Differences Persist in Congress’ Struggle to Extend Student Loan Rate

Differences Persist in Congress’ Struggle to Extend Student Loan Rate - The top congressional leadership was out in full force today as leaders from both political parties in both chambers of Congress promoted the position of their respective caucuses in the latest battle over congressional funding on Capitol Hill.

At issue is finding an amicable way to pay for or offset the costs of extending the current student loan interest rate of 3.4 percent, rather than permitting the rate to double on July 1 to 6.8 percent.

Republicans and Democrats have both proposed alternative methods to cover the cost of the extension and, judging by their comments today, a huge gulf remains between the two parties. While House Speaker John Boehner, R-Ohio, announced Wednesday that the House would vote Friday on a one-year extension that is paid for by pulling funds from the president’s health care law, Democrats prefer to raise taxes on small businesses in order to cover the $6 billion cost of a one-year extension.

Senate Majority Leader Harry Reid, D-Nev., said he was “very disappointed” in Boehner’s plan to hold a vote on the GOP’s bill Friday, telling reporters that covering the cost by pulling from preventive health care funds “doesn’t sound like a very good deal to me.”

“We simply want to renew this, and it’s the right thing to do. This affects 7 million students. They’ll get an average of about $1,000 a year increase in their interest and that’s a lot [for those] struggling to get through school,” Reid told reporters today on Capitol Hill. “We believe there’s an easy solution. We can pay for this with a tax that people who make a lot of money have been avoiding for a long time by changing from ordinary income, they put this into sub-chapter S and avoid taxes.”

New York Democratic Sen. Charles Schumer, the No. 3-ranked Democrat in the Senate, said that the House’s way of paying for the rate is a “poison pill” that stands no chance of passing the Democrat-controlled Senate.

“If it’s true Republicans support stopping the rate hike, they have a weird way of showing it. In the House, the proposal they’re advancing has a poison pill attached to it,” Schumer said. “Their offset is a partisan proposal that tries to refight the debate over the president’s health care law. That’s not a serious attempt to pass this student loan bill.”

Schumer complained that Republicans are attempting to force Democrats to “choose between helping students afford college tuition or forcing women to go without mammograms.”

“They want to give to the middle class, but only when they take from the middle class and that’s because they don’t want to touch their true constituency, the wealthiest people in America who at every turn they try to make their lives even better,” he said. “They’re not the people who need help in America.”

House Minority Leader Nancy Pelosi, D-Calif., also does not like the House GOP’s proposed way of finding the money, instead proposing to cover the cost by taking subsidies from Big Oil and gas.

Coupled with the Senate Democrats’ way of paying, the House GOP is faced with two alternatives that aides say are poison pills in the House. Asked if he could think of any other offsets that might win bipartisan support in both chambers of Congress, Reid indicated he had exhausted all options.

“If I had come up with that, I would have put it in the bill,” Reid said incredulously. “The point is Republicans oppose anything that increases taxes even for people who manipulate the system and have been doing it for a long time. Republicans, I’ve indicated, will not vote for any tax increase no matter how fair it is. [Speaker Boehner] calls the preventive care a slush fund? I mean, they should be ashamed of themselves. This is saving people’s lives, saving the country huge amounts of money.

“We’re doing the right thing,” he added. “We want this done, we think it’s important it’s going to be done and we’re not going to back off until we get it done.” ( abcnews.go.com )

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A Step-By-Step Guide For Eliminating Private Student Loan Debt

A Step-By-Step Guide For Eliminating Private Student Loan Debt - You went to a good college. Got the awesome degree. And now you’ve got the private loan debt to match.

Private loan debt might seem like an overwhelming, scary green monster especially when you compare ‘em with federal student loans. But don’t worry. You can work with this.

The good thing with public loans is that if times get tough, you might qualify for extended, income-based repayment. Private loans usually don’t offer any of these options. Private loan holders sometimes offer forbearance, but generally not for an extended period of time.

