cases, it may even lower your monthly loan payment.

What sets the Rhode Island Student Loan Authority (RISLA) refinance program apart from some of the other state-run initiatives is that it’s open to anyone. You can qualify even if you live in a different state.

In this post we’ll cover:

  • The RISLA refinance loan terms and eligibility criteria
  • The type of student loans you can refinance
  • The implications of refinancing federal loans
  • Pros and cons

RISLA loan terms and eligibility requirements

RISLA offers loan terms of 5, 10, and 15 years. You can refinance $7,500 to $250,000. This refinance has no origination or prepayment penalty fees.

You need to apply with a co-signer to qualify for the lowest rates this program has to offer.

With a co-signer, fixed-interest rates range from 3.49% to 7.64% APR with auto-pay. If you sign up for direct deposit to make your monthly loan payment, RISLA offers an additional 0.25% interest rate reduction.

As for the RISLA eligibility requirements, you must:

  • Be refinancing loans that were used for education
  • Be refinancing loans that are in payment status
  • Have a acredit score of 680 or above
  • Earn at least $40,000 per year.
    • Borrowers that reside at the same address must make a combined annual salary of at least $40,000 per year.
    • Borrowers that reside at separate addresses, at least one of the borrowers must make $40,000 individually.

Student loans you can refinance with RISLA

You can refinance private student loans and federal student loans through RISLA.

Federal student loans you can refinance include parent PLUS loans, Stafford Loans, and both unsubsidized and subsidized Direct Loans.

Refinancing private student loans

Private student loans can be good candidates for refinancing because rates and loan terms offered by private lenders can vary widely. Some private student loans even have variable interest rates.

Keeping a variable interest loan for a long time can be risky. Variable interest rates can start off very low. The trade-off is variable rates can also increase in the future and impact your monthly payment.

Refinancing a private student loan that has high or variable interest with RISLA can stabilize your payments and save you money.

Refinancing federal student loans

Unlike private student loans, interest rates for federal student loans are set by the government.

For example, the interest rate on undergraduate subsidized and unsubsidized Direct Loans for 2016-2017 is fixed at 3.76%, which is a decent rate. If you took out undergraduate federal loans within the last few years, you may find your interest rate is already close to (or lower than) what RISLA is offering for a refinance.

Federal student loan borrowers who may benefit the most from the RISLA refinance are those with lingering undergrad loans from the early 2000s, and those with graduate or parent PLUS loans. These federal loans can carry an interest rate in the 6% to 8% range. In this case, a refinance with RISLA may be able to get you a lower interest rate.

RISLA has a calculator on its website you can use to check how much a loan refinance can save you. You can access that calculator here.

We also have a student loan refinance calculator at MagnifyMoney you can use to compare costs here.

Should you refinance federal student loans?

Savings is important, but it’s not the only factor to think about when deciding whether refinancing your federal student loans is the right move.

Refinancing your federal student loans can cause you to forfeit student loan borrower benefits like forbearance, deferment, income-based payment, and loan forgiveness.

Here’s a quick summary of these benefits and how they can help you:

  • Forbearance and deferment – Forbearance and deferment can postpone your student loan payments for a short period of time while you get back on your feet if you fall on hard times or experience an illness.
  • Income-based repayment plans – Income-based payment plans cap your monthly payment based on your income and family size. After 20 to 25 years of making payments within an income-based program, the balance of your loans can be forgiven.
  • Public Service Loan Forgiveness – The Public Service Loan Forgiveness Program is an initiative that anyone who plans to pursue a career in public service should consider. If you get an approved public service position and make 120 consecutive loan payments while serving (about 10 years), the remaining balance of your Direct Loans can be forgiven.

One thing to note is RISLA does offer some borrower benefits, including 12 months of forbearance and a payment plan program in certain circumstances. However, the extent of the borrower benefits that you get with federal student loans goes beyond what RISLA provides.

Pros and cons

Pro: The competitive interest rates. If you apply with a co-signer, the RISLA refinance offers low and fixed interest rates.

Con: The lowest rates require a co-signer. You can’t qualify for the best interest rates this program has to offer without a co-signer. We’ll discuss a few lenders below that may offer you a low rate without a co-signer.

Pro: Anyone is welcome to apply. Being a resident of Rhode Island is not required.

Con: Refinancing forfeits student loan borrower benefits. This con is irrelevant if you’re planning to refinance private student loans since they typically offer limited borrower protections anyway. But refinancing federal student loans will cause you to miss out on the protections covered above. Make sure you’re comfortable with the implications of no longer having these perks before moving forward.

Pro: No fees. The RISLA refinance has no origination fee or prepayment penalties.

Should you consider the RISLA refinance?

The RISLA refinance is open to borrowers outside of Rhode Island, so it’s yet another refinance option that students and parents across the country can consider. But it’s also important to shop around before making a decision.

The downside of the RISLA refinance is that the most competitive rates require a co-signer. If you don’t have a co-signer, here are a few other lenders you can turn to that offer low rates:

  • CommonBond – Fixed rates starting at 3.18% APR
  • Earnest – Fixed rates starting at 5.25% APR
  • LendKey – Fixed rates starting at 3.15% APR
  • SoFi – Fixed rates starting at 3.25% APR

Keep in mind, the very best rates are given to those with strong credit scores. You may need to work on strengthening your credit history first before getting approved for a low rate on your own with CommonBond, Earnest, LendKey, or SoFI.

Taylor Gordon
Taylor Gordon |

Taylor Gordon is a writer at MagnifyMoney. You can email Taylor at taylor@magnifymoney.com

TAGS: , , , ,

Advertiser Disclosure

College Students and Recent Grads, Featured

How Does Student Loan Deferment or Forbearance Affect Your Credit Score?

