The Student Debt Project — First Look
This is relatively breaking news, so I wanted to share it with you here first. The Project on Student Debt, which is funded by the Institute for College Access and Success, just released it’s annual report on Student Debt in 2010.
The Project on Student Debt helps American families understand how the student loan borrowing process works, and also what the implications are during repayment and even further down the road. This project is a non-profit, dedicated to spreading the word about the negative impact that student loan debt can have on your future. They are also committed to teaching students and parents about how to be responsible with their student loans and how to properly manage their money for college. Basically, these folks are after my own heart!
Please go ahead and check out the Student Debt report for 2010. There is some fascinating data collected in this report.
I have just recently received the report, and I want to put some research into the report before I respond here on Money for College Project. So in the mean time, please feel free to check it out, and let me know what questions you would like to see answered in my breakdown of the Student Debt in 2010 Report.
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Money for College Project Roundup: Asbestos and Mold Edition
The suite of offices where I work is currently being renovated. Our suite is in the basement of a 100+ year old building, and the mold, mildew, and asbestos that live under the walls has always been disgusting.
The powers that be have finally made the decision to renovate our office space. I am really excited about the remodel, but during the demolition phase, all of those mold, mildew, and asbestos particles have been released into the air. So now everyone who works in the entire building is coughing, and many have upper respiratory infections. I was fine until yesterday, when I cam home wit a violent cough and a raging swollen throat.
Fortunately, I don’t feel sick, just not able to talk. Thankfully, I get to type on this blog instead of talking, so the Money for College project weekly Roundup will go on!
Money for College Project
Can you Invest Student Loans This article is a follow-up to the original posted back in September. I wanted to take a more in-depth approach to the question, because I believe there are some valuable lessons to be learned.
Student Loan Deferments All of the basics for every different type of student loan deferment that you could possibly want. It’s important to note the regulations regarding each type of deferment, as these could drastically impact your ability to receive one.
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My Career as a Fire Spotter When I took one of those personality assessment tests back in high school, this is exactly what it said I should become. A park ranger was another option. Turns out, it might not have been such a bad gig…
Pat Flynn at Blog Expo Pat Flynn talks about his experience at the World Blog Expo, and how he recovered after a potential disaster dring his presentation. Top notch as usual.
How to Make Long Term Decision Ramit walks you through his method for making difficult long term decisions, and sticking to them. His use of psychology is effective, as usual.
Inspired by History? Art of Manliness writes an excellent article on why we should be inspired by History, and what we can learn from the lessons, mistkes, and great men in our past.
Yakezie Friends
Sustainable Life – Manual Upgrades
The Millionaire Nurse – Bank Fees
Daily Money Shot – 116th post Giveaway
Money Beagle – Be Optimistic about Student Loan Debt
KNS FInancial - Failure to Meet Goals
Bucksome Boomer – Get Stinkin Rich
Invest in the Markets – The Fatted PIIGS
Dog Ate my Wallet – Average Joe
20′s Finance – 4 Movie Tickets for $9
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Can You Invest Student Loans? Follow Up
Back on September 12th, I posted an article titled Can You Invest Student Loan Refunds?. This has become one of my most popular articles, and I wanted to write a follow-up post to give another perspective that arose out of your comments.
I did my best to make a convincing argument against taking your student loans and investing them. I still believe that this is simply a moral barrier that should not be crossed, but it is also a Federal law.
The main question that was raised in the comments, and which is quite valid, is how will the government ever track these student loan refunds if they are invested?
Government Black Hole?
Moral high ground aside, I think it is very interesting to see exactly how someone can take the student loan refund that they receive and invest it for a profit (or a potential loss). The fact that this is possible brings to light a large need in our government for more student loan oversight and tighter restrictions on who, and how much, students can borrow. If it were publicized that investing student loans is a great way to make money (which ok, I am doing here on this blog, but please forgive that for a moment) then I could forsee this practice becoming much more common.
Many commenters asked the question in the original article of how the government enforces their rule that student loan refund can only be used for “educational expenses”. From all of my work in higher education, the only answer I could come up with is that unfortunately, they do not. I see their reasoning behind this. Can you imagine how difficult it would be to track the refunds of millions of student loans across the country? You would need to hire hundreds of auditors to work full-time on enforcing this rule.
So as it stands, the government really does not have an adequate way of enforcing their rule that you cannot invest student loan refunds.
The Gray Area…
As with many federal regulations, there is a large gray area that is left open to interpretation. If you receive a student loan refund, and you want to do something proactive with that money, what are your options?
Strictly investing that money in the stock market is out. That would mean that you are using the funds to directly incur a profit (or a loss). What about investing the student loan refunds in a Roth IRA? This is still based on the whims of the stock market, but arguably more safe
What about stuffing your student loan refund into a high yield savings account? You are incurring no risk, and it is also gaining a small amount of income as time passes.
I would say that this decision is left up to you.
There are positives and negatives to every financial decision that you make regarding your student loan refunds. If you invest in a ROTH IRA, then you have to pay a penalty if you withdraw the funds to pay off your student loan before you reach retirement age.