If hearing that sort of thing tempts you to pretend your loans don’t exist and go play Angry Birds then keep reading. Put down the cell phone and tackle this problem one piece at a time. Here’s how:

First, sit down and look at your overall financial picture. Figure out how much you really need to live by calculating essential expenses like food and rent. In an interview, Mark Kantrowitz, publisher of Fastweb.com and FinAid.org, said things like cable and dining out aren’t necessities. Cancel the cable contract and look for entertainment options that are free instead.

Be sure to get copies of your student loans and read the fine print. Heather Jarvis, an attorney and student loan consultant with AskHeatherJarvis.com, said you need to physically read what you’re entitled to. If you don’t have copies, call the lender and request them.

Next, make sure you have enough money to meet your monthly payments. If you don’t, consider getting a second job or moving in with mom and dad. Yeah, it might not be the most appealing option but it’s better than having your credit history marked with a big red ‘X’. If you default on your student loans, your credit history and potential job offers will be affected for at least seven years.

Consider consolidating. If your credit score has improved since you took out your private loans, you may save some money by consolidating. But if you’ve borrowed loans at different rates and still have a low credit score, Kantrowitz said it may be wise not to consolidate. It’s also a good idea to work to improve your credit score.

Set up an automatic payment plan for paying down your private student loans. Doing this will ensure you’re always on time with your monthly payments. Some lenders will also reduce your interest rate when you set up an automated payment plan. Private loans sometimes offer other perks, like releasing a co-signer from being responsible for a loan after a certain amount of time. Research these options for each private loan.

If you have extra money after paying your monthly loan bills, put it towards the loan with the highest interest rate over its life. If a loan has a variable interest rate and you plan to pay it down over the entire time you are allotted, this will likely be the one you should pay first. “It may be low now but it won’t be a low rate indefinitely,” Kantrowitz said.

If you have both federal and private loans, see if you can reduce or delay paying back the federal loans. If that isn’t an option and you are only going to pay one loan and default on the other, pay for your federal loans, Jarvis said. One of the only benefits of having private debt is there are fewer ways for private loan holders to get their money back. The federal government will “get their money one way or another and the collection powers are so intense that you absolutely have to pay your federal student loan debt back, period,” she said.

If you have a windfall that allows you to make a huge repayment on a loan, negotiate! A lender will sometimes agree to a settlement that treats your debt as paid in full though you pay a lower amount than the total. If you do this, make sure to get a paid in full statement that says your payment covered the whole loan.

So there you have it. Go deal with the debt and get those loans payed off! ( businessinsider.com )

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The Types of Federal Student Loans

The Types of Federal Student Loans - Four major types of federal loans are available to students or their parents: Stafford Loans, PLUS Loans, Perkins Loans, and Consolidation Loans. Each type of loan is aimed at a different set of people, each has its own interest rate and repayment terms, and each has its own advantages and disadvantages.

• Stafford Loans: Either the federal government or third-party lending institutions offer these loans. Stafford Loans are either subsidized or unsubsidized.

  • Subsidized: You won’t be charged any interest until after you leave school for whatever reason.

  • Unsubsidized: Interest is charged from the time they’re disbursed until you completely pay them off.

• PLUS Loans: PLUS is an acronym for Parent Loans for Undergraduate Students. To qualify for PLUS Loans, parents must have children who are enrolled at least half-time at an approved educational institution.

  The maximum allowable amount that can be borrowed for a PLUS Loan is the difference between the cost of the student’s attendance and any other financial aid the student receives (a number set by the school’s financial aid office).

  Unlike Stafford Loans, PLUS Loans feature neither a grace period during which no payments are due nor any period during which interest doesn’t accrue.

• Perkins Loans: Federal Perkins Loans are loans guaranteed by the U.S. Department of Education and are available for undergraduates and graduate students. Unlike Stafford Loans, however, federal Perkins Loans have a fixed rate of interest and are made by your college or other institution (the government gives the college the money, and the college distributes it).

