Got student loans? Refinance now or pay more

July 1 is the deadline for getting that lower rate If you've waited to consolidate the student loans you took out in college, procrastinate no longer. Come July 1, rates on existing loans are expected to jump at least 1.5 to 2 percentage points. Plus, a loophole that allowed students to consolidate while still in school and lock in a special low rate will be closed permanently.

By acting before July 1, students still in school or in the six-month grace period after graduation can secure an annual interest rate on their federal Stafford loans at 4.75 percent for the life of the loan. Students out of school can get a rate as low as 5.375 percent. Parents who have taken out federal PLUS loans to finance their children's education can lock in a rate of 6.125 percent. If you choose not to consolidate, your rates will surely jump. Since the new rates will be calculated from the rate of Treasury bills at the last auction in May, plus 1.7 to 3.1 percentage points (depending on the loan), and rounded up to the nearest one-eighth percent, there's no way of knowing now exactly what rates will be in July.

But based on the most recent Treasury auction in April, the annual rate would be 6.5 percent for loans in the grace period, 7.125 percent for loans in the repayment period, and 7.875 percent for PLUS loans. A student who consolidated a $30,000 loan at 4.75 percent during the grace period would save more than $3,000 over a 10-year loan period. Students still in school or in the six-month grace period are prime candidates for consolidation.

By asking that their loans be put into repayment status early, they can consolidate at the lower in-school rate of 4.75 percent and then ask that the repayment period be deferred until graduation. (Students who do this may lose their grace period, however.)

FIXED RATES FOR NEW LOANS

Future student loan borrowers will also have something to chew over, as a new federal law aimed at simplifying the student loan system and curbing the federal deficit mandates that beginning July 1, all new loans will carry a fixed rate, instead of the current variable one. Stafford loans will be set at 6.8 percent for all new loans through 2012. There's no telling whether that rate is good or bad because nobody knows where interest rates will trend. The rate on PLUS loans, which will also be available to graduate and professional students as of July 1, will jump from 6.1 percent to 8.5 percent. (Due to an oversight in the law, federal direct PLUS loans were fixed at 7.9 percent, though Congress may change that.) At this point, private loans and home equity loans--which are currently averaging 7.98 percent and 8.08 percent, respectively, according to BankRate.com, a financial data information Web site--may be attractive alternatives, especially if you have the stellar credit needed to get the best rates. What's more, you may be able to deduct some of the interest on such loans.

TIPS FOR CONSOLIDATING

Keep your loans short-term. When you consolidate, your lender may offer you a repayment period of up to 30 years, which could cut your monthly payments by as much as 50 percent or more. But don't be tempted. Stretching out the life of your loan will result in dramatically higher total interest costs. Say you're lucky enough to consolidate a $30,000 loan at 4.75 percent. If you keep the loan term to 10 years, your interest payments would be $7,745. But if you stretch it out to 30 years, you'd pay $26,340. So unless you have immediate needs, are trying to save cash for a house, or are between jobs, keep the shortest term you can stand.

To see how much interest you might pay over different loan terms or to compare the benefits of consolidating, try the online calculators at FinAid.org (finaid.org/calculators) or Citibank (studentloan.citibank.com/slcsite/fr_calc.htm). If you do need to stretch out your loans, get ahead on your payments by putting down more than the minimum due each month. Extra money you pay may be applied to your principal, thereby reducing your future interest.

With some financial institutions you need to specify that the money should be applied to the principal so the future interest will be reduced. Take advantage of loan incentives. Lenders regularly offer a 0.25 percent reduction if you have your payments automatically deducted from your checking account and a further 1 percent off if you make all your payments on time for the first 36 months. Apply immediately. Student loan applications must be received by the lender by June 30, not simply postmarked by that date. If you apply online you will get date-marked confirmation of your submission. Weigh your options.

If you have a direct student loan through the federal government, go to loanconsolidation.ed.gov to see your options. If your federal loans are handled through a private company such as Sallie Mae or Citibank, contact them. When your loans are consolidated, you will receive the weighted average of the interest rates of all your loans, rounded up to the nearest one-eighth percent. Even if you have only one loan, you may be able to consolidate it. If you have loans with only one lender, you cannot use another lender to consolidate. But if you have loans with multiple lenders, you can choose which one to consolidate with or even use an entirely new lender with better incentives.

For instance, California nonprofit lender, ALL Student Loan (www.allstudentloan.org), offers qualifying California residents, or students at California institutions, a choice of either a 1.25 percent reduction for making their first 24 payments on time or a credit for the first 12 months' interest for making their first 12 payments on time.

Source: http://www.consumerreports.org/cro/personal-finance/student-loans-refinance-now-or-pay-more-406-student-loans-financial-aid.htm

Students combat loan debt, interest rates after graduation

With a competitive job market and tuition on the rise, high school graduates are facing the nearly unavoidable fate of the student loan application.

Nationally, 65 percent of students will borrow money by the time they graduate. On average, this amount will total nearly $20,000 and could take students nearly a decade to pay back, according to one of the nation's leading lenders, Nellie Mae.

