Author: Ryan Lane

How Much You’ll Really Pay for That Student Loan

Posted on by Ryan Lane

Those who graduate college with student loans owe close to $30,000 on average, according to the most recent data from the Institute for College Access & Success.

But they’ll likely repay thousands more than that because of interest. One key to limiting interest cost is choosing the right repayment plan. The bottom line? Opting for lower payments will cost you more overall.

Using a tool like the Education Department’s Repayment Estimator can help you better understand potential costs. Here’s how much $30,000 in unsubsidized federal student loans would cost under different plans at the 2019-2020 undergraduate rate of 4.53%.

Standard repayment

  • Total repaid: $37,311
  • Monthly payment: $311
  • Repayment term: 120 months

The standard plan splits loans into 120 equal payments over 10 years. Federal borrowers automatically start repayment under this plan, unless they choose a different option.

Standard repayment adds more than $7,000 to the loan’s balance in this example, but that’s less than most other options.

Barry Coleman, vice president of counseling and education programs for the National Foundation for Credit Counseling, says to stick with the standard plan if payments aren’t more than 10% to 15% of your monthly income.

“The monthly payment would be higher, but in the long run [you] would save more in interest charges,” Coleman says.

Graduated repayment

  • Total repaid: $39,161
  • Monthly payment: $175 to $525
  • Repayment term: 120 months

Graduated plans start with low payments that increase every two years to complete repayment in 10 years. Despite having the same repayment term as the standard plan, graduated repayment costs $1,850 more overall due to additional interest costs.

Cathy Mueller, executive director of Mapping Your Future, a nonprofit located in Sugar Land, Texas, that helps college students manage debt, says graduated repayment may be a good option for those who expect their earnings to increase in the future.

However, those doing well careerwise should try to make the standard plan work because of its lower interest costs.

“It’s not going to be a huge difference, but every penny counts,” she says.

Extended repayment

  • Total repaid: $50,027
  • Monthly payment: $167
  • Repayment term: 300 months

The extended plan stretches repayment to 25 years, with payments either fixed or graduated. Fixed payments add more than $20,000 to the example $30,000 balance; graduated payments would inflate your balance even more.

“[Extended repayment] is not going to be best for a lot of people,” Mueller says. “But it is an option.”

You must owe more than $30,000 in federal student loans to use extended repayment.

Income-driven repayment

  • Total repaid: $37,356
  • Monthly payment: $261 to $454
  • Repayment term: 110 months

The government offers four income-driven repayment plans that base payments on your income and family size.

This example uses the Revised Pay As You Earn plan, a family size of zero and an income of $50,004, based on starting salary estimates from the National Association of Colleges and Employers. It also assumes annual income growth of 5%.

Income-driven repayment costs about the same as standard repayment under these circumstances. But these plans are typically a safeguard for borrowers who can’t afford their loans, as payments can be as small as $0 and balances are forgiven after 20 or 25 years of payments.

Lindsay Ahlman, senior policy analyst for the Institute of College Access & Success, says to think long-term before choosing an income-driven plan, and know you can always switch to income-driven repayment if you hit a rough patch.

“A lot of things are going to happen over the course of repayment — your earnings trajectory, your life decisions like marriage and children — that affect your income-driven payment,” Ahlman says. And while an income-driven plan can reduce monthly payments, you may pay more overall because the repayment period is longer than the standard plan, she says.

Ways to save

Even the least expensive repayment plan could add $7,000 to your loans. If you just graduated and want to shave down that amount, you have options.

Coleman suggests making payments during the six-month grace period and paying off interest before it’s added to your balance when loans enter repayment, if possible.

Other ways to cut costs include letting your servicer automatically deduct payments from your bank account, which can reduce your interest rate, and paying loans twice a month instead of once. You can always prepay student loans without penalty.

This article was written by NerdWallet and was originally published by The Associated Press.

Ryan Lane is a writer at NerdWallet. Email: rlane@nerdwallet.com.

The article How Much You’ll Really Pay for That Student Loan originally appeared on NerdWallet.

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Don’t Skip These Steps When Borrowing Parent Student Loans

Posted on by Ryan Lane

In more than one-third of U.S. families, parents decide how to pay for college, according to a July 2020 report from private lender Sallie Mae.

Half of those parents don’t inform the child of their decision.

Joe Allen, 51, of Frederick, Maryland, did talk about college costs with his daughter, a freshman at the University of Dayton in Ohio. But he understands why some families avoid the topic.

“As a parent, you want to protect your children,” Allen says. “You want to do what’s best for them.”

But what seems best for children may be bad for mom or dad — especially if it means taking out hefty parent student loans without discussing them. Here’s how to avoid that misstep and others when borrowing parent loans.

Assess your situation

Students should exhaust free money and federal loans in their names to pay for college. Parents can then cover the remaining costs with federal parent PLUS loans or private loans.