If you invest your loan refund in the stock market, then you run the risk of losing all of that money, and having no funds to repay your student loan.
Parking your student loan refund in a high yield savings account seems like a very safe option, but the yield is so small these days, is it really worth it?
All questions that you will need to think through.
I know there are some strong arguments on both sides of this topic, and I know you all would love to share them. So please let me have it in the comments.
Would you invest your student loan refund? How would you do it?
Understanding Student Loan Deferments
Repaying student loans is an essential component of many folks financial futures. We have talked a lot here at MfCP about how to avoid taking out student loans, and viable options for getting free money for college. However, student loans are not evil, in moderation, and there are ways to manage their repayment to maximize the benefits that are available to you.
It’s no surprise that student loans become a burden in repayment. They are a lingering monthly payment that seemingly goes towards nothing. Because of this, they are often one of the first payments to be missed, or to let slide into delinquency. Even though student loan programs have generous repayment options, you can still default on them, and student loan lenders do report to credit bureaus. **Student loans can hurt your credit score as much as any other type of loan!**
If you find yourself in a situation where you are unable to make your monthly payments on time, then you should immediately contact your loan servicer. This will allow you to explore all of the options available to you, and ensure that you choose the option that is best for you.
The student loan deferments and forbearances available to you also depends on the type of loan that you have. Here are your options for the most common student loan types.
FFEL/Direct Stafford/PLUS loans
You will need to contact your loan servicer to request your deferment or forbearance options for these loans. If you are in repayment, you should already be receiving monthly statements from your servicer, but if you are not sure who your servicer is, then you can visit http://nslds.gov to find out. This database is also a great resource for keeping track of all of your student loans and managing your repayment plan.
When your loans are disbursed, they are automatically placed into an in school deferment period. This means that as long as you are enrolled at least half-time in school, your loan payments will be postponed. Once you graduate or separate from your school, you will have a 6 month grace period, and then your repayment will begin. At this point, you can explore a few options of further postponing your payments.
- In School Deferments: If you graduate with a Bachelor degree and plan to continue on towards a Masters, then you can apply for an additional in school deferment on your student loan. Simply contact the registrar’s office for a verification of enrollment, and submit this to your lender. If you are already repaying your loans and decide to go back to school, you can apply using the same process.
- Economic Hardship Deferment: If you are experiencing economic hardship and are unable to repay your student loans then you can apply for a deferment based on that situation. You may be eligible for up to a 3 year deferment if your economic situation does not improve. In this economic climate, this is something to consider. It is important to note however, that if you have a subsidized Stafford loan than your interest will also be deferred during your deferment. If you have an Unsubsidized Stafford Loan or a PLUS loan, then your interest will continue to accrue during your deferment, and it will be added, or capitalized, to your total loan amount when you begin repayment again. A deferment also must meet strict guidelines set forth by the Department of Education. They are the official governing body on student loan deferments.
- Economic Hardship Forbearance: If you are unable to qualify for a student loan deferment based on the federal guidelines, then your lender may be willing to grant you a forbearance, or a temporary stop in your monthly payments. This can only last up to 12 months, and the same rules apply to paying the interest as with a deferment.
- Military Service Deferment: To be honest, I wish that all active duty soldiers serving more than 5 years would have their student loans forgiven. The military has a generous tuition assistance program, but I still wish they could do more. However, if you are active duty then you can apply for a deferment which will postpone your payments while you fulfill your military obligations.
Perkins Loans
A Perkins Loan is also a federally subsidized student loan, but it is one that is issued by your school, and it is repaid directly to your school. Many schools use a third party servicer to manage their repayment so you may actually send your monthly payments and deferment requests through that servicer.
The same deferments apply for Perkins Loans as they do for Stafford Loan, except Perkins Loan deferment decisions can be made by either your school or their third party servicer.
Private/Alternative Loans
There are less federal regulations surrounding private or alternative student loans, but the deferment process works the same. You will simply contact your lender for your private loans and request a deferment. Private loans do not have subsidized options, so you will always pay the interest, or have the interest capitalized, during a period of deferment.
Your private loan lender will be able to work with you on temporarily postponing your payments, and starting your student loan deferment to help you avoid late payments or a loan default.
Read MorePresident Obama’s Student Loan Debt Plan is Worthless
Last week, President Obama unveiled a new plan to help combat the rapidly growing amounts of student loan debt in our country. He made his speech in front of a group of 4,000 protesters, mainly students, who had gathered as part of the “occupy” protests springing up around the country.
I won’t get into a political debate here at all, but I do want to point out what I believe are significant flaws in the President’s proposed student loan debt plan. If you are a student, or anyone else who is repaying student loans, then this is important information that could directly affect your financial future.
Student Loan Proposal #1
Last year Congress passed a law that would allow a borrower on the Income Based Repayment Plan to cap their maximum student loan payment at 10% of their discretionary income, rather than the 15% it had been previously. This law had been scheduled to take effect in 2014, and the President’s new proposal will simply speed that process up. My problem with this proposal is that it is not actually helping students pay off their loans any faster. Lowering the maximum required payment? All that does is drag out the length of repayment, and increase the amount of interest that is being paid on a student loan.
