The Real Deal on the New Student Loan Interest Rates

                 

Financial institutions that have private student loan workout programs are requested to provide student loan borrowers with information that clearly explains the programs, including eligibility criteria and the process for requesting a loan modification. This week the federal bank regulatory agencies issued a statement encouraging financial institutions to work with private student loan borrowers experiencing financial difficulties. This is a good start but stricter penalties should be implemented.  Financial institutions should be fined if they refuse to assist private loan borrowers with an affordable repayment plan.

Congress finally approved a plan to address the interest rate for federal student loans. New student loan interest rates will be set according to the 10-year Treasury yield plus a few percentage points. Under the plan, undergraduates taking out federal loans in 2013 would pay about 3.86%, graduate students would pay 5.4% and parent PLUS loans would pay 6.4 %. This only provides relief for this year.  If the Treasury yield increases so do student loan interest rates which will affect 11 million borrowers.

Under Congressional Budget Office projections, the interest rate is expected to increase over the next couple years, forcing student loan interest rates near 7% by 2017. Undergraduate loans are capped at 8.25% instead of 3.4%, graduate loans are capped at 9.5% instead of 6.8%, and PLUS loans at 10.5% instead of 7.9%. This would not be needed if the cost of college tuition was regulated. 

“We are opposed to the current deal,” Minnesota State Colleges Student Association president Kelly Charpentier-Berg said. “In the long-term, it’s actually going to cost students more. With it being market-based, when the economy goes up, the interest rate goes up.”

Unfortunately the Pell Grant does not provide enough money to cover one semester of tuition and forces students to obtain student loans. Tuition has become so expensive some students cancel their plans to go to college. Some experts believe that college tuition has become so expensive due to several factors such as:  declines in state or federal funding, increasing health care costs, soaring costs for labor productivity, colleges don’t and are not required to compete on tuition prices - Ivy league and other well-known colleges compete on academic reputation, hundreds of new rules, regulations and requirements that require colleges to change their business practices; other requirements that require colleges to hire additional administrators and compliance officers to ensure that they are not in violation of various new rules.

However, college tuition has also increased due to  food choices  including well-known fast food restaurants such as McDonalds, Starbucks, Pizza Hut, etc., more variety of bachelor degrees, new construction – at least 50% of construction cranes in America are on college campuses, elaborate student centers with theaters and bowling alleys, state of-the-art recreation facilities with rock-climbing walls; cable TV and wireless Internet access, online access to washing machines and dryers, and high college executive salaries, bonuses and exit payments.

Some experts state that the more aid colleges give the more they increase tuition. Colleges charge as much as someone is willing to pay.  Colleges that don’t accept federal loans have tuition that is half that of similarly-ranked colleges. The Minerva Project, a for-profit university in California stated that it will refuse Federal aid in order to keep tuition costs low. Cooper Union keeps tuition costs down because they don’t have a gym, swimming pools, climbing walls or a major cafeteria. Dormitories only house freshmen.

Students have been bamboozled to think that if a college charges a high tuition it must be a good school; this is not always the case.  If you have student loans take advantage of student loan forgiveness programs and demand affordable student loan reform from Congress and tuition reform from colleges.

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 to Negotiate Student Loan Interest Rates

The hardest debt for college graduates to get rid of is student loan debt. Trying to find out who you owe, how much you owe, your interest rate and monthly payment can be a nightmare.

If you defaulted on your loan, it is even harder to get information about your loan especially if you account have been forwarded to a collection agency. It takes a lot of perseverance and patience to navigate through the student loan maze but you can negotiate the terms of your loan. Here are some easy ways to negotiate your student loan interest rate.

Strategies for Negotiating
1. You may be eligible for an interest rate reduction if you consolidate your loans.
2. You can refinance your loan to get a lower interest rate if you have good credit.
3. You can request a loan modification if you are unable to make monthly payments for certain reasons such as: job loss, medical bills, reduced wages or hours or emergencies.
4. You can pay interest-only payments over a period of time and ask the lender to shorten the length of the loan.

How to Negotiate
1. You can request that the company lower your interest rate if you have made payment on time for one to two years or more and your loan is not in default because their main goal is to keep your loan from defaulting.
2. Remain in constant contact with your student loan lender and make payments on time. If you are unable to make payments setup a payment arrangement with your lender. Make sure your information on file with the lender is current. Don't ignore letters sent to you regarding your student loan.
3. Establish a relationship with at least one person at the lender company and remain in contact with that person when handling your loan. It helps to have an additional person at the lender company to work with; either their supervisor or co-worker in the event the person gets promoted or leaves the company.
4. Many private loan companies will lower your interest rate if you setup automatic payments. Sallie Mae does this and has another program that links your Upromise account to your Sallie Mae account which also lowers your interest rate.

Other Options
1. When looking for jobs ask about student loan forgiveness programs. If you work in the medical or judicial fields, for the federal government, non-profit or low-income areas you are eligible for a student loan forgiveness program that may pay 25% or more of your student loan each year. For more information visit finaid.com.
2. Work a full-time and a part-time job or 2 full-time jobs to pay down the student loans. The highest interest is accrued during the first two to five years of the loan so the more interest you pay on the loan during that time the faster your balance will go down and the less money you will owe over the life of the loan.
3. Live at home after graduation for at least two years to save money and put most of your earnings toward your student loans. During this time try to double, triple or quadruple your loan payments. After about six months you will be able to see your balance go down each month. If you are unable to live at home after graduation rent out a room or cheap apartment and stay there for at least two years.
4. Don't buy a car, catch public transportation. If you absolutely need a car because there is no public transportation near your job then buy a cheap used car that is in good condition.
5. Keep expenses to a minimum and buy more needs vs. wants. If possible, continue to pay down your student loan debt until your balance is paid in full.
6. Delay going to graduate school if you have student loans. Pay off your student loans before going to graduate school because it will be harder to pay off two loans instead of just one.
7. Get a job with an employer that will pay for you to go to graduate school.

Your Credit Score
1. Damaging your credit score by defaulting on your loan to get a lower interest rate is not worth it for several reasons: you end up owing more on your loan due to the missed payments and accrued interest, you damage your credit rating which can take years to fix and you will not be eligible for student loans in the future, you damage your relationship with the loan company.
2. If you receive an interest rate reduction it may only be temporary because it is harder now to get interest rate reduction due to defaulted loans. You will have to provide proof that you are unable to pay the loan, i.e. budget, paycheck stub, tax forms, etc.
3. There are instances where you can settle on a defaulted less for less than the principal amount but it may take months or years of fighting with the loan company. You will have to document a financial hardship, i.e. paystubs or W2 forms, provide documentation of where you obtained money to pay for the settlement and provide a reasonable explanation of why they should accept the settlement amount.