But first, review your current financial situation with your child.

“Have a realistic sit-down with yourself and your family in terms of what (your) finances look like and what’s the best decision for you,” says Rick Castellano, spokesperson for Sallie Mae.

Don’t borrow parent student loans if they’ll put your retirement at risk, you’re deep in debt or you can’t afford the payments. For example, the nonprofit Trellis Company surveyed more than 59,000 parents whose children attended school in Texas and found that most said they struggled with loan repayment at some point.

Have a conversation

Kathleen Burns Kingsbury, a wealth psychology expert and host of the Breaking Money Silence podcast, says talking about big expenses like college tuition can make people uncomfortable and emotional.

That doesn’t mean you should avoid the conversation.

“It’s OK if people get upset,” Kingsbury says. “The pitfall is if people get upset and don’t get back to it.”

Instead, use this opportunity to talk about how much you’ll borrow and to teach your child how to analyze the value of a large purchase.

Allen says he went through a sample budget with his daughter to illustrate the cost of her loans and how they might limit her flexibility in the future.

He liked that the exercise made things more concrete than “just saying don’t take out debt.”

Figure out who’s responsible

A conversation is also necessary to determine who’ll repay the parent’s loans.

If your child will — and 45% of families expect the parent and child to at least share this responsibility, according to the Sallie Mae report — that can affect your decisions.

Angela Colatriano, chief marketing officer for College Ave Student Loans, says some families want the child’s name on the loan because he or she will repay it.

“They don’t want a handshake agreement,” she says.

But only the parent is legally responsible for a parent PLUS loan. You’ll need to weigh that when considering borrowing options.

PLUS loans have less stringent credit requirements than private loans and offer everyone the same fixed interest rate. However, PLUS loans also have large origination fees and are available only to parents — guardians and grandparents aren’t eligible, for example.

Your ultimate goal should be getting the least expensive loan you qualify for. If that’s a PLUS loan, make sure everyone is on the same page for repayment.

Kingsbury suggests writing a simple, one-page agreement that “would spell out what the expectation is and what happens if there’s a conflict.”

Consider co-signing

Parents who prefer private loans can borrow in their name or co-sign with their child. Either option means you’ll be responsible for the loan.

“It comes down to a family decision,” Castellano says. “Families should explore both options.”

But he says that co-signing can benefit students in ways that borrowing on your own can’t, such as helping them build credit.

Also, because a co-signed loan has two applicants, you may get a better interest rate. However, lender underwriting policies differ.

For example, Allen initially got a much higher rate on a co-signed loan than he expected. The lender told him that was because it combined his credit score with his daughter’s.

“I didn’t understand that,” Allen says. “I thought if I’m co-signing and bringing good credit to the equation it should be a better rate.”

He applied with a different lender and got what he called a “much better” rate. Allen plans to take out that loan once his family can no longer fund the education on their own.

This article was written by NerdWallet and was originally published by The Associated Press.

Ryan Lane is a writer at NerdWallet. Email: rlane@nerdwallet.com.

The article Don’t Skip These Steps When Borrowing Parent Student Loans originally appeared on NerdWallet.

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Read This Before You Refinance Federal Student Loans

Posted on by Ryan Lane

Refinancing student loans at a lower interest rate can put more money in your pocket. With federal student loan bills restarting soon and refi rates near historic lows, it might seem like the perfect time to take this step.

But even if you qualify for refinancing, it won’t always make sense if you have federal student loans — and most borrowers do. Ask yourself the following to figure out if refinancing now is right for you.

What’s the latest on the payment pause?

Most federal student loan payments are paused interest-free until Jan. 31. Various members of Congress have proposed multiple extensions of this forbearance, with some lasting until September, but the long-term fate is currently uncertain.

Until there’s a definitive answer, don’t refinance federal student loans.

Refinancing replaces your existing loans with a new private loan. That loan won’t qualify for the federal forbearance. No matter how good a lender’s rate offer is, it won’t beat 0% interest.

If your goal is to pay off loans fast, stick with the forbearance for however long it lasts and make payments directly on your principal balance.

Do you work in public service?

Public service workers should steer clear of refinancing federal loans.

If you can qualify for an existing forgiveness program — like Public Service Loan Forgiveness — keep your government loans. You’ll usually pay the least overall if you get loan forgiveness.

Is your job at risk?

Wait to refinance federal loans if you think you could lose your job or have your hours reduced in the upcoming months.

Even if your employment feels rock solid, look at all your financial obligations — like rent and car payments — before refinancing. If your income changes, could you still afford everything?

Federal student loans have options like unemployment deferments and income-driven repayment plans. These can help keep payments manageable if your situation shifts.

Are you waiting on loan cancellation?

President-elect Joe Biden campaigned on forgiving $10,000 in federal student loan debt for each borrower. Some members of Congress want to go further: canceling $50,000 or all student debt.

