Student Loan Dodgers

Unfortunately, credit card debt is a reality for most American families. According to the Credit Counseling Service, the average family in 2005 had more than $9,000 in credit card debt, an amount that more than doubled from 1995.

If you’re like most college students, you begin accumulating debt while in school and carry that forward after graduation. It’s of little comfort to say that the best way to avoid debt is not to get into it in the first place, but that’s a little bit of salt that’s worth remembering.

If you have credit card debt, the worst thing you can do is add to it. If you can, commit to putting away your credit cards for one, two or three months. Don’t use them at all, and during that time make a concerted effort to increase your payments. At the end of your “test period” see how much you’ve reduced your debt.

If you can’t go that long without using your credit cards, you’ve got a problem. Either you aren’t making enough to make ends meet, or your spending priorities are out of line with your budget. Take a look at each charge on your credit card statements. Realistically, did you need each item you purchased? An emergency car repair will look a lot different than a new handbag or weight set.

Don’t use your credit card for cash advances. You’ll quickly find out that you don’t need these high-interest loans. Not only do they rack up interest charges from the moment you get the cash, they also prevent your payments from reducing your principal until the cash advance debts are repaid.

Look at the interest rate you’re paying on your balance. Shop around and see if you can find a lower interest rate. Beware of “introductory rate” offers. They can go bad on you quickly if you make a late payment or accumulate additional charges during the grace period.

Ultimately, the only thing that will get you out of debt is responsible management of your money. Generally, if you avoid using your credit cards for purchases you couldn’t make with your cash-on-hand, you can avoid the high-interest revolving debt trap that many individuals and families find themselves in. On the other hand, if you can’t go a month without a “must-have” credit card purchase, you’re putting your financial future at risk. That’s something to think about when you go shopping.

Citigroup, one of the nation’s largest lenders, has cut back dramatically on its participation in the Federal Family Education Loan program (FFELP). Students who had turned to Citigroup to underwrite the Federally guaranteed student loans in the past will need to find a new FFELP lender. The company’s student lending arm, the Student Loan Corp., fired 146 employers and Citibank, another subsidiary, has announced plans to eliminate nearly 30 positions in its student lending department.

Citigroup characterized the move as a demonstration of its ongoing strategic focus on providing the best possible management for the firm during tight economic conditions. Some of the challenges faced by FFELP lenders include substantial cuts in Federal subsidies to lenders who participate in the program. The loss of the subsidies takes on new meaning in light of the collapse of the secondary loan market, which many lenders used to fund their loan-making programs.

The cuts come at a bad time for students who are scrambling to arrange financing for student loans for the Fall semester. To ensure the long-term availability of funds, the Federal government has dusted off a never-used provision of the Higher Education Act, which called upon individual states to provide a “lender of last resort” for student loans. Most states do have higher education loan agencies, but have never participated as a “last-resort lender.”

Most state agencies are also suffering from the same funding problems that have beset FFELP participants. New Federal legislation enables states to find a guaranteed buyer for their college loans in the form of the US Department of Education, but that backing will not take place until the Fall of 2009. In the mean time, many state lenders have also temporarily ceased lending operations, hoping to ride out the latest financial storm.

Luke Livingston has found a novel way to repay his student loans. The Clark University graduate started a Web site in December that will trade ad space for Livingston’s student loan payment. Sponsormyloans.com will provide one month’s worth of advertising space to sponsor’s willing to pick up the $200 monthly tab for Livingston’s student loan debts. After a bit of publicity, Livingston’s student loan payment was sponsored for the month of January, and he’s hoping to carry his luck forward.

The site is not a “sympathy site” since Livingston trades ad space for cash. Not just any old ad will do, however. Livingston won’t accept obscene, offensive or “adult” oriented images on the ad space that surrounds his site. Advertisers are guaranteed an exclusive ad deal which includes all of the ad space on the site, and can change the ads as many times as they like during the month. Livingston has limited purchases to a minimum of one month and a maximum of three months per sponsor.