  The Perkins Loan program is determined based on three factors:

  • When you apply

  • The level of need, as determined by your college

  • The funding level of your school

Typically, you have ten years to pay back any funds disbursed under the Federal Perkins Loan program, and you make your checks out directly to your school. ( dummies.com )

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How to Defer or Discharge Student Loan Debt

How to Defer or Discharge Student Loan Debt - Under special circumstances, you can receive a deferment on the repayment of your federal student loans. You may even get your entire student loan debt forgiven (or to use the technical term, discharged) in certain circumstances.

To be eligible for deferment, your loan can’t be in default. If it is, you have to get back on a satisfactory payment program and keep making payments until you receive approval for deferment.

Here’s how you might be able to get a deferment or discharge of your student loan debt:

Deferring a Stafford Loan: In some cases, if you’re unable to find full-time employment after you graduate or if you experience severe economic hardship, or in one of the following specific circumstances:

• You become a full-time elementary or secondary teacher for five consecutive years in an area that serves low-income families.
• Your school closes before you can complete your program.
• Your school doesn’t pay out your loan amount.
• You file for bankruptcy and the bankruptcy court decides that your student loan needs to be discharged.
• You die or become permanently disabled, making work impossible.

Putting off Perkins payments: You automatically get a nine-month grace period with a Perkins Loan, but you may be able to postpone repayment even longer if

• You’re unable to find work on a full-time basis.
• You encounter severe economic hardship.
• You become a community service worker in such professions as law enforcement, corrections, or teaching in designated low-income areas.

Cancelling your Perkins loan: Situations that may qualify for a cancellation of your Perkins Loan include

• Becoming a full-time special education teacher or a teacher of children with diagnosed learning disabilities.
• Performing early intervention services for the elderly on a full-time, professional basis.
• Serving as a full-time law enforcement or corrections officer.
• Becoming a full-time staff member in the education division of a Head Start Program.

Up to 70 percent of your Perkins Loan can be forgiven if you enlist in the AmeriCorps VISTA Program or become a Peace Corps volunteer. ( dummies.com )

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What are Bridge Loans, Home Equity Loans & Home Equity Lines of Credit (HELOC)?

What are Bridge Loans, Home Equity Loans & Home Equity Lines of Credit (HELOC)? - Home equity loans are typically junior loans and should not be confused with a basic refinance, which means paying off an existing mortgage and replacing it with another loan. Refinances can take 30 days or more to process. Home equity loans fund fairly quickly and are subordinate to an existing first mortgage. In other words, an equity loan falls into second position.

The lender's security for the loan is your home, meaning if you go into default and do not make your mortgage payments or otherwise abide by the terms of the loan, the lender has the right to foreclose. In many states, like California, if a homeowner stops paying the first lender, to protect its security, the second-position lender can step in, make up the payments to the first lender and begin its own foreclosure proceedings. All of which means your home is at risk when you take out a home equity loan.

Bridge Loans

Bridge loans are used by sellers who want to buy a new home before selling an existing home but need the cash from the existing home. You will see bridge loans used more often in seller's markets than in buyer's markets. Common terms for a bridge loan are:

• Loan amounts up to 80% of market value
• Higher loan costs such as points or admin fees
• No payments for 3 to 4 months
• Right to renegotiate loan terms if home does not sell within loan term
• Some lenders demand the borrower obtain the financing for their new home from the lender making the bridge loan

Home Equity Loans

Borrowers cannot obtain equity loans in all 50 states. Equity loans can be used toward the purchase price of a new home but the lender will not make the loan if your home is on the market. This is the main reason many sellers obtain bridge loans instead. But since costs are higher with a bridge loan, it makes more sense to get an equity loan if you can plan far enough in advance.

Borrowers also obtain home equity loans to pay for home improvements / remodeling, college education or medical expenses. Because interest is tax deductible on a home equity loan, many homeowners choose to borrow against a residence to buy consumer goods. They reason that if they finance consumer goods by obtaining an unsecured loan or putting the purchase on a credit card, they cannot deduct the interest, but they often do not stop to consider whether the item is really a necessity. It is not a good idea to borrow against your home to purchase luxuries such as motor homes, ski boats or vacations, but people do it. Advantages to a home equity loan are:

• Typically, fixed rate of interest
• Borrow 100% of equity or more
• Amortized payments
• Longer loan terms such as 3, 5, 7, 10 or 15 years.