How should these proposals affect your decision-making? Start with what Biden has supported, which seems like less of a long shot, and look at how much you owe:

  • If it’s $10,000 or less. Wait to see what happens; refinancing isn’t as huge of a money-saver if your balance is small. Make the required payments (if any) while you wait so you can avoid unnecessary interest, late fees or damage to your credit.
  • If it’s more than $10,000. Refinance some of your loans, but keep your federal loan balance as close to $10,000 as possible. This will maximize your savings from both potential cancellation and refinancing.

If you have one federal loan only — like a consolidation loan — it may not be possible to partially refinance it; ask the lender for its policy. In that case, refinancing will make more sense the larger your balance is.

For example, say you owe $100,000 at 7% interest. By refinancing at 4%, your monthly bills would decrease by $149 and you’d pay $17,836 less overall, assuming a 10-year repayment plan.

If you wait to refinance, you’ll miss out on some of those savings. Weigh that against your faith that loan cancellation will happen and the fact that, until a program’s details are revealed, no one knows who will get forgiveness — if anyone does.

Do you also have private student loans?

This decision is simpler. Private loans don’t qualify for existing government programs and wouldn’t be eligible for federal loan cancellation.

If you can qualify for a lower interest rate, there’s little downside to refinancing private student loans.

Ryan Lane is a writer at NerdWallet. Email: rlane@nerdwallet.com.

The article Read This Before You Refinance Federal Student Loans originally appeared on NerdWallet.

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Don’t Skip These Steps When Borrowing Parent Student Loans

Posted on by Ryan Lane

In more than one-third of U.S. families, parents decide how to pay for college, according to a July 2020 report from private lender Sallie Mae.

Half of those parents don’t inform the child of their decision.

Joe Allen, 51, of Frederick, Maryland, did talk about college costs with his daughter, a freshman at the University of Dayton in Ohio. But he understands why some families avoid the topic.

“As a parent, you want to protect your children,” Allen says. “You want to do what’s best for them.”

But what seems best for children may be bad for mom or dad — especially if it means taking out hefty parent student loans without discussing them. Here’s how to avoid that misstep and others when borrowing parent loans.

Assess your situation

Students should exhaust free money and federal loans in their names to pay for college. Parents can then cover the remaining costs with federal parent PLUS loans or private loans.

But first, review your current financial situation with your child.

“Have a realistic sit-down with yourself and your family in terms of what (your) finances look like and what’s the best decision for you,” says Rick Castellano, spokesperson for Sallie Mae.

Don’t borrow parent student loans if they’ll put your retirement at risk, you’re deep in debt or you can’t afford the payments. For example, the nonprofit Trellis Company surveyed more than 59,000 parents whose children attended school in Texas and found that most said they struggled with loan repayment at some point.

Have a conversation

Kathleen Burns Kingsbury, a wealth psychology expert and host of the Breaking Money Silence podcast, says talking about big expenses like college tuition can make people uncomfortable and emotional.

That doesn’t mean you should avoid the conversation.

“It’s OK if people get upset,” Kingsbury says. “The pitfall is if people get upset and don’t get back to it.”

Instead, use this opportunity to talk about how much you’ll borrow and to teach your child how to analyze the value of a large purchase.

Allen says he went through a sample budget with his daughter to illustrate the cost of her loans and how they might limit her flexibility in the future.

He liked that the exercise made things more concrete than “just saying don’t take out debt.”

Figure out who’s responsible

A conversation is also necessary to determine who’ll repay the parent’s loans.

If your child will — and 45% of families expect the parent and child to at least share this responsibility, according to the Sallie Mae report — that can affect your decisions.

Angela Colatriano, chief marketing officer for College Ave Student Loans, says some families want the child’s name on the loan because he or she will repay it.

“They don’t want a handshake agreement,” she says.

But only the parent is legally responsible for a parent PLUS loan. You’ll need to weigh that when considering borrowing options.

PLUS loans have less stringent credit requirements than private loans and offer everyone the same fixed interest rate. However, PLUS loans also have large origination fees and are available only to parents — guardians and grandparents aren’t eligible, for example.

Your ultimate goal should be getting the least expensive loan you qualify for. If that’s a PLUS loan, make sure everyone is on the same page for repayment.

Kingsbury suggests writing a simple, one-page agreement that “would spell out what the expectation is and what happens if there’s a conflict.”

Consider co-signing

Parents who prefer private loans can borrow in their name or co-sign with their child. Either option means you’ll be responsible for the loan.

“It comes down to a family decision,” Castellano says. “Families should explore both options.”

But he says that co-signing can benefit students in ways that borrowing on your own can’t, such as helping them build credit.

Also, because a co-signed loan has two applicants, you may get a better interest rate. However, lender underwriting policies differ.

