Who qualifies for the new student loan debt program?

Those with lower incomes qualify for this student loan debt program, which allows you to make payments that are around 10% of your monthly gross income. In order to qualify, you have to have student loan debt of at least 1.5 times your your gross income. (This means I don’t qualify.) The loans included in the plan can be undergrad or grad. Professional job training certifications are also included.Your Stafford, Grad PLUS or consolidation loan of these programs are eligible. A parent PLUS Loan is not eligible. You can include old loans in this program.

For those who are having a hard time finding a job, or for those with a lot of debt relative to their income, this might be an elegant solution, one that works better than forbearance or deferment. One of the bonuses is that if you go into public service, what is left after 10 years is forgiven. If you choose the Income Based Repayment Plan, and you still owe after 25 years, that remainder is forgiven as well.

Here is an example chart of what you might pay, depending on your income and the size of your family (source: studentaid.ed.gov):

Drawbacks to the Income Based Repayment Plan

As you might guess, there are some downsides to this plan. While it can make meeting your obligations a little bit easier, there is a price to pay — in the form of increased interest paid over the life of your student loan debt. With a reduced payment, you are spreading your obligation out over a longer period of time. This means that you will probably pay more interest over the long haul. Most student loans are repaid over a period of 10 years, so that means extending out 25 years could mean a great deal of difference, even if you get the remainder forgiven.

You should also realize that you will have to submit annual documentation. This means that you have to maintain a low income in order to renew at your low income payments. If you fail to provide documentation, your payments will return to a standard repayment amount. Most lenders will probably send you reminders about renewing your documentation.

For those having difficulties due to the economy, this might be just the thing. However, it is a good idea to pay more when you are able to. Extra payments toward the principal should begin as soon as you can manage. In the end, the student loan industry is making money off of you, and the interest is money you could be using for yourself.

What do you think of the Income Based Repayment Plan for student loan debt?

Post from: EveryJoe

Help for Those with Student Loan Debt

The end to low interest student loans?

Right now, in order to encourage lenders to offer rock-bottom interest rates on student loans, the government hands out subsidies. Now, though, without these subsidies, lenders won’t be very likely to give out low interest student loans that make it possible for many middle class students to attend university. While increasing the amount of money available for grants is laudable, it only makes things worse for those families — like mine — who make too much to qualify for grants, but who don’t make enough to actually afford college without help.

Additionally, without federal subsidy protection, I foresee issues with getting approved for student loans. The credit and income requirements are likely to be strengthened as well. Unless Obama finds a way to provide grants for those who don’t qualify right now, we could see fewer middle class students able to afford college.

What do you think? Should the government continue to provide subsidies for low interest student loans?

image source: sxc.hu

Post from: EveryJoe

Will You Be Able to Afford a Student Loan?

• Scholarship programs are usually supported through trusts that earn money from investments, and those haven’t been doing very well.
• Student loans are harder to get as the credit market remains tight and lending standards remain high.

So going to college is a popular option, but it is a bit harder to find the funds to pay for it.

Paying for college during a recession

Most people, when they go to college during a recession, do not have outside funds to help them pay for school. However, there are programs that can help students close the college funding gap:

• Microfinance is possible for some student loans.
• Get a cosigner if you can’t get approved for student loans (especially private loans) on your own.
• Join Upromise and apply for the recently increased scholarships. (You can also save up for college when you buy every day items. But it takes forever to accumulate anything.)
• Look for specialty and niche scholarships.
• Fill out your FAFSA early, so that you have a better chance of access to limited funds.
• Try to find work study (although this is becoming scarce as funding to universities is cut).
• Consider working part time and going to school part time. (There are part time jobs available. They don’t pay well, but $15 an hour is better than $0 an hour.)

Things are tough all over right now, and it only makes sense to do what you can to increase your skill set while waiting for things to turn around and the job market to recover. But you may have to work hard to find a way to pay for your skills upgrade.

Post from: EveryJoe

The Recession Sends More People to College — But How Will They Pay for It?

Indeed, everything our leaders have been doing, in the name of fixing the economy, has been aimed at increasing consumer spending. And now it looks like they are down to the final straw. Witness the latest TARP program, which is aimed specifically at boosting consumer spending fueled by debt.

TARP to encourage investment in consumer debt-backed securities

The latest TARP plan offers up to $200 billion in special loans to investors who will then buy consumer debt backed securities — securities based on credit card debt, student loans and auto loans. The idea is to encourage investment in these vehicles so that lenders will loosen their recently-tightened requirements and then allow more lending to take place. Consumers will borrow more so that they can spend, spend, spend to save the economy and our American way of life.

