Planning how to pay college debt can be difficult. It can be even worse when companies that might otherwise seem helpful are actually preying on those in need. Loan “rescue” or “consolidation” plans are one such instance where researching a company can make the difference between getting a helping hand or being placed in a worse situation.
While loan consolidation can lower student loan borrowers’ monthly payments, reduce interest rates or resolve other repayment issues, many of the services these companies charge a fee for can be done for free by borrowers if they contact their student loan service provider directly. To find your loan servicer for federal student loans, visit the National Student Loan Data System. Other companies offer these services in an attempt to steal consumer identities and money. The biggest red flag is if the company is making a promise that sounds too good to be true.
Some of the scams highlighted in the advisory include:
- Law offices or attorneys that charge fees ($300-$600) to file paperwork for borrowers that could be filed for free by the borrower if they contact the loan service provider directly.
- Companies that require access to the borrower’s bank account under the false pretense of using it to automatically deduct payments and steal money from the account. Also, any personal identification information, such as Social Security Numbers are used to steal the borrower’s identity or sold off to other scammers.
- Long-term scams in which the company charges consumers a service fee, down payments and collects a couple of monthly payments they claim are
going towards the borrower’s loan. The money is never applied towards the student loan and the borrowers face late fees and penalties from payments they didn’t know they were missing.
Do not fall prey to these scams. Some of these student loan companies will have professional looking websites and may claim to be associated with a government agency or that they are working for the U.S. Department of Education. If you feel you may have already fallen victim to one of these scams, file a complaint with the Attorney General’s Consumer Protection Division.
Summertime means freedom for students as they move into their final years of high school, prepare for college or embark for life after school. While the future stands open before them, these first steps can also be vital in establishing long-term financial health. Establishing a credit history provides benefits for future investments (house or car purchases). For that reason it’s important to use credit wisely so that students avoid creating negative credit histories that can make financial life even more difficult down the road.
New regulations have placed restrictions on access to credit cards by those younger than 21 and also put some limits on credit card marketing on campus. Nonetheless, students are still signing up for credit cards and using them. Often college freshmen are enticed into signing up for a card as they make the adjustment to social, and financial, life on campus. Here are some tips to bear in mind for high school or college students using credit cards.
Credit cards shouldn’t replace budgeting
There’s a reason so many people say “With freedom comes responsibility.” The first years out of high school offer many opportunities to make independent choices, often where money is concerned. But poor spending habits can cause long-term problems. It is all too common for students to exhaust all the funds allocated to them for the semester way before the semester ends because they fail to budget properly. Others have a reckless disregard for managing their money and spend like money grows on trees. By establishing a budget and looking for ways to save on everything from textbooks to groceries, students will learn how to stretch their dollars and not have to fall back on credit cards to make up for the difference.
Don’t fall in the minimum-payment trap
Those students who do use their credit card will often make minimum payments while continuing to spend with their credit card. Paying the minimum amount due might keep the amount from being past due, but students will end spending far because of interest applied to the balance each month, sometimes meaning that a credit card bill could take years to pay off. Read the information on monthly credit card statements to find out how long it would take to pay off the balance only paying the minimum amount due. It might shock students enough to adjust their approach to repayment.
Credit cards aren’t emergency loans
Many people get credit cards for use in “emergencies,” but a fashion emergency might not constitute the same need as a car crash. Being able to weigh the difference between “wants” and “needs” makes a big difference in creating a monthly budget. Placing restrictions on when and how to use credit cards within that balance makes students savvy about their credit
Don’t make credit cards an ATM
It may not seem like such a bad idea to use a cash advance from a credit card if things get a little tight. But cash advances come with a standard fee of as much as $35 or 3 percent to 5 percent of the total amount. Also, they often have higher interest rates than your card, and the interest starts accruing immediately, leaving you without a grace period to pay off the balance.
In the end, financial responsibility is a valuable part of freedom for students in high school or after. Few things can impact future finances than a poor credit score and burdensome credit card debt. Take the time to think about the long-term effects of using credit cards. Then make (and stick) to a plan for using them properly.
For students graduating from colleges all over the country this month, the thrill of earning a diploma is often being offset by fears of dealing with student loan repayment. While loan repayment is inevitable, many new grads will start on the wrong foot because of assumptions about their student loan responsibilities and ways to pay back their debt.