In her recent book Generation Debt, 24-year-old Anya Kamenetz attributes many of the problems 20-somethings face in establishing their careers and economic stability with this financial burden.

She points to the political apathy of college students and Congress' subsequent disregard of the soaring tuition and loan interest rates that put students at a serious economic disadvantage after graduation.

Attending Baylor in 1998 would have cost $18,000 per semester, including room and board, according to the university Web site. Today students pay nearly $30,000.

Cliff Neel, assistant vice president and director of scholarships and student financial aid, said 53 percent of Baylor students graduate with some kind of loan to pay for education. Of that percentage, the average loan amount is $26,650. Kamenetz explains that the growing gap between this college debt and income is creating a "class at a systemic disadvantage."

According to the Nellie Mae Web site loan calculator, if a student has $18,000 in Stafford Loans, lower than the national average, at 5.3 percent interest during the pay period and 4.7 percent while in school, he or she will eventually pay $29,273 over the standard 120-month pay period. This debt equates to $235 per month in installment payments.

Compounding the difficulties for this new "class" of college graduates is recent congressional legislation that further limits loan consolidation.

The Single Holders Act, siding with the lending companies, prevents students with several loans from a single lender from consolidating with another company for lower rates.

Congress also repealed several laws that allow borrowers to consolidate their loans more than once.

"After July 1, married couples will not be able to consolidate their student loans," Neel said. "The interest rate will also be set at 6.3 percent for all federal student loans."

"We have counseling team members that work with students to find the best plan for them -- that could be federally subsidized or private loans," he said. "We always encourage students to take out only as much as they have to."

With state and federal grant amounts dropping and Baylor tuition rising, Neel said, many students are having to keep up with the cost by taking out alternative loans from private lenders that have higher interest rates than their federally subsidized counterparts.

Because of this dependency on private loan programs, Neel said the department is working with commercial lending partners to offer students the lowest interest rates possible.

To further combat the growing problem, Neel said the financial aid department is looking at improving retention rates. When students drop out of school because they can't afford the tuition, all the money they have invested is lost.

Neel also said the financial aid office tries to help students profit from their educational investment by shortening graduation time.

"If it takes a student five or six years to graduate, then the cost of education goes up significantly," he said. "We're trying to get students into the right classes, so they can be on the track to graduate on time and with the least debt."

Beyond these measures, he said, the financial aid department is limited because of low federal and state funding.

In February, Congress approved $11.9 billion in cuts to federal college student financial aid to tighten the 2006 budget.

Dr. Thomas Myers, associate political science professor, said the Bush administration is cutting student loan funding because of the mounting federal deficit.

"The lack of federal funding for education is a reflection of the administration's priorities," he said. "Regardless of young people's participation in the political scene, the Bush administration just isn't interested."

Myers said President Bush talks about educational support, yet keeps cutting funds.
According to Statline.org, the president's 2007 budget proposal cuts education funding by $3.1 billion, a drop of 5.5 percent from 2006.

One of the 42 programs slated for elimination is the Perkins Loan program for low-income college students.

Despite the pessimism surrounding the future of higher education bills and benefits, according to a Nellie Mae borrowers poll, more than 70 percent of people say their current debt was worth the life experience and leg-up in the career world that college provided.

Dr. Franklin Potts, associate finance professor, said any asset that appreciates in value, like a student loan, is well worth the investment.

"If you go to college and double your earning capacity," Potts said, "even if you have to take out loans, you're still increasing your net worth."

Potts classified debt in three categories: good, neutral and bad.

"The biggest mistake that students make is to acquire bad debt while in school," he said. He defined bad debt as consumptive purchases such as food, clothing or vacations.

"Many students don't distinguish between student loans as an investment in their future and credit card debt that seriously damages your net worth," Potts said.

Potts compared the soon-to-be-fixed Stafford loan rate of 6.3 percent with 15 percent on a credit card and 8 percent on a new car.

"Students think they can have it all," he said. "They have loans and car payments. Then they want to buy a house, and it just doesn't work that way."

Source: http://www.baylor.edu/Lariat/news.php?action=story&story=40469

Credit card laws

Re: "Keep applying pressure on credit card issues" (editorial, April 2).

I appreciate the Courier-Post for alerting the public to a type of bait-and-switch used by credit companies and for providing a way for consumers to fight back. We must join together for the good of all to fight these unfair practices.

I made copies of the credit card letter to lawmakers that ran on the Opinion page and presented them to classmates, business associates and family and friends and sent them back to the Courier-Post.

A big thank you must go to U.S. Rep. Rob Andrews, D-Haddon Heights, for his continued support of the people. U.S. Rep. Jim Saxton, R-Mount Holly, said he lacks evidence to support proposed credit card laws that would have tough consumer protections. And U.S. Rep. Frank LoBiondo, R-Ventnor, said it's a matter between debtors and debtees. However, Andrews stood up and said, "You can't change rules in the middle of the game, it's unfair to consumers."

Another big thank you must go to U.S. Rep. Bernie Sanders, I-Vt., for sponsoring two bills to ensure fair treatment by credit card companies. The first bill caps interest rates at 8 percent above what the IRS charges delinquent accounts, caps late fees at $15 and prohibits universal default. The second bill covers universal default, informing consumers of the time needed to repay debt and mandating notification from credit cards before they raise interest rates.