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

LendKey Student Loan Refinance Review

According to the latest annual report from the Institute for College Access and Success, 2015 college graduates showed a 4% increase in student loan debt over 2014 graduates. Among 2015 seniors, 68% who graduated had student loan debt, with the average balance being $30,100 per borrower.

With more college students graduating with student loan debt and balances continually increasing, it’s no wonder many are seeking deferment or forbearance. But if you are considering these options, there are some things you need to know first, including how it might affect your credit score.

What Is Deferment?

Student loan deferment is a period of time when the repayment of your loan’s principal and interest is temporarily delayed.

Unlike forbearance, when your student loan is in deferment, you do not need to make payments. And in some cases, the federal government may even pay the interest portion of your student loan payment. In order to qualify, you must have a federal Perkins Loan, a Direct Subsidized Loan, or a Subsidized Federal Stafford Loan.

Interest on your unsubsidized student loans or any PLUS loans will not be paid by the federal government. You will be responsible for interest accrued during deferment (if it’s not paid by the federal government), but you don’t have to make payments during the deferment period. If you’re not paying interest during deferment, it’s important to know interest may still be added to your principal balance. This may result in higher future payments.

There are several situations in which you may be eligible for student loan deferment:

  • If you are enrolled in college or career school at least half-time
  • If you are in an approved graduate fellowship program
  • During a period where you have qualified for Perkins Loan discharge or cancellation
  • During a period of unemployment
  • During a time of economic hardship (including Peace Corps)
  • During active military duty
  • During the 13 months following active military duty

Most deferments are not automatic, and you will need to submit a request for deferment to your student loan provider. If you are still in school at least part-time, you can apply through your school’s financial aid office.

What Is Forbearance?

If you are unable to make your student loan payments and don’t qualify for deferment, your loan officer may allow forbearance. When your student loans are in forbearance, you may be able to make smaller payments or skip payments altogether for up to 12 months.

However, before you apply for forbearance, keep in mind that interest will continue to accrue on all types of loans. This means your balance will grow, increasing the amount of time and money it will take to pay off your student loans. You can choose to pay the interest-only portion during forbearance. If you choose not to, the interest may be capitalized and added to the principal balance of your loan.

According to the Federal Student Aid office at the U.S. Department of Education, there are two types of forbearance, discretionary forbearance and mandatory forbearance.

Discretionary forbearance is when you, the borrower, request forbearance from your lender due to financial hardship reasons or illness. Ultimately, the lender decides whether or not to grant your discretionary forbearance request.

With mandatory forbearance, your lender is required to grant you forbearance on your student loans if you request it. However, you must meet the following criteria:

  • You are completing a medical or dental internship or residency program, and meet specific requirements.
  • The total you owe each month for all the student loans is 20% or more of your total monthly gross income.
  • You are serving in a national service position and received a national service award.
  • You are a teacher and qualify for teacher loan forgiveness.
  • You qualify for partial repayment of your loans under the U.S. Department of Defense Student Loan Repayment Program.
  • You are a member of the National Guard and have been activated by a governor, but you are not eligible for a military deferment.
  • Similar to deferment, forbearance doesn’t happen automatically. You must apply for forbearance and may be required to show proof of these situations in order to be granted forbearance.

What Happens to Your Credit Score When Your Student Loans Are in Deferment or Forbearance?

As long as you continue making your student loan payments on time and in full until your request for deferment or forbearance is approved, your credit score should not be affected.

According to Rod Griffin, Director of Public Education at Experian, “When a student loan is in forbearance it is not in a repayment status. As a result, the late payments would not be reported. If it is reflected as current and not in repayment, it likely would not have a negative effect on credit scores.”

What Happens if You Default on Your Student Loans?

If you miss a payment between the time you apply for and are approved for deferment or forbearance, you will be considered to be in default on your student loans, and your credit score could be negatively impacted by this missed or late payment.

“Defaulting on a student loan is no different than defaulting on any other installment loan. Failing to pay as agreed will severely damage your credit history and, therefore, your credit scores,” Griffin said.

Being 60 days late or more on a student loan or credit card payment could damage your credit score as much as 100 points.

The Bottom Line

If you are unable to afford your student loan payments, deferment or forbearance may be options to consider. However, it’s important to remember that your student loans will continue to accrue interest, which could result in your paying more over the long run. Between the time of application and the time you are approved for deferment or forbearance, you must continue to make your student loan payments in full and on time in order to avoid potential damage to your credit score.

Kayla Sloan
Kayla Sloan |

Kayla Sloan is a writer at MagnifyMoney. You can email Kayla at Kayla@magnifymoney.com

TAGS: ,

Advertiser Disclosure

College Students and Recent Grads, Pay Down My Debt

Best Student Loans for Both Students and Parents

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

college-grad (1)

Navigating the world of student loans can be daunting. Not only are there several criteria you should evaluate before you sign on the dotted line, but there are also different options available to you depending on where you are on your life’s journey.

Today we’ll walk through some of the best options out there depending on your current circumstances.

Students About to Enter School

Before you apply to school, you should fill out and submit your FAFSA. It’s the best way to get your hands on free grant money, work-study opportunities and federal student loans. Before taking out any student loans, you should talk to your school about any additional financial aid packages it may provide including scholarships and grants, both of which you never have to pay back.

After you’ve exhausted all the avenues for free money, you can start to consider student loans. Federal student loans are widely considered the best option as they provide opportunities like deferment, income-driven repayment and, in some cases, forgiveness or cancellation. With all of these advantages, you should max out all of your Federal student loan options prior to looking at private student loans.

