Student Loans - College Finance Guide

The Price of Higher Education

Obtaining a college degree can be thought of as an extended test of your resourcefulness and perseverance. It's like Survivor, only without the tribal councils and big cash prize. Your first challenge in the process may be your most difficult-figuring out how to pay for your education.

Expenses on the Rise

According to, the average cost of attending a four-year, private university in the 2006 to 2007 school year increased 5.9 percent to $22,218. This compares to annual costs of $5,836 incurred by public university students. Though less expensive, the latter increased at a faster rate-about 6.3 percent.

You don't need to be a rocket scientist to understand that these are big numbers, and they're only going to get bigger. Some experts foresee increases of 7 to 8 percent annually over the next 10 years.

Estimating Your Costs

How much will that degree end up costing you? Many schools won't automatically send you cost estimates-the numbers are just too scary. It's best to call the school and ask for estimates on tuition, fees, and room and board. Then, add in another $4000 to cover the cost of books, supplies, and that staggering expense called miscellaneous.

Now comes the tricky part. You have an estimate for the first year, but the program will likely take four years to complete. Before you multiply that first-year estimate by four, consider these additional points What are the potential cost increases over these years? Can you work part-time to cover some of your expenses? Can you live at home to keep costs down? Will you have travel costs?

Once you can estimate the total price of attending and completing college, you should start researching scholarships or fellowships to lower your out-of-pocket outlays. Call it a sub-challenge to the larger goal of financing your education. Like a true survivor, you're going to want to outwit, outplay, and outlast.

Scholarships and Fellowships

You don't have to be a child prodigy or superstar athlete to win a scholarship. More than likely, it's enough just to be you a motivated, forward-thinking individual. Like Survivor contestants, most scholarship recipients are just regular folk who know how to work the system.

Scholarships (for undergraduates) and fellowships (for graduate students) are financial gifts that help you pay for college. There are thousands of programs available, and each has its own eligibility requirements. Some are reserved for students with financial need, while others are based on different factors academic record, athletic prowess, field of study, musical talent, or cultural background. Most scholarships are awarded in small amounts. Full scholarships are increasingly rare, but are sometimes given to elite athletes in high revenue-producing sports.

Finding awards and grants

Thanks to the Internet, finding scholarship opportunities is much easier than it used to be. Here are the dos and don'ts

  • Do ask your school guidance counselor for advice.
  • Do look for scholarship notices at your local public library or local college's aid office.
  • Do register and search opportunities on free scholarship database websites like
  • Do ask your employer about tuition reimbursement and employee scholarships.
  • Don't wait until the last minute. Application deadlines are usually five to six months prior to the start of the semester.
  • Don't pay a fee for online scholarship matching.

Once you secure a scholarship or two, revisit your estimated costs. You can subtract the amount of your financial awards from your first-year estimate; but don't count these awards for later years unless it's highly likely that you'll continue to qualify.

Now it's time to move on to Sub-challenge Number 2 borrowing money to cover the rest of your costs.

Student and Parent Loans

Almost two-thirds of undergraduate students attending four-year programs have to borrow money. Some of these students get in way over their hands, while others absorb the debt in stride.

Introduction to student loans

Education-related loans can be made to students or parents through federal programs and private lenders

  • Federal student loans: Federal student loans include Stafford Loans and Perkins Loans. The former are made through a bank or the U.S. Department of Education, while the latter are made directly through the school. Both programs are heavily regulated, thus protecting borrowers from high rates and fees. But these same programs also limit the amount of money you can borrow. Students who need more must turn to private lenders.
  • Private student loans: Private loans made by banks and other financial institutions are not subject to federal regulations. Fees, rates, and available loan amounts vary significantly from lender to lender. Shopping around for the best deal is a must.
  • Federal Loans to parents: Federal PLUS Loans are made to parents and guardians of college students. These are based on credit histories rather than on financial need. Parents with good credit can borrow as much as the full cost of education at competitive, fixed interest rates.
  • Private loans to parents: Parents can also borrow money from banks and credit unions. As with private student loans, these vary dramatically in cost and type. Some financial institutions offer loans specifically for tuition, while others may recommend home equity loans or personal loans to cover these costs. Parents may also be able to borrow against life insurance policies or retirement funds.

Repayment of your student loans after graduation will be your final college-related challenge. While the deferred repayment structure of student loans makes sense, it can create some problems. Since you don't know what your income will be, you don't know what size repayment you can afford. For this reason, it's best to borrow only what you need and not a penny more. Even so, you still might find your repayment requirements to be unmanageable. That's when it's time to consider debt consolidation.