For example, Allen initially got a much higher rate on a co-signed loan than he expected. The lender told him that was because it combined his credit score with his daughter’s.

“I didn’t understand that,” Allen says. “I thought if I’m co-signing and bringing good credit to the equation it should be a better rate.”

He applied with a different lender and got what he called a “much better” rate. Allen plans to take out that loan once his family can no longer fund the education on their own.

This article was written by NerdWallet and was originally published by The Associated Press.

Ryan Lane is a writer at NerdWallet. Email: rlane@nerdwallet.com.

The article Don’t Skip These Steps When Borrowing Parent Student Loans originally appeared on NerdWallet.

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More Grads Are Going Back to School: Should You?

Posted on by Ryan Lane

College enrollment is down overall compared with last year due to the coronavirus. But the economic effects of the pandemic may actually be pushing some students back to school.

“(It’s) probably the worst time to graduate from college in this generation,” says Doug Shapiro, executive director of the National Student Clearinghouse Research Center. “What are you going to do?”

The answer, for many, is getting additional education: As of Sept. 10, graduate program enrollment was up 3.9% and post-baccalaureate certificate program enrollment was up 24.2%, according to the National Student Clearinghouse Research Center.

If you’re thinking about continuing your education — because you can’t get a job or lost yours — here’s what to consider before you enroll.

Know your timeline

It’s not surprising that recent college graduates or those who’ve lost jobs or been furloughed are looking to gain new skills.

Alana Burns, chief marketing officer of Southern New Hampshire University, said via email that the school saw similar behavior due to the 2008 recession.

Burns said enrollment in SNHU’s graduate-level programs is currently up roughly 55% compared with this time last year. That includes master’s-level courses and graduate certificate programs.

Either option could make sense if you want to make yourself more marketable. But make sure whichever you choose addresses your short-term needs or your long-term goals.

“If you are looking for a specific skill or industry-specific certification, a certificate might be best,” Burns said. “If you’re looking to stand out in the job market or change careers, a full graduate degree program might be the best fit.”

Certificate programs take less time and don’t require the entrance exams that graduate degree programs do. Shapiro points to those lower barriers as potential reasons for what he calls the “outrageous” increase in these programs’ enrollment. A degree will require more planning.

“It’s not the kind of thing you can do on the spur of the moment,” he says.

Have a plan to pay for it

Certificate programs also likely cost less, but that doesn’t necessarily mean they’re inexpensive.

For example, Kent State University in Ohio estimates the cost of its nursing administration and health systems leadership graduate certificate at $12,300. Its online master’s degree in nursing costs up to an estimated $22,500.

Bradley Sommer, president and CEO of the National Association of Graduate-Professional Students, says to consider the financial implications when deciding whether to go back to school.

“Is it something you can afford?” Sommer says. “Are there scholarships available to you?”

If you can’t get free money — via a scholarship or research grant, for example — you’ll need a plan to pay for a graduate program.

More than half of graduate students turn to loans, finishing their programs with an average debt of $71,000 in 2015-16, according to the most recent data from the National Center for Education Statistics. That total does not include any existing undergraduate loans.

But you may not be able to take out federal financial aid or private graduate student loans for a certificate. Ask the school’s financial aid office what aid a program is eligible for.

If you need to finance a certificate, you may have to put it on a credit card or take out a personal loan. Both options usually come with higher interest rates than student loans and lack those loans’ protections — like letting you pause payments if you lose your job.

Understand your return on investment

People with advanced degrees earn more money than those with a bachelor’s degree; they also face lower unemployment rates, according to the Bureau of Labor Statistics.

But not all graduate degrees offer equal returns.

For example, Edwin Koc, director of research, public policy and legislative affairs for the National Association of Colleges and Employers, says earnings increase 100% if you go from a bachelor’s degree in biology to a master’s degree. The benefit isn’t nearly as great for those with history degrees, he says.

It’s unclear how much you might gain financially from a certificate.

“It might translate into better prospects for you,” Koc says, “but I don’t have the data to support that.”

You can find data like median earnings for some graduate-level programs in the U.S. Department of Education’s College Scorecard. That can help you estimate if a program is affordable. Ideally, your total monthly loan payments would be no more than 10% of your take-home pay.

Keep in mind that those payments can be paused if you’re enrolled at least half-time, but interest may accrue on all your loans, further increasing the amount you owe.

Sommer also recommends reaching out to professional organizations to understand how a school or certificate is perceived. For example, he says there are plenty of accounting organizations across the country to contact, if you were interested in such a program.

“Or even just find a CPA in your town,” he adds, “and say do you know anything about the program at (a specific) university?”

Ryan Lane is a writer at NerdWallet. Email: rlane@nerdwallet.com.

The article More Grads Are Going Back to School: Should You? originally appeared on NerdWallet.

