What is Student Loan Entrance Counseling?

Student loan entrance counseling is a government required program that all student loan applicants must go through.  The counseling itself is so that the borrower understands how the loans work, how to chose a loan, how to budget for loans, and how the loan will affect their lives after graduation.  The program itself is very comprehensive and contains a lot of important information that the student needs in order to make the right decisions with regard to getting student loans.

Loans 101

The counseling begins with helping the student understand how a loan works.  It covers interest rates, payments, and loan terms.  It also covers the implications of not making payments and how making additional payments will help payoff the loan faster than making minimum payments.

Borrowing Amounts

The counseling also covers way to calculate the appropriate amount of money that a person should consider borrowing.  This is important because student loan debt can be a burden to a person after they finish their education and begin working.  The borrowing amount section shows the student how to calculate all of their expenses and ways to offset and minimize overall borrowing.

Loan Choices

Entrance counseling then covers many of the types of student loans that are available.  This is important because different educational paths require different loans and different careers offer different potential employer credits and payoffs of student loan debt.  It is also important so the student understands their expected payment structure, underlying interest rates, loan terms, and flexibility with deferments should one or more be required.

Paperwork

The counseling also covers the unique paperwork involved in a student loan transaction.  One of the most important parts is the student loan specific promissory note. This is unlike any promissory note you will sign in the future for other loans like for cars or mortgages, the student loan promissory note is signed one time and allows the lender to loan to you more than one time.  While this is convenient, critics oftentimes claim that this ease of additional borrowing, without having to complete additional paperwork, can lure the student into borrowing more than they need and cause potential financial hardships in the future.  All of these implications, concerns, and facts are covered in Student Loan Entrance Counseling.

Post Education

At the end of your education, most student lenders also want you to attend a Student Loan Exit Counseling class.  But the fact is that many students never attend because their education is already over.  But the fact is that attending these types of classes is important and can help you avoid future headaches.  All of the exit counseling program material is covered in this post education part of the entrance counseling program.  The material covered within this section relates to making payments, refinancing, consolidating, deferments, and default.  The student is also given extensive resources to which they can look to in order to payoff their loans quicker, attain loan forgiveness, or even obtain loan credits from their employers.  The reason for these educational programs is to ensure the student is fully equipped to handle their loan in the most effective and responsible manner possible.

What is Student Loan Amortization?

When we talk about student loan amortization what most people want to know is the amount of their monthly payment, how many years they have to make that payment, and how principal and interest is allocated toward the loan from each payment.

Variables

When determining the payment we must first determine the amount that you will owe, the interest rate, and the number of years you will be making the payment.  From this we can extrapolate an monthly payment and an amortization schedule.  For example, a $20,000 loan at 5% interest over 10 years will equal a monthly payment of $212.13 per month.  The chart below shows how the payment changes each time you change one of the underlying variables of the amortization equation.  The changed variable is highlighted in the chart with the payment changing each time a variable is changed.

Amortization Schedule

The amortization schedule of the loan is simply a chart that shows how each payment of the loan is going to be allocated toward the principal and interest of the loan for each month.  The way it works is that each month interest accrues on the loan and then a payment is applied to the loan.  The interest is first subtracted from the payment and then the remaining amount is allocated toward the balance of the loan.

Notice how the payment stays the same, the interest is calculated monthly and the principal is reduced monthly by an amount equal to the payment minus the accrued interest.  The interest calculation itself varies between lenders, for purposes of this example we used a 360 day year and a 30 day month for simplicity.  Some lenders use a 365 day year and others a 360 day year, most all lenders use a 28-31 day month depending on the actual number of days in the month.

Student loan amortizations work exactly as does this example and the number of payments extends until the balance in the fifth column reduces to $0.00.  Anytime there is an interruption to the schedule, for example if you pay a little extra toward the principal of the loan, then the entire amortization schedule will change.  This is also the case if the underlying interest rate changes, if the loan term changes, or if a payment is missed.  Once anything happens outside of the original schedule, in other words, anytime an underlying variable changes, the entire amortization schedule from that point forward changes.