Student Loan Consolidation

Surviving is a matter of adaptability. You make it through college on the strength of frugal living, scholarships, and student loans. When you're finally earning the big bucks in the work place, loan repayments may annihilate your paycheck. Debt consolidation allows you to adapt your loan structure to better suit your personal situation.

Surviving is a matter of adaptability. You make it through college on the strength of frugal living, scholarships, and student loans. When you're finally earning the big bucks in the work place, loan repayments may annihilate your paycheck. Debt consolidation allows you to adapt your loan structure to better suit your personal situation.

Introduction to consolidation

Within six months to a year after graduation, you'll start making debt payments. Most students have several loans, and each will have its own repayment requirements.

You can streamline this repayment and lower your monthly obligations by consolidating. This process involves taking out one large loan to replace several smaller ones. Rather than making payments on three Stafford Loans and a Perkins Loan, you can make one payment to a new debt consolidation loan. For your protection, the federal government regulates the interest rate and repayment term for student debt consolidation loans. Repayment terms generally range from 10 to 30 years, depending on how much you owe. Under these regulations, you can only consolidate direct and federal student loans. Private loans can be merged through a private lender, but wouldn't be subject to the interest rate cap and other protections.

That said, consolidation is a good option; but it isn't the only one. Under the right circumstances, you may be able to reduce your student debt with volunteer work.

Loan Forgiveness

Did you know that you can have some, or all, of your student debt cancelled by performing volunteer work? Sounds good, right? But don't expect it to be easy; a year of service in the Peace Corps might make the game of Survivor look like a vacation.

Introduction to loan forgiveness

Loan forgiveness programs give you the option of paying off your student debt with volunteer work, military service, or qualifying professional work. Essentially, if you perform the qualifying duties, the government will cancel all or part of your student debt.

A 12-month stint with AmeriCorps, for example, earns you $7,400 in stipends plus a $4,725 credit to your loans. The Volunteers in Service to America (VISTA) offers a $4,725 loan credit in exchange for 1700 hours of service. Or you can volunteer with the Peace Corps for a year, and work off 15 percent of your loan balance.

Other qualifying activities include teaching in low-income areas, serving with the Army National Guard, practicing law with non-profit organizations, or medicine in economically depressed regions.

For more information about forgiveness programs, visit "Student Aid on the Web" at Your school and employer may also have some additional information on programs offered.

Paying for college is an investment in your future. As costs continue to rise, motivated students like yourself need to juggle expenses, tap into resources, and basically do what it takes to survive. In the end, you'll be rewarded-maybe not with an immediate $1 million, but certainly with the potential to earn that much more over your lifetime.

Volunteering makes a difference

Several volunteer organizations offer variations of loan forgiveness. The AmeriCorps will pay both a salary and give loan forgiveness, based on a 12-month commitment. The Peace Corps allows volunteers to defer Stafford, Perkins, and Consolidation loans, and provide partial cancellation of Perkins Loans. The Volunteers in Service to America (VISTA) pays its volunteers a stipend to help end hunger, homelessness, poverty and illiteracy.

Military programs at your service

The armed forces offer merit-based programs that can repay part of their loans, with amounts varying by branch. The National Guard and Reserves will also repay student loans, although amounts may differ by state.

Teaching has its rewards

For educators, numerous programs forgive students loans in exchange for teaching low-income families. The National Defense Education Act is one program that forgives a portion of the Perkins Loan for teachers who work for select elementary or secondary schools. Help is also needed in special education, math, science, and other areas.

Legal and medical opportunities

For doctors and lawyers, opportunities for loan forgiveness also exist. Positions include serving the public interest, but vary by state and even occupation. There are also specific programs for occupational and physical therapists.

Tax implications

Loan forgiveness does come at a cost when April 15th rolls around. Current tax laws stipulate that the loan amount must be counted as taxable income in the year it's forgiven. There are loopholes, however, and there are numerous proposals on the table to make loan forgiveness completely tax-exempt. These, though, have yet to become legislation.

Student loans have provided the means for countless high school graduates to attend college. The burden of repayment for these loans can be steep and extend for many years. But thanks to a number of programs, students can exchange service for loan forgiveness and stipends. It's a great way to repay a debt while helping those in need-a win-win scenario for students and society alike.