Criteria for Private Student Loans

If you’ve gotten all you can from grants, scholarships, work-study and Federal loans and still don’t have enough to cover the cost of college, you may want to look into private student loans. Before taking out a loan you’ll want to evaluate:

  • Interest Rates
  • Upfront Fees
  • Grace Periods/Interim Periods
  • Repayment Assistance Options

You do want to shop for the lowest possible interest rates and avoid any loans that require fees aside from late fees for late payments, but be sure to recognize the value in the other criteria, too.

Grace Periods

Grace periods, sometimes referred to as interim periods, give you some time between graduating school and making your first payment. This gives you time to locate and secure employment. The grace period typically also starts if you drop below half-time enrollment in school. Keep in mind that interest is likely to still accrue during the grace period, so it’s wise to consider making interest-only payments during this time period.

Our favorite pick for student loans with a grace period? Discover. Discover Student Loans have a six-month grace period for undergraduate degrees and a nine-month grace period for professional degrees. If you drop below half-time, you’ll have a six-month grace period, too.

Discover Student Loans tick many of the other boxes, as well, including:

  • Competitive interest rates.
  • Zero fees (not even late fees.)
  • Flexible repayment options.
  • Repayment assistance in the form of deferment, extended grace periods and forbearance.

Explore more top picks for private student loans with grace periods

Repayment Assistance Options

Many private student loan providers are starting to offer options akin to Federal programs. Typically, these repayment assistance options will provide opportunities for forbearance and deferment, though you should read all the fine print carefully on your individual loan offer; the terminology will not necessarily carry the same meaning for private student loans as they do for federal student loans.

Discover Student Loans are top of the list for repayment assistance options as mentioned above with deferment, extended grace periods and forbearance (which isn’t always the case with private loans), but another good alternative is Citizens Bank. It offers forbearance and deferment on a case-by-case basis, so it is not as easily accessible as with Discover, but the fact that they even offer the option is still progressive.

Citizens Bank Student Loans also have a lot of other things going for them:

  • Lower interest rates.
  • No fees.
  • Repay over the course of 5, 10 or 15 years with the option to pay interest while you’re in school.
  • Six-month grace period.
  • Ability to release your co-signer from their obligation after 36 months of full, on-time payments.

Explore more top picks for student loans for future students

Options for Graduates

After you’ve graduated college, hopefully you’ll land a job that allows you to pay back your loans and then some. If that doesn’t happen, you won’t be the first person to walk the path of needing extra assistance. Even if you can afford payments, you may have taken out your loans at a time when interest rates were much higher than they are today. Here are some options to better your financial situation when it comes to the student loans you already carry.

Refinancing

Refinancing is an option for people who can afford their payments and have a steady record of being on-time. Some, though not all, lenders will also evaluate if you have a good credit score.

If your interest rates are steep, you may want to seriously look into refinancing. Be careful, though; while there is a push to be able to refinance with the government, you cannot currently refinance your federal student loans without consolidating or moving to the private sector. Doing so can disqualify you from advantageous programs such as income-driven repayment and forgiveness.

You can find which refinancing option is best for you with our comparison tool.

Income-Driven Repayment Plans

There are five major income-driven repayment plans. As we look at these plans, we’ll evaluate income eligibility, if you have to include your spouse’s income when filing taxes separately, how many years you’ll have to pay, how much you’ll pay, which loans qualify and if there is a cap to how much you’ll pay overall.

Traditional IBR (Income-Based Repayment) Plan

  • Income eligibility: Annual amount due on your loan must exceed 15% of your discretionary income, which is considered the difference between 150% of the poverty line in your state and your adjusted gross income (AGI.)
  • How much will I pay? 15% of your discretionary income.
  • How long will I pay? 25 years, after which your balance will be forgiven.
  • Is there a cap to how much I will pay? You will not pay more than you would have under the standard, 10-year repayment plan over the life of your loan.
  • Which loans qualify? All federal loans except Parent PLUS.
  • Must include spouse’s income if married filing taxes separately?

New IBR Plans (for borrowers who started taking out loans after July 1, 2014)

  • Income eligibility: Annual amount due on your loan must exceed 10% of your discretionary income.
  • How much will I pay? 10% of your discretionary income.
  • How long will I pay? 20 years, after which your balance will be forgiven.
  • Is there a cap to how much I will pay? You will not pay more than you would have under the standard, 10-year repayment plan over the life of your loan.
  • Which loans qualify? All federal loans except Parent PLUS.
  • Must include spouse’s income if married filing taxes separately?

Learn more about Traditional and New IBR Plans

ICR (Income-Contingent Repayment) Plans

  • Income eligibility:
  • How much will I pay? The lesser of 20% of your discretionary income or what you would pay on a fixed, 12-year repayment plan adjusted to your income.
  • How long will I pay? 25 years, after which your balance will be forgiven.
  • Is there a cap to how much I will pay? You could potentially end up paying more over the life of your loan than you would on a standard, 10-year payment plan.
  • Which loans qualify? All federal loans.
  • Must include spouse’s income if married filing taxes separately?

PAYE (Pay As You Earn) Plan

  • Income eligibility: Annual amount due on your loan must exceed 10% of your discretionary income, plus you must have been a new borrower after October 1, 2007 and received a disbursement on or after October 1, 2011.
  • How much will I pay? 10% of your discretionary income.
  • How long will I pay? 25 years, after which your balance will be forgiven.
  • Is there a cap to how much I will pay? You will not pay more than you would have under the standard, 10-year repayment plan over the life of your loan.
  • Which loans qualify? All federal loans except Parent PLUS.
  • Must include spouse’s income if married filing taxes separately?