It is important to note on this schedule that only $83 of the original payment is begin applied to the principal reduction of the loan.  Should you want to pay an extra couple hundred dollars toward principal it would significantly change the interest calculations for payments from that point forward.  This is the reality of all amortizations schedules, making extra payments toward principal accelerates the schedule and pays the loan off much faster than it would have been paid without the extra payment.

Not many people are aware of the fact that they can deduct a certain portion of the interest paid on student loans from their taxes.  This is an important deduction and not one that you will want to miss.  The best part about this deduction is that it is made as an adjustment to income and not part of your itemized deductions, as a result, you are able to take the tax deduction whether you itemize your deductions or not.

Student Loan Interest Deduction

If you have been paying back your student loans for more than a year then more than likely you would have seen this form in your mailbox.  This is an IRS form that details to the government and to you or your tax preparer exactly how much interest you have paid through the year towards your student loans.  This is an important form and you will need it when preparing your taxes.  If you have not receive the form 1098-E and yet have already started your student loan payments, then it is most likely that you did not pay more than $600 in interest toward your loan in the previous calender year.  This does not mean that you do not get the deduction, it only means that you do not have the form reminding you of the deduction.

If you paid more than $600 in interest toward the loan and have still not received the 1098-E form from the student loan servicing company then you may want to contact them about the error.  The reason for this is because you will want to make certain they are reporting accurately to the IRS so that when your tax return shows up at the IRS showing the deduction greater than $600, you want to make certain the student loan servicer has already given prior notice to the IRS that this is indeed true.

Tax Deduction limits

The maximum limit you can claim as tax deduction on your student loans is $2500. This amount assumes that your income is less than $60,000 or $120,000 if filing jointly with your spouse. The deductible amount will be prorated if your income is higher than $60,000 all the way till $75,000. If your income is above $75,000 then you can are not eligible to claim any deductions.  These limits are valid till 2013. Starting 2013, the tax deduction on the interest you pay on your student loans is limited to only the first 60 months.

Do I Qualify for a Tax Deduction on my Student Loan?

You qualify for the deduction if all of the following are true

• You paid interest toward a student loan in the year for which you are attempting to take the deduction.
• Your adjusted gross income is less than the maximum allowable for the deduction (over $75,000 if filed single or $150,000 if filed jointly)
• You or your spouse or children are not listed as dependents on anyone eases tax return.

If you meet all of these requirements then you can take the student loan tax deduction.  The maximum allowable income for the deduction changes each year.  You will need to check with your tax consultant or the IRS on the latest deductible amount.

Do Parents Qualify?

Unfortunately, the answer is no.  If you are a parent and you are paying off the student loan debt of your children, you are not allowed to deduct the interest from your taxes. The reason for this is because you are not legally obligated to pay the debt, your child is, and therefore the IRS will not credit you for this expense.  The good thing though is, if you’ve paid the payments on the behalf of your children, there is a possibility that they may be able to take the deduction from their tax returns.  Notice the use of the word, “may”, in the previous sentence.  You will need to consult with a tax consultant to see how you can go about doing this.

Disclaimer:

This article is meant only for informational use. Do consult with a qualified tax consultant for all your tax issues and questions.

Student Loan Realities

Having too much student loan debt is a major problem for many college graduates.  If you’ve managed your college expenses prudently or have had the good fortune to snag that scholarship or federal grant to pay for your college expenses, then you are among the tiny fraction of students that come out of college with manageable or no debt whatsoever to worry about.

For the large majority though, the situation is all too familiar. Saddled with huge debt the minute they step of college, paying back your loans is a rude awakening to the realities of life. There is no free ride. Finding a federal or private student loan might have paid your bills and there is no denying that the availability of financial aid in the form of loans is what gets most students through college these days, it is time however to pay back those loans. The interesting thing from all of this is that this is actually a very powerful life lesson that the graduates will learn early on and in fact is something that supplements their education with a dose of real world economics. It goes without saying that this is not what anyone wants to hear. In the United States it is all too common that a college graduate begins their life with amassing a large credit card debt and then spends a decade or more paying it off only to repeat the cycle over and over again throughout their lives.  In this instance, the sting of paying off the money that came all too easily in college, will leave a life lesson that will hopefully bring about a new generation of spending and debt conscious individuals.

