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Spend Money Guilt-Free — Even With Student Loans

Posted on by Brianna McGurran

“Ask Brianna” is a column from NerdWallet for 20-somethings or anyone else starting out. I’m here to help you manage your money, find a job and pay off student loans — all the real-world stuff no one taught us how to do in college. Send your questions about postgrad life to askbrianna@nerdwallet.com.

Earlier this year, total outstanding student loan debt surpassed $1.5 trillion.

For those with loans they can’t afford, the news was a large-scale confirmation of a small-scale truth: Student loans have gotten out of control, and they leave a smoking crater in the place where a thoughtful budget should be. Seemingly endless and urgent new priorities compete for your attention and limited income after graduation: housing, an emergency fund, paying off those loans.

Here’s one more you shouldn’t ignore: yourself.

“If you’ve got a financial plan that includes no money for fun, it’s unrealistic. It’s not going to happen,” says Matthew Angel, advice director of personal finance at USAA, a financial institution for members of the military and their families.

Managing your money well is about creating balance, which you’ll have to do over and over as the shape of life changes: You may change jobs, get married, have kids or go back to school. Learn how to keep your big expenses low, get serious about setting aside “fun” money and pick activities that will bring you lasting joy, and you’ll be able to repeat the process when new priorities edge their way in.

When you lead a life that’s more than the sum of your financial stresses, you might even feel motivated to pay off your student loans faster.

Compartmentalize your cash

Budgeting meticulously isn’t for everyone. But no matter your personality, you should have a general idea of where your money goes.

Start with this method:

  • Add up monthly fixed expenses, like your rent, transportation, utility bills, student loan payment and average grocery bill.
  • Decide how much to save per month to build a solid emergency fund, which will eventually include at least three months of expenses (it’s OK if it takes time to get there).
  • Use a retirement calculator to see how much you should save per month now to get a head start on retirement, even if it’s just a little.
  • Take a look at your high-interest debt, like credit card balances, and come up with a plan to pay it down. Put even $10 more than the minimum toward your debt each month.

The money left over is where fun money will come from.

All these expenses might seem overwhelming, and I wouldn’t recommend putting off saving for retirement or letting credit card balances linger. But you can chip away at them slowly rather than throwing all your cash at one goal, giving you the freedom to set aside cash for nonessentials.

You can also save money by making smart decisions about the big stuff. Buy a used car, or sign up for a federal income-driven student loan repayment plan, which keeps your payments from exceeding 10 percent of income.

Pick the right ‘fun’

It’s worth making the effort to earn a little extra if that’s a quicker path to building discretionary cash than cutting expenses, Angel says. You can easily sell unwanted items online, he says; you can also tutor, freelance or open a shop on Etsy.

Once you set aside the cash, spend it well. You’ll likely feel more fulfilled gaining experiences, pouring money into hobbies and socializing with friends than buying new clothes or technology. Money should make you feel freer and more like yourself. If you’re spending in a way that feels empty or hasty, pause and consider whether you’re getting the most out of the money you’ve worked so hard for.

Go in with a goal

To stick to spending only the fun money you’ve decided you can spare, make a plan beforehand, Angel says. Say, “I’m going to spend $100 at most with my friends tonight,” not, “I have $500 in my bank account, and we’ll see how much is left tomorrow.” If you have access to credit cards, setting that limit internally is even more important.

Especially when you’re with friends, it’s easy to apply a “you only live once” mentality. But think of controlling your spending as an investment in going out with them again and again. You won’t accrue so much debt that eventually you’ll have to go on an even harsher spending fast to fix it.

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

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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.

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

Stressed to Pick the Best? Try ‘Good Enough’ Money Decisions Instead

Posted on by Gregory Karp

Sometimes good enough is good enough.

In a world of information overload, it’s common to feel angst when making choices. You never know whether you’re making the best one.

Call it optimizer guilt. And it can be especially prominent in choosing financial products, which can be opaque and confusing: Do I have the best credit card? What 401(k) investment will give me the best return? Where should I open an account to save for my kid’s college expenses?

Besides adding stress, optimizer guilt can keep you from making important money decisions that need action now.