Student Loan Default: Don't Even Think About It

If you have student loans, you can expect a rather unpleasant graduation present from the real world: Your lender will want you to start making loan payments. If you don't, you may wind up in default, and the consequences could be serious.

"Goodbye, cool world," say teary-eyed college students on graduation day. They know that they have to say hello to the real and cruel world, a place where bills start appearing for mortgages, autos, and, of course, student loans.

Student loans are due even if you're not gainfully employed, or you stopped taking classes prior to graduation. If you don't make a payment for 270 days, your loan will be in default. If that occurs, you'll quickly learn how cold and cruel the real world can be.

Fail to pay-pay the price

If you fail to make a loan payment and don't have forbearance (only requires payment of the interest on a loan), or deferment (delay of payment for a specified time), you face rather dire consequences. A lender may turn your loan over to a collection agency, and you'll be responsible for the costs of collecting the loan, including attorney's fees.

The fun doesn't stop there. You can also be sued, your wages garnished, and your lender can take your federal and state income tax refund. The government can also deny you access to any more federal aid and withhold any Social Security payments that you're currently receiving.

Needless to say, all this will wreak havoc on your credit score, which impacts your ability to get loans and access credit.

Preventing and emerging from default

The first and most obvious way to stay out of default is to make your payments on time. Keep your lender posted on any address changes that you have. If you can't make your loan payment, contact your lender immediately. You can request a deferment, forbearance, or some other payment arrangement.

If you do fall into default, it's not the end of the world. You can get out of it by making 9 of 10 consecutive payments within 20 days of the due date. Making these payments may require some negotiation with your lender, in which a "reasonable and affordable" payment amount is set. This is considered "loan rehabilitation." Consolidating your delinquent loan may be another option suggested by your lender.

You may also be eligible for additional Title IV federal aid if you've made six consecutive on-time payments.

The consequences of loan default can be severe and have a significant long-term impact on your finances. Even though you can climb out of the jam by making a series of payments on time, it will wreak havoc on your credit score. Choose a healthier economic path: Make your payments on time and stay out of default in the first place. It's the best way to ensure that the real world welcomes you with open arms.

Congress to Help with Student Loans

The shaky nature of the economy has cast doubt over the entire lending world. Much attention has been focused on the housing market, but student loans have also become under question. Recently, Congress has taken steps to ensure liquidity in the market, providing a dose of confidence for the future.

The financial turmoil in the United States has been dizzying, confusing, and downright scary. From stockbrokers to homeowners, uncertainty has swirled in reaction to the government bailout plan for the economy.

The future is in doubt for student loans, as well as home mortgages. If private institutions are forced to tighten their lending restrictions, it imperils private student loans. Considering the importance of education to our economy, this could be one of the most devastating blows of an overly constricted credit market.

To alleviate the problem, Congress has taken action on some short-term and long-term solutions.

Short term: Keeping access strong

This past spring, Congress overwhelmingly passed a measure that allows the Secretary of Education to buy loans from lenders in the Federal Family Education Loans program. This Draconian measure can only be enacted if a lender can't meet the demand for capital because of the constricting markets. The recent action by the Congress extends the Education Secretary's authority until July 2010.

In addition, Congress approved a measure that would extend the amount of federally-subsidized student loans available to borrowers. The previous cap had been raised to help students deal with higher-priced private equity loans.

Long term: Erase student loans with public service

The government has also approved a series of measures that forgive student loans in exchange for public service work. Provisions of the College Cost Reeducation and Access Act of 2007, and the reauthorization of the Higher Education Act, both include short-term and long-term provisions for graduates who enter the public sector.

The long-term program will forgive any remaining federal student-loan debt for qualified individuals who have 10 years of full-time employment in a public service position, such as a public defender. The legislation only applies to those with federal loans, such as Stafford, Grad PLUS, and debt consolidation. Students with loans from private lenders will have to switch to a federal loan to qualify.

One of the criteria for qualifying for the program is that a borrower must make 120 monthly payments toward her debt. These payments do not need to be made consecutively.

The short-term program is meant to entice people to work in the public sector. It provides forgiveness for a portion of a student loan after as little as three years of public service.

Much has been written about the parallels between the current economic crisis and the Great Depression. The government's recent flurry of activity appears to be a stark contrast to the inactivity of elected officials in the 1920s. Time will tell whether the government measures will ensure that there'll be a healthy economy waiting for students when they graduate.

Four Strategies to Help with Student Loan Debt

Traditionally, students throw mortarboards into the air when they graduate. For many college students, graduation is also a time when they begin throwing their money away by not repaying student loans properly.

