student loan debt

The Grace Period For Student Loans Is Coming To An End

November 18, 2018 By Amanda Blankenship 1 Comment

For those who graduated in May, the grace period for student loans is ending. Many graduates will find their first payment date approaching in late December to early January. With nearly 40 percent of student loan borrowers expected to default on their loans by 2023, it is important to know when your payment is due as well as the different options you may have.

What is the Grace Period For Student Loans?

Many students have a grace period of six months after graduation to make their first payment on their student loans. Folks who graduated in the spring will begin receiving statement letters in the mail this month.

That is, unless you received a Perkins loan (a specific type of federal student loan). If you received a Perkins loan you generally have a nine month grace period.

What Now?

If you’ve received that first bill in the mail, don’t panic. Now is the time to take stock of your loans and create a plan. Know how much you owe and who your servicer is. The servicer company typically will handle sending out statements, collecting payment, and managing your account. Borrowers with multiple loans may have more than one servicer. Check the student loan website to see a full list of loans and servicers.

During this time you should also be sure your student loan servicers have all of your current contact information. This includes a valid email address, home address, and telephone number. Giving them your current information will prevent you from missing a payment.

Private Loans

It is important to note that the federal student loan website will not have any information about your private loans if you took any out for school. If you don’t have the original loan documents, you can reach out to your alma mater to get copies. However, you’ll likely want to begin payments on private loans as well because their grace period is also likely approaching.

Payment Options

If you’re already feeling overwhelmed, remember you have options. Generally, borrowers are automatically enrolled in a 10-year repayment plan. You can get as much as 30 years to repay your student loans.

Some borrowers may find that a 10-year repayment plan is too high of a monthly payment than they can afford. If that’s the case you can request a temporary postponement of payments.

You can also apply for an alternative plan with overall lower monthly payments or income-based payments. This can bring your monthly payment down drastically and, sometimes, lead you to making no monthly payment. It is important to note that this can extend the amount of time you’re paying on loans though.

Each payment plan has different criteria to be deemed eligible. However, having an open line of communication between you and the lender is never a bad idea.

Repayment options can be a bit confusing and, for the most part, many students are required to find everything out for themselves. Even though it may feel awkward to talk about your debt situation with someone over the phone, it is better to explain it than risk going into default.

This Man Escaped His Student Loan Debt By Moving to the Jungle

October 28, 2018 By Amanda Blankenship 6 Comments

Just months ago student loan debt reached a high, ugly milestone of $1.52 trillion. Unsurprisingly, many people find their student debt to be overwhelming, leading to depression and suicidal thoughts in some individuals. In fact, people who are undergoing serious financial stress are eight times more likely to have suicidal thoughts – and some engage in extreme behavior to avoid paying.

Growing Student Loan Debt

Student loan debt has seen a 145% increase in the past decade with no signs of slowing down any time soon. In many cases, individuals carry more student debt than they do in auto loans or credit card debt. For some individuals, the weight of their personal student debt is too heavy for them to carry. Chad Haag was one of those people.

Chad Haag Delt With His Debt by Fleeing the Country.

Haag considered living in a cave in the United States to escape his student debt. According to Yahoo Finance, he already knew a friend doing it. However, for Haag, this wasn’t leaving his problems far enough behind. He wanted to get as far away from his debt as possible.

After majoring in philosophy in college, he held a student loan balance of about $20,000. While that is pennies compared to many other borrowers in the U.S., Haag pointed out that not being able to a land a college-level job made his $300 monthly loan payment devastating to his finances. He was only making $1,700 per month, living with his mother, and rarely going out with friends. “I couldn’t make the math work in America,” Haag said.

Running to the Jungle to Get Away From Debt

He relocated to a jungle in India to escape his student loan debt. In an interview, he said, “I’ve put America behind me.” Now, thousands of miles away from where he once lived in constant anxiety from his debt, Haag says his loans don’t even feel real to him anymore.

His student loans are on their way to being in default and they only thing Haag has to say is, “It’s kind of like, if a tree falls in the woods and no one hears it, does it really exist?” Of course, this kind of care-free attitude has not come without its trade-offs.