The solution may be the theory of “good enough,” or what academics have called “satisficing.” Make a decision based on the best information you can reasonably gather at the time, and then get on with your life. In many cases, you can revisit the decision later, if necessary — refinance your mortgage, move your retirement funds or choose a different 529 college savings plan.

“The truly great thing about ‘good enough’ — and the reason it is so powerful — is that it allows you to get to the starting line in a way that waiting for the ultimate, best possible result does not,” writes financial expert Jean Chatzky in her book “Make Money, Not Excuses.”

How simplifying can help

You may have heard the same problem called “paralysis by analysis” and the solution as, “Don’t make perfect the enemy of the good,” or the acronym KISS: “Keep it simple, stupid.”

“Good enough” is not just a financial well-being thing, it’s a happiness thing.

Having more choices is good only up to a point because of the accompanying pressure to optimize, argues psychologist Barry Schwartz in his book “The Paradox of Choice: Why More is Less.”

“As the number of choices grows further, the negatives escalate until, ultimately, choice no longer liberates, but debilitates,” he wrote in a research paper with Andrew Ward, a fellow professor at Swarthmore College. “Learning to accept ‘good enough’ will simplify decision-making and increase satisfaction.”

If you get an adrenaline rush from plotting your credit card points on spreadsheets and poring over price-to-earnings ratios of individual stocks, this concept may not be for you. You’re a die-hard optimizer who crunches numbers for sport.

The theory of good enough is for those who feel overwhelmed, thinking they should optimize their money life but feeling shame because they don’t have the time or desire. If that’s you, consider decluttering your finances. Simplify by combining financial accounts, save with automatic deposits, and skip low-value retail loyalty programs and coupons.

Here are a few specific examples of good enough.

Retirement investing

Too many choices in a company-sponsored retirement plan, like a 401(k), can lead to making no selection at all. If that sounds familiar, a good-enough decision would be to contribute enough to get all of your employer’s matching contribution and invest the money in a target-date index fund, a fund that invests based on what date you expect to retire. Is that optimal? Maybe not. But it gets you started. You can raise your contribution percentage and research other funds later. Meanwhile, your nest egg has started growing.

Rewards credit cards

If you pay your credit card balance in full every month, you’re a candidate for a rewards credit card, but how to choose among the thousands available? To get started, a good-enough choice is a flat-rate cash-back credit card that pays 1.5% or higher. It gives you a fixed amount of cash back no matter what you buy. You can always get a complicated points or miles card later. Until then, you’ll be earning rewards on everything you charge to the card in the best rewards currency: cash.

College savings

You gain tax advantages by squirreling college savings in certain types of accounts, but it can be dizzying trying to choose among them all. A good-enough option is to invest in your own state’s 529 savings plan and potentially reap a state tax break, too, depending on the state. Choose a target-date fund, based on when your child is likely to attend college. Later, you might move the money to a different state’s plan or start a different account. The point is, you started saving.

For big-money decisions or unusual circumstances, you might want to put more effort into making an ideal choice, or you might seek professional advice. But for many other decisions, settling for “good enough” can end up being optimal.

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

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The article Stressed to Pick the Best? Try ‘Good Enough’ Money Decisions Instead originally appeared on NerdWallet.

Why Your Financial Aid May Plummet After Freshman Year

Posted on by Ryan Lane

Grants and scholarships are the best ways to pay for college because you don’t have to repay them. But if you chose a college because it offered you the most free money, your final bill may end up bigger than you thought.

More than 72% of college students ages 18 and younger received scholarships, grants or other free money in 2015-16, according to the latest data from the National Center for Education Statistics. For students ages 19 to 23, that percentage is less than 65%.

Here are some reasons your free money may disappear after freshman year and how you can prepare.

Some scholarships aren’t renewable

All of the scholarships listed on your financial aid award letter may not be available to you next year.

For example, some schools award incoming freshmen a one-time scholarship for visiting the college’s campus or interviewing with the school, says Tori Berube, vice president of college planning and community engagement at The NHHEAF Network Organizations, a nonprofit agency based in Concord, New Hampshire.

Other scholarships are renewable if you meet specific requirements. These may include maintaining a particular grade point average, choosing a certain major or following the school’s code of conduct.