Home Equity Line of Credit (HELOC)

Borrowers can take out a home equity line of credit and never repay a dime. That's because a HELOC is a line of credit, meaning if you never actually take any of the money available, you won't ever need to pay it back. It's available by writing a check for more than you have in your account or by making withdrawals against a specific account at your lending institution.

Some of the characteristics inherent with a HELOC are:

• Generally, an adjustable-rate loan
• Once the money has been repaid, you can borrow it again
• Flexible payment terms, sometimes as low as 1% of your loan balance

Note: The time to apply for a HELOC is when you don't need it. It's credit that will be available to you should you ever need to draw on it, whether you are subsequently unemployed or facing an immediate financial emergency. ( about.com )

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How To Finance Your Studies Abroad

How To Finance Your Studies Abroad - Overseas education gives students the opportunity to enhance traditional academic experiences while increasing cultural awareness and tolerance. Students who study abroad often develop a deeper understanding of the world, and learn skills that contribute to both personal growth and career marketability. Many employers seek diversified employees who can communicate well with others and who have cross-cultural competence. Cultural immersion through a study abroad program can be worth the expenses when it comes time to land a job: a person with international experience may be the stand-out candidate for a position.

Even though students can rationalize the expenses as investments in their futures, both personally and career-wise, finding the money to study abroad can still be a challenge. Fortunately, financial assistance is available for those students who wish to combine higher education with international and cultural exploration.

Scholarships and Grants
Scholarships and grants are called "free money" because these funds do not need to be paid back, making them the most attractive method of funding study abroad. Scholarship deadlines often fall between October and March of the year before the funds will be needed. The search for scholarships, therefore, should begin at least one year before the money will be needed. Certain scholarships, such as the Rotary Foundation's Ambassadorial Scholarship program, offer money only to students who are studying abroad.

Financial Aid
If a student is pursuing a study abroad program while still in high school, he or she is not eligible for federal financial aid. For university and college students, however, as long as the student's U.S. school appears on the Federal School Code list, the student's federal student loans, such as Stafford and PLUS, can be used to pay for a non-US school. The Federal School Code list can be found on the U.S. Department of Education and Federal Student Aid website at www.ifap.ed.gov .

Sallie Mae International has loans that can be used by U.S. students to study abroad, or by international students who wish to study in the U.S. American students who are enrolled full time at a college or university abroad and are expected to earn a degree while abroad, or who are studying abroad temporarily and expecting to earn a degree from an institution within the U.S. may be eligible for Sallie Mae International private student loans. The private loans are:

• Sallie Mae Smart Option Student Loan

Students can borrow up to the full amount of their education, less any other aid that has been received. This loan program is ideal for students who need additional funds after they have maximized free money (scholarships) and federal loans.

• Global Health Residency and Relocation Loan

This loan is available for medical students and assists with the costs associated with finding a residency, including travel for interviews and the costs of relocating (these costs are not covered by federal student loan programs).

Interning Abroad
Interning abroad provides students and new graduates valuable opportunities to work in specific career fields while enhancing their abilities to work in cross-cultural environments, both of which help provide distinction among prospective employers. Interning abroad may reduce the costs of studying abroad, but should not be considered a way to earn money. Websites such as https://www.iesabroad.org/IES/home.html (the Institute for the International Education of Students) and www.internabroad.com are updated frequently with international internship opportunities. Students can search by country and by type of internship, such as "Croatia" and "Economics."

Fellowships and Assistantships
Graduate students may be eligible for an international fellowship or assistantship. Fellowships allow students to perform research or specialized work in a particular field at a university abroad. Organizations such as the Institute of International Education ( www.iie.org ) have information for graduate students interested in these opportunities. The IIE also lists other scholarship and award opportunities, as well as information on the Fulbright Program, a U.S. international exchange program that is administered by IIE. Assistantships typically involve working for a university as a teacher or in an administrative role. Individual schools can be contacted to learn about available assistantships.