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Should You Press Pause on Private Student Loans?

Posted on by Ryan Lane

Federal student loan payments have been automatically suspended until the end of the year because of the ongoing pandemic.

If you have private student loans, however, payments remain due — unless you’ve paused them.

Roughly 5% of private loan borrowers were using forbearance as of the end of March, according to the most recent data from MeasureOne, which tracks data on private student lending.

That percentage doesn’t account for COVID-19’s economic impact since March, yet it already marked an increase of more than 136% compared with the same period last year.

If you need a break from private loan bills, forbearance can help. But you’ll pay more by using forbearance — and it’s not the only way to get a more manageable payment.

Here’s what to know about private student loan relief options.

What lenders are offering

Most private lenders will let you apply for a natural disaster forbearance due to the pandemic. This forbearance pauses your payments, typically for 90 days, but lenders’ policies differ.

For example, CommonBond is offering forbearance for the duration of the federal state of emergency. Borrowers can extend this break monthly as needed.

David Klein, CEO of CommonBond, calls the policy “the right thing to do, and we don’t see a reason to stop it.”

He adds that forbearance requests at CommonBond peaked in May or June and have sloped downward since.

Other lenders’ programs may be winding down. For example, Earnest offered borrowers three months of forbearance due to COVID-19 before June 30. Borrowers who request assistance because of the pandemic after that date can now receive one month for a limited time.

If a natural disaster forbearance is no longer available and you still can’t pay, contact your lender.

You may be able to continue pausing payments with a general forbearance. Some lenders, including Earnest, may also let you make reduced payments if you’ve already fallen behind.

When to stick with forbearance

Forbearance can make sense if you need the money from your private loan payments for something more important, like rent. But understand the costs of this option.

While federal loans are currently suspended interest-free, private loans will accrue interest in forbearance, making them more expensive.

Still, paying interest is better than ignoring payments and letting private loans default. That can lead to long-term consequences, like credit damage.

“[Default] can definitely hurt your chances of other financial goals and aspirations you have,” says Garret Colao, a certified financial planner and financial consultant at North Star Resource Group in Minneapolis. “A house, a car — all that stuff will be in trouble.”

Private loans usually default once payments are 120 days past due.

Refinancing is an alternative

If you’re using forbearance to increase your cash flow, consider refinancing to bridge the gap between no payment and your current bill instead.

Refinancing replaces your existing loan with a new loan with new terms. Unlike forbearance, refinancing can reduce your long-term costs.

“This is a good time to look to refinance at a lower interest rate,” Colao says.

Rates are at historic lows, and there’s little downside to refinancing private student loans because they don’t qualify for federal loan benefits, like the current payment suspension.

If you can qualify for a lower rate, refinancing can save you money now and in the long run.

For example, refinancing a $20,000 private loan from 10% to 5% interest would lower your monthly bills by $52 and save you $6,260 over a 10-year repayment term. Most refinancing lenders offer longer terms that can cut payments even further. At 15 years, for example, the monthly payment on that $20,000 refinanced loan would be $106 less.

You’ll need a credit score at least in the high 600s, steady employment and enough income to cover your debts to qualify. Most lenders let you apply with a co-signer if you don’t meet those criteria.

Klein says the refinancing industry has made it easy to find out if you’re eligible.

“I would implore people to take literally the few minutes to go online and look at what rate they could likely get,” he says.

The article Should You Press Pause on Private Student Loans? originally appeared on NerdWallet.

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How New Grads Can Handle 3 Essential Post-College Questions

Posted on by Ryan Lane

Life after graduation is always an unknown. But the coronavirus pandemic has added even more uncertainty for the nearly 4 million students expected to receive college degrees in 2019-20, according to the National Center for Education Statistics.

“I feel like when you graduate, you go out into the real world,” says Stephanie Fallon, 23, who graduated in May from Temple University in Philadelphia. But this world “almost doesn’t feel real,” she says.

Even though the real world has changed, the challenges most new graduates face haven’t. Here’s what the class of 2020 can do to answer three essential post-graduation questions during the ongoing pandemic.

Can you get a job?

The job market looked strong for 2020 graduates before the economy took a hit from the coronavirus. A survey in fall 2019 by the National Association of Colleges and Employers projected a 5.8% increase in hiring over the previous year.

Of course, much has changed.

“What [graduates] are facing now is just a horrendous market,” says Edwin Koc, director of research, public policy and legislative affairs for NACE. “There really isn’t any other way to put it.”

A survey in 2018 from the recruitment agency Randstad found that the average job search lasts five months. Koc says it may take more time — and effort — to land a job in the current market. Here are some ways to improve your situation:

  • Be persistent with potential employers but understand if they can’t give you a quick answer.
  • Look to your college career center for help, like connecting you with alumni at companies that are hiring.
  • Consider transitional work or opportunities outside your desired field.

