Student Loan Consolidation Lowdown

Enough and more has been written about the student loan problem, which has gotten extremely bad in recent years. Now several major universities are finally doing something dramatic about it. The Observer Online reports:

In response to the problem, several schools are using university funds to reduce or eliminate that loan burden for students with demonstrated need. Harvard does not ask parents earning less than $60,000 a year to contribute to their child’s education. At Yale and Stanford, the figure is $45,000. The University of Pennsylvania replaces loans with grants for students from families with incomes under $50,000. Virginia, Brown and other institutions are taking similar steps.

Read more: Student loan troubles

The din just wouldn’d die down as banks, loan consolidators, and experts urged students to consolidate before the July 1 deadline. Students rushed in their thousands to consolidate their loans and lock in lower interest payments before the higher rates took effect. You would think that by now, the process having been completed, students would no longer be worried about their financial situation. Well, the fact is something else altogether.

Frustrated students and executives at some of the companies that process the applications are now accusing big lenders like Wells Fargo, Wachovia and even Sallie Mae of violating federal regulations and slowing the process, charging the higher rates in the meantime. According to loan consolidators, the banks have too many incentives to delay of which the interest rate plays a very important role. Congress raised the maximum interest rates that lenders may charge on student loans. As of July 1 the rate for students paying off Stafford loans rose from 5.30 percent to 7.14 percent, and nearly every lender charges the maximum. Nytimes.com reports:

Banks and other lenders say that if there are lags in processing applications, they are the result of the sheer number of students who have applied to consolidate their loans; one consolidation company received 40,000 applications in June alone. There is no central database that tracks the pace of consolidation activity.

Read more: Dispute on Loan Consolidation

If you’ve just graduated from college and entered the workforce, then your student loans are fresh in your account books and you are probably ready to pay it off as soon as possible. Delays in payment not only increase the loan amount it also creates a not too good impression. Of course, if unavoidable reasons cause the delay then you are justified in paying late. But remember to intimate your creditor and find out ways of delaying or lowering your monthly payments. In case you are determined to make your payments on time here are a few tips.

One of the first things you should do is keep in touch with your lender. If you are moving house, you must ensure that they have your current address so that you don miss any bills. Another thing, always pay on time. You could even get interest rate discounts for paying on time. One good method to ensure that you don’t slack up on your payments is by paying electronically. This way, your lender can take the money directly from your bank account.

While this one is about student loan, it is more about how parents can actually reduce the loan amount by saving up for their child’s education. One method of saving is by investing in a 529 college savings plan. However, many parents don’t do that because they worry that a 529 plan will affect the possibility of their child receiving any financial aid in the future.

Well, though the answer may have changed today, the basic premise about which the parents are worried, doesn’t stand up to scrutiny. If you plan to save up for your child’s education, will you change your decision just because your child may not receive aid in future? I’m sure the answer is No. Well, getting back to the plan, from July 1, a 529 plan — whether it’s prepaid or a savings plan—is considered a parental asset in the determination of federal financial aid. Washingtonpost.com reports:

Interestingly, a 529 plan owned by a student or within custodial accounts, which can be opened under the Uniform Gifts to Minors Act or the Uniform Transfers to Minors Act, is not counted at all in the federal formula.

Read more: Don’t Tie College Savings to Potential Aid

Congress recently revamped the student loan program and has imposed a fixed rate of interest on all loans disbursed after July 1. This means the cost of borrowing for college just got higher, but students and parents can still save money by shopping for discounts. Sfgate.com reports:

Many lenders are offering discounts off these rates. The discounts start at various points in the loan’s life and usually require borrowers to sign up for automated payments and make a certain number of on-time payments. Some lenders also discount or rebate the 3 percent fee levied on Stafford and Plus loans.

Read more: It pays to shop around for student loan rates

Now the Education Department is offering a sop after causing the harm. What am I talking about — The personal data of 21,000 student loan borrowers recently appeared on the Education Department Website. As solution, the department has offered to arrange for free credit monitoring for these students. Seattlepinwsource.com reports:

Terri Shaw, the department’s chief operating officer for federal student aid, said the people involved are holders of federal direct student loans who used the department’s loan Web site - http://www.dlssonline.com - between Sunday and Tuesday. It is the latest in a string of data thefts and security breaches affecting more than a half-dozen federal agencies in recent months.