After suffering through years of cramped apartments and ramen noodle diners, most college graduates are eager to get a job and start earning money. One more lesson, however, must be learned. Students need to understand the correct way to repay their student loans. To effectively manage their debt, grads should follow these five strategies:

1. Pay on time or call your lender

New jobs and salaries also mean more financial responsibilities. Sometimes, a loan payment gets missed in the transition. To keep their credit reports unmarred, many graduates opt for an automatic repayment plan. This simple procedure automatically deducts the loan payment from a checking or savings account.

If a financial setback makes a late payment unavoidable, contact your lender and explain the situation. You may be able to work out a plan to deal with short-term problems. If you say nothing and the loan goes into default, you face serious legal and financial problems.

2. Choose the right repayment option

As graduates get a handle on their cash flow, they can pick out the best loan repayment option. People in low-paying, entry level jobs may opt for income-sensitive repayment programs that align a monthly payment with their income. For those earning a heftier salary, a better fit is the standard repayment option with fixed payments and low interest costs. Watch out for interest-only payments that shrink monthly obligations but don't reduce debt over the long haul.

3. Consider consolidation

Debt consolidation is a great choice if you have more than $10,000 in loans at rates higher than current market interest rates. Be aware that the move can extend the term of your loan repayment, so make sure that you understand how much you'll be spending in long-term interest. Also, avoid combining government loans with private loans. You'll negate federal benefits such as deferment or subsidized rates.

4. Don't repay right away

Life after school isn't always rosy. Unemployment, economic hardship, or a desire to return to school can crimp your ability to repay your student loan.

You do have options. Deferment, for example, allows you to stop making payments for a specified period of time. There's a three-year limit for cases of economic hardship, but the time is unlimited if you re-enroll in school. You can also choose forbearance. Reserved only for cases of severe hardship, forbearance is granted in yearly increments. In either case, interest continues to accrue on all student loans.

A diploma in hand doesn't mean a student's education is finished. Students should study all the repayment and consolidation options, if financial times get tough. The learning curve can be unforgiving out in the real world. Smart graduates will improve their debt management IQs by learning how to best repay their student loans.

Four Ideas for Student Loan Consolidation

To consolidate or not to consolidate? Hamlet might have asked this question if he had graduated from college with student loans. If you're considering a loan consolidation, you'd be wise to follow a few simple tips.

The great thing about graduating from college is that you don't have to worry about homework hanging over your head. On the flip side of the coin, you may have something far worse to be concerned about-a student loan payment.

Many graduates consolidate their loans to lessen the pain of repayment. But no financial transaction should be taken lightly. Not only must you carefully analyze your current situation and goals, you need to consider what types of student loans are on the market. Here are some student loan consolidation tips to keep in mind.

1. Shop until your payment drops

You don't have to stick with the same lender if you're going to consolidate your loans. Shop around and look at different opportunities. Rates may not vary, but you could find that different lenders offer different discounts (see next tip). You may also find that the lender that you're currently with has included extra charges that you don't need to pay. It's always wise to comparison shop, no matter what your purchase.

2. Go discount shopping

As you're shopping for the best consolidation package, ask about discounts. Lenders today offer them for a variety of items, including everything from making a payment on time, to using automatic withdrawals from your checking account. Lenders highly value graduates who can make their student loan payments on time, primarily because so few of them do. Discounts for on-time bill paying might include reducing your payment by one full percentage point if you can rack up a 36-month consecutive payment streak.

3. Tame the terms

By extending the repayment term of your loan, you can lower your monthly payment. For most graduates struggling in an entry-level job, that's a very enticing prospect. But don't judge a payment book by its cover-an extended loan term can be as frightening as term papers. Those lower payments don't come cheap-you're going to get whacked long-term by higher interest costs. Ask your lender to tell you the difference in long-term interest costs for loans with different repayment terms. The results will startle you.

4. Do a reality check

Most importantly, don't choose a lower loan payment just so that you can buy a really cool car. Unless you've landed an exceptionally high-paying job out of college, you'll probably have to choose more of a utilitarian vehicle until you can afford a nicer ride.

As a graduate, it's great to be free from the constraints of endless exams and required reading. Unfortunately, the financial equivalent to academic pain is waiting in the wings. Repaying a student loan will be a concern of yours for a long time to come. Make sure that the debt isn't with you one day longer than necessary by carefully shopping for the right consolidation loan.

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