Review your scholarships to see which are renewable, and make sure you meet their terms — even if that means doing “handstands in the quad on Tuesdays,” says Berube. You should be able to find this information in your award letter, on the school’s website or by calling the financial aid office.

Financial situations change

Typically, schools aspire to maintain overall awards from year to year, says Stacey MacPhetres, senior director of college finance for College Coach, an educational adviser located in Watertown, Massachusetts. But the types of financial aid within that award may change.

For example, students have higher federal student loan limits after their first year in school. To account for this, a college could replace a grant with a loan of an equal amount for your sophomore year.

“I think a lot of families see that as a pretty significant bait and switch,” says MacPhetres. She believes that is not necessarily the case because the student still receives the same total amount of aid. Still, scholarships and grants are always more desirable than financial aid you have to pay back, like student loans.

Other changes to your financial circumstances could lead to you losing aid altogether. For example, say your older sibling graduates or moves out of your parents’ house while you are enrolled. The financial aid calculation now sees your family as having more available income, which increases the amount you’re expected to pay out of pocket.

When you submit the Free Application for Federal Student Aid, or FAFSA, be aware of changes to your income. If these are one-time events — like your parent taking a stock or a retirement distribution — MacPhetres says you should ask the financial aid office to treat this money as an asset, instead of income. Assets have a smaller impact on your ability to receive financial aid.

Tuition and fees increase

Even if you receive the same amount of aid year after year, it may feel like less because your college’s costs increased. On average, tuition and fees have risen roughly 3% annually over the past 10 years, based on data from the College Board.

Mark Salisbury, the founder of TuitionFit, a website aimed at increasing transparency around college pricing, offers this example: A school with a cost of attendance of $40,000 might offer you a $20,000 scholarship. The cost of attendance then rises each year, while the scholarship doesn’t.

“By the time the student graduates, tuition is $48,000 and they end up having to pay substantially more,” says Salisbury.

Planning ahead is the best way to prevent these additional costs from catching you by surprise. To help predict future tuition and fee increases at your own school, look it up on the College Navigator website.

College is a multiyear investment. If you can’t make the numbers work long term, be honest with yourself. Transferring to a less-expensive college may feel drastic, but it won’t necessarily hurt your education.

“What you do in college matters far more than where you go,” says Salisbury. “Go to a place that is less expensive, and then go in and make the most of it.”

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

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The article Why Your Financial Aid May Plummet After Freshman Year originally appeared on NerdWallet.

Accepted! How to Decipher Your College Aid

Posted on by Anna Helhoski

With college acceptances in hand, now comes the hard part: understanding your financial aidoffers.

These letters are notorious for being laden with jargon that differs from offer to offer, making comparison difficult. But you can learn how to interpret award letters to understand the costs and choose an affordable option.

What to expect from aid offers

Financial aid offers should include all of the federal, state and school aid you can access. That could mean free aid, such as grants, scholarships and work-study opportunities, that doesn’t need to be repaid, and unsubsidized and subsidized federal loans, which do. If these aid types are grouped together without explanation, they can be hard to distinguish.

Your offer also might include a parent PLUS loan as part of the award, but avoid using it if possible. These loans have higher interest rates than loans made directly to students. And unlike typical student loans, only parents can take them on, and they require credit history to qualify.

Schools also must provide the cost of attendance, but that’s not the amount you owe. It bundles indirect costs like books, supplies and transportation, with direct costs such as tuition, fees, housing and food.

The cost of attendance is usually an average, says Brenda Hicks, director of financial aid at Southwestern College in Winfield, Kansas. Things like room and board could be pricier if you opt for a more expensive package, like a single room.

Why offers are difficult for students to read

Schools use different names to refer to the same type of loan.

For instance, one college’s aid offer might list a “Federal Unsub Stafford Loan,” and another school’s might say “DL Unsubsidized Loan.” But they’re the same thing.

Unsubsidized federal student loans are the only type of federal loan every student can access, regardless of financial need. They’re different from subsidized loans, which don’t accrue interest while the student is in school. Subsidized loans ease costs for students, which is why they’re given to those who demonstrate need.

