Friday, July 10, 2009

That's My Job: Letting the professionals speak

What better opinion can you get than a professional's? Based on that logic, I went to my own financial advisor to get her perspective on a few of the issues facing student borrowers today. She was gracious enough to comply, and below is our Q&A.
Enjoy.

Q: What is the difference between private and Federal Stafford loans?

A: Students should definitely try to go for Stafford Loans first. Freshman will get the least amount of money, but it increases as thy progress through school.

Q: From 2008-2009 the percentage of first year college students taking out private loans increased from 14-43%. Why do you think that is?

A: It probably has to do with the economy. Parents are likely finding it more difficult to help students with the costs of college. Federal Stafford loans provide a reasonable amount of money, but it still requires a degree of frugality to use them most efficiently.

Q: What advice would you give to a freshman taking out a loan for the first time, maybe when they weren't planning on needing to?

A: I would recommend that they use only the amount they need, but not the full amount they're given, unless withdrawal becomes absolutely necessary. If you take all of it out at once you'll be sure to spend all of it. I've had students come in before who used their loan money for a wedding. Be smart about it.

In some cases the school can offer grants to those in extreme circumstances, if they genuinely need it. If you're about to be evicted, for example, or you don't have enough money for food, the school has special grants to help.

Q: And what advice would you give a high school senior beginning now to look at their options for financing college?

A: Students will benefit greatly if they get a job, save their money, learn to budget, and learn that it's time to grow-up. Saving is the most important thing they can do. A Stafford loan will cover more or less the cost of tuition and rent. Books and food should really be paid for by saved money. The best thing anyone can do for themselves is to save money.

Q: There is the TEACH grant program, which offers grants to students who will teach in a low-income district after graduation. Does BYU-Idaho participate in the TEACH grant program?

We don't endorse the TEACH grant here at BYU-Idaho. The grant requires that you teach in a low-income school, and if for any reason you can't comply—if you can't find a teaching job, you get fired, the school improves from low-income to normal—the grants become loans, with a retro-active interest from the day it was given to you.

It's estimated that 70-80% of these grants will become loans because the requirements were not met. Really it's just a thing some politicians cooked up to look good. There's no way to ensure that the borrowers will be able to teach where the need to, in a low-income area.

Friday, June 26, 2009

A Lighter Load: new loan repayment options, starting July 1st

The San Francisco Chronicle broke a story yesterday about a new federal program that could drastically reduce student loan payments, starting July 1st.

Income-based repayment, IBR, as it is called, operates on this basic philosophy: repayment should be relative to the borrower's income and family size. This news should come as a relief to students graduating in coming months—and maybe years—as the former matriculates will be entering a job market scarred by the flailing economy

Here is a video advertising the program:



From the Chronicle's story:

"There is no income limit. Even people making $100,000 could qualify if they owe more than they earn in a year.
The payment cap works like this: If you earn less than 150 percent of the poverty level for your family size, your payment will be zero. If you earn more, your monthly loan payment will be capped at 15 percent of your annual income that exceeds 150 percent of the poverty level, divided by 12."

Another big plus is loan forgiveness. If you get IBR, after 25 years of payment, your loans will be forgiven. Poof. Gone. If you work in a non-profit or public service job, they'll disappear even more quickly: after 10 years.

Though the program is aimed at those in public or non-profit jobs, any person owing on Federal Stafford Loans is a potential candidate for IBR.

A borrower myself, I am pretty interested in seeing how this works out, and will update as I learn more.

To read the full San Francisco Chronicle story, click here.

Friday, May 8, 2009

Lesson Two: If You Have to Borrow, Do It From Uncle Sam, Not Uncle Sammy, the Shady Loan Shark.



Introduction:

If your Federal Stafford loans have not been enough to cover your college costs -- don't take out private loans! -- there is good news. Good ol' Uncle Sam recently made two -- that's right two changes in how you get more of those tasty, safer, Federal Stafford Loans.

Unsubsidized Stafford Loans

University undergrads can now add $2000 a year to the amount of loan money they have previously been allowed. Unsubsidized means that interest accumulates while you're in school. Not as good as subsidized, but better than private. The fixed interest rate is 6.8%.