Below are a few simple tips and suggestions that if you follow diligently, you will keep that student loans in check and avoid it from taking over your life.

Pay Down the Principal

Take a look at your loan statement each month, do you notice something?  How about the fact that most of the money you are paying goes straight to the interest on the loan and not to the actual principal.  Whenever possible, even if it is simply $50 extra per payment, send extra money with your payment and make certain the lender is crediting your principal with that extra payment.  This means sending a note with the payment and checking the next statement to ensure you were properly credited.  There is no more powerful way to retire student loan debt quickly than to pay down the principal by paying a little extra each month.  This is the same concept that you will see people learning in finance classes about paying off a home mortgage, pay direct to principal and the loan will pay off years earlier than it would otherwise.

Bi-Weekly Payments

If you are on a strict budget and you are paid by your employer every two weeks then you likely are allocating half the student loan payment from each paycheck.  If you do this and actually pay half the payment with each check you will inevitably pay the loan off faster.  Of course you need to make certain your lender allows this.  The reason this will pay it off faster is because when you are paid once every two weeks you actually receive 26 paychecks per year.  If you are allocating 50% of the loan payment per paycheck then that comes to thirteen 100% payments.  This means that you are paying one extra payment per year, normally you would pay 12 monthly payments.  As a result, if you make certain that extra money is allocated to principal, you will pay the loan off much faster and yet not even feel the change in your monthly budget.

Consolidate & Pay Extra

Consolidating your many student loans into a single loan with a lower interest rate and monthly payment is only in your best interest if you continue to pay the same payment after the consolidation as you did before the consolidation.  As a result you will be paying much more to principal with the same monthly payment.  Even if the consolidation allows for much lower payments, if your goal is to get out of debt, then pay the highest payment you can afford and the loan will pay off much faster.

If you noticed two themes in this it is that you need to first learn discipline and budgeting and second you need to pay extra to principal at every chance you get.  But do not limit yourself to the ideas above, every time you get a tax return, a employment bonus, or even some Christmas cash, consider paying some or all of it toward the principal of your student loans.  I know it is not any fun to not use the cash for fun, but think how fun it will be when you do not have any more student loan debt and everything is paid off.

While there are a few options to get rid of your student loans legally, for the most of us though paying back your loans one installment at a time is the only option. Be smart and follow these tips to get rid of that debt as soon as you can.

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We get this questions a lot and the short answer to it is Yes and No. There are no direct grants that will help you pay off your student loans but there is a relief program or also what is called as a forgiveness program where if you qualify you can have a significant amount of your student loans waived. While not technically a grant, these are known as ‘Public Student Loan Forgiveness(PSLF) Programs’. These student loan forgiveness programs are available to graduating students to assist them in reducing the burden of their outstanding loans. The graduating student can be majoring in any field and they can still be provided this financial assistance provided they qualify for it.

Do I Qualify For Student Loan Forgiveness?

The catch though is that the forgiveness program is not available for everyone. The PSLF was initiated to encourage individuals to work, on a full-time basis, in public service jobs. To qualify for this program, you should have made 120 payments on your Federal Student loan whilst being fully employed in public service, law enforcement agencies, teaching, doctors and nurses and other government based jobs. Just another factor to keep in mind when you decide on the direction of your career. There are some professions and jobs that bring with it a lot of incidental advantages. The field you choose to work in needs to be well thought out, after all it is something you will most likely be doing for a very long time, not to mention carrying the burden of a student loan for a number of post graduate years.

The PSLF program enables graduate students to eliminate a majority of their student loans and sometimes even pay the loan completely. This program is backed by the government and is available towards Direct Federal student loans. The following Direct Loans are covered under the Loan Forgiveness program

• Direct Stafford Loans (Subsidized and Unsubsidized)
• Federal Direct PLUS Loans
• Federal Consolidation Loans (Direct)

The above loans have to be non-defaulting loans. Besides Federal Direct Loans, the PSLF program allows other Federal student loans that have been consolidated under a Direct Consolidation loan. Therefore, all payments made under the consolidated loan will be counted for the120 payments made on a monthly basis.