Here are four common myths that can be easily avoided to prevent students starting down the wrong path. It’s good advice for not just recent grads, but current students and those considering the impact of student loan debt on their educational plans:
If I need help understanding or dealing with student loans, my former college or university won’t help me. Even though a student may have graduated from a school, their financial aid office is still a great resource to help explain loan repayment options and connect students with loan servicers. Financial aid offices have a vested interest in helping students understand and stay on track with their loan repayment, as high default rates can negatively impact a school. So if a student starts to get confused by paperwork, the financial aid department is a great place to start..
I’ll never pay off my loans. Those first payments after graduation may feel a bit overwhelming, and will likely be a large part of any budget as a student gets started in their career. Salary increases, paying extra when budget allows and plain old perseverance will lead to progress. Income-based plans and automatic payments are just two options to “set and forget” loan repayment as a part of monthly budgeting.
Consolidating my student loans into one loan is a good idea. Loan consolidation may offer convenience, but often students will find themselves in situations which either are not eligible for consolidation or can actually negatively impact their repayment. Loan servicers will already use a combined billing for students with Federal loans so that the students have one payment to make and federal loans can’t be combined with private loans in a federal direct consolidation loan. In some cases, consolidating Perkins Loans can lead to students losing repayment benefits that the loan provides.
Filing for bankruptcy means not having to repay student loans. While Chapter 7 or Chapter 13 bankruptcy does help protect against some loans, most borrowers will not be able to discharge their student loans unless it can be proven that the loan repayment will cause an undue financial hardship. Rather than negatively impact a credit record with a bankruptcy, students should consider finding more flexible payment plans that best meet their needs during repayment.
For many college graduates, the grace period before they have to start making student loan payments is quickly coming to an end. November marks the first month many of these former students will be required to make a payment on the loans they received. The loan repayment process can be confusing and it is easy for many students to relocate without contacting their loan provider, making it even more difficult for their lender to provide them with important information and pressing deadlines.
To avoid future confusion and frustration with your student loans, follow these tips to make certain you are on track to pay off your debt with fewer headaches and in a shorter amount of time!
Understand your loans and your grace period.
There are several student loan options and you may have taken out more than one type. This can make it difficult to remember what loans your borrowed and the grace period associated with each one. It is important to contact your lender or servicer to find this information as soon as possible to avoid missing a payment. You can access information about your federal loans on the National Student Loan Data System (NSLDS), www.nslds.ed.gov (you will need your FSA ID), or by calling the Federal Student Aid Information Center at 800-433-3243. In addition, you can look back at your original promissory note you signed to find this information.
Don’t ignore your loans.
Failing to pay your student loans is commonly called ‘defaulting.’ Defaulting on a student loan will cause your credit score to drop rapidly, and will increase the amount you owe on the loan. Federal student loans go into default after you fail to make a payment for 270 days, but private education loans may go into default sooner. There are serious consequences to defaulting on your loans that will impact you for years. If you are struggling with your student loan payment, ignoring it is not a solution. Contact your lender or servicer immediately to discuss options for postponing or reducing your payments.
Be strategic when paying off your loans.
If possible, it is always good to pay off a loan ahead of time. If you have more than one student loan, you can save money by paying off the loan with the highest interest rate first. If you have both private and federal loans, you may want to pay extra on the private loans first as they tend to have less flexible repayment options and higher interest rates.
Choose a repayment plan that will work for you and your budget.
With federal loans, a variety of repayment options are available to help you manage student loan repayment. Plans such as Pay As You Earn and Income-Based Repayment have monthly payment amounts based on your income and family size. If you are unsure which repayment option is best for your budget, you can estimate the amount of your loan payment under different repayment plans. Repayment calculators can be accessed in the student loan section of www.IowaCollegeAid.gov. You can also discuss your options with your lender or servicer. Doing so will provide them the opportunity to ask questions and determine which options may be best for your situation.
Apply for loan forgiveness programs.