REPAYE (Revised Pay as You Earn) Plan

  • Income eligibility: Annual amount due on your loan must exceed 10% of your discretionary income.
  • How much will I pay? 10% of your discretionary income.
  • How long will I pay? 20 years for undergraduate degrees and 25 years for professional degrees, after which your balance will be forgiven.
  • Is there a cap to how much I will pay? You could potentially end up paying more over the life of your loan than you would on a standard, 10-year payment plan.
  • Which loans qualify? All Federal loans except Parent PLUS.
  • Must include spouse’s income if married filing taxes separately?

Learn more about the difference between PAYE and REPAYE

Public Service Loan Forgiveness (PSLF)

If you work for the government or a non-profit with a 501(c)(3) tax classification, you may qualify for the PSLF program. In order to qualify, you must be set up and be in active repayment on one of the above income-based repayment plans and work enough hours at one or several qualifying employers to be considered full-time.

If you qualify, your loans will be forgiven after 120 payments, which adds up to 10 years. These payments do not necessarily have to be consecutive.

If you don’t qualify for PSLF, you may want to look into cancellation or discharge of Federal student loans.

Parents of Current Students

If you want to borrow money to help pay for your child’s education, you essentially have two options. The first is a Parent PLUS loan from the Federal government. Parent PLUS loans are currently only available via a Direct PLUS loan.

These loans have a fixed interest rate (currently 4.272%,) cannot be transferred into your child’s name, and can finance all of your child’s tuition and fees less any financial aid. Because you can borrow so much money, it’s important to be sure that you can actually pay it back. For its part, the Federal government checks to make sure repayment is likely by running a credit report on you before approval.

Keep in mind that the only income-driven repayment plan you could possibly be eligible for is ICR, and that you will be ineligible for PSLF unless you work in the public sector; your child’s occupation is irrelevant. You will be notified if you qualify for this loan after you apply for the FAFSA. If your child’s school does not participate, the government will tell you so you can put a request in with the educational institution to secure this type of loan.

Your other option is to refinance with the private sector. Be savvy when applying for private student loans, utilizing the same practices suggested to your children above. Two great options for parents are SoFi and Citizens Bank.

Citizens Bank offers a Student Loan for Parents that has no application fee, can be for a five- or ten-year term, and has competitive, fixed interest rates. While your child is in school, you can make full or interest-only payments, though payments cannot be deferred completely.

SoFi provides refinancing. In order to qualify, you have to have to have a great credit history and make solid money, making this an ideal option for parents who may be further along in their careers. You cannot switch between fixed and variable rates, but rates remain competitive with those of the Federal government.

Parents of Graduates

As you well know, just because your student has earned their degree, it doesn’t mean you’re done paying for their college. If you’re carrying a Parent PLUS loan, especially if it has an interest rate on the higher end, you may want to look at refinancing.

Because the only income-driven repayment plan you are eligible for with a Parent PLUS loan is ICR and you’re only eligible for PSLF if you work in the public sector, there aren’t quite as many consequences for you if you refinance in the private sector. ICR can be beneficial for parents approaching, or already in, retirement as it sets your payments based on your income. Federal student loans, including Parent PLUS loans, won’t be passed on to a child upon your death. Private student loans are not always so generous, so be sure to read the fine print of your agreement.

That doesn’t mean you should skip doing the math, though. Keep the length of the loan as similar to what you already have as possible, and then shop for a lower interest rate.

One great option for parents who are refinancing a Parent PLUS loan is the DRB Parent PLUS Refinance Program. Its interest rates are competitively low, you can request a term that will match your current pay off date and it is available in all 50 states.

If you cosigned on a loan with your graduate, you may want to look at getting released from that obligation. Doing so will not only release you from your financial responsibilities today, but it will also protect your grad from a potential financial nightmare should you pass away or for you if your child passes.

Some lenders, like Citizens Bank, will allow you to be released as a cosigner from the loan without refinancing after a certain amount of payments have been made on time and in full. With other loans, you may have to look at refinancing to get everything in your child’s name only. Three financial institutions that allow this type of refinancing are:

Read Up Now

The best time to get educated about your student loan options is before you take them out. Understand when you will have to pay them back, how competitive the interest rates are, what your repayment options will be further down the line, and how and if you can release your cosigner after you’ve established you’re a responsible party. Doing your homework now could save you hundreds to thousands of dollars further down the line.

Brynne Conroy
Brynne Conroy |

Brynne Conroy is a writer at MagnifyMoney. You can email Brynne at brynne@magnifymoney.com

TAGS: ,

Advertiser Disclosure

College Students and Recent Grads

5 Reasons You Might Be Rejected For A Private Student Loan

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

college-grad (1)

When you’re applying for money to pay for college, experts agree that federal loans are the best way to go. They’re less expensive and more flexible than private student loans.

But if you need more money than you’re being offered in federal aid, a private student loan may be your next best option. In the most recent numbers on private student loan borrowers, 45% of them could not have borrowed any more in federal Stafford loans, so they turned to private lenders, according to the Institute for College Access & Success.

If you’re thinking of applying for private money, however, you should know that being approved isn’t a slam-dunk. “Lenders are focusing their money on the borrower who is least likely to default and most likely to be profitable,” says Mark Kantrowitz, publisher and vice president of strategy for Cappex.com, which connects students with colleges and financial aid.