A Penny Saved
In addition to financial aid and scholarships, students can help raise money to study abroad by spending less on unnecessary splurges. When purchasing the newest iPad, for example, students should ask themselves if they want it more than they want to study abroad. Students should ask themselves if they are willing to make the sacrifices at home for the opportunity to study abroad. Every dollar saved is one dollar closer to the financial requirements for the study abroad program and in the end it all adds up.

Additionally, students who wish to study abroad can start a travel fund to save for international educational opportunities. Students can write blogs to provide updates to friends and family, and add a PayPal donation button to the blog to make it easy for people to make a monetary contribution.

The Bottom Line
The costs associated with studying abroad are seen by many as a sound investment in a student's personal and professional development. By starting the process early, students can take advantage of the many funding opportunities available for studying abroad. ( Investopedia.com )

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Is student loan, education bubble next?

Is student loan, education bubble next? - First the dot.coms popped, then mortgages. Are student loans and higher education the next bubble, the latest investment craze inflating on borrowed money and misplaced faith it can never go bad?

Some experts have raised the possibility. Last summer, Moody's Analytics pronounced fears of an education spending bubble "not without merit." Last spring, investor and PayPal founder Peter Thiel called attention to his claims of an education bubble by awarding two dozen young entrepreneurs $100,000 each NOT to attend college.

Recent weeks have seen another spate of "bubble" headlines — student loan defaults up, tuition rising another 8.3 percent this year and finally, out Thursday, a new report estimating that average student debt for borrowers from the college class of 2010 has passed $25,000. And all that on top of a multi-year slump in the job-market for new college graduates.

So do those who warn of a bubble have a case?

The hard part, of course, is that a bubble is never apparent until it bursts. But the short answer is this: There are worrisome trends. A degree is an asset whose value can change over time. Borrowing to pay for it is risky, and borrowing is way up. The stakes are high. You can usually walk away from a house. Not so a student loan, which can't even be discharged in bankruptcy.

But there are also important differences between a potential "student loan bubble" and an "education bubble." Furthermore, many economists think the whole concept of a bubble is a misleading way to think about what's happening, and may actually distract from the real problems. College affordability is a serious issue, but it's a different one. Borrowing for college and borrowing for, say, a house, are fundamentally different in important ways.

To be sure, there are some classic bubble warning signs:

• Everybody wants in. The idea that higher education is the only way to get ahead has become widely held. College enrollment has surged one-third in a decade. With rising demand, college tuition and fees have more than doubled over that time, outstripping inflation in every other major sector of the economy — energy, health care and housing, even when housing was bubbling itself.
• Those bills are paid with borrowed money. The volume of outstanding student loans is rising rapidly and now exceeds credit card debt, though recent reports of it crossing $1 trillion may be premature. Moody's Analytics puts the number at around $750 billion. But while credit card debt is declining, student loan debt keeps going up.
• Just like housing, many student loans were made with little or no research into whether borrowers were fit. Federal Stafford loans are basically automatic for college students, and government backing for other types of loans gave other student lenders little reason to be picky.
• Defaults on federal student loans jumped from 7 percent to 8.8 percent in the most recent fiscal year. That measures just recent borrowers who were already behind within two years of their first payments coming due.

Those numbers are all alarming. But putting them in context requires thinking separately about the ideas of a "student loan bubble" and an "education bubble."

First, one thing that's important about the possible student loan bubble is that it poses much less of a threat than housing debt did to drag down the entire economy. Yes, many individual borrowers may find themselves in trouble. But total student loans probably amount to less than 10 percent of outstanding mortgages. Every single student loan could default and it still probably wouldn't match total mortgage defaults during the recent downturn. More importantly, unlike mortgages, Wall Street isn't knee-deep in securities comprised of bundled student loans, as it was with mortgages. (It also helps that it's also harder to speculate in student loans; an investor can flip a house, but not a brain.)

