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Must read topics:
►Graduating Students: Loan Consolidation May (or May Not) Be Right for You
If you still need or plan to take future loans, you probably should wait until you take the last loan or you complete undergraduate and/or graduate school. MORE
►Financial Tips for This Month
Cash gifts to colleges penalize students. Qualifying for In-state Tuition. Borrowers benefits on student loans. Check on summer programs BEFORE signing up. MORE
►Be Sure to Keep Score – Your Credit Score, That Is !
A low “credit score” may block you from getting the loans you need for college and/or can cost you thousands of dollars a year in additional finance charges. MORE
GRADUATING STUDENTS:
Loan Consolidation
May (or May Not) Be Right For You
If you have even one Federal Family Education Loan (FFEL loan) – either student Stafford/Direct or a parent’s PLUS loan – you probably have been receiving tons of unsolicited offers for consolidation. So you might wonder if consolidation is for you?
With the 7/1/07fixed rate of 6.8% for Stafford loans
and 8.5% for PLUS loans a reality,
the answer is a great big “MAYBE”.
The first thing to consider is if you still need or plan to take future loans, you probably should wait until you take the last loan or the student completes undergraduate and/or graduate school. Consolidating just two or three years of loans doesn’t usually make sense.
Second, you need to decide if consolidating at the offered rates will save you money! Most lender websites have calculators to show you your old versus new monthly amounts. The devil is in the details! Look at the rebates, interest credits and other benefits between lenders.
Third, you can consolidate loans to extend the repayment period from 10 years to sometimes as long as 40 years (!) based on the total being consolidated.
In selecting a consolidation lender, consider the following:
- If your loan servicing company does not offer you a preferred repayment plan, you can attempt to consolidate with another lender. The new lender will negotiate with your original lender to take over the loans.
- If your loans are Direct Loans held by the Department of Education such as those through most state colleges like the University of California campuses, you can select any lender for consolidation.
Look at the details of the proposed program for consolidation. Do they offer a rebate for auto-debit? Do they offer a discount for 3 6-48 months of on-time payments? Who is the servicing agent? Does the lender resell their loans or keep them in-house?
Contact your CURRENT lender to review their program. Use their web calculators or call for their details. If it makes financial sense, you can go ahead with the process.
Financial Tips for This Month
Cash Gifts to College Penalize Students
Cash gifts, which are paid DIRECTLY TO THE COLLEGE for tuition andfees (from people other than the parents) should be avoided. These gifts will be treated as a student ‘resource’ and a dollar-for-dollar deduction in financial aid.
Guidelines for Qualifying for In-State Tuition
One way to reduce the cost of higher education is to attend a public university. However, the student may face a huge “cost premium” if he or she does not qualify as a resident of the state where the public university is located. Elaborate rules for in-state tuition qualification have been established to safeguard taxpayer-subsidized public universities.
Here are afew guidelines to these rules.
· Twelve months: Generally, students must live in the state for a minimum of 12 months, prior to enrolling, in order to gain residency status.
· Proof of residency: Students need to provide voter registration, car registration, and conversion of their driver's license as proof that they lived in the state at least 12 months prior to enrolling in school.
· Relocation purpose: Most states won't grant residency if the student’s purpose for moving was primarily educational. Students must usually demonstrate financial independence in the state for at least 12 months prior to enrolling in school. This may include filing taxes in the state.
· Dependency: If parents claim the student as a dependent on their taxes, the student is considered a resident of the state in which the parents hold residency. If the parents move to a different state, the student’s residency may not change. If the parents are divorced and live in different states, the student may qualify for residency in both states. It is usually the tax custodian who determines residency.
There are many nuances to residency status and each state treats their residency status differently. Check the school or state’s webs ite for information. Call the college registrar's office to determine their rule for residency status.
Borrower Benefits on Student Loans
First it is important to understand that all student loan lenders earn the same amount for loaningfunds guaranteed by the Department ofEducation. So why so many differences in pricing, discounts, fees, etc.? The answer is that all "Borrower Benefits" are what those in the industry call their "spin". The point being that each lender is attempting to find a way to attract the largest number of borrowers. One company may offer a 7% discount in principal balance after 48 payments are made on time to attract borrowers. Another may offer a co-signors release after 48 monthly payments to attract more borrowers. Both companies know that the borrowers won’t make 48 payments. Why? Because as soon as the students graduate they will consolidate their Stafford loans, paying them off in full prior to 48 months.
Check on Summer Programs BEFORE Signing Up
Ifyou’re thinking of attending a summer program at another college in the states or abroad, verify units, transferability andfinancial support (including loans) BEFORE you sign up. Your school and the school hosting the summer program MUST have Consortium Agreements in place BEFORE the class is transferable and aidfrom the HOME SCHOOL will cover the other school’s program. Students have done summer programs in Europe for what they thought wouldfulfill their language requirement only to find out AFTER the fact that the classes were not transferable. One student did a semester in Australia – same story. Another spent $20k before realizing a semester of classes at NYU was not transferable. She eventually got credit for about 75% of the units, but don’t count on that happening.
Be Sure to Keep Score
YOUR CREDIT SCORE, THAT IS!!
A low “credit score” may block you from getting the loans you need for college and/or can cost you thousands of dollars a year in additional finance charges. The average family knows very little about their credit score. What determines your score? Your past credit history.
We have found that clients with a score of 650 or higher are typically charged the lowest interest rates. As we approach loan application time, avoid maxing out credit cards and other lines of revolving credit, and don’t open too many new accounts at once. It’s also a good idea to pay off debt. Don’t just move it around. The best way to improve your credit score is to pay bills consistently ON TIME.
STUDENTS – be careful of large amounts of unsecured debt (student loans, credit card debt, etc.) IT CAN COST YOU A JOB! Lots of employers now run a credit report on potential employees and too much debt can hurt your chances for a job! That plus a low FICO can haunt you so use credit carefully.
Also, check your credit score for fraudulent charges/identity theft, especially if you live in a dorm, have roommates, or don’t put outgoing mail into a “locked” mail box.
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