Where Haag is living is far from his Colorado home. He is living in a concrete house in a village in India. The house only costs about $50 per month and Haag says he sees elephants outside his home regularly. Haag also referenced the poor living conditions in some areas of India, stating, “Some toilets here are holes in the ground you squat over.”

Food quality can be a problem as well. He recently ate spoiled goat meat that landed him in the emergency room. However, dreams that would have escaped him in the U.S. because of his debt are now becoming realities for him in the jungle of India.

He has gotten married and he and his wife have plans to own a home soon. Currently, he has a five-year spousal visa and has plans to renew it when it comes time. Haag has absolutely no plans to return to the U.S. or repay his student loan debt.

Is This Responsible?

There is no doubt that many Americans find this type of behavior abhorrent. Student loan debt is only expected to continue to rise in the years to come with estimates projecting students will owe $2 trillion by 2022.

Half of the student loan borrowers haven’t paid a single dollar towards what they owe five years into repayment. Another 40% of those loans are expected in be in default by 2023.

However, moving away from the problem doesn’t make it go away. If anyone is moving away, like Haag, to escape their debt, they’ll find that if they ever return to the U.S. their debts will not be gone. Given the structure of many loans, debts are in fact more likely to grow than be excused. Compound interest, late fees, and collection charges are all typically added to your balance if payment is not made. In addition, late payments will impact your creditworthyness.

Not only will it not go away, but running away will make it worse. The best thing you can do is work out a debt repayment plan that works for you.

How to Keep Your Student Debt Manageable

Many people look at student loan debt as “healthy debt.” And while it is much “healthier” than, say, credit card debt, or even an auto loan sitting on your credit report, it still is a huge responsibility. If you or someone in your household is getting ready to head off to college or go back to school, consider thes money-saving tips.

Go to school in-state. It has been common knowledge for years that going to school closer to home costs less money. If you aren’t getting a full-ride out of state, keep your eye on public schools closer to you. A private university’s tuition sits around $34,740 per year on average. An out-of-state public university isn’t much cheaper at $25,620. However, community colleges and in-state public universities are priced at $3,570 and $9,970, respectively. That’s much less in tuition.
Stay at home to avoid room and board fees. Another great thing about going to school closer to home is that you can stay at home. This will save you thousands of dollars on room and board every year.
Oh – and bring your lunches. It can also save you a ton of money on food. Instead of throwing money at a meal plan or eating on campus every day, you can bring your own lunch and save hundreds of dollars per month.
Take a fast-track in your program. Depending on what your career goals are, you may consider asking someone at the university about a fast-track course for your degree. This will shorten the amount of time you’re in college, making tuition much cheaper.
Avoid private loans. If you can help it, don’t take out any private loans. These are typically higher interested and begin to accrue interest while you’re still in school, unlike loans available through the U.S. government.
Consider taking on work-study or paying your tuition in cash while you’re in school. It’s also possible to work while you’re in school to pay off the remaining tuition you owe. Many schools will work with you on monthly payments to remain in class and will apply funds made through work-study programs to these payments. You can also hold a job off-campus to raise additional funds. This way, you can leave school without owing any money on student loans.

Student Loan Debt Repayment

Remember, if you are feeling overwhelmed by your student debt you have options. Before taking off to India or another remote jungle, consider the options below.

Get more time. Although it is not optimal, may be able to extend the repayment period on your loan to give you more time. Periods for repayment start at 10 years and go up to 30 years, depending on the amount and your ability to pay.
Take a couple months off. You can get a couple months off from paying your student loan if you need it. If you or your partner lose a job and you need a couple months to get back on your feet, you can ask for a couple of months off (most of the time) it is granted. Keep in mind, your loan will still be accruing interest during this time.
Income-based payments. Talk to someone at the bank or company you received the loan through about income-based payments. If you believe your payment could (and should) be lower, talk to someone about adjusting it based on your income. They’ll do what they can to help you.
Financial crisis assistance. If you or your family have faced a serious financial crisis, you can also ask for some time off. This is a bit longer of a period of time than the “couple months off” listed above and, similarly, your loans will still be accruing interest. However, it will keep your loans from going into default.
Keep communication open. If you keep communication open between you and your loan officer, you will be able to work on repaying your student loans. In many cases, these individuals are understanding and will work with you based on your individual circumstances.