The other big difference with student loans is the dominant role the federal government has assumed in the market in the last few years: it accounts for roughly 85 percent of student debt.

That matters for several reasons.

First, the government is answerable to voters and not shareholders, so it's more likely than private investors to take steps such as those announced by President Barack Obama to try to relieve student debt burdens.

Second, notes Mark Kantrowitz of the website Finaid.org, it's important to remember what actually causes a bubble to burst. It's not simply a run-up in prices. What bursts the bubble is a liquidity crisis, when borrowers suddenly can't get the money they need. Even during the depths of the 2008 financial crisis, when private student loans dried up, the government's dominant role kept student loans flowing.

That doesn't guarantee the bubble won't slowly and painfully deflate over time. But it insures against the chaos of a "crash" where suddenly students can't get loans at all — a scenario that could shut down untold numbers of colleges whose students rely on financial aid.

None of that, however, changes the fundamental risk for individual student borrowers: they could borrow heavily to pay for a college education and find the return much less than expected.

It's here, looking at the debate from an individual borrower's point of view as opposed to the entire economy, that the debate over the term "bubble" gets tricky. Can an education lose value?

Certainly a college degree can.

A key measure is the wage premium for bachelor's degree recipients over those with just high school diploma, and there are various ways to measure it. All show the wage premium is substantial, though after rising steadily for years it appears to have slipped some lately. Wages for the median bachelor's degree recipient are roughly $55,292, compared to $34,813 for those with only high school, according to the latest data from Georgetown University's Center on Education and the Workforce.

That reflects a premium that has fallen from roughly 67 percent a few years ago to 59 percent (the latest Bureau of Labor Statistics data put the 2010 premium at 65 percent for weekly wages). Still, all told, estimates for the lifetime earnings advantage of a college degree range from a conservative $500,000 to more than $1 million, according to the Census Bureau. Even with recent price increases, for the average student loan borrower that remains a very high return on investment.

It's true the unemployment rate for new college graduates is more than 10 percent. But unemployment for college graduates overall is 4.2 percent, compared to 9.7 percent for those with a high school degree.

Could college prices rise so much, and the premium fall so far, that a degree is no longer worth it? Of course, for some degrees. But in a modern economy, it's difficult to imagine that happening across the board. Here's where a degree is truly unlike other assets — most should correlate at least somewhat with skills that are useful in the world. Particular degrees may prove bad bets, but to imagine the premium on education itself dropping off a cliff is to imagine a world where things have gone so wrong that job skills no longer matter.

Or, as Kent Smetters, an economist at the University of Pennsylvania's Wharton School, puts it: "In that case, nobody's worried about paying back their loans. Everyone's heading for bunkers in Idaho and canned goods and that kind of stuff."

Here's the rub: Nobody earns a generic "college degree." Degrees are earned from different schools, with different reputations, and in different majors with much different payoffs. What counts most, says Georgetown's Anthony Carnevale, are the courses you take and your major. Roughly 30 percent of associate's degree recipients earn more than people with bachelor's degrees. A graduate with a mere certificate in engineering will earn roughly 20 percent more than the average bachelor's recipient.

That suggests there isn't one big bubble, but many smaller but significant ones stretching across different sectors — certain liberal arts grads, artists, lawyers who borrow six figures for law school and can't find a job, and students at for-profit colleges. The signs of a bubble at for-profits are unmistakable: Enrollment has tripled in a decade, roughly 96 percent of graduates have loans and borrowing is substantially higher than at other types of institutions. Default rates recently jumped to 15 percent.

But what's most important is the huge numbers who never earn a degree at all. At community colleges and for-profit schools, roughly one in five aiming for a bachelor's degree fail to secure it. Even at four-year public universities, the failure rate within six years is almost half. Anyone who borrows a large amount of money and then fails to complete a degree is in a world of hurt — quite possibly worse off than if they'd never even tried to go to college in the first place. ( Associated Press )

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