But among 455 college aid award letters, there were 136 different names used to describe the federal unsubsidized loan, according to a 2018 study by New America, a nonpartisan think tank, and uAspire, a Boston-based college affordability nonprofit.

“How can we expect families and students to navigate this process if even the aid that everyone qualifies for is called something different?” says Rachel Fishman, deputy director for research with the education policy program at New America.

There are two main obstacles for colleges in standardizing offers, according to Fishman: There’s no legal standard for language in award letters, and schools use different software to manage aid.

In a push for more consistency, the U.S. Department of Education recently issued guidance on what schools should avoid, such as presenting the cost of attendance without a breakdown. There’s also bipartisan support in Congress to make aid offers more uniform, including two current bills.

Some colleges have tried to address the problem, but others continue to use the same format they’ve used for years, says Brendan Williams, director of knowledge at uAspire.

The financial aid office at the University of Nebraska Kearney overhauled its award letter last year, including color coding each aid type and providing an estimated net cost. Net cost is the cost of attendance minus free aid. It represents the amount that borrowers will have to cover.

Despite the changes, families still often want a walk-through, says Mary Sommers, the school’s financial aid director. “That’s OK, that’s our job,” she adds.

How to compare financial aid award offers

To compare financial aid award offers, experts recommend these steps:

  • Create a spreadsheet with separate columns for each school.
  • Under each column, start with the total cost of attending each school.
  • List each award type and amount.
  • Add all free aid together first and subtract from the total cost to attend.

Since you want to take all free aid first, what you have left is the amount you would need to cover with savings, income or loans. Compare this bottom-line amount with other schools on the list.

You can also use tools like the Consumer Financial Protection Bureau’s Compare Schools tool or the National Association of Student Financial Aid Administrators’ Award Notification Comparison Worksheet.

“Bottom line: I would encourage people to take a long look at that letter, read it all, make sure they understand it and reach out when they don’t,” says Hicks.

If it’s unclear how to accept one type of aid or reject another, contact the school’s financial aid office.

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

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Anna Helhoski is a writer at NerdWallet. Email: anna@nerdwallet.com. Twitter: @AnnaHelhoski.

The article Accepted! How to Decipher Your College Aid originally appeared on NerdWallet.

5 Freebies With Your Student Loans

Posted on by Ryan Lane

Little is free when it comes to student loans. But some private lenders offer complimentary benefits like career coaching and academic help.

While federal student loans don’t have those features, they do offer programs like income-driven repayment and loan forgiveness. Private student loans lack these benefits, and you’ll lose access to them if you refinance federal loans with a private lender.

Max out federal loans first — and shop for private loans based on price, not perks. If you find private student loans or refinanced student loans with similar rates, consider these five freebies to help break the tie.

1. Career coaching

Who offers it: SoFi.

SoFi began offering career coaching as part of its unemployment protection program in 2013. Now, all SoFi members have free access to coaching and career-building tools via a partnership with the global consulting firm Korn Ferry.

SoFi members have received over 15,000 coaching sessions to date. One borrower who took advantage of those sessions is Viannca Velez of Jersey City, New Jersey, who refinanced her student loans with SoFi two years ago.

Velez initially contacted a career coach for guidance about transitioning her role at work. But after being accepted into SoFi’s more intensive — but still free — four-week career boot camp, Velez was spurred to launch her passion project, a Latin American culture and identity company named Cultura Lovers.

“[The project] was floating in my head for so long and is all of the sudden this very real thing,” Velez says. “And it’s because I had access to this type of coaching.”

2. Loyalty discounts

Who offers it: Multiple private student loan and refinance lenders.

Multiple lenders offer interest rate discounts for their current customers who want to borrow or refinance student loans. For example, if you have a qualifying Citizens Bank account — such as a savings account or mortgage — you receive an additional 0.25 percentage point off your new student loan’s interest rate when you apply.

Wells Fargo, for example, also offers a 0.25% interest rate discount if you previously borrowed a student loan from the bank or have a qualifying checking account there. That percentage increases to 0.50% if you have a Portfolio by Wells Fargo account, which includes a checking account, and other benefits and services.