These 120 payments should be made under these Direct Loan repayment plans:

• Income Contingent Repayment Plan
• Income Based Repayment Plan
• Standard Repayment Plan, having a repayment period of 10 years
• Other Direct Loan Program repayment plan, having a repayment period of 10 years

References

• http://studentaid.ed.gov/PORTALSWebApp/students/english/PSF.jsp

Refinancing your student loans

Students recognize the need to obtain funding for their college or university but they often forget or not fully understand the realities about the repayment of these loans. On an average, a four year bachelor’s degree would cost roughly $60,000 and the interest that would be charged on this amount would be around 6.5%. Further, repayment of the loan would begin after the grace period of six months has expired post your graduation. The fact whether you have a job or not is not even taken into consideration. As a result, when it comes to repayment or when the realities of the current economy and job shortages are felt, there is panic among students which these days are resulting in more and more loan defaults.

Well, all is not lost. You have a few options and in this article we are going to take a detailed look at one of them. In order to reduce the burden of a student loan, there is respite in the form of ‘refinancing of loans’.

What is Refinancing of Student Loan?

One of the easiest ways to reduce the burden of your student loan is to refinance the same. The main aim under refinancing is reduction of loan APRs. The APR is the cost of loan servicing and is calculated as a percentage of the principal amount. Many private institutions providing student loans charge an exorbitant APR as this works towards increasing their profits.

This is where the refinancing institutions come to your rescue. Refinancing institutions do not necessarily offer a lower rate of interest as compared to what is offered by the government`s financial aid (student loan) programs. These refinancing institutions offer an extended period of loan repayment. Over this extended period a new monthly payment rate is calculated which turns out much lesser than what was previously being paid on the original loan.

In refinancing, the refinancer pays all of the student`s previous debt to the institution that first provided you the loan. This will officially end the student`s relationship with the first lending agency or creditor and a new relation will be formed with the refinancer. The payment schedule is decided based on the student`s capability to repay and the time he/she would need to service a loan. Please remember that the final cost of refinancing will turn out to be more than what the student would pay under a normal loan program. However, the interest rate is much lower.

How to Refinance a Student Loan?

Many refinancing avenues are available with the private lending institutions. High demand for refinancing student loans have forced many banks to start separate departments focusing primarily on refinancing.

To obtain refinancing the following should be steps should be taken-

• Establish of a good relationship with your bank. This would make it easier for the bank to bend certain rules to accommodate your needs.
• Ensure a good credit rating. Being debt free would indicate a god credit rating, but your attitude towards timely settlement of debt is extremely important in determining a good credit history.
• Demonstrate financial responsibility by assembling an expense report to prove that you act responsibly towards your debt and it is the loan arrangement that is causing the need to refinance.
• Research on the terms of refinancing offered by other institutions and also the rates of interest.

Finding a fixed rate student loan is always ideal when compared to variable rate loans. This is even more so when the student loan in question has a low rate of interest. Finding a loan that has a low rate of interest and a fixed one at that can end up saving you thousands of dollars in the long run.

So as a potential applicant what are your options when it comes to finding the perfect student loan? Firstly like we always recommend, a student loan must be your last options always. Look into scholarships and grants and only turn to a loan if you cannot meet your required expenses with a scholarship of a grant of some kind.

Assuming you’ve done your homework and looked at all funding options and now have to get a student loan, here is what you need to do. You are better off getting a fixed rate student loan. The best option to get a fixed rate loan is to look into federal student loans. Federal loans are ideal for students that meet the eligibility requirements and also work if you have a bad credit or no credit. It is for this reason that people with low or bad credit try to get a federal loan to fund their education.