Student Loan Proposal #2
Under the Income Based Repayment Plan the Department of Education will allow the remaining debt to be forgiven after 20 years instead of 25 years. This sounds like a great benefit, but does anyone really want to pay on their student loan for 20 years? Or even 15 years? I think that we need to stop treating student loan debt like mortgages (although I will concede that some people have as much student loan debt as the average mortgage amount, or more…). We should look to cap the maximum repayment period at 10 years. This will force students to deal with their student loan problems quickly, rather than stringing it out until their kids are ready to go off to college, and they are still paying on their own student loans!
Student Loan Proposal #3
The President’s new student loan debt plan will also allow borrowers who have a student loan under the Federal Family Education Loan Program (which was disbanded in 2010) and a loan under the currently mandatory Federal Direct Loan program, to be able to consolidate these loans for up to one half percentage point less in interest rate.
I actually think that this is a good proposal because it will go a long ways towards preventing default and confusion among student borrowers. It is much more difficult to manage 2, 3, or 4 different student loan payments than it is to manage one payment. This proposal allows you to streamline your monthly payments, and even get a small reduction in your student loan interest rate.
However, the problem lies in the fact that when you consolidate these loans, you almost always lose your student loan deferment and forbearance privileges. That is how the policy currently works, and I have not read anywhere where this is proposed to change. This means that if you consolidate these loans into one Direct Loan, then you will not be eligible to apply for a medical deferment, or a forbearance due to a financial hardship or loss of employment.
Consolidating your loans may sound like the smart move to make, but be sure you read all of the red tape before signing the loan consolidation papers. You may be signing some very important rights away.
What Needs to Happen
I don’t have to answer for fixing the student loan program. Unfortunately, I don’t know the one trick that will help borrowers repay their loans easier (except for 0% interest on student loans of course).
What needs to happen is a more focused effort by the Federal Government and all colleges around the nation in helping students avoid taking out student loans in the first place! Students will always have a difficulty repaying a debt. We cannot change that, but what we can change is the amount of debt they have to repay in the first place.
We need to implement financial literacy programs that teach students basic money management principles and teach them how to budget their money while in college, and once they graduate. Colleges need to put more emphasis on the entrance loan counseling that is required before loan disbursement. This is the perfect time to explain to your student borrowers exactly what they can expect when they repay their loans. There is a large chunk of time between entrance counseling when a student is a freshman, and exit counseling when they have already racked up over $100,000 in student loans. We need to be proactive in this middle period. I would advocate annual required loan counseling sessions.
I would also strongly advocate for more conscious effort on promoting scholarships and grants. We need to help our students find the “free money” that is available to them, rather than relying so heavily on student loans. If we don’t, then we may begin to lose students in the future who simply decide not to take out so much in student loans.
Do you have any ideas on what can be done to combat the rising student loan debt problem?
Read MoreMoney for College Roundup: Kickoff Edition
I have wanted to start this for some time now, but laziness has set is, and it has not happened yet. But starting today I am committing myself to a weekly roundup of the posts here on Money for College Project, my favorite articles from around the web, and also the top article from my fellow Yakezie Members!
Without further adieu……here is the inaugural edition of the Money for College Roundup!
Money for College Project
How 3 Students Saved over $295,000 in College Costs
Buy and Sell on Craigslist to Make Money
Public Libraries: Hidden Gems of Millions
Awesome Articles You Need to Read
Wanna Win the Iditabike? You Need a Diet of Cookie Dough Something I have secretly always wanted to do…bike across Alaska! Not finance related at all, but I think it will enrich your life.
Coworking: Sharing How We Work For all of your freelancers and work at home folks, you need to be up on the current trend of Coworking. If you have not tried it, I highly recommend it. I have even considered opening up my own coworking space in my hometown. Definitely an awesome tool for entrepreneurs!
An Early Education in Financial Literacy Starting out the financial education of our children at a young age is crucial to our global future financial stability. So what if it starts in Girl Scouts.
The Free Monkey Problem: The High Cost of Free Things You have all heard that there is no such thing as a free lunch….but now you need to learn that there is no such thing as a free monkey.
How to Quit Mindlessly Surfing the Internet…. We all are guilty of this. Sitting down at the computer with every intention of being productive, and then trailing off into a rabbit hole of time sucking activities (sometimes quite literally). Here is how to avoid all of that.
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Aaron Hung - 3 Ways Your Boss Can Kill You
Everyday Tips and Thoughts – A Rant About Cell Phones
Retire by 40 – Best Places To Retire Abroad
Funancials – The Cost of Renting vs. Buying
Invest in the Markets – The Benefits of Buy and Hold Investing
The Single Saver – I Hate Grocery Shopping
Financial Excellence Top 5 Signs You’re Addicted To Shopping
Money Talks – What is Your Worst Case Scenario?
My University Money – Finding a Job in a Terrible Market
Beating Broke – Are Banks Getting a Bad Rap?
Little House in the Valley – Reality Bites Read More
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