The Student Loanmageddon

                                                                         

Last year both the Republicans and Democrats both vowed to extend the 3.4% student loan interest rate for another year to avoid backlash from young voters. Once again Congress failed to develop a permanent plan that would prevent Stafford subsidized student loan interest rates from doubling to 6.8%.  This year the country is waiting relentlessly for Congress to reconvene and develop a solution regarding the student loan interest rate hike when they return from vacation on July 10, 2013.

The interest rate hike will put more pressure on college students to quickly find a job and a job that will at least pay enough to cover basic living expenses and their student loans. Hopefully, students will earn enough income to pay any other financial obligations they may have such as credit card debt.

According to Huffington Post, the government earns billions in revenue and will earn even an additional $51 billion with the interest rate hike. Sadly, the students who need the interest rates to remain at 3.4% are the ones that will suffer the most and go further into debt.  Sen. Elizabeth Warren, stated, ''We should not be profiting from students who are drowning in debt while we are giving great deals to big banks".

Members of Congress are out-of-touch with Americans because they can afford to send their children and grandchildren to college without the need for student loans. The student loan industry is a constant reminder of the economic disparity between the rich and the poor.

Every American deserves the right to receive a college education without having to pay for it for the rest of their lives. Then again, Americans deserve a right to a free quality public education, a fair judicial system, live and work free from sexual harassment; discrimination and prejudice based on color, race, gender, ethnicity or religion but unfortunately those issues still exist.  The student loan issue is just another mountain that Americans have to deal with.

The interest rate hike probably won’t stop students from attending college but the haunting student loan debt derails plans for college students to live the American dream by becoming a homeowner, starting a family or starting a business.

According to Tucson Weekly, more than 100 college campus leaders sent a letter to Congress concerning the interest rates. Some leaders also went to the White House and some students protested in front of the Capitol to urge Congress to take action prior to July 1, 2013 but their voices went unheard.

Most college students affected by the interest rate hike will not see a change until they return to school in the fall semester 2013 since the hike only applies to loan disbursed on or after July 1, 2013. 

Many students don’t really understand the impact the interest rate hike will have. If they did, many more would be complaining and voicing their concerns.  In addition, many students feel helpless about the student loan interest rate hike.  However, students can voice their concerns to their state senators and congressman as well as their U.S. congressman. Even a simple email or phone call will show Congress that the issue is important to you, as well as current and future college students. There are online petitions that can be utilized such as moveon.org or change.org to get support for the interest rate hike.  Use the Bankrate amortization schedule to calculate your payments over your loan term http://www.bankrate.com/calculators/college-planning/loan-calculator.aspx.

The maximum amount students can borrow for Stafford subsidized loans for a 4 year education is $23,000.  This will result in a monthly payment of $175.57 for a 20 year loan term and would result in a total payment of $42,135.83. However, if you owe an additional $30,000 in unsubsidized student loans with an interest rate of 6.8%, your monthly payment would be $229 a month.  You would now owe a total of $375.57 a month in student loans. 

The average cost of utilities in an apartment is $165 per month, the average car note is $350 per month, the average cost of clothing is $220 per month, the average cost of an apartment is $1,600 per month, the average cost of internet is $45 per month, the average cost of a cell phone is $139 per month, the average cost of toiletries is $103 per month and the average cost of food is $200 per month if you buy groceries, if you eat out often the cost is higher. Based on these figures you would need to bring home at least $2,442 a month after taxes plus your student loans of $375.57 based on the figure used above which results is needing $2,817.57. This excludes gas for your car, car insurance and maintenance, health insurance and hair care (hair salon or barber) and any other expenses such as coffee, cigarettes, cable, etc.

You have to ask yourself why does Congress only approve short-term fixes to address the student loan interest rate. Three years ago Congress could have developed a permanent solution. When Congress was predominately Republican they could have come up with a solution, when Congress was predominately Democrat they could have come up with a solution, yet they did not. 

Develop a plan that you know you can stick to it to pay back your student loans.  Defaulting on student loans can result in losing your tax refund, garnishing your wages or accessing money in your bank account. Another headache you don’t need.

Student Loan Victory

President Obama asked Congress to extend student loan interest rates for another year and won. Congress came to an agreement today and student loan interest rates will not increase at least for another year. 