Livingston has a degree in communications, and works full-time, but says in his blog that he’s currently not making enough money to pay off his student loans. If his site is fully sponsored, however, he can pay off his college loans in about seven years. So far, Livingston’s site has been featured in Young Money magazine and on TheStreet.com. Livingston is hoping for more publicity and more advertising revenue from his site.

An interesting note, however. Livingston says that he can pay his student loans off in seven years, if the interest rates don’t change. It sounds to me like he could benefit from student loan consolidation.

Yet another large student loan lender has decided to reduce its federal student loan program options. The Student Loan Corp, which is 80% owned by Citigroup Inc, announced on April 16^th, 2008 that it would suspend lending federal student loans to certain schools and withdraw from the Federal Consolidation Loan market, effective May 1, 2008. The company is blaming higher costs for funding by the “continued disruption in the capital markets” and new federal law changes on the subsidies for the reduction in their student loan portfolio.

The Student Loan Corp. hopes the changes to only be temporary and hopes to return into the student loan consolidation market as the market improves and changes in congress take place.

So far over 43 lenders have dropped completely out of the federal student loan lending market or have suspended student loan consolidation lending until further notice. Some of the largest lenders include; Sallie Mae (SLM), Nelnet, NextStudent and CIT Group.

I’m sure it’s only a matter of time before my schools financial aid office is effected by all this craziness going on in the student loan industry.

If you’re approaching graduation and you have student loans from several different semesters, consider student loan consolidation, if you can still find lenders offering consolidation on student loans. For federal student loans, there’s no better way to save money than to consolidate your college loans. When you consolidate a student loan, all of your smaller student loan amounts are combined into one larger consolidated loan, often with a lower interest rate, and smaller payments than the original student loans.

Additionally, with a consolidated loan, you make one payment each month at a fixed interest rate instead of several whose interest rates may vary, and you can stretch out the repayment terms of your college loans to better suit your after-graduation finances.

The notable exception to student loan consolidations are for students who have Perkins Loans. These student loans are eligible for complete forgiveness if the borrowers enter certain fields after graduation and remain employed in them for five years. If the borrower pursues work in an eligible field for less than five years, he or she can still receive partial forgiveness for their remaining debt. Additionally, Perkins loans have a fixed 5-percent interest rate which may be lower than the rate available for consolidated loans.

After graduation, you normally have some period of time - about six months - before you’re required to start making payments on your student loans. Check with your lender(s) to verify the deferment period on each of your student loans. This grace period is meant to give you time to find a job and settle into your new life before you need to start repaying your student loan debts. Many graduates use this period of time to “ignore” their student loans. This is a mistake! Your college loans are waiting for you, so you should use the grace period to make plans for them.

The student loan consolidation process can take 60-90 days. Use your grace period to research and set up a student loan consolidation package for yourself. You’ll avoid having to make two or three months of unconsolidated loan payments while you complete the student loan consolidation process.

While you’re consolidating your student loans, look for some sound financial planning advice to help you manage your expenses, and build savings for yourself. Financial planning services are available for people of all income levels and can help keep you on track toward your financial goals. Your bank or credit union may be able to provide you with some financial planning resources.

Don’t look at your grace period as simply a “payment-free” time. Use your grace period to set up repayment plans and the financial management tools you’ll need throughout your life.

Private student loan lenders have taken a lot of heat lately from Congress and borrowers alike. The truth, however, is that consumers overwhelmingly turn to private student loans when it comes to college education. Most private student loan lenders advise their borrowers to exhaust all other forms of financial aid before borrowing private loans, yet some students and their families turn to private funding sources first.

The interest rates on private student loans are generally higher than what you can find through the Federal government. Then why do people turn to private lenders? People choose private student loans for a few reasons.