All in all, student loan debt is just another type of debt that can help or hurt your creditworthyness. However, it is nothing you should feel like you should run away from. Tackling it head-on and paying it down is the only thing that will truly make your debt nightmare go away.

Readers, what do you think about this man running away from his student loan debt?

First Student Loan? Use This Money Wisely

August 6, 2018 By Tamila McDonald Leave a Comment

student loan uses

Currently, there are approximately 20 million students enrolled at colleges in the US. And, when they graduate, around 70 percent of them will owe money on at least one student loan. In fact, the average student loan debt owed by a single graduate is over $37,000, based on statistics from 2016.

Most students view student loans as a necessary evil. Without the funds, they can’t afford college, leaving them with little recourse.

However, many students, especially incoming freshman, struggle to use the money wisely. But failing to act responsibly can come with significant consequences, ranging from failing to cover school expenses to increasing debt loads. Since approved student loan uses can vary depending on the kind of loan, knowing the right approach to managing this money is a must.

If you have your first student loan and aren’t sure how to handle the money wisely, here are some tips.

Educational Expenses

The primary purpose of student loans is to cover educational expenses. Federal student loans have strict requirements regarding how you can spend the money. Typically, funds from federal student loans are sent to the school first. This ensures the college receives payment for your primary expenses, including:

Tuition
Room and Board
Fees

After meeting these expenses, you can get a student loan refund from the school. Usually, this is a check that you can deposit in your bank account. Then, you can use the money for other qualifying costs, including:

Books
Supplies
Equipment
Personal Computers
Dependent Child Care
Transportation (Not Including a New Car)

By design, the federal student loan program almost forces you to use the money wisely. You cannot spend the funds on anything that does not qualify. If you receive an amount that exceeds your need, then an adjustment to your student loan may occur, or you have to use the excess to make a payment on your student loan.

Private student loans are different. They aren’t always as restrictive in regards to student loan uses the bank views as appropriate. However, the exact terms vary by lender. You’ll need to read your loan documents to find out how you can use the money.

Additionally, the funds might not go to the school first, though they usually do. In cases where the money doesn’t go to the school, it is sent directly to you. After receiving the cash, you are fully responsible for paying your educational expenses.

While you aren’t under the same restrictions, it’s smart to use the federal student loan guidelines to help you spend the money in the right places. You always want to cover your educational costs first, beginning with your primary expenses and then your other qualifying costs.

After covering those, you do end up with some choices.

Additional Student Loan Uses

Once you handle your educational expenses and school-related costs, you have some decisions to make. However, if you want to use the money wisely, certain options are better than others.

For example, you can send the excess money back to the lender to pay down your student loans. This can help you lower your balance and avoid some interest, ensuring your debt remains as small as possible.

If you have a federal student loan and have an entire disbursement you don’t need, the easiest thing to do is cancel that loan. You have 120 days after the disbursement to handle the process but may need to work with your school’s financial aid office to handle it properly.

For private loans, you just send the money back as a payment. Usually, you can handle this online through your loan account portal.

What About Fun Money?

When you have student loan money that doesn’t have to be spent on educational expenses, it can be tempting to spend it anyway. The idea of a dinner out or a nice vacation during spring break may be enticing, or getting a new wardrobe may leave you invigorated.

The thought of spending the money usually relates to having a little fun, something that can be important in college. After all, earning a degree can be hard, so it’s easy to assume the mindset that you deserve a reward.

But, it’s important to remember that those examples above aren’t smart ways to spend your money.

Student loans are debt. This means you will pay interest on the amount you borrow. Furthermore, the size of your loans impact your creditworthiness, and large debts make it harder to finance other things you may want in the future, like a house or a car.

Plus, the higher your debt, the higher your payment. For example, if you borrow the average amount of $37,000 with a 6 percent interest rate, on a 10-year repayment plan, you’ll be paying around $411 per month. Over the life of the loan, that comes out to approximately $49,300, $12,300 of that being interest.

However, if you don’t use $4,000 of that money (just $1,000 per year) and send it back to your lender immediately, you’ll owe $33,000. The monthly payment then is about $366. You’ll pay a total of just under $44,000 (about $11,000 in interest), resulting in a pure interest savings of $1,300, not including the $4,000 in principal you don’t have to repay.