These bills are meant to protect us. Discrimination and unfairness affect us all. Stand up and be counted; we don't have the privilege of giving ourselves a raise.

Source: http://www.courierpostonline.com/apps/pbcs.dll/article?AID=/20060426/OPINION/604260318/1047

Feds poised to off-load regulation of payday loan industry to provinces

OTTAWA (CP) - After watching payday loan outlets reproduce like rabbits across Canada with no regulation, the federal government appears poised to hand over control of the controversial industry to the provinces.

Banks, insurance companies, utilities, credit unions - they're all bound by an article in the Criminal Code that prevents them from charging annual interest rates of more than 60 per cent.
But the payday loan industry has floated under the enforcement radar, at times charging rates that hover in the 20,000 per cent range for short-term loans when various fees and charges are factored in.

Before the last election was called, the Liberal government was about to table legislation that would exempt the industry from the 60 per cent interest-rate limit, as long as the provinces came up with their own regulations and rates.

Now Justice Minister Vic Toews says he's also favorable to the plan.

"That is a mechanism that I think has some merit and I will very seriously consider that," Justice Minister Vic Toews said Monday.

Manitoba has been a pioneer on the issue. Last January, it took payday lender Paymax to court for allegedly levying a criminal level of interest charges, the first such action in Canada. There are also a handful of class-action lawsuits in the courts.

Manitoba Finance Minister Greg Selinger is trying to push the envelope by bringing forward a package of consumer protection measures to regulate the industry, such as making it a requirement to disclose from the outset all the fees a consumer must pay.

The only thing Manitoba needs now is for the federal government to do its part and let the province license the industry and set its own interest rates.

"What I'm trying to do is set up a regime that in effect legalizes this activity under proper controls and protections for the consumer, and drives the worst practitioners of payday loans out of business," Selinger said in an interview.

Ontario, meanwhile, has been pushing in the opposite direction. It's been lobbying the federal government to rework the Criminal Code to specifically address the payday loan industry, rather than delve into the issue itself.

The province of Quebec bans payday loan practices outright.

The previous Liberal government had drafted legislation to hand over control to the provinces, and was about to table it when the election was called last November.

There are about 1,350 payday loan outlets across Canada, 850 of which are members of the Canadian Payday Loan Association, which wants regulation.

The association has its own code of conduct, and has banned such practices as loan "rollovers," where fees and interest are rolled into unpaid loans, expanding the debt exponentially. The association says it cannot, however, control those bad apples that aren't members.

"Those 550 non-member stores still use . . . unfair collection practices, and those stories, and the customer dissatisfaction, relates to the industry as a whole," said Bob Whitelaw, president of the Canadian Payday Loan Association.

Whitelaw also said 60 per cent annual interest-rate limit is unrealistic for an industry that offers short-term loans.

For example, a 60 per cent annual interest rate on a $100 loan would give the payday loan company only about 90 cents a week, he said.

Source: http://www.cbc.ca/cp/business/060424/b042496.html

Private schools accused of scam over course loans

The Tertiary Education Commission is investigating allegations that some private trainers are offering cash kickbacks to elderly Chinese who take out student loans and enrol for English language courses.

StudyLink, which administers loan payments and pays the fees to the institution, has also started an inquiry. Students receive the money and taxpayers foot the bill.

An Auckland-based Chinese woman told The Dominion Post she knew of a student who was offered a $1200 payment. One Auckland private training establishment allegedly offered a $400 "grant".

Taxpayers were providing loans totalling thousands of dollars that were unlikely to be repaid, said Richard Goodall, president of AIS St Helens in Auckland, which is not involved in the practice.

Pensioners collectively owe $85 million in student loan debt. Many earn less than the loan repayment threshold, and when they die, the debt is written off.

"A lot of these senior classes aren't very demanding. It's to help them with shopping, it's more of a social outlet. We believe it's an unethical practice. It doesn't give the industry a good name," Dr Goodall said.

National MP Pansy Wong said she had received several complaints. "These trainers are targeting older people, particularly migrants seeking to learn English, who are taking on heavy student loans without understanding exactly what the implications will be." There were more cost-effective ways of catering for their language needs, she said.

Dr Goodall said the practice was prevalent in Auckland where language schools competed fiercely for students. He had raised concerns with StudyLink and Work and Income but officials rejected his suggestion that elderly student borrowers should have a loan guarantor, because they could not discriminate on age.

Commission spokeswoman Susan Shipley would not comment on the investigation but if the allegations were proven, access to student loans for the courses could be stopped.

Any citizen, permanent resident or refugee enrolled in a course approved by the commision could apply for a student loan. Tuition fees are paid directly to institutions.

Private trainers not receiving government tuition subsidies can charge market rates for courses, but students can borrow only up to $6500 from the loan scheme. Other trainers can charge up to $4100 for a fulltime English language course which is the maximum students can borrow for their fees.

Source: http://www.stuff.co.nz/stuff/0,2106,3631214a11,00.html