If Congress did not take action,  interest rates for subsidized government Stafford loans would have increased from 3.4 to 6.8% on July 1, 2012 for loans issued after July 1, 2012 for undergraduate students and their parent who are already strapped for cash and still trying to recover from the 2008 recession.  Here are some ways to reduce student loan costs:

1.   Think about how you will pay back student loans.

2.   Go to a cheaper college.

3.   Participate in a work-study program.

4.   Extend school for 5 to 6 years by working a co-op.

5.   Work during the summer and use the money to pay for school.

6.   Work full-time and go to school part-time.

7.   Stay at home for 1-2 years after graduation to pay down student loans.

Always have a plan B and don’t depend on someone else to solve your problems.  One person can make a difference, since this is an election year make your voice heard.  If you want to see changes now it the time to voice your concerns. To your success.

How Student Loan Changes Will Affect You

President Obama asked Congress to extend low student loan interest rates for another year. If Congress cannot come to an agreement and pass the bill, student loan interest rates for subsidized government Stafford loans will double increasing from 3.4 to 6.8% on July 1, 2012. However, the increase will only affect undergraduate students who are issued government loans after July 1, 2012.  Interest rates for existing loans will not be affected.  

The interest rate for subsidized loans which are based on economic need is fixed for the life of the loan.  You are not charged interest while you’re in school at least half-time and during grace periods and deferment.  However, a six-month grace period on interest charged on federal subsidized student loans has been suspended which will cause interest to accrue the day after a student graduates from college from July 1, 2012 through June 30, 2014. 

The interest rate for subsidized loans is fixed at 6.8% for graduate and professional degree students and will not be affected.  The interest rate for unsubsidized student loans is 6.8% and will not be affected.  Interest accrues on unsubsidized loans from the time it is disbursed. You can pay the interest while you are in school and during grace periods, deferment or forbearance, or you can allow the interest to accrue.  

For military service employees, the interest rate on loans obtained before entering military service may be capped at 6% during your military service. However, you need to contact your loan servicer to request this benefit. Interest is not charged for loans disbursed after October 1, 2008 for up to 60 months, while serving on active duty, serving in a hostile area, performing qualifying National Guard duty during a war or an emergency. 

Private loans may initially offer a low interest rate similar to a balance transfer credit card, but the interest rate is variable and can increase at any time. The Georgetown University Center on Education predicts that by 2018, approximately 63% of all jobs will require some graduate school education.

Consider going to a cheaper college and create a budget for the lifestyle you want to have when you graduate college.  Determine if you will be able to afford to make the minimum loan payments before applying for the student loans.  Unexpected events occur frequently and it is best to plan ahead instead of waiting until the last minute or being blindsided by an unexpected expense.

The Debt Ceiling and Student Loans

The passage of the debt ceiling includes a $17 billion increase in spending for Pell grants and scholarships for low-income undergraduate college students and would protect cuts from the programs until 2013. Approximately 19 million students are eligible for the funds.

However, it would eliminate federally subsidized student loans for graduate and professional students (doctors, lawyers, dentists, etc.) which would affect approximately 6 million students seeking advanced degrees. It also eliminates usage of Pell grants for summer undergraduate programs.

The maximum amount of money a graduate student can borrow from the federal government is $20,500 a year, including $8,500 from subsidized loans. Currently students don't have to start paying interest on subsidized student loan loans until six months after graduation. During that time the government pays the interest.

The debt ceiling eliminates this and eliminates a credit on the origination loan fee provided to students who make 12 months of on-time payment. Students currently get half of the money paid for the origination loan fee which is 1% of the loan back. These changes go into effect beginning July 1, 2012. At that time graduate students would begin accruing interest on student loans while in school. Students have the option to pay on the interest while in school but don’t have to make payments until after graduation.

Student can use the Income Based Repayment (IBR) plan which does not require students to make payments on the federal loans until their incomes exceed 150% of the poverty line and payments are a percentage of the amount their incomes exceed this level. This protects students if their incomes are not enough to make the loan payments. The 2011 poverty line for one person is $10,830 except for Alaska and Hawaii where the poverty lines are slightly higher.

Under the new laws starting July 1, 2012, if a student with no children has an income of $30,000 per year and has monthly loan payments of $350, their $30,000 income exceeds 150% of the poverty line (($10,830 x 150% )+ $10, 830) = $27,075. The student would be required to pay no more than 10% of the amount their income exceeds the poverty line $2,925 ($30,000 - $27,075 x 10%) or $292.50. Currently the student has to pay no more than 15%.

Students who are voter age must voice their concerns with their congressman and during elections to preserve funding for undergraduate and graduate grant and scholarship programs.