Before we look into the different federal student loan options, here are the eligibility conditions that you must satisfy to qualify for a federal loan

• Be a US Citizen or an eligible non resident.
• You must have a high school diploma or it’s equivalent.
• Get through your college entrance exam.
• Have a social security number.

Your options for a federal loan are

• Stafford Loan
• Perkins Loan
• Parent PLUS Loan

Each link gives you more details about the eligibility, requirements and detailed information regarding the loan. Do note that each loan is different and have different requirements and eligibility criteria. Also, the PLUS loan is a loan made to the parents of an undergraduate student and not directly to the student. However this is an option that you must explore if your situation merits it.

Apart from federal student loan, your only other option is private student loans. Private loans are completely dependent on the financial institution making the loan. You will find a variety of choice among the different banks and credit unions that are out there offering these loans. Remember to look carefully at the rate of interest and push for a fixed rate of interest. Don’t be swayed by a lower variable rate of interest because pretty soon you will find that rate of interest climbing and yourself in a sticky situation. Personally I prefer knowing what is my outflow is each month and ideally would like to keep it constant which I can if my loan is a fixed loan.

Take the time to research and understand all the fine print before you make up your mind. After all you will be stuck with your student loan for a fairly long time. Spending some time doing due diligence and ground work now will end up saving you a lot of money in the future. Good luck.

As more and more students make a beeline to the United States and Canada for secondary and post secondary education, the big question on everyone’s mind is if student loans are available for international students. While student loans are relatively much more easily accessible if you are an American citizen or a permanent resident, there are very few options for students looking for a student loan while studying abroad.

Typically students who come to study in the US or Canada or any country for that matter are looking to borrow money to fund their school’s total cost of attendance. This includes tuition fees, room and board, school supplies and other living expenses. Federal loans are out of the question since you have to be a U.S citizen or a qualified permanent resident to apply for a federal loan. This leaves you with private institutions such as banks and credit unions. Generally speaking all private financial institutions that offer student loans can be approached and the most likely loan category that an international student will qualify for will be for a student loan with a cosigner.

Most financial institutions are loathe to lend money to students without a cosigner simply because of the perceived high risk since a student can leave the country at any time without repaying the loan. With a cosigner, financial institutions can spread the risk of the loan between the international student and the cosigner. This is the primary reason that banks and other financial institutions insist on a U.S citizen as a cosigner for any potential loan that you might be interested in procuring.

Of course any student looking to study abroad must first exhaust all other potential funding options such as scholarships, grants, assistance from the college or university, part time employment, teaching and research assistant ship opportunities, college run programs that offer reduction in tuition fees, college provided rooming and boarding and so on. It is only after exploring all these options that a student must look to a student loan to bridge any gap in their funding requirements.

Another reason that many students consider an international student loan in the Unites States is the rate of interest that is prevalent here. When compared to other countries the Unites States has a relatively much lower rate of interest on a student loan. Rather than borrowing from their home country to fund their education, students look at borrowing the same amount here in the US. With a much reduced interest rate, often 4 – 5 % less, this translates into huge savings over the life of the loan.

All said and done, while student loans are available, you must have someone cosign the loan for you to be approved if you are an international student. If you do have family that are US citizens then this is something you can consider. Be aware of your admission deadlines and ensure you make all the necessary and required arrangements well in advance to be able to apply and procure the required funds for your education in time. Good luck

Financing your college dreams can turn out to be quite an experience. Understanding all the different options available from scholarships to grants to federal student loans and private student loans can be daunting and difficult to navigate for both students and parents. This article talks in depth about alternative student loans.

What are Alternative Student Loans?

Alternative student loans are another way of referring to a private student loan. Alternative student loans unlike federal student loans are not funded or guaranteed by the federal government. It is private financial institutions that lend money for an alternative student loan. Banks and credit unions readily spring to mind. Most students look at federal student loans as the main source for lending and this is why student loans from banks and credit unions are sometimes called as alternative student loans. Private student loans is the only alternate option to a federal student loan. Many students find themselves ineligible for federal aid since most federal student loans are need based or face a shortfall in their finances even after being approved for a scholarship or grant or a federal student loan.

