How to Find College Loans

The credit crunch and debacle on Wall Street have wiped out those easy-peasy $40,000 college loans that used to be all over late-night TV. And the feds are considering a dramatic consolidation of the educational lending industry that could reduce options still further. But no matter what happens in Washington or on Wall Street this year or next, most students will still be able to borrow enough to cover the bulk of tuition at their local public university at a reasonable cost from the feds.One of the most surprising results of the turmoil in the lending markets is how students' loan options have diverged from parents'. Here are the key things both should bear in mind:

Deals for students. Students should always start with the feds. The first step: filling out the FAFSA form, the Free Application for Federal Student Aid.

All full-time students who complete a FAFSA and a federal loan agreement provided by their school's financial aid office can borrow at least $5,500 a year through the Stafford student loan program. Students who are at least 24 or whose parents have bad credit can get Stafford loans of up to $9,500 to $12,500, depending on their year. This fall, Staffords will charge no more than 6.8 percent a year in interest plus a 1.5 percent upfront fee, for an average annual percentage rate of 7.1 percent.

Low-income students generally qualify for better deals. Some will receive federal Perkins loans, which charge no interest while students are in school and just 5 percent after they leave. And most needy students will receive "subsidized" Stafford loans, which for the academic year starting this September will charge no interest while students are in school and 5.6 percent after they leave.

Need more? Uh-oh! Dropping out of college is usually far more expensive, in the long run, than sticking it out and graduating to qualify for better jobs, so it can pay to borrow a little extra to make it to commencement. The problem is that students who need more than the government will lend have few good choices, says Greg McBride, a senior financial analyst for Bankrate.com. Here are some possibilities:

Charities and colleges. A few charities, such as Maryland's Central Scholarship Bureau and the Scholarship Foundation of St. Louis, award interest-free loans to a handful of needy students each year. And some colleges, including the University of Minnesota-Twin Cities, are trying to un-crunch credit by making loans themselves. But beware: Lauren Asher, acting president of the Institute for College Access and Success, warns that while many of these are good deals, students shouldn't automatically accept every loan they are offered.


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How To Use Federal Student Loans

The Federal plan that provides student loans is called the Direct Loan program. This is a low interest loan for students and parents to help pay for education beyond high school.

These student loans are issued by the U.S. Department of Education directly, and there are no banks involved with these loans. Because you are borrowing directly from the federal government you will be able to administer everything to do with your loans using the Direct Loan Servicing Center. This makes it easier especially if you have multiple loans from different schools.

There are a number of types of student loans that fall under the Direct Loan Program and there are some important differences that you should be aware of about how they charge interest.

The subsidized loan is for students that have a financial need determined by federal regulations. With this loan there are no interest charges while the student is in school at least half time. There is also no interest charge during the six month grace period following the completion or termination of classes, nor any deferment periods.

The unsubsidized student loan is not based on financial need, and there will be interest charged as soon as the money is distributed. This means that even though you are not obligated to pay on the loan while in school, you will be charged interest during this period. You will also be charged interest during the six month grace period and any deferment periods.

The Plus loan is an unsubsidized loan for the parent of the student to help cover any educational costs not covered by any other financial assistance. Interest is charged during all periods for this type of loan.

There is also a Consolidation loan that combines any eligible federal student loans into one Direct Consolidation Loan. This has the advantages to lower your monthly payments by spreading you loan out over a longer term. While you will lower your monthly payment, you will pay more interest because of the longer term.

You can apply for any of the Direct Loans by filling out the Federal Student Aid application online. The information in the application is transmitted to the school you list in the applications and is used to determine all financial aid that might be available to the student.

There are no required payments for student loans that are due until the student falls below a half time status and there is also a six month grace period after graduation or termination in most cases.

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Federal Loan consolidation for Federal and state student loan

Unsecured loan is usually the credit card loan where the creditor has no material assets of the debtor under his possession. Lenders do offer such loans but they come with high rates of interest and heavy monthly installments since there is nothing kept as security with the creditor. When this burden of loan debt is increased, one has to take assistance of credit card debt consolidation loans or has to go for federal loan consolidation if he is a student.

Unsecured debt consolidation refers to a process wherein all your loans irrespective of their amount and rate of interest are put into one loan. It is called unsecured because money revival is no assurance here from the creditor’s viewpoint. Through debt consolidation loans a single installment every month is paid every month instead of many. You can approach your bank or any other lender for quick assistance and fast processing, you will find very competitive interest rates.

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Services are available with the credit companies for bill consolidation if you have decided to go that way. These companies are also referred as debt settlement companies. Professionals can be hired who will negotiate on your behalf with the creditors for the debt settlement of your loans and penalties. Students who are willing to settle all their loans taken during study years should make a fast access to such to them.

School loan consolidation has largely benefitted scholars. Federal loan consolidation is a refinancing plan that issues one loan against many prevailing ones. Students turned qualified professionals often do not want to continue their debt accounts related to studies for 10 to 20 years. Hence, all federal study loans are combined into one new loan. Such consolidation is a helpful tool for those who are willing to make an immediate full payment or those who are looking for payment relief in long term.