Here are a five reasons you might get the thumbs-down:

1. Your credit isn’t good enough

Many undergraduate students and some graduate students don’t have a robust enough credit history to qualify for a private student loan—or if they do, their score might be too low. It may be that you’ll need a co-signer on a private loan application to get it approved. “About 90% of our private education loans are co-signed,” says Rick Castellano, a spokesperson for Sallie Mae.

Using a co-signer may be the only way to get a private student loan, but this does come with a host of other potential issues. Should your co-signer pass away unexpectedly (or even expectedly), it’s quite possible your lender will request your entire loan balance get paid in full within a 30-day window. If you were to pass away, then your co-signer could be on the hook for continuing to pay your student loan debt. This is why it’s important for you to have life insurance if your private student loan has a co-signer.

2. You’ve borrowed a lot recently

Private lenders are now checking all three credit bureaus to see how much money you’re borrowing and what your total debt load looks like. Your debt-to-income ratio ideally needs to be 40% or less. If you have a lot of debt and not much income, you’re a riskier bet, leading private lenders to pass on your loan request.

3. You’re going into the wrong field 

“If you’re applying for private aid for a degree in a field that pays well, like an medical degree or in the sciences, and you’ve got a reasonably good credit background, you’re getting approved,” Kantrowitz says. On the other hand, if you’re pursuing a degree in a field that traditionally pays poorly—hence making it harder for you to repay a loan later—it’s a tougher call.

Keep in mind that your earning potential can also play into your likelihood of getting approved for student loan refinancing after you graduate. We aren’t telling you to avoid pursuing your dreams, but seriously consider how much of a debt burden you’re taking on if it’s a historically low-paying field.

4. You’re asking for too much

It could be that the private lender thinks your loan request is too high. “To ensure applicants borrow only what they need to cover their school’s cost of attendance, we actively engage with schools and require school certification before we disburse a private education loan,” Castellano says. In this case, you might not get rejected, but the school might certify a lesser amount.

But also keep in mind that you’re sometimes likely to get approved for more than you actually need. Don’t be using student loans to cover the cost of decorating your dorm, grabbing coffee after class and bar hopping. The true cost of using student loans to cover living expenses can add up quickly.

5. You’re a freshman 

If you’re only a year or two away from graduating, you’re more likely to get approved than someone who still has four years—at least—of undergraduate schooling ahead of him. “There’s less risk of you dropping out,” Kantrowitz says. Graduate students may also have an easier time because they’re more of a known quantity—they may have had a job, started to pay down debt, and established themselves as less of a risk.

In all circumstances, experts feel you should carefully weigh the costs and benefits of private loans—and even if you need them at all. Nearly half of private loan borrowers borrowed less than they could have in Stafford loans before going private, according to TICAS. Make sure you’ve exhausted other avenues before heading this way.

Kate Ashford |

Kate Ashford is a writer at MagnifyMoney. You can email Kate at kateashford@magnifymoney.com

TAGS: , ,

Advertiser Disclosure

News, Student Loan ReFi

“How I Saved Almost $18,000 in Student Loans by Refinancing”

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

Student Loans by Refinancing

When Aaron LaRue, product manager for Clara Lending, graduated from the University of California, Santa Barbara in 2011, he owed more than $50,000 in student loan debt. “I didn’t qualify for any financial aid or federally subsidized loans, and I took whatever private loan I could get because I just wanted to go to school,” he said.

By the time LaRue was done financing his schooling, he had ended up with three student loans, one for each year he was in school (he even graduated in three years on purpose in the hopes of cutting down on tuition costs). “Everything got lumped together when I consolidated the first time, but the loans were about $23,000 for the first year about then $13,500 for both my second and third years,” said LaRue. “So almost $50,000 on the nose.”

Since the variable interest rates on his loans were incredibly high, LaRue knew that he’d have to work throughout college in the hopes to pay down some of that debt he owed. “I worked as a teacher’s assistant for two different classes,” he said. “I was the photo editor of our daily school newspaper, and I worked in a computer lab on campus teaching video editing. At one point I had all three jobs at the same time, and that was on top of my crazy class schedule. On top of my consistent jobs, I also always had one-off side gigs going. I shot photos for magazines, photographed a wedding and would pick up freelance video editing jobs on the side.”

Needless to say, LaRue stayed busy — but the bills kept piling up.

Finally, after a few years of checkered payment history and a brief period of deferment, he decided to refinance. “Refinancing was really difficult for me,” LaRue admits. “I graduated high school in 2008, right when the economy was in free fall. By the time I graduated [college] in 2011, I was competing in a job market against people with tons of experience who had recently been laid off. It was difficult for me to get a good paying job, so I decided to go out on my own as a consultant and try to take on multiple clients. I’ve been doing that ever since.”

While LaRue found some success in his career after graduating, he admits that what many people often don’t understand is that when you’re self-employed, it’s very difficult to qualify for loans unless you have two years of tax returns as a self-employed person. “So the first time I tried to refinance my loan, I was denied,” he said. “I started doing more research and I came across a company — Earnest — that used a merit-based qualification system. They checked my earnings and my credit score, but they also dug through my bank accounts to see if I was managing my money properly. They could tell I was responsible, and I was able to qualify. This was huge for me, because it got me into a fixed interest rate loan, and my rate was 2% lower than what I was paying at the time.”

At the time of refinancing, LaRue had about $54,775 in debt, and he’s managed to save $17,990 over the life of the loan, which works out to over $1,200 per year during the repaying period. “I’m still making payments, but I’ve cut about four years off my repayment time and I’m saving money every month,” said LaRue.