Fallon, for example, plans to pursue a career in nonprofit work. While she currently has a part-time job with a national nonprofit foundation, she’s also working two nanny jobs.

Can you get an apartment?

Many students live at home after graduation: Investment broker TD Ameritrade found in a 2019 survey that roughly half of college graduates plan to move back in with their parents.

You may have already taken this step when your college closed its campus this spring. But that doesn’t mean you’ll want to live at home indefinitely — or be able to.

For example, you may need to relocate for a job. Although a June 2020 poll from NACE found that 66% of employers plan to start new graduate hires remotely, you may need to find a place while still social distancing.

“The industry has adapted,” says Meena Ziabari, chief operating officer and principal broker for Next Step Realty, a Manhattan-based real estate firm that helps new grads find apartments in New York City. “You should not be afraid of renting virtually.”

Choosing an apartment without seeing it in person may be unnerving. What if you arrive to find no hot water, a pest problem or an entire bait-and-switch?

“Do you get landlords who are a little funny or shady? Absolutely,” Ziabari says. But she adds there are laws in New York City on things like an apartment lacking heat — or a kitchen.

To help avoid undesirable outcomes, consider hiring a real estate broker. You may have to pay a broker’s fees; in New York City, these can cost you as much as 15% of a year’s rent, for example. But their relationships with landlords could make that cost worth it.

If you don’t want to pay a broker’s fee or can’t afford to, Ziabari recommends having a trustworthy person who can check out places to live for you in person.

How will you repay student loans?

Roughly two-thirds of the class of 2018 graduated with student debt, according to most recent information from the Institute for College Access and Success. Those graduates owed an average of $29,200.

If you have student loans, there’s some breathing room: Most come with a six-month grace period.

“Go ahead and take advantage of not having to pay,” says Tara Unverzagt, a certified financial planner and founder of South Bay Financial Partners in Torrance, California.

But don’t avoid your student loans altogether — find out how much you owe, then explore repayment options with a tool like the federal government’s loan simulator. Options tied to your income could give you breathing room once repayment starts.

Unverzagt says your top financial priority now should be starting an easily accessible emergency fund. And if money is tight, understand your cash flow — and avoid the urge to rely on credit cards.

“That is a slippery slope into never-never land of debt,” Unverzagt says.

This article was written by NerdWallet and was originally published by The Associated Press.

Ryan Lane is a writer at NerdWallet. Email: rlane@nerdwallet.com.

The article How New Grads Can Handle 3 Essential Post-College Questions originally appeared on NerdWallet.

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Student Loans Aren’t Forgiven, so They Can’t Be Forgotten

Posted on by Ryan Lane

The Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, suspends federal student loan payments, sets interest rates to 0% and stops all collection activities on defaulted loans until Sept. 30.

But the $2 trillion stimulus doesn’t forgive student loans. That means you can’t totally forget about your debt — despite the six months of skipped payments making it easy to do so.

“It really kind of puts [student loans] out of mind,” says Matthew Carrington, a 36-year-old from Charleston, South Carolina, who owes approximately $65,000 in federal student loans.

Absent more student loan relief, payments will return to normal in October even if your finances haven’t. And those skipped months will probably be added back at the end of your loan.

If you’re worried about making those future federal loan payments, consider the following options now.

Keep postponing payments

If you’ve lost your job and you don’t think you’ll be back at work by Sept. 30, you could extend the government’s pause by applying for deferment or forbearance. No payment is due during either.

Payment breaks can make sense if you’re “absolutely certain that [your] financial shock is short-term in nature,” says Seth Frotman, executive director of the Student Borrower Protection Center, a Washington, D.C.-based nonprofit.

Apply for an unemployment deferment first if you expect to start work soon after Sept. 30 and will be able to afford your previous payments. This break is available in six-month increments.

Subsidized loans don’t accrue interest during a deferment, saving you money if you have that type of loan.

If you can’t qualify for an unemployment deferment, you could turn to forbearance. Forbearance charges interest on all loans, increasing the amount you owe.

Switch your repayment plan

If your financial situation won’t improve quickly, match your payment plan to your new reality.

“There are very powerful tools to help federal student loan borrowers achieve long-term financial success,” Frotman says.

Income-driven plans are the most notable — and the best option if you’re struggling, he says. These plans align your payments with your income and family size. Payments can be as small as $0.

Carrington currently uses an income-driven plan and says his $185 monthly payments are manageable.

“I don’t enjoy paying,” he says, but adds that he’s not “struggling every month to find that money.”

Carrington expects to be able to afford those payments after the suspension ends. But if you use an income-driven plan and your income has changed, ask your servicer to recalculate your bill.

Take action now

Whether you want to postpone payments, enter an income-driven plan or request a new payment, your primary contact will be your student loan servicer.

And that concerns Frotman.