First, the Federal government imposes lifetime borrowing caps on students and parents alike. The caps haven’t been adjusted in many years, and don’t reasonably reflect the amount of money it takes to complete an undergraduate degree. When students and their families do exhaust their Federal student loan options and personal savings, they have little choice but to look at borrowing from retirement funds, home equity, or private sources.

Second, private loan lenders offer more flexible borrowing plans than the Federal government does. Aside from being able to borrow more, private loan lenders can also include borrowing incentives that make their student loans more competitive, or give their private loans more attractive terms for a given borrower’s situation.

Third, in the past, private student loans have been relatively easy to get. This is changing, as private lenders tighten up on their lending standards. Part of the reason for the crunch is that private lenders are now finding it more difficult to sell student loans to other lenders. This inability to sell loans in bundles is considered fallout from the sub-prime mortgage problems we’re also seeing.

If you are considering a private student loan, do your research. Shop around for the best deals you can find, and carefully examine the terms and incentives a private lender is offering. A quarter-point reduction in interest may not seem like much, but over the course of a loan’s lifetime, it could add up to thousands of dollars.

If you’ve resolved to get your financial house in order in 2008, a good place to start is by consolidating your student loans If you have college loans that were issued before July 1, 2006, they’re variable interest rate student loans. This variability can destabilize your finances.

A smart move includes consolidating all of your student loans into one payment with a federal student loan consolidation. This will simplify your finances by reducing the number of payments you make each month, and will likely reduce the amount of money you pay each month. Your student loan consolidation will have a fixed interest rate, which means you’ll always know the amount of your monthly payment. If your finances are limited, you can also stretch out the repayment terms of your student loans to get a lower monthly payment.

Reducing the number of payments you make and the amount you pay each month, along with paying a fixed interest rate will help stabilize your finances and will improve your credit rating. As your finances improve, you can also increase the amount of money you pay each month. This will accelerate your student loan payoff and save interest in the end.

On the other hand, student loan debt is tax deductible, so there’s no pressing reason to pay off your student loans early. You can deduct student loan interest whether you itemize your deductions or not. Likewise, there are other tax credits you’re eligible for if you’re still enrolled in school.

If you haven’t already consolidated your student loans, make this one of your financial goals for 2008.

Students who are applying for college admission often do not consider the true cost of a college education. A student applicant’s primary concern is gaining admission to their college of choice. The cost of education does not factor in to a student’s college decisions until much later in the process.

When students do turn their attention to costs, they focus on the cost of tuition above all other expenses. This is a mistake because the other expenses – like fees, books, living expenses, and transportation costs – can increase the cost of a college education substantially.

Universities are under pressure to keep the cost of tuition down. Instead of passing along the increased costs of education in the form of tuition raises, some colleges and universities have imposed per-credit, per-class, and per-semester fees that can add as much as 40 to 50 percent to the cost of tuition. In most cases, the fees are mandatory and cannot be avoided.

To offset the out-of-pocket costs of tuition and fees, student applicants should look for grants and scholarships regularly. Most university libraries have grant and scholarship resources available to help students find unrestricted money that can be applied directly to a student’s tuition account. Scholarships and grants are the “gold standard” of financial aid. These monies do not have to be repaid. In many cases, the scholarships are not renewable, meaning that they’re a one-time-only award, and recipients will need to look for new scholarship sources each semester or year.

Federally-backed student loans are the next most desirable type of student aid. Subsidized student loans are meant for students whose family income levels fall within certain Federal guidelines. With these college loans, the Federal government pays the interest that accumulates on these student loans while the student is in school, reducing the overall amount of money a student must repay.

Unsubsidized Federal student loans are the next most desirable type of student aid. Unsubsidized student loans are available to all students, but are subject to lifetime lending caps, which may or may not cover the student’s college expenses. With unsubsidized student loans, the borrower pays the entire interest accumulation on the student loan, but payments are deferred until the student leaves the university.