Depending on the field in which you work, loan forgiveness programs may be available. Federal programs such as the Public Service Loan Forgiveness Program and other similar options enable borrowers working in designated public service professions to have a portion or all of their federal student loan debt forgiven. In addition, Iowa has state-based loan forgiveness programs for eligible teachers and healthcare professionals. Check out the Iowa College Aid website to learn more about federal and state loan forgiveness programs available.
Know your lender.
Many borrowers lose contact with their lender or servicer when they move from one place to the next. If you plan to make a move, contact your lender or servicer and provide your current contact information and mailing address. This way, you will ensure you receive information about your loan and won’t end up late on your payment.
Whenever possible, lower your principal amount.
The principal amount on a loan is the actual dollar amount of the loan, it does not include interest or late fees. Each minimum payment is first applied toward any late fees and outstanding interest before reducing the principal balance. By paying more than the minimum payment each month, you can decrease the principle amount of your loan, therefore reducing the amount of interest that will accrue for the next payment. Paying as little as a few additional dollars each month can end up saving you hundreds or even thousands of dollars over the life of the loan depending on your balance.
There’s no way around it: getting the degree or certificate that will connect you with your future costs money. No matter the type of education students pursue after high school, cost will often play a factor in not only determining where students go to school, but, in many cases, impact whether or not they complete their degree and find the career they’ve long sought.
Many students and families rely on private student loans which come with interest rates that can feel daunting not only during school but in the years after. However, thanks to the Free Application for Federal Student Aid (FAFSA), students are discovering many roads to free money that can help reduce their student debt and help them succeed.
Completing the FAFSA arms students with a tool, a baseline of financial information and need for aid that can be used for a variety of state and federal grants, as well as private scholarships. There are many ways for students to find free money that require nothing more than the time to research and apply in order to receive some financial help for their education. Here are few places to start:
State Grants and Scholarships
The state of Iowa provides funding for grant programs to help with higher education costs. Students who receive Iowa-funded grants and scholarships must be Iowa residents, attend an eligible Iowa college or university and meet other criteria specific to each program. Scholarships and grants do not have to be repaid and can significantly reduce college expenses. The chart below provides an overview of the application requirements for each scholarship and grant administered by Iowa College Aid. For specific criteria, go to IowaCollegeAid.gov.
Every year, MILLIONS of dollars in private scholarships go unclaimed; not because no qualified candidates applied, but because no candidates applied at all.
Scholarships are available from private sources including businesses, foundations, religious organizations, community groups and fraternal organizations. High school counselors are excellent resources for scholarship information, as are libraries and college financial aid administrators.
Web searches also allow students and families to explore scholarship possibilities. Reputable organizations will NOT charge fees for scholarship searches.
Think of finding scholarships like a part-time job. If you spend 5 hours researching and applying for scholarships that lead to a $1,000 scholarship, you’ve just made $200 per hour. That’s pretty good money for working part-time! Here are some ways to track down private scholarship opportunities:
- Work: Have your parents ask whether their employers offer college scholarships to children of employees.
- School networks: Many high schools offer scholarships for graduating students. Also check with the area alumni association of your college.
- Community organizations: Many community organizations sponsor local scholarships. Check your city’s website or call your local community center for lists of organizations in your area.
- Religious organizations: Find out if your place of worship offers scholarships. If not, it might partner with other organizations.
- Field of study: Your college might offer scholarships specific to your major. Contact your program department.
College and University Scholarships
Your college or university might provide scholarships or financial awards from its institutional funds. Often, institutional scholarships go to recipients who meet specific requirements related to particular areas of study, academic achievements, outstanding talent, leadership, athletic ability or other criteria. Contact the financial aid office and ask about institutional programs available through the college or through on-campus organizations.
Federal grants are awarded to both Iowa resident and non-resident students. Eligible students can receive these federal grants for attendance at any postsecondary education institution participating in the program. Federal grants include:
- Pell Grants
Pell Grants are funded by the federal government to assist the neediest undergraduate students. The maximum award is $5,920 for the 2017-18 award year.
- Supplemental Educational Opportunity Grants
Federal Supplemental Educational Opportunity Grants (SEOG) are based on financial need. Eligible recipients receive between $100 and $4,000 per year. Not all colleges participate.