At the end of the day, LaRue has some advice for students struggling under the same weight of crushing student loan debt. “Don’t let the debt get you down,” he says. “If you understand how debt works and you can manage it, it’s really not that bad. Debt has allowed me to go to school and it’s helped me start my own business, and in both cases I’ve come out ahead. Having a monthly payment sucks, but I have definitely gotten a return on my investment.”

If you’re ready to consider saving money by refinancing your own student loans, check out this piece for 19 options to refinance and get your lowest rate.

Cheryl Lock
Cheryl Lock |

Cheryl Lock is a writer at MagnifyMoney. You can email Cheryl at cheryl@magnifymoney.com

TAGS: , ,

Advertiser Disclosure

College Students and Recent Grads, News

Top 6 Things to Know Before Taking Out a Student Loan

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

mortar board cash

Landing that college acceptance letter is only half the battle when it comes to attending a university — you still need to find a way to pay for it.

With something like 40 million Americans juggling student loan debt, it’s no surprise that paying for school with a loan is a popular way to handle those fees. Before getting too far down the rabbit hole, here are six things to keep in mind:

1. Your loan will either be federal or private

Loans come with different terms and conditions, but in general a student loan will come in one of two forms — federal (funded directly by the government) or private (from individual lenders like banks and credit unions.). Federal student loans tend to come with across-the-board incentives like fixed interest rates and the ability to restructure payments based on income, but with a little research, you may be able to find a private loan with lower interest rates. However, it’s better to maximize your federal student loan options first before tangling with private loans.

2. Short means less, long means more

When it comes to repaying your loans, the faster you agree to pay off your debt, the more you’ll likely pay per month, but you’ll be spending less in interest over the life of your loan. Conversely, if you decide to make smaller payments towards your debt over a longer period of time, you may end up paying significantly more interest over the years.

3. Get to know your grace period

A grace period is the set of time you can wait to make your first loan payment. Unfortunately, not all loans come with the same grace period, which means you need to be sure to know the due date of your first payment. Grace periods are helpful if you’ll need time to get a job and earn a couple paychecks before making payments. But you don’t have to wait until the grace period is up to make your first payment. Making payments during the grace period can offset some of the interest accruing.

4. Deferment and forbearance may help in times of need

Again, every loan is different, but it’s not uncommon for you to need to take breaks in payments from time to time. Forbearance and deferment can help in these situations. Forbearance, for example, allows you to either stop making loan payments or have them reduced for a certain amount of time, but interest will likely still accrue. Deferment allows you to stop making payments on both principal and interest for a number of specific reasons. The government may subsidized your interest while in deferment if the loans are Federal Perkins, a Direct Subsidized Loan or a Subsidized Federal Stafford Loan. Check with your loan to see if one or both is available to you, and what the circumstances must be to qualify. 

5. There’s a difference between refinancing and consolidation

Besides getting debt free, you probably want to focus on one other factor: paying less each month. Two options to help with this are consolidation and refinancing. Consolidation is the act of combining all of your loans into one payment with an interest rate that will likely be an average of your existing loans. Consolidation simplifies your payment process, but doesn’t necessarily reduce your debt burden. Refinancing uses a new loan (hopefully with a lower interest rate) to pay off your existing debts. You’ll then make a single payment per month towards your new loan. The lower interest rate can help you dig out of debt faster. You’ll need to do a little research to determine which is best for your particular situation. (This piece can help you decide if refinancing options might be good for you, while this one talks more about debt consolidation, and the pros of going that route.)

6. Is Taking Out a Student Loan Even Worth It?

It’s not an easy question to ask yourself, but it’s one worth considering — will the amount of money you’re projected to make from your career be enough to pay off your student loan debt? For example, some lower paying jobs may not actually end up being worth the price you’ll pay in the end. Before you sign on to any loan, do the math to determine how long it will take you to pay back that loan at the average salary you’re meant to make in your job, and determine whether or not you’re willing to be in debt for that amount of time.

Customize Your Student Loan Offers with MagnifyMoney Comparison Tool

Cheryl Lock
Cheryl Lock |

Cheryl Lock is a writer at MagnifyMoney. You can email Cheryl at cheryl@magnifymoney.com

TAGS:

Advertiser Disclosure

Balance Transfer, College Students and Recent Grads, Pay Down My Debt

Guide to Paying off a Student Loan With a Balance Transfer

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

Pretty Young Multiethnic Woman Holding Phone and Credit Card Using Laptop.

Do you have a loan with a high interest rate you’re trying to pay off? Is it frustrating you to see so much of your monthly payment going toward interest instead of principal?

If you’ve been looking for solutions, chances are you’ve come across 0% interest balance transfer offers from credit card companies. What you might not be aware of is that you can use these offers to pay off personal loans and student loans – not just other credit card debt.

How a Balance Transfer Works

Is the concept of a balance transfer new to you? Here’s a quick example of what it looks like:

You have a $2,000 balance on Credit Card A with a 15% APR. You get a 0% APR balance transfer offer from Credit Card Company B.

You can transfer the $2,000 from Credit Card A onto Credit Card B (you may incur a balance transfer fee, depending on the offer), and pay 0% APR for a select period of time instead of the 15% APR you were paying.

Note that you’re not actually completely paying off your debt. The balance from Credit Card A might be paid off (thanks to Credit Card B), but you’re still on the hook for repaying the $2,000 you transferred to Credit Card B. Balance transfers simply mean you’re shuffling your debt around to a lower interest rate in order to pay it down faster, not eliminating it with the move.

Many credit cards offer 0% APR periods from 12 to 18 months, with some even over 20 months. Why bother with a balance transfer? You’re saving money because you’re paying less interest. With a 0% APR, your payments go directly toward the principal of the balance.