School loan consolidation offers many relaxations such as a cut on monthly payment is possible, nominal interest rate, cancellation of penalties and application costs. You can spend the saved money for house rents, living costs, recreation, investment purposes or career related plans.


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Federal student loan consolidation: who struggle from education debt

A college or school loan consolidation could be the answer for anyone who is struggling to find a way out from under mounting educational debt. Some lenders claim that students who borrowed to cover the cost of higher education might be able to cut monthly payments by as much as fifty percent. Careful research and comparison could yield interest rates that are both reasonable and fixed. Some online lenders offer the opportunity to apply for federal student loan consolidation via the Internet and charge no application or origination fees.

One reason that monthly payments are significantly lower with credit card consolidation loans is that the financing is extended over many years. Some financing can continue for up to thirty years. These lenders frequently do not require credit checks or co-signers. Both students and parents of students are eligible to apply for this financing. A consumer should do careful research before moving forward with many of these lenders. Some student debt already carries extremely low interest rates, so the expense of refinancing at a possibly higher interest rate may not be such a good idea. But the borrower who has multiple loans may find a federal debt consolidation loan to be the best way to pay off education related debt.Student financing can come in the form of federally insured loans as well as private financing. If a graduate has financed an education with federal funds, those funds can be consolidated through a federal student loan consolidation program. The interest rates for these loans are usually fixed. For many former students who are in the process of beginning a new life in the work force, the ability to refinance multiple loans and combine the costs of all the debt consolidation loans into one can provide needed relief from crushing monthly payments.

Creating a more manageable way to deal with this debt can make life much easier and possibly even increase personal credit scores. The standard repayment plans on original student debt generally stretch out over ten years. But since many university educations can cost as much as a small mortgage, a thirty year option does not seem unreasonable. The ability to make larger payments than are required can be another benefit of this form of financing. An additional benefit to federal consolidation loan program might be found in the fact that there is generally no penalty for early pay off.

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Relief for School Loans

Struggling to pay your federal student loans and the rest of your living expenses?
Starting July 1, some college graduates will be able to get lower loan payments under the federal government's new Income Based Repayment Plan, which calculates monthly payments based on a person's income and family size.
The program will be open to graduates who have a Stafford, Graduate PLUS or consolidation loan made under either the William D. Ford Federal Direct Loan or Federal Family Education Loan programs. The loans could be for undergraduate, graduate or professional studies as well as for job training. (Loans currently in default, parent PLUS loans and consolidation loans that include a parent PLUS loan don't qualify.)
"If you're earning a lot less than you thought you would short term or long term, you can make affordable payments on your loan, stay in good standing and have a light at the end of the tunnel," says Lauren Asher, president of the Project on Student Debt, a consumer group based in Berkeley, Calif.

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5 easy tips will help you master your student loans

NEW YORK – Graduating into a barren job market is stressful enough. When massive student loans await, the rite of passage can be downright terrifying. "A lot of people are coming out of college with more debt than ever before, and they're graduating at a time when it's going to be harder to get job," said Lauren Asher, president of the Institute for College Access & Success, a California-based nonprofit agency that runs the Project on Student Debt.
The group estimates that two-thirds of graduates from four-year universities have student loans, with an average debt of $22,000.
Still, Asher says that knowing your options can ease the burden.
Here are five steps to help master your student loans.

 Know what you owe

The first step is understanding how a student loan works. Although the interest rate on federal loans tends to be favorable, it kicks into gear as soon as the loan is taken out. That means you've got four years of interest on top of your loans by the time you graduate.
And the meter on interest doesn't stop running during the grace period before repayment begins. The exception is with subsidized federal loans, in which the government picks up the interest until the loan becomes due. Students need to demonstrate financial need to qualify for subsidized loans. Interest on unsubsidized loans begins accruing right away.

Pick a plan

The standard repayment plan for federal loans is typically 10 years.
Extended plans can be tempting because they require smaller monthly payments. But it also means you're paying interest over a longer period, which pushes up the total cost.
"Use as short a loan term as possible. You don't want to be paying your own student loans when your kids are graduating," said Mark Kantrowitz, publisher of FinAid.org.
If you can't keep up with the payment schedule, you can always switch plans. You're allowed at least one change a year with federal loans.
A new option for federal loans starting in July is the Income-Based Repayment program. Eligibility is determined by weighing your debt level against your income.
There may be no monthly payments required for those who earn less than a certain threshold, currently about $16,000 a year. Otherwise, your monthly payment is generally capped at 15 percent of your earnings above that amount.
Any debt remaining after 25 years is forgiven, unless you start making enough money that you no longer qualify for the program.