- Teacher Education Assistance for College and Higher Education Grants (TEACH Grants)
The Teacher Education Assistance for College and Higher Education (TEACH) Grant program helps students in teaching preparation programs. In exchange for a TEACH Grant, recipients agree to serve as full-time teachers in high-need fields in public or private non-profit elementary or secondary schools that serve low-income students. These grants are available to eligible undergraduate, post-baccalaureate and graduate students for a maximum amount of $4,000 per year. Students must meet academic standards.
Taking the time to track down free money for school now may seem like hard work, but the impact it will make in saving students from debt as they start their careers will be an even greater reward as they start their careers.
Video: Identify, Separate Loans From Grants on Award Letters to Better Understand Out-Of-Pocket Costs
Getting accepted into college is an exciting moment for students and families who are ready to embark on the next part of their educational journey, but can often be offset by concerns about just how much school will cost both now and after graduation.
Financial aid award letters help students and families get a better understanding of what to expect both in terms of money being provided by the school and state, through scholarships and grants, and costs of attendance (COA) at the school.
In part two of our “Understanding Your Financial Aid Award Letter” video series, we discuss how to best identify repayable financial aid options and separate them from scholarships and grants to get a better picture of the actual financial responsibility that will be required to attend a school.
More often than not, there is a gap between the “free” money being offered to a student and the COA, leaving families to determine the best way to meet the financial requirements.
On many letters, both federal and private loans are included as possible options to bridge that gap. However, as there is currently no standard format for schools to consistently show financial aid options, loan amounts are often included in the same area as scholarships or grants. At a quick glance, families might not realize that loans, which must be repaid after graduation, are being included with the “free” money of grants and scholarships.
For more tips, advice and information for preparing for college, check out Iowa College Aid’s “Your Course to College,” a free downloadable guide for students, families and schools available at https://www.iowacollegeaid.gov/YourCourse
While the national conversation around the importance of continuing education past high school gains much attention, so to does the issues surrounding paying for it. Regardless of politics, the fact remains that paying for college stands as one of the biggest challenges for students and their families.
Getting a head-start on putting together a financial plan is always a good idea for any prospective student. Here are some tips for families to consider now to ensure that they limit the amount of student loan debt accrued while still in school:
Borrow only the amount you need
Many borrowers make the mistake of taking out more loans than necessary. To avoid doing this, create a budget to determine how much loan money will be needed and avoid using loan money to pay for unnecessary expenses, such as trips to the movie theater or expensive dinners.
Consider a part-time job
If a student’s academic schedule allows, they should consider finding a part-time job on campus to help supplement the cost of unexpected expenses. Be sure to check with the financial aid office to see if students qualify for work study, which gives the opportunity to work on campus.
Compare award letters
Once a student receives their financial aid award letter, compare loan offers by reading the fine print. If federal loans are not enough to cover the cost of education and a student is considering private loan offers, be sure to shop around for the best interest rates and repayment options.
Take college credit while in high school
Taking AP, dual credit or college credit courses while in high school can give students a head start on achieving your intended major. Find out the general education requirements at the college a student plans to attend and take courses that will fulfill those requirements. Doing this can help students graduate from college early, which means borrowing less in student loans.
Consider paying loan interest while still in school
Students who start making interest payments on their student loans while still in college will reduce the total amount they have to repay after graduation. Interest payments are usually manageable. By paying off interest as they go, students can keep outstanding interest from capitalizing on any balances. Allowing interest to capitalize increases loan balances essentially requiring students to pay interest on the interest that has been accrued!
Apply for scholarships
Scholarships can pay for portions or all of a student’s education during an academic year. But students can’t earn scholarships if they don’t apply! Find scholarships specific to a school or department by talking to a representative from the school’s financial aid office or department chair. In addition, the following sites are just a few places to check for scholarships:
- Fast Web – www.FastWeb.com
- Big Future by the College Board – https://bigfuture.collegeboard.org
- Sallie Mae Scholarship Search – www.salliemae.com/scholarships
- Scholarship America – https://scholarshipamerica.org/
Choose a school that fits into the family budget
Review the financial aid packages from the colleges where students applied and consider how much needs to be borrowed in order to attend each. Keep the goal in mind and select a college where loan debt can be kept at a reasonable level against future income potential.
Get more tips in Iowa College Aid’s “Path to College.”