“What we have seen is that the federal student loan system is so broken,” he says.

As an example, Frotman notes servicers’ inability to effectively communicate with borrowers after the hurricanes and wildfires of 2019, leading in part to a 14% increase in student loan defaults.

Currently, servicer call centers are closed or understaffed. As a result, you may experience communication issues and delays processing income-driven repayment applications or other forms. Stay vigilant.

“Take advantage of the six-month time,” says Bonnie Latreille, director of research and advocacy for the Student Borrower Protection Center. “Take action now.”

Should you forget about forgiveness?

Talk of student loan forgiveness persists. For example, former Vice President Joe Biden is pushing for $10,000 of loan forgiveness in the next stimulus package. And Rep. Carolyn B. Maloney, D-N.Y., has introduced a bill to forgive graduate student debt of frontline health care workers.

New relief or forgiveness could be available by the time October payments are due. But don’t count on it, as the debate is far from settled.

William J. Luther, director of the Sound Money Project at the nonpartisan nonprofit American Institute for Economic Research in Massachusetts, has previously called forgiveness bad policy.

Even in light of recent events, he says “a student loan debt forgiveness policy does not target those who need it most.”

Luther says college-educated individuals are less likely to work in retail establishments affected by the coronavirus, such as bars, restaurants and clothing stores. Those individuals need relief the most right now.

Frotman takes a longer view, pointing to the millions of Americans who had financial trouble before the pandemic.

“A significant percentage is there partially because of their student debt,” he says.

The article Student Loans Aren’t Forgiven, so They Can’t Be Forgotten originally appeared on NerdWallet.

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4 Ways to Pay for College If Your Financial Aid Isn’t Enough

Posted on by Ryan Lane

For 61% of students, college costs more than they expected, according to a recent survey from College Ave Student Loans conducted by Barnes & Noble College Insights.

Yoselin Guzman, an 18-year-old UCLA freshman from Compton, California, can see why.

“There’s like little costs you don’t even see,” says Guzman, noting how expensive dorm items, books and student orientation are.

When those unexpected costs arise — and your existing financial aid won’t cut it — here are four options to get more money for school.

1. Crowdfund the shortfall

When Guzman realized her savings and scholarships wouldn’t cover her college expenses, she started a GoFundMe campaign to crowdfund $5,000.

“I was a little embarrassed to show people I’m struggling financially,” Guzman says.

Getting over those fears helped cover her funding gap. Now, she says the donations have “given me that confidence that I’m not alone in this world.”

She’s certainly not alone on GoFundMe: The website hosts over 100,000 education-related campaigns each year, though not all are for college tuition and success varies.

“We’ve seen an increase in crowdsourcing as an option for covering college costs,” says Brad Lindberg, assistant vice president for enrollment at Grinnell College in Grinnell, Iowa.

But Lindberg cautions students to work with their school’s financial aid office before starting a campaign. The additional funding might affect future aid eligibility, he says.

2. Increase your work schedule

GoFundMe allows students to keep any funds they receive, even if they fall short of their overall goal. But there’s no guarantee you’ll get any money. Working, though, is a surefire way to do that.

If you’re eligible for a work-study job, that’s typically the best option.

“Your supervisor is a built-in mentor; they understand you are a student first [and there’s] flexibility in scheduling,” says Ashley Bianchi, director of financial aid at Williams College in Williamstown, Massachusetts.

If you already have a job, consider working more hours. That may be tricky with work-study positions, since earnings are capped at a specific amount, so look off campus or on a college student-focused job board.

Just be careful not to overextend yourself. Bianchi says her college recommends students work six to seven hours a week; Lindberg puts 10 hours as a reasonable amount. But some students may be able to handle more based on their schedules and activities.

3. Check emergency aid programs

Many schools offer emergency financial assistance. For example, the University of California, Davis, has emergency grants that don’t require repayment. It also offers short-term loans that range from $500 to $1,500.

Always opt for grants first, and know the costs of any loan before borrowing. Leslie Kemp, director of the Aggie Compass Basic Needs Center at UC Davis, also encourages students facing financial shortfalls to think long-term.

“What’s your plan when the $500 runs out?” she says.

One solution is to use free resources that make other expenses, like groceries, more manageable. Kemp says there’s a line out the door when her school’s food pantry opens.

If you can’t find similar services on your campus, Kemp says to look for help at religious organizations, food banks and other nonprofit groups.

4. Borrow student loans

Money you don’t repay — like donations, wages and emergency grants — is the best way to address unexpected college costs.

But student loans may be a necessity for some: Among the 61% of students surprised by the cost of college, 30% underestimated what they needed by $10,000 or more.

“If you’re short by enough that there’s a comma in the number, you might need to borrow,” says Joe DePaulo, CEO and co-founder of College Ave Student Loans.

That assumes you haven’t already reached your borrowing maximum.