Private student loans are the most widely available and flexible options, but they should be reserved for covering those costs that cannot be covered with scholarships or federal student loans. Student borrowers should shop for the best possible deals with private student loans. Often, the interest rates and borrowing terms on private student loans can mean tens of thousands of dollars in savings (or added costs!), so comparison shopping for student loans is definitely in order!

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Private student loans have gotten a bad rap lately. Legislators have focused on some extreme cases of borrowers who have gotten in over their heads, but for the most part, private student loans can come through where Federal student loans and grants leave off.

Grants are always the best route to go. They’re free money that you don’t ever have to repay. If you’re eligible for grants, get as many of them as you can. Grants may be one-time or renewable. Regardless, if you find them, go for them.

Federal student loans are also desirable, but they’re loans. You have to pay back the money, unless you meet the requirements for student loan forgiveness. Federal student loans are good, better if they’re subsidized, but not a bad deal in the long run. The disadvantage of Federal student loans is that they have lifetime lending caps. Once you’ve borrowed the maximum, you’re done with Federal student loans. The lending caps haven’t been adjusted in a very long time, so if you have to borrow your way through college, you may bump up against your limits quickly.

In addition, Federal student loans only cover “eligible expenses.” They can’t be used for living expenses, so again, if you’re borrowing your way through school, you can’t rely exclusively on student loans.

Private student loans can help you bridge the gap between your grants, what the Feds will lend you, and what your college education actually costs. (Funny enough, it’s always more expensive to go to college for a year than what the brochures tell you.) Private student loans don’t operate like Federal student loans do. There are no caps on interest rates, but then again, there are no caps on lending either.

The best approach to financing your college education will come from balancing your “financial aid portfolio” with grants and Federal student loans. Use college loans to make up the difference. If you shop carefully, you can find private student loans that offer great borrower benefits and good terms. Private lenders are also free to offer programs that you won’t find with lenders in the Federal college loan programs.

In short, don’t write off private lenders based on the horror stories you may have heard. Balance your financial aid, and use private student loans to cover what your aid package can’t or won’t.

When you’re in college, there are many opportunities to both exhaust your financial resources and accumulate debt. This is not only counter-productive while you’re in college, but it can also negatively affect your lifestyle well after you’ve graduated. As much as possible, avoid those negative habits that absorb your money, or worse, cause you to accumulate debt.

Drinking is one of those habits. Drinking is a very expensive habit to get into and college students tend to spend a lot on alcohol. For some people, getting out of the habit of drinking proves to be an insurmountable challenge and follows them throughout their lives. Limit your drinking. When you go into a situation where alcohol is available, set a spending limit before you go in. When you reach the limit, stop. If the alcohol is free, set a drink limit and stick to it. You’ll feel better, look better and you won’t find yourself in regrettable situations.

Gambling is another great way to establish a bad habit and lose a lot of money at the same time. The proliferation of casinos and the ease with which people can travel to cities that have legalized gambling means that college students have unprecedented access to gaming outlets. If you’re going to gamble, never bring more money than you can afford to lose. Once the money is gone, go home. Trying to recoup your losses will likely lead to even greater financial difficulties. If you want to learn about how the casino games work, take a statistics class. You’ll find out that your chances of winning are exceptionally small. If you understand just how likely you are to lose your money, you may find it much easier to stay out of the casinos.

High stakes poker, especially Texas Hold ‘Em, has recently gathered a lot of attention from college students who are looking for a quick win. Poker is a game of skill and you don’t acquire card-playing skills immediately. If you want to pursue a poker championship, learn how to play the game with good friends first. Order a pizza, use peanuts, M&M’s, or pennies as the ante, and have a good time while you learn. Just don’t spend a lot of money doing it.

If you’re looking to develop a skill that will serve you well throughout your lifetime, take up golf. Golf is still very important in business, and many universities have their own golf courses where you can learn to play on the cheap. After four years on the University links, you’ll be able to hold your own with the boss when it really counts.