Regular readers know that I am in favor of a radical shift from a debt-based economy to one that is more stable (though less sexy in terms of growth) and based more on disciplined spending within our means, saving and exporting technology, goods and services to other countries rather than being the world’s biggest consumer.

Unfortunately, our leaders still persist in pursuing an economic model that is not good for the individual personal finance situation. It is a model that insists that we all be in just enough debt that we keep making interest payments — but that we never quite escape and we never quite go under.

Does anyone else think there is something wrong with this?

Post from: EveryJoe

Fed, Treasury Ready to Boost Credit Card Debt-Fueled Consumer Spending

So, with inspiration from Ginger at Girls Just Wanna Have Funds, I am sharing my  loan experiences with the world.

I do hope that you’ll join in by leaving a comment, and/or a link to any post you write on the subject.

Payday loan

I think I’ll get the ugly out of the way right now. I was young. In college. Poor. Too proud to ask my parents for help. I went to a post-dated check place, with proof of my summer job as a waitress (my position in the school’s cafeteria was suspended until fall semester), and got enough to pay a month’s rent and any other expenses that came up before the tip money accumulated enough for me to start living on.

A payday loan is about the worst loan you can have. Ever. It’s right there with car title loan. The interest rate is abominable, and it is very easy to renew. It is very easy to slip into a habit of constantly renewing and watching the fees stack up. In fact, the “nice” man at the payday loan place invited me back in a couple more weeks for an extension of the loan. It would be no trouble at all. I never went back.

Credit cards

Since I’ve started with the worst (and most embarrassing) loan, might as well move on to the next. Credit cards. A racked up a ton of credit card debt (I *had* to get my payday loan because the single card I had at the time was maxed out at $800 ) while in college. Mostly on road trips and other frivolity. By the time I graduated, I had three credit cards — all of them nearly maxed out.

Now, though, my husband and I try to be very careful. We have specific uses for our credit cards, according to the rewards they offer, and we pay the balances off each month. It was so hard to dig out of that high interest credit card debt that I do not want to try it again.

Car loan

I got my first car loan at age 18. My parents co-signed. The next car loan I got (after I had paid off the first loan and later totaled my precious car), was one that my husband and I bought together after we married. It’s been paid off for just over a year, and we are hoping to save up for the next car so that we can buy it outright. This is done by continuing to make the “car payment” to a high yield savings account. And made possible by the fact that we refuse to buy new.

Mortgage

We bought our first house last year. Very exciting. Next time, though, I’ve told my husband that he has to give better warning. We only put down a 3% down payment (it’s an FHA loan) because my husbad announced his intention to buy suddenly, just two weeks after insisting that we wouldn’t buy while he was at school. But it is a 30-year-fixed with a decent interest rate.

Student loans

We’ll be paying these off for-e-ver. Even though I had a scholarship and a part-time job, I still took out some loans. And then there was grad school. At Syracuse University. One year there cost more than four years at my undergraduate state school in Utah. Not only did we take out federal loans for my grad school, but I also took out private loans. And now my husband is in school.

We’ve started paying off my student loans, and as soon as Josh is done and gets a job, everything he makes will go to the student loans (we live mainly on what I make). So we should be able to pay off the student loans in 3-5 years after he finishes.

What about you? What are your loan experiences?

image credit: sxc.hu

Post from: EveryJoe

The Good, The Bad and the Ugly: My Loan Experiences

Agarwal is the CEO of GreenNote, a new college loan provider (launching next month) that aims at using microfinance to close that college funding gap. “Up until now, students had to turn to expensive private loans to meet their needs,” he says.

The idea is that everyone has a social network. Students can take advantage of that by asking friends and relatives (and even complete strangers) to help them pay for college — and earn a return while doing it. Using the principles of microfinance, GreenNote allows students to borrow money for college from several people. And those people get a return, since interest is paid.

Here are the basics of the GreenNote microfinance college loan program:

• Students create a profile and share their funding needs.
• Visitors to the site (encouraged by students) can choose to help by contributing any amount — but it must be at least $100.
• The interest rate for the student is the same rate charged on Stafford federal student loans (currently 6.8%).
• Lenders earn a return on the loan.
• GreenNote facilitates the loan, from collecting the money and sending it to the college, to collecting payment from the borrower, to distributing payments to lenders. Fees are subtracted from the total the borrower gets (one time — 2% of principal) and 1% from the lender’s return.
• If they choose, lenders can waive interest payments or forgive the principal.

At first glance, this looks like an interesting way to close the college funding gap. Students get the money they need, and lenders can feel good about helping (and make a little money as well — although it won’t be much).

image credit: sxc.hu

Post from: EveryJoe

Using Microfinance to Close the College Funding Gap