If you double the amount you send back, making it $8,000, you’ll get a bigger benefit. Then, you’ll borrow $29,000 and have a $322 monthly payment. You’ll repay around $38,600 over 10 years, with $9,600 being interest. That creates a total interest savings, in comparison to the first scenario, to $2,700. When you add in the principal you don’t have to worry about, you avoid $10,700 in student loan debt payments.

There are numerous repayment programs out there and there are even times your loans can be discharged, but don’t use this information to make poor choices, use it to gain more knowledge of paying loans back when the time comes.

Ultimately, limiting your student loan debt is always a smart move. It helps your creditworthiness, lowers your payments, lets you avoid some interest, and can even provide peace of mind.

If you want to be wise with your student loans, only use the money for important educational expenses. Then, if you have any left over, send it back to the lender. Your future self will appreciate your smart thinking and your wallet will too.

If you enjoy reading our blog posts and would like to try your hand at blogging, we have good news for you; you can do exactly that on Saving Advice. Just click here to get started.

Who is Betsy DeVos and What Does She Want to Do to Your Student Loan Debt?

September 15, 2017 By Jacob Evans 1 Comment

Betsy DeVos became a household name when President Donald Trump named her the United States Secretary of Education. Before that, she was an education advocate, fighting for the expansion of charter schools. She also advocated for using voucher programs for private schools.

DeVos was well-known in her home state of Michigan, where she lobbied lawmakers to remove the state’s cap on charter schools. She was successful and made a name for herself as a leading charter school advocate.

Her focus isn’t solely on charter schools and vouchers. Now that she is the Secretary of Education, she is taking on the issue of student loans. DeVos is going after some Obama-era student loan forgiveness protections. These new changes could impact students in the near future.

Changing the Old Student Loan Debt Rules

In October of 2016, the Obama administration approved the Borrower Defense to Repayment. This new law allowed students to receive forgiveness on their federal student loans if the school used deceptive or illegal practices to encourage them to take out the money.

The Obama administration also enacted the Gainful Employment rule in 2015. This regulation required that vocational and non-degree programs meet requirements regarding debt-to-income rates. The regulation was enacted to prevent these programs from saddling students with unmanageable student debt. The fear is they could not pay back the debt because they didn’t make enough money after graduation.

The current regulation states that student loan payments cannot exceed either eight percent of a worker’s total earnings or 20 percent of their discretionary income.

Betsy DeVos intends to rewrite both laws. In the meantime, the rules have been frozen, but claims made prior to the freeze are being addressed. That means that students who have already filed claims will likely see their loans forgiven even as new rules are being written.

Reason for the Obama-Era Rules

While most people go to school, get their degree, and enjoy gainful employment, that isn’t the case for everyone. The Obama administration created these rules after hundreds of colleges were accused of committing fraud and eventually collapsed. The students who were enrolled were left with massive debt, and they didn’t receive degrees.

That made it impossible to pay back the debt.

The issue reached a fever pitch when ITT Technical College and Corinthian Colleges collapsed. With the previous rules, students were allowed to apply for loan forgiveness due to fraud, but taxpayers had to pick up the losses. In the case of Corinthian Colleges’ collapse, that loss was $247 million.

The Obama administration’s rules put some of the responsibility back on the schools. If a college was close to collapse, it had to put up financial collateral. The Obama administration’s new rules also banned mandatory arbitration agreements. These agreements made it impossible for students to sue colleges.

With the rules in place, schools had to take financial responsibility, and they could be sued.

Reason for the Change

According to DeVos, the rules are confusing and need to be changed. She claims they are unfair for both schools and students and need to be rewritten.

She states that students will still be protected from fraud, but she wants to create a more balanced set of rules. She says the new set of rules will still help harmed students while protecting taxpayers.

There have been different reactions to the rule changes. The American Federation of Teachers claims that this shows that the administration stands with for-profit universities instead of students. The association wants DeVos to leave Obama’s rules in place.

However, the United Negro College Fund and the National Association for Equal Opportunity in Higher Education state the borrower defense rule could hurt their member institutions. They claim the rule is too vague and support DeVos’ proposed changes.