Loyalty discounts are on top of the 0.25% interest rate discount that most lenders, including Citizens Bank and Wells Fargo, offer borrowers who sign up for automatic payments.

3. Academic assistance

Who offers it: Sallie Mae.

Borrowers with Sallie Mae private student loans receive access to the lender’s Study Starter program. The program, which began in 2017, includes four months of free study tools from the student-focused website Chegg, and premium services from the writing platform EasyBib. You also get 30 free minutes of Chegg’s 24/7 one-on-one tutoring service.

“Let’s say you wake up in a cold sweat at three o’clock in the morning because you have an exam the next day, and you’re just stuck,” says Mitch Spolan, Chegg’s executive vice president of marketing services. “You can go online and … find a tutor available right then and there.”

Sallie Mae provides borrowers with a unique Study Starter redemption code when it disburses their loans. If you receive disbursements before each semester, you would get two codes — good for a total of eight months of services, or roughly the entire school year. Redemption codes are valid for up to a year after they’re issued.

4. Referral bonuses

Who offers it: Multiple refinance lenders.

Many student loan refinance lenders offer cash for getting other borrowers to refinance their loans. Typically, you earn these referral bonuses by providing people with a referral link to your lender for their loan application.

Bonus amounts vary by lender, and both the referrer and applicant may benefit. For example:

  • Education Loan Finance offers $400 for each successful referral, as well as $100 for the loan applicant.
  • Laurel Road lets you split its $400 bonus however you and your referral see fit.
  • Splash Financial provides $250 apiece for both parties.

Pay attention to the bonus’s terms and conditions. Individuals you refer may need to apply and be approved within a certain time frame, or the lender may limit the number of bonuses you can receive. For example, SoFi’s cap is 20 successful referrals every 12 months.

5. Charitable work

Who offers it: CommonBond.

If you prefer freebies that help others, CommonBond has a one-for-one social impact mission. For each loan the lender issues, it donates an amount based on a formula that funds a child’s education in a developing country through the nonprofit Pencils of Promise. Those donations have totaled over $1 million to date.

Some CommonBond members get to see the impact of its social promise firsthand. The lender regularly takes a handful of borrowers to help with the nonprofit’s work in Ghana. Alex Kubo of Stamford, Connecticut, who helped finance his MBA with CommonBond loans, made the trip in 2016.

“Seeing the appreciation on the faces of the local communities … especially on the faces of the children, made CommonBond’s promise real for me,” Kubo said via email. “I was really impressed with the organization of the whole operation, and physically contributing was really rewarding.”

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The article 5 Freebies With Your Student Loans originally appeared on NerdWallet.

Take the Next Step With Your Student Loans in 2019

Posted on by Ryan Lane

It’s great to think big with your New Year’s resolution, like saying you’ll pay off your student loans in 2019. But a goal that big often doesn’t even make it to the end of January.

Instead of letting an unrealistic resolution frustrate you, focus on a small change that moves the needle for your student loans for 2019. That means taking the next step toward successful repayment, no matter your situation. Here’s how.

If you’re struggling with payments

“There’s almost always something that can be done to help a borrower who’s struggling,” says Betsy Mayotte, president and founder of The Institute of Student Loan Advisors. The key is figuring out why you’re having trouble and whether it’s a short- or long-term issue. Then you can match a solution to your needs. For instance:

  • You’re struggling only temporarily: Opt for a deferment or forbearance. These short-term options can help you through a rough patch, such as being unemployed. Deferment is preferable to forbearance, as interest won’t accrue on any subsidized federal loans you have.
  • You don’t earn enough money, and maybe never will: Enroll in an income-driven repayment plan. These plans cap monthly payments to as little as 10% of your discretionary income, and payments can be as small as $0. Paying less now can increase how much you pay overall due to accrued interest. Income-driven repayment plans counteract that by forgiving your remaining balance after 20 or 25 years of payments. But if your earnings jump, your payments will too — potentially costing you those savings. So, this is a long-term strategy.

Your next step: Contact your loan holder. You can apply for income-driven repayment or a postponement with them. Federal student loan borrowers are entitled to these options, but private lenders are more likely to offer only forbearance or deferment. Still, any of these actions is better than letting loans default.