TEACH Grant Program

If you're thinking about becoming a teacher, this is the grant for you. You get a grant (money not borrowed, but given) of up to $4000 per year if you teach four academic years in a "high-need" public or private elementaries. This means low-income school districts. If you fail to meet your teaching obligations, however, the $4000 per year becomes an unsubsidized Stafford loan. Read more about these programs here.

This grant program also comes with a special bonus, the Stafford Loan Forgiveness Program for Teachers. Read the details at the link, but basically, after graduation, if you teach full-time, for five consecutive academic years in these "high-need" and "low-income" schools, you can have up to $17,500 dollars of your student loan debts forgiven... forgotten... poof... gone.

Conclusion:

There are ways to get through college without borrowing from private lenders. These are just a few. Go to the Financial Aid office at your university to see how Uncle Sam can help YOU.


A Good Resource for Borrowing Students

The Link of the Day: Project on Student Debt

This website is great resource for all matriculates of [your college here] university, and provides lots of valuable data of the financial state of college graduates. The Project on Student Debt is a project, obviously, being executed by The Institute for College Access & Success (TICA). As far as I can tell, TICA appears to be pretty legit, independent of any commercial sway.

Although they are not neutral -- voicing opinions on Obama's FAFSA reform and the bailout -- though their only political objective appears to be making college more affordable. Spend a few minutes browsing and you're bound to find something to pique your interest, float your boat, butter your bread, etc.

For example, in data collected from government studies, they found that the percentage of undergraduates borrowing PRIVATE STUDENT LOANS went from 5 to 14 % from 2003 to 2007. From 2008 - 2009, this same statistic went from 14% to a whopping 43%. If you need an interpretation, take this one: THIS IS NOT GOOD, and here's why:

There are basically two types of loans, Federal and Private. Federal Stafford Loans are the safest bet if you're taking out loans. Subsidized (funded) by the government, they have a fixed interest rates, and do not begin to accrue interest until six months after graduation. In addition to these, there are Unsubsidized Federal Stafford Loans, which are just about as good, but accrue interest immediately.

Now, after these are private loans. They are often dangerous and deceptive, so be wary. They are really similar to credit cards, have variable (changing) interest, and interest much higher, sometimes more than double, Federal Stafford Loans. Be very, very careful if you look to private lenders for additional funds.

So, according to the data, 43% of all American undergraduates are now taking out these high-risk loans. Six years ago, that number read 5%. Wow.

Next Post: How you can avoid joining that 43% by getting more Federal Loans

Friday, May 1, 2009

Lesson #1: Graduating Faster, Cheaper, Using the Costco Principle

Introduction:

This lesson will inform you on the undergraduate credit plateau, and how it will help you graduate from school faster and with spending less money.


The Undergraduate Credit Plateau:

Most universities have built into their tuition costs what is called a undergraduate credit platueau. What this means is that any classes registered past your first twelve credit hours are free, usually with a limit of about 18. In short, the more classes you take at once, the less you will pay. It's the Costco Principle.

Example:

Lets say your major requires 120 credit hours for a degree. If you take twelve credits per semester, at a rate of $100 per credit, you will graduate in ten semesters. You will pay $12,000.

Using the same standards, if you take 15 credits, you will graduate in eight semesters, paying $9,600 and saving $2,400. Not bad.

Practice:
Use this exercise sheet to find out how much you can save, if you're willing to put in the work.

1. ____ (credit hours required for degree) X ____ (price of credit hours) = _____

2. ____ (number of credit hours over 12) X ____ (price of credit hours) = _____

The answer to problem #1 is how much you will pay at 12 credits per semester.
The answer to problem #2 is how much you will save taking more than twelve credits per semester.
Find the difference to know how much you will save!

To calculate how many semesters it will take you to graduate, see problem #3.

3. ____ (credit hours required for degree) / ____ (credit hours taken per semester) = ____

Conclusion:

Take more classes. Pay less money. Graduate Faster.

Enjoy.