A Major Lawsuit

While some people are waiting around to find out what will happen with the rule change, not everyone is willing to wait. Attorney generals from 18 states and the District of Columbia have filed a lawsuit regarding the rule freeze. The states want to have the rules restored, and they accuse DeVos of siding with for-profit school executives. They believe freezing the rules will harm students while helping for-profit colleges.

The administration is still determining how to move forward with the new rules. In the meantime, students are encouraged to research their universities or degree programs before enrolling in college. Students should not rely on colleges to give them all of the answers. They need to do their due diligence to protect their interests.

Follow Jacob @DollarDiligence where he shares his new articles, his favorite articles from around the web, and stupid jokes that no one thinks are funny.

You may also enjoy reading:

Photo: CNN and The Libertarian Republic

Three Ways to Tame Student Debt Post-Grad

May 16, 2016 By Michael Thiemann Leave a Comment

College graduation season has arrived. There will be caps tossed, diplomas bestowed and “congratulations” exchanged. New grads will be abuzz with excitement, many talking about jobs they’ve landed and the bright future ahead. But for the nearly 70 percent of bachelor’s degree recipients graduating with debt, that joy will be overshadowed by the daunting task of repaying student loans.

In 2015, the average graduate faced more than $35,000 in loans; higher degrees were paralleled by higher amounts of student debt. And despite what feels like a rebounding economy, the situation today is just as bleak. Recent research suggests student loan debt affects nearly 43 million borrowers and has now surpassed the $1.3 trillion mark. That’s trillion, with a “t.” Let that sink in a moment—more people in the U.S. have student loan debt than even credit card debt. In other words, the student debt crisis is no longer something we can afford to ignore, literally.

If you’re one of the billions of post-grads juggling student debt—two months removed from school or 10 years—there’s a lot you can do to ensure you’re not another statistic. And no, it doesn’t involve winning the lottery or a surprise inheritance. As the CEO and co-founder of Zebit, a free employee benefit that helps working Americans take control of their everyday financial lives, I’ve thought a lot about how recent graduates can manage and eradicate their student loan debts. (Hint: it pays to seek help from your employer!). Below are my top three tips to do this:

Seek support. Dealing with student debt is bad enough, but there are often residual effects that carry over into your personal and professional life; stress brought on by financial insecurity can be detrimental to productivity and may even negatively impact relationships. Talk to your employer about available employee assistance programs (EAPs), and whether or not they subsidize access to counselors. Both are great options to managing side effects of financial woes.
Get Educated. It’s important to have a holistic understanding of your financial situation; this goes a long way in addressing and managing debt. Best of all, there are free assessment and budgeting tools at your disposal, like Zebit’s Instant Budget app—it’s like having free personal financial advisor in your back pocket.
Know Your Benefits. Many companies provide loan repayment assistance programs (LRAP), seeing them as a financial investment to attract and retain top young talent like yourself. It’s worth asking your employer if this benefit is available. If not, consider asking them to explore an alternative financial wellness program like Zebit, which provides financial education, planning tools and no-cost credit options to lower employee stress and improve corporate bottom line. Best of all: it’s free for employers AND employees—something you can both get behind.

For more information about how recent graduates and other working Americans can become financially literate, visit www.Zebit.com. And remember, just as you invested in your education, you should invest in your financial future too.

Photo: Flickr: Simon Cunningham

The Student Loan Myth

January 31, 2011 By Jennifer Derrick 7 Comments

For the past generation or so, lenders and financial gurus have been promoting the myth that all student loan debt should be considered Good Debt. Student loan debt is said to be good because it is debt accrued in the pursuit of an education, which is an asset that will (ideally) product more money. The theory goes that you will take out student loans, get your degree, and then get a job earning so much money that paying those loans back will be a piece of cake.

To some extent this isn’t bad thinking. An education is certainly an asset that will increase your earning power. However, the problem is that people have bought into this myth so entirely that they are coming out of even community colleges with hundreds of thousands in debt. Many people have bought into the notion of student loan debt being so good that they are even using student loans to pay everyday expenses, in addition to tuition and books. They’re getting apartments in the nicer complexes on student loans. They’re using student loans to finance entertainment and spring break trips. “Heck,” they think, “It’s student loan debt. It’s all good.”