If your loan has defaulted

Federal student loan borrowers have options to get out of default: rehabilitation, consolidation and payment in full. Payment in full likely won’t be possible for many borrowers. Choosing between rehabilitation and consolidation will depend on your goals:

  • To repair your credit and save money: Rehabilitate your loans. Borrowers can do this by making nine voluntary, on-time payments over a 10-month period. The major benefits of rehabilitation: It wipes the default from your credit report and decreases collection costs you have to pay. But you can rehab loans only once, so make sure you’ll be able to repay after completing the process.
  • To get out of default as quickly as possible: Consolidate. This option requires just three voluntary, on-time monthly payments in a row or agreeing to repay your loan under an income-driven repayment plan. Getting out of default faster lets you regain access to federal aid, if you want to re-enroll in school, or avoid other consequences of default. But consolidation doesn’t remove the default line from your credit report or reduce collection costs as much as rehabilitation does.

Borrowers who default on private loans have fewer options; even so, your first call should be to the lender to see what it offers. Otherwise, the next step may be a debt collector or even a courtroom.

Your next step: Don’t avoid your defaulted student loan. Borrowers often feel too worried or ashamed to reach out for help. But Mayotte says those anxieties are way worse than the actual call to your loan holder will be.

If you’re paying on time

If you’re comfortably making your student loan payments each month, see if it makes sense to pay more. This will depend on your debt management goals.

  • You want those loans gone: Paying extra on student loans saves you money on interest and gets you out of debt faster. See just how far an extra $50 or $100 a month goes by using this student loan extra payments calculator. If you have good credit, look at refinancing your student loans at a lower interest rate as well.
  • You want to best use your money: Mark Struthers, a certified financial planner at Minnesota-based Sona Financial, recommends prioritizing an emergency fund and retirement savings before prepaying student loans, as well as looking at your finances as a whole. For instance, he says, if you have a federal student loan at 3.5% interest, but a car loan or mortgage at 6%, paying off the higher-interest loan first could save you more money. In this instance, you should still continue making your minimum student loan payments.

“It depends on the person,” says Struthers, noting that people often make student loan repayment decisions based on emotion instead of numbers. “You’re paying 2% more each year just to be done with that student loan.“ He advises borrowers to be aware of this trade-off.

Your next step: Take a look at your finances overall before paying extra on your student loans. If you feel comfortable, put more money toward your loans. Just remember: Long-term financial health should be your highest priority.

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The article Take the Next Step With Your Student Loans in 2019 originally appeared on NerdWallet.

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$2.6B in Free College Money Went Unclaimed by 2018 Grads

Posted on by Anna Helhoski

High school graduates who didn’t complete a federal financial aid application missed their opportunity for part of $2.6 billion in free money for college, according to NerdWallet’s annual analysis of federal financial aid data.

The money went unclaimed by 661,000 members of the Class of 2018 who were eligible for a federal Pell Grant but didn’t complete the Free Application for Federal Student Aid, or FAFSA. The application is key to getting money for college including work-study, federal loans and aid from states and schools.

The average Pell Grant was $3,908 for the 2018-19 school year, NerdWallet found. The maximum allowable award for the year was $6,095.

Who gets a Pell Grant

Pell Grants are awarded to students from lower-income families. The amount awarded is based on the cost of attendance at a student’s school and information provided through the FAFSA, including a family’s financial need. Students can receive a Pell Grant for up to 12 semesters, or about six years, but they must submit an application each year to qualify.

The total Pell Grant money awarded to college students for 2018-19 was $27.5 billion, which was distributed to over 7 million students.

Among 2018 graduates, more than half were eligible for a Pell Grant, according to federal financial aid data from the Florida College Access Network.

States where students compete for the funds

Tennessee and Louisiana tied for the lowest percentage (17%) of high school graduates who didn’t complete their FAFSA, according to NerdWallet’s analysis. Both states are taking steps to make sure even more students complete their FAFSA.

In Tennessee, the state higher education commission hosts “FAFSA Frenzy” events annually to improve the rate of completed applications, which are required for the state’s free community college program called Tennessee Promise.