There is one catch, though – you must be able to pay off the balance by the time the 0% APR promotion expires.

We used credit cards in this example, but the same holds true for other loans. If you have a personal or student loan, you can transfer that debt to a credit card with 0% interest while paying off your original personal or student loan. Let’s take a look at how this is possible.

How to Pay Off a Loan With a Balance Transfer

Before you consider using this strategy, you should have a decent credit score; at least 700 and above. People who have been completely responsible with credit in the past (they haven’t missed any payments, and can afford to pay extra) would be the best candidates for this strategy. They simply have debt that’s costing them too much.

You can use a variety of methods to transfer a balance: you can call the credit card company offering the 0% APR promotion and inquire about it; you can log onto your account online if you already have a card with an offer; or you can use a balance transfer check that was mailed to you to write a check to yourself, and receive the funds in your bank.

Just beware, if you log into your account for an offer, it likely won’t be the most competitive option on the market. Instead of getting 0%, you might get 5% APR or something similar. The best offers come when you actually move your debt from one bank to another.

Warning before you proceed. Different lenders have different policies on whether or not you can pay using a credit card. Check with your lender first to see what payment options are available to you. A balance transfer check may be the only option for you.

Calling a credit card company may be the best idea as you can ask the representative questions about fees and the overall process. You can also attempt to negotiate the balance transfer fee. That might sound a little crazy, but Sandy Smith of Yes I am Cheap has successfully negotiated her balance transfer fee down a few times and highly recommends others do the same. You have nothing to lose by asking.

Stephanie from Six Figures Under used this strategy to pay off student loan debt as well, and recommends calling and asking for a better rate if you’re unable to receive a 0% APR offer (some credit card companies offer 1% – 2%).

What happens after you write a balance transfer check? Once the check is cashed, the balance is drawn from your credit card. If you have a limit of $10,000 on your credit card, and you write a check for $5,000, you’ll then owe $5,000 on your card. It’s very similar to a “traditional” balance transfer.

In some cases, you may be able to call a representative from the credit card company and give them the loan account information. They can then initiate the pay off and transfer on their end, with the same result of your credit line being drawn upon.

Please be wary of using balance transfer checks as there can be a lot of hoops to jump through. Some credit card companies won’t send you balance transfer checks, even if you call and request them, until months after you’ve been approved for the card. Unfortunately, balance transfer offers typically expire after 60 days, so this might not work out.

Others have had trouble cashing the checks. If you’re considering using a balance transfer check, read the fine print to make sure the math works in your favor, as some have higher balance transfer fees than credit cards.

When Should You Consider a Balance Transfer?

There are many factors to take into consideration. Besides being able to pay off the balance in full before the 0% APR rate expires (which will require a large monthly payment in some situations – be sure you can afford it), you have to see if you’re actually saving money. 0% interest sounds great, but if you’re paying off student loans, you should be aware the interest you pay on them is tax deductible.

To compare whether or not you’re saving money, consider the balance transfer fees you’ll have to pay, the amount of interest you’ll be able to deduct on your taxes (if applicable), or the amount of money you’ll be saving by transferring. Is it worth it?

For example, let’s say you have a $10,000 balance with a 6.8% APR and you have 5 years left on the loan. Your monthly payment is currently $197.07. You’ll pay a total of $11,824.20 over those 5 years.

If you were to transfer this loan to a 0% APR credit card with a promotional period of 18 months, you’d be paying $558.33 per month, saving you $1,774.18 in interest (paying nearly $10,050 total). This is assuming balance transfer fees cap out at $50 – each credit card is different.

You need to be very disciplined in making your payments. Your current loan is likely an installment loan, which means a set amount is due every month to pay off the loan in a certain period of time.

Credit cards are revolving, which means it will take you longer to pay off your balance if you only pay the minimum each month as interest continues to accrue. Obviously, this is the perk of the 0% APR balance transfer; all your money is paying down principal. Know what you need to pay each month to pay off the balance in full before the introductory 0% APR expires!

What to Watch Out for in the Process

Balance transfers might sound like a great solution, but they are not for everyone. We mentioned this before, but you should only consider doing this if you know without a doubt that you can pay off the balance in full by the end of the 0% APR period.

Why? Credit cards still have very high interest rates. If you don’t pay off the balance, then you’ll start accruing interest at the regular APR for your credit card. These can be as high as 11% to 15% – not what you want to deal with, especially if your original loan had a lower APR.

Also, depending on the card, if you miss a payment, your 0% APR may expire as a penalty. It’s extremely important to keep on top of your payments.

[Balance Transfer Traps to Avoid]

You should only be using this strategy if getting out of debt – for good – is your goal.

The other thing you must watch out for is the terms of the balance transfer, especially if you’re using a balance transfer check. Do not confuse a balance transfer offer with a cash advance offer. There are times credit card companies will send out blank checks for both in the same envelope. You have to read the fine print on the check. The last thing you want to do is take out a cash advance because those have higher rates.

You also need to watch out for balance transfer fees (typically around 3% of the balance you wish to transfer), which may be capped at a certain dollar amount. You should do the math before deciding a balance transfer is right for you.

Lastly, we want to repeat that this strategy is not for everyone, especially for those who haven’t been responsible with credit in the past. You should not add any additional debt onto this balance transfer card – you should only use it to transfer your existing debt. Otherwise, the balance will be more difficult to pay off.

Credit card companies bet on this happening, which is why they’re able to offer the 0% APR balance transfer in the first place – they make money off of the offers. Keep in mind that on most cards, new purchases aren’t covered under the 0% APR offer – they accrue at regular (high) rates. Read the fine print!