Many people are financing educations at schools they couldn’t possibly hope to afford any other way. While there’s nothing wrong with wanting to get a degree from a prestigious university, you have to ask yourself if it’s worth it. In some fields like medicine and law, where you get the degree matters. And those fields will likely earn you enough money that paying the loans back will be feasible. But in many fields it doesn’t really matter at all. The cost of an education at an “affordable” state school is rising faster than the pace of inflation. That alone will set you back for years. Go to a private school for that degree in philosophy, rack up the debt in pursuit of a degree that won’t earn you any money, and you will be in the hole for the rest of your life.

Student loan debt isn’t good debt when it crushes all of your other hopes and dreams. When you’re so busy trying to make loan payments that you can’t afford a house, car, children, or even a pizza, you’re in trouble. And that’s just where some people who bought into the “all student loan debt is good debt” find themselves these days. Jobs are hard to come by. High paying jobs even more so. Student loans are some of the most forgiving in terms of repayment schedules, interest rates, and being willing to defer payments for a while, but even the most forgiving won’t wait forever to get their money back.

So while some student loan debt isn’t bad, you have to make sure you’re not crossing that threshold where good goes bad. What can you do?

Go to a college you can afford by taking on a moderate amount of debt: That may mean a state school, or going to community college for two years while you work to save up extra money. If it really matters where you get your degree, got to a cheaper school while you’re an undergrad and save the big loans for your graduate work. Graduate work will give you more earning power and is thus, “better debt” than that taken on for undergraduate work.

Work while you’re in school: A lot of kids still work while in school, but many don’t. Even a part time job can help offset some expenses. If you work full time during summer vacation and breaks, you can earn even more. Yes, it’s complicated and hard to juggle school and work (but it’s just as hard to juggle work and the rest of your life once you’re out of school), and it may mean reducing your course load and taking longer to graduate, but it’s better than owing hundreds of thousands of dollars when you get out.

Look for money that doesn’t have to be paid back: Instead of going straight for the loans, look for scholarships, grants, or work study programs. That kind of assistance doesn’t have to be paid back and there are programs for almost every field of study. Even small scholarships can help if you can string enough of them together. Too many people run straight for the loan officer instead of looking for other options first.

Get educated: Before you take out a loan, read all of the fine print and understand all the terms of the loan. Know when it has to be paid back and what your total payments will be. Understand how interest is calculated and what happens if you hit a rough patch and can’t make payments. Know everything you can about how that loan will affect your future before you sign. Too many people take out loans not understanding the full impact they will have on all the other things they want to do in life.

Live cheap: You want to live in the nice apartment complex and drive nice cars. And why not? Many people today (whether in school or not) have lifestyle expectations that are way out of whack with their means. When you’re in college and racking up student loans, this is not the time to blow it all on a lifestyle. This is the time to hunker down and make that money stretch as far as possible so you have to take out less and, eventually, pay back less. Live on campus, eat on campus or cook in your own kitchen, skip the expensive cell phones and gadgets, don’t take expensive spring break trips, wear old clothes, buy used books, and find any other way you can to live cheaply. You can pay for a lifestyle later when you’re earning the big bucks.

There’s always the military: Do your four-year hitch in the service and you can get on the GI Bill. Let Uncle Sam pay for your education in exchange for serving your country.

Choose a degree with earning potential: I don’t care how interested you are in philosophy, general liberal arts, or family and child development, those degrees aren’t money makers. If you’re taking on tons of debt that you need to pay back, you need a degree that will earn you money. That may mean majoring in science, computers, medicine, law, business, or some other emerging field that has high earning potential. Minor in your fun interests, but major in something that pays well.

Finish school: One of the most useless things you can do is to incur a ton of loan debt and then not finish the degree. Not only are you stuck paying on the debt, you don’t have the earning power to pay back the loans. Make sure you want to go to college in the first place and then, once you’re there, finish the program.

Student loan debt can be good, but too much of a good thing can derail the rest of your future. It’s fine to take on some student loan debt and it can be a useful tool to help you reach your aspirations. Just don’t let it get out of control. Paying off loans into your forties or fifties puts your other financial goals like retirement, saving for your own kids’ college, and buying a home in jeopardy. You want an education, not a dream-crushing debt load.