When should I apply for an Alternative Student Loan?

Funding for your college must always begin with scholarships and grants. Make sure you search and apply to all eligible grants and scholarships. Scholarships and grants score over student loans any day simple because they do not have to be paid back by the student. Only when all possible avenues for scholarships and college grants have been exhausted should you turn your attention to a loan.

Even with loans your first port of call must be with federal student loans. There are some excellent loans such as the Stafford loan and the Perkins loan that comes with very low rates of interest and often are subsidized thereby allowing the student to go through college without paying any interest on the loan and only start the loan payments after graduation and that too after a deferment period of anywhere between 6 – 8 months.

You should only consider an alternative student loan if you have exhausted all the above options and still need additional funds to cover any shortfall. The interest rates for an alternative student loan will be higher than that of a federal loan and is completely dependent on the student’s credit worthiness, credit score and credit history.

How do I apply for an Alternative Student Loan?

Applying for an alternative student loan is pretty straightforward. Unlike federal aid where you have to fill out the FAFSA application to begin a lengthy process, alternate student loans usually have a short application process and most of it can be done online. A credit check is usually mandatory and if you have no credit or bad credit then applying for a student loan with a cosigner might be an option to consider.

Alternative Student Loan tips

• Do not apply for an alternative student loan simply because you can. Borrowing money when you don’t need it can prove to be very costly.
• Alternate student loans must always be your last option for funding your education.
• Applying with a cosigner might help you negotiate better loan terms than applying for an alternate loan without a cosigner.
• Research your lender and their lending policies thoroughly.
• Check if your lender offers loan deferment and loan forbearance options.

While there are many banks and other financial institutions out there, take your time, understand all the pros and cons and only go ahead with a loan if you are comfortable with the lender, the rate of interest and other loan terms and options.

Finding a low interest student loan might turn out to be easier than you realize. For the best low interest rates on student loans you should turn to the federal student loans. Federal student loans carry a much lower rate of interest on its student loans than the rate of interest on a private student loan.

In addition to getting a low interest rate on your loan, you could end up with a federal student loans that is also subsidized. Federal loans that are subsidized usually have the government paying the interest rate on the loan while you are studying and also for a set period usually 6 to 9 months after you graduate from school.

Let’s take a look at the two main low interest federal student loans

Stafford Loan

A federal Stafford loan comes with a max interest rate in the vicinity of 8% – 8.2%. Most students get better interest rates than that. The best part of a Stafford loan is that there is no credit worthiness requirement or even checking your credit score for that matter. All that matters is that you do not have a loan default and that you fall in the low income bracket. Stafford loans come as subsidized and unsubsidized. Getting a subsidized Stafford loan would mean not paying any interest payments while you are studying in school and for the preset period once you graduate. Read more about Stafford loans.

Perkins Loan

The second low interest federal student loan is the Perkins loan. To be eligible for the Perkins loan you have to show extreme financial difficulties in your FAFSA application. Some of the terms of the Perkins loan cannot be beat. Perkins loan has the best grace period for a loan, almost 9 months after you graduate. Perkins loans also have a very low interest rate of around 5%. A student loan with an interest rate of 5% cannot be beat in the current market and is quite simply the most affordable interest rate on a student loan. Perkins loans also have loan deferment, loan forbearance and loan forgiveness options provided you qualify ofcourse. Read more about Perkins loans.

How to apply for a low interest student loan?

Applying for the two low interest student loans mentioned above starts with the FAFSA application. Be aware of deadlines and make sure you apply well in advance to give you the best chance to qualify. Usually you will have to circle back a couple of times on your loan application and therefore it is important you apply in advance so that you do not run out of time. Federal loans require a fair amount of paperwork to be done and will involve liaising with your college financial office as well.

While applying for a scholarship or grant always takes precedence over a loan, when it comes to student loans, nothing can beat the comfort of a low interest student loan. Federal loans are the best when it comes to securing a low interest rate and must be explored by all students before considering a private loan where credit scores, credit history and credit worthiness plays a major part in the interest rates that are quoted on a student loan.