Parting Advice

Using a balance transfer check is one way to get around not being able to pay off a student or personal loan with a credit card, but you must be 100% aware of the terms and how the math works.

Don’t be afraid to call up the credit card company presenting you with the 0% APR offer to get clarification on what is or isn’t allowed with the balance transfer. If your credit isn’t sufficient, you may not be approved for a credit line that will allow you to transfer over all your debt. You may only be able to transfer over a portion.

If getting out of debt quickly is your goal, and you don’t qualify for a balance transfer (or a check won’t work out for you), then consider making extra payments on your debt. You’ll still save on interest, and you won’t have to worry about fees or having your payments denied.

promo-balancetransfer-wide

Erin Millard
Erin Millard |

Erin Millard is a writer at MagnifyMoney. You can email Erin at erinm@magnifymoney.com

TAGS: ,

Advertiser Disclosure

News

Clinton Unveils Ambitious $350 Billion Plan To Make College Debt-Free

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

MagnifyNews-02-01

Earlier this week, Hillary Clinton announced a new plan to deal with the rapid growth in student loan debt. Her plan would cost taxpayers $350 billion over ten years. Clinton has focused her campaign on the topic of income inequality, and with the launch of this plan she announced that “I believe one of the single biggest ways we can raise incomes is by making college affordable and available to every American.”

In the plan, Clinton made the following commitments:

  • No student should have to borrow to pay tuition at a public college
  • States will have to spend more on public education in order to receive federal funding
  • The Federal government will increase its investment in education, targeting money on states willing to spend more
  • People with existing student loan debt will be able to refinance their debt to a lower interest rate

Student loan debt now exceeds $1.2 trillion, more than credit card debt. A number of factors have led to the increase in debt. Universities have been on a spending spree, with often dubious benefits for students. In addition to the infamous rock climbing walls that adorn most campuses, the ratio of expensive administrators has been increasing dramatically. As universities have increased tuition, states have been cutting their budget for state universities. As a result, the cost of a state education has increased by 42% between 2004 and 2014.

For-profit schools have become experts at extracting federal student loans while providing questionable educational value. The most famous is Corinthian College, which has since closed. However, there are still many for-profit colleges with single-digit graduation rates and obscene costs. These colleges disproportionately target the poor, often leaving students with debt and no increase in earnings potential.

Default rates on student loan debt continue to soar. 26% of students who graduated in 2009 have already defaulted on their debt. Analysis by the Federal Reserve shows that low income families are the most vulnerable. Families with household income below $40k had a 35% default rate, compared to 11% for families with income above $80k.

Beyond default rates, there are concerns about the impact that student loan debt has on the economic activity of graduates. Graduates with debt would be less likely to take risk, which includes purchasing automobiles or homes. The winners are universities and the federal government, which is profiting from student loan debt. The losers will be the rest of the economy and the recent graduates.

We will explain the key components of Clinton’s plan below.

You Should Not Have To Borrow To Attend A Public University

Clinton believes that students should not have to borrow if they attend an in-state public university. In order to make that a reality, the money will have to come from a few sources.

Clinton is proposing $175 billion in federal grants to help fund state universities. That funding would only be made available to states that commit to increasing funding so that students do not have to borrow to attend school. To cover the cost of living, students would be able to use Pell Grants to cover expenses.

Interest Rates Will Reduce For Everyone

Clinton wants to make it possible for people to refinance their existing student loan debt to a lower interest rate, echoing a proposal from Senator Elizabeth Warren. Ironically, support also comes from Donald Trump, who believes that it is “terrible” that the federal government makes money from student loans. In recent years, a number of private companies have started to build big businesses refinancing student loan debt (learn more here) for the most creditworthy borrowers. However, Clinton would expand the program to refinance the debt for all students.

What About Costs, Graduation Rates And For-Profit Schools?

Student loan debt is a function of the cost of education. The rate of tuition increase has reduced. However, in absolute terms, the increase over the last twenty years is difficult to justify. Universities are racing to attract students willing to pay the highest tuition. To do that, they over-spend on items that do not directly contribute to an improved education. High school students shopping for college are being bankrolled by federal student loans. Decisions, historically, have been emotional. A good college degree helps improve lifetime earning potential, so students want the best college possible, regardless of the cost.

Pouring more money, at both the federal and state level, may only encourage more spending.

The highest default rates on student loan debt remain with students who failed to graduate. As Hillary Clinton noted, over 40% of college students fail to graduate after six years. Graduation rates remain atrocious at many for-profit and public schools. For example the University of Texas at El Paso only has a 4% graduation rate (in four years).  If a student accumulates $5k of student loan debt and has no degree, he is highly likely to default.

Reducing the interest rate on debt is a great way to help people already in debt get out of debt faster. However, as NPR  revealed in their analysis, the benefits of debt refinance will go to the wealthiest borrowers. If you are making minimum wage and have $5k of debt from a college and no degree, you will not find this policy helpful. The people who will benefit most from the lower interest rate will be the people with the highest amount of debt. People with the highest debt tend to be people with graduate degrees, including doctors and lawyers. For the taxpayer, this is a problem. The default rate will not meaningfully reduce, but revenue will.

This issue is crying for bipartisan support. Rarely do you have Donald Trump and Elizabeth Warren agreeing on an issue. Hillary Clinton has been first to put a meaningful proposal on the table. We will be keeping a close eye on the debate as it evolves.

 

Nick Clements
Nick Clements |

Nick Clements is a writer at MagnifyMoney. You can email Nick at nick@magnifymoney.com

TAGS: , ,