The government limits the amount of federal loans you can receive. Most first-year students can take out up to $5,500 in their name, and no one can borrow more than their school’s cost of attendance, the total needed for tuition, fees, room and board and other expenses.

Visit your school’s financial aid office to discuss your options — especially if your financial situation has changed since you started school.

“It’s important to work through why the student is experiencing a shortfall in order to determine the best course of action,” Lindberg says.

That action may be borrowing, or it could be something else like starting a tuition payment plan or earning an outside scholarship. Ultimately, the financial aid office should be your first stop if you run into trouble.

This article was written by NerdWallet and was originally published by The Associated Press.

The article 4 Ways to Pay for College If Your Financial Aid Isn’t Enough originally appeared on NerdWallet.

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How Student Loan Fees Work and What They Cost

Posted on by Ryan Lane

Tammy Trevino wasn’t sure whether to borrow a federal student loan or a private student loan for her daughter’s education. Then she learned federal loans come with an origination fee that private loans typically don’t.

“I was surprised,” says Trevino, 52, from Victoria, Texas. “My assumption was [federal loans] would be the best, easiest option for school.”

Federal loans typically are that best, easiest option, and fees have minimal effect on these loans for undergraduates. But parents, like Trevino, as well as graduate students — who typically borrow larger amounts at higher interest rates — pay much more.

The federal government has charged about $8.3 billion in origination fees since 2013, according to the National Association of Student Financial Aid Administrators, with almost one-third coming from parent borrowers.

Here’s what borrowers should know about these fees.

How much are student loan origination fees?

An origination fee is money you pay to offset a lender’s costs for issuing a loan. This fee is expressed as a percentage of the loan’s total.

Origination fees are currently 1.062% for federal subsidized and unsubsidized loans for undergraduate and graduate students. Fees are 4.248% for federal PLUS loans for parents and graduate students. These percentages change annually on Oct. 1.

Origination fees are taken from the loan amount before the funds are applied to your education costs.

For example, say you take out $16,450 in PLUS loans — the average amount parents borrow annually, according to the most recent data from the College Board. With a fee of 4.248%, roughly $15,750 of that loan would go to the school and $700 would go to the federal government.

‘Unnecessary and unfair’

Even though you don’t use that $700, you still repay it — plus interest. Over four years in school, that’s $2,800 a borrower would owe in fees alone.

Lori Vedder, director of financial aid at the University of Michigan-Flint, says that students and families are often confused when they find out they must repay money they never received.

“This is something that is unnecessary and unfair to students,” says Vedder.

It can seem especially unfair to PLUS loans borrowers. At 7.08%, PLUS loans have a higher interest rate than the 4.53% of other undergraduate federal loans. PLUS borrowers can also take out more — up to the cost of attendance, minus other aid received, with no aggregate maximum.

As part of her daughter’s financial aid package at Texas State University in San Marcos, Texas, Trevino was offered a $13,950 parent PLUS loan, which would have an origination fee of $593.

That’s $593 Trevino, a single mother, could put toward other education expenses. It nearly meets the $780 cost of books and supplies at Texas State, based on the latest estimate from the National Center for Education Statistics.

“It’s definitely made me think that I need to do some more research,” Trevino says. She’s considering private loan options.

Private loans may lack origination fees — and protections

All federal student loans have origination fees, and schools don’t have the ability to waive these costs.

Justin Draeger, president and CEO of NASFAA, says parents and families really can’t do anything about these fees “except to realize upfront that the amount they’re [borrowing] won’t be the same amount they receive.”

But private student loans are a potential alternative. Most private loans don’t charge origination fees and may offer lower interest rates than federal loans, depending on your financial situation.

Vedder says this route could make sense in some cases, like a parent with excellent credit who’s planning to take a PLUS loan. However, she cautions borrowers to proceed carefully, even if private loans offer potential savings.

“Federal loans have built-in protections private loans typically do not,” she says.

These protections include options that can postpone or forgive your loans in certain situations, as well as repayment plans that let you pay based on your income.

Legislation seeks to eliminate fees

Federal loans offer unmatched borrower protections and programs, but they make the government money via origination fees. Draeger says this doesn’t make sense for a public benefit program.

These fees were once part of the Federal Family Education Loan Program, which used private lenders to issue federal loans and charged these fees to subsidize the lenders’ costs.

The FFEL program ended in 2010, but the fees remain.

Bipartisan legislation was introduced into the House and Senate earlier this year to eliminate origination fees. Draeger advises borrowers to write their representatives to support this change.

“This is literally just an extra tax on needy student borrowers,” Draeger says.

In a statement to NerdWallet, a U.S. Department of Education spokesman said that origination fees are now used to reduce the overall costs of the federal student aid program.

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The article How Student Loan Fees Work and What They Cost originally appeared on NerdWallet.

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