Try deferring payment

You can defer payment on federal loans under select circumstances, including military service, unemployment and economic hardship. With private loans, the rules on postponing payment (called "forbearance") are set by the lender.
Try to avoid delaying payment if you can because interest continues accruing unless you have a subsidized federal loan.
Graduate school is one way to defer payment on most federal or private loans, but that can backfire.
"It could add to your loan amount. And at some point, your loans will come due," said Deanne Loonin, director of the National Consumer Law Center's Student Loan Borrower Assistance Project.
To qualify for unemployment deferment on federal loans, you need to demonstrate that you're looking for work.
You could also qualify for economic-hardship deferment if your income is below about $16,000, you get public assistance or you work in public service.
Deferment for unemployment and economic hardship are each limited to three years.

Consider consolidating

A consolidation loan lets you combine loans to make a single monthly payment. You also get a fixed interest rate for the life of the new loan.
This might benefit those who got federal loans before July 2006, when interest rates were variable. You might even want to "consolidate" a single federal loan if it has a higher, variable interest rate.
If you've been out of school for a while and are running into trouble making payments, a consolidation loan is a way to get renewed deferment rights. Most federal loans can be consolidated under the Federal Direct Loan Consolidation program.
One drawback is that consolidation usually extends repayment, meaning the overall cost of the loan will be higher. A calculator on loanconsolida tion.ed.gov can help determine whether a consolidation loan will save you money.
There is no fee or cost to consolidate. Some federal loans, such as the Stafford and PLUS loans, might charge a fee that is deducted from the disbursement check, but there should never be an upfront fee.
Consolidation might not be an option if you have private loans because most private lenders are getting out of the federal loan business and generally trying to reduce risk.

Avoid default

Defaulting on a student loan comes with some ugly consequences.
To start, the default will go on your credit profile and likely obliterate your chances of getting any other type of loan, such as a credit card or mortgage.
That's because federal loans, with their favorable interest rates, are regarded as among the easiest to repay, said Kantrowitz of FinAid.org.
The cost of your loan will jump too. On top of late fees, you'll also be liable for collection costs, including court and attorney fees.
The government can also garnishee wages up to 15 percent, a practice that can follow you late into life. Student loans typically aren't discharged in bankruptcy filing either.

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New student loan repayment plan is based on borrower's income

New student loan repayment options came just in time for Jeff Zollinger.

The 32-year-old father of two just graduated from architecture school with $125,000 in debt. He and his wife, an audiologist, expect to make good money someday -- more than enough to pay the loans. But between the rotten economy and a new baby, the Savannah, Ga., couple have only been able to find part-time work. They're struggling to make ends meet, so the $1,200 a month that Jeff's lenders want on his loans doesn't seem feasible.

Fortunately for the Zollingers, a new federal student loan repayment plan goes into effect this month that could dramatically reduce payments for highly indebted borrowers. Called "income-based repayment," the plan limits the monthly payments to a percentage of the borrower's monthly income.

The program is complex and won't apply to every borrower. But those who have federal student loan balances that exceed their annual income almost certainly qualify, said Edie Irons, communications director for the Institute for College Access and Success in Berkeley. In many cases, loan payments could be sliced in half.

How does it work, and how can you apply? Here's a look.

What's income-based repayment?

It's the newest of six repayment options for federal student loans. It differs from most options in that the other loan payment plans are designed to repay the balance over a set period of time, such as 10 years. Income-based repayment doesn't base payments on a set payoff date. Instead, the payments are based on the borrower's discretionary income. That's calculated by determining how much the borrower's income exceeds federal poverty guidelines for his or her family size and location. The less you earn, the less you pay.



If you pay less each month, doesn't that mean you'll pay for more years and end up paying more interest, too?

Yes. Interest accrues on student loan balances each month and if you're paying less than the interest that's accruing, the balance of your loan could actually rise. For that reason, anyone who could afford to pay more would be advised to, Irons said. But if the loan payments are making it impossible to pay other bills, this gives you the flexibility to help your cash flow without hurting your credit.

Does that mean I'll be paying on my student loans forever?

No. This plan says that any borrower who has faithfully made payments for 25 years can have his or her remaining loan balance forgiven or wiped away at the end of that time.

In addition, if you work for government or a nonprofit and repay your debts under the direct loan program for 10 years, you could have your loan balance wiped out faster under another federal program called Public Service Debt Forgiveness.

How much would I have to pay each month?

That depends on your income, your debt and the number of people in your household. However, the Education Department says if you are single and earning $20,000 annually, the most you'd have to pay against student loans is $47 a month. If you earned $25,000, the required payment would be $109. If you earned $35,000, the required payment would be capped at $234.

Comparatively, if you had $50,000 in student debt at a 6.8% interest rate, you'd have to pay $575.40 a month under the standard repayment plan, no matter how much you earned.

Am I going to be locked out of the program if I earn more?

No. The formula determining whether you qualify looks at your loan payments versus your discretionary income. You could have a substantial income and still qualify if you also have a lot of debt. Borrower's payments are adjusted once annually to reflect changes in income and family size.



Can I do this with all my loans?

The program is only available for federal student loans under the Stafford, Grad Plus and federal consolidation loan programs. It does not apply to parent's loans for students (called Plus Loans), and only applies to Perkins Loans if they're consolidated into the Federal Family Education Loan or Direct Loan programs. It also does not apply to private loans, state loans and loans that are not backed by the federal government.







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