Read more: Ed. Dept. offers free credit monitoring

There is nothing scarier for a student. Imagine spending a big part of your youth pursuing higher education, taking ever-costlier loans to pay for this high-quality education. And then, the worst part: joining the ranks of the educated poor who are trying hard to repay their student loans and make ends meet. Scary? You bet. And yet, there is no way out of it.

As interest rates get hiked time and again, this is one story that will repeat itself unless some action is taken. People who are qualified, who have studied hard in the hope that their education will pay off and help them settle down, are waking up to reality. And a harsh reality it is. Many people in their 30s and 40s are forced to watch their budget minutely, juggle bill payments and live from one month to the next. They just don’t have enough money to save up for that retirement that they richly deserve, and many of them go without what we would consider basic necessities today: Dishwasher, cell phones, cable TV, new cars… the list is endless.

And here is the worst bit: Experts don’t see the situation getting any better in the near future. According to statistics, around 40 percent of students are graduating with ‘unmanageable’ debt loads. In lay terms, this means that their salaries will not be enough to help them pay back the loans.

Rising education costs, and a larger number of students relying on loans to help them complete their education has led to a very dangerous situation where the total student loan debt has grown enormously in the past decade.

Of course, a college degree many give a student a higher earning potential, but a costly education has its downsides as well. Burdened by student loans, many graduates are staying away from socially critical jobs like teaching and social work and are looking for well-paying jobs that will help them repay their loans in real time.

Taking a student loan is a necessity that most students cannot do without. However, that doesn’t mean you should reel under a debt spell from which there is no escape. Yes, debt is inevitable but there are a few things you can do to reduce your debt burden. One of the first things you can do is understand your financial aid package. Some scholarships or grants require students to maintain a certain grade point average or some other caveat to keep their funding.

Students should not stop exploring grant and scholarship opportunities even after being accepted as a freshman. It may take an investment of time, but it can yield great benefits. Web sites and your financial aid advisor can offer places to look for these opportunities. Do not borrow more than you need. While you may be preapproved for a certain loan amount, that doesn’t mean you have to take it all. And do not borrow money for unnecessary items, such as spring break vacations or a new car. All of that money has to be repaid — with interest.

Thousands of students are now filled with anticipation — of the time when they will be walking down the aisle. The graduating Class of 2006 is anticipating a new beginning, a new phase of their lives, which will be characterized by hardships they didn’t anticipate when they began the pursuit of their degree.

If you belong to the group that calls itself the average American student, you probably owe around $30,000 in student loans. And guess what, unless you have a really good plan up your sleeve, you’re going to begin a long and painful repayment period as soon as your six-month grace period ends. Unless of course, you can pay back all the money right away — I know what you’re thinking, “this person’s definitely nuts!” Well, that just underlines what I said, get yourself a good plan before it’s too late. Despite all the noise about consolidation not being too good an option, I still think it’s the best you got. I know it’s a bit too late in the day to be talking about consolidation for this year’s graduates, but there are more students in the pipeline who are wondering what they need to do — and I’ve got only one word of advice for these guys — consolidate.

Some figures before I get to the point:

In 1976, tuition and fees put you back by a little over $900. In 2002, the figure stood at over $6,000 — that is nearly six times the original figure in less than 30 years. At private universities, the average jumped from $3,051 to $22,686. Other expenses such as room and board have gone up from an average of $2,275 in 1976 to $12,111 in 2002. I’m sure it’s pretty obvious what I’m driving at — if you feel weighed down by a huge debt burden, if your parents had to take a huge home equity loan to finance your education — you only have these huge figures to blame. Education has become big business today and there is no room for people who cannot pay. I’m sure paying for college definitely forms part of the accelerating indebtedness of average American families.

But the worst part about this indebtedness is that students cannot pursue careers of their choosing — they are forced to take up jobs in fields that would enable them to repay their debt faster. This piece on the burgeoning student debt and its ramifications is an eye-opener and I think anybody who is interested in finding a solution to this problem should read it. Alternet.org reports:

Many bemoan the fact that the liberal arts have faded as undergraduate majors, while business majors have nearly tripled, from about 8 percent before the Second World War to 22 percent now. This is not because students no longer care about poetry or philosophy. Rather, they have learned the lesson of the world in front of them and chosen according to its, and their, constraints.

Read more: Another Way Out Of College Debt