Louisiana’s state office of student financial assistance hosts FAFSA completion and correction events, along with a competition among schools to encourage finishing the applications. The state also requires high school seniors to complete a financial aid application or sign a waiver to receive their diploma.

States where students miss out

But states’ completion efforts are often no match for other deeply rooted factors.

More than half of high school graduates in Utah (55%) and Alaska (52%) didn’t complete the application for 2018-19. Both states carry out completion awareness campaigns, but the unique makeup of their populations stymie broader efforts, officials say.

Many graduates in Utah are members of the Church of Jesus Christ of Latter-day Saints and serve two-year religious missions before applying for college or financial aid. About two-thirds of students in Utah are Mormon and about half go on missions, says David Buhler, commissioner of the Utah System of Higher Education.

The commission hosts over 100 FAFSA completion open houses statewide and promotes applying for financial aid before heading off to missions — to make the renewal process easier when they return — but it’s not having the impact officials had hoped.

“Their focus is on getting ready for a mission — young men in particular — and college is ‘something I’ll deal with later,’” Buhler says. “It’s against human nature expect a late teen to do something like this before they have to. But we do encourage it.”

In Alaska, Rebekah Matrosova, director of outreach and early awareness for the Alaska Commission on Postsecondary Education, says the data may be underreported due to the number of small, rural schools throughout the state.

However, Matrosova also says College Goal Alaska, the state’s FAFSA completion awareness initiative, tries to reach as many of those communities as possible.

“A lot of it comes down to awareness not being there, or the misconception that the FAFSA is only for certain people from certain backgrounds when it is something that everyone can benefit from,” Matrosova says.

Why students don’t apply

Among all high school graduates, 37% didn’t complete the FAFSA, according to NerdWallet’s analysis. Why?

The biggest misconception is families think they won’t get any financial aid, says student loan expert Kevin Fudge. In reality, all families qualify for federal student loans and most will qualify for some other kind of aid.

Parents also could be reluctant to share their financial information for privacy concerns, says Fudge, the director of consumer advocacy and ombudsman for American Student Assistance, a national nonprofit dedicated to helping students achieve education and career goals.

Other students may start the FAFSA, but don’t finish it or make a mistake that eliminates them from receiving aid. For example, in Alabama, students submitted 33,266 applications, but 30,379 were approved.

How to make sure you don’t miss out

To complete the FAFSA, go to the federal student aid website at Studentaid.ed.gov. In addition, this year the Federal Student Aid Office launched a new mobile app, myStudentAid, to encourage higher rates of completion. However, only new college students can use it for the 2019-20 school year.

The article $2.6B in Free College Money Went Unclaimed by 2018 Grads originally appeared on NerdWallet.

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Ready to Apply for College Aid? A New App’s on Tap

Posted on by Anna Helhoski

Students can now apply for federal financial aid the same way they share snaps and stories: through an app on their phones.

The myStudentAid mobile app from the U.S. Department of Education lets students and parents fill out and submit the Free Application for Federal Student Aid, or FAFSA. The new app launched Oct. 1, the opening day for submitting the FAFSA for the 2019-20 academic year.

The results of the FAFSA determine a student’s eligibility for grants, scholarships and work-study. It’s also the key to accessing federal student loans. Students must complete a FAFSA for each year they’re in college to receive financial aid.

“We’re hoping that the availability of the app really attracts students since students are so centered on doing all of their tasks on their phone,” says Kim Cook, executive director of National College Access Network. The organization, a nonprofit dedicated to improving access to college for first-generation, underrepresented and low-income students, tested the app’s beta version earlier this year.

The application questions are the same, though now they appear one screen at a time. Cook says students responded positively to the simplified format during NCAN’s testing.

What myStudentAid can and can’t do

MyStudentAid isn’t without its limitations. According to the Department of Education, you’ll still need to use the FAFSA website for certain functions. For now, the app is only available to first-time 2019-20 applicants, so you can’t file a renewal application if you’re currently in college. You also can’t file a correction through the app if you make a mistake or need to amend your form after submitting it.

You can start your application online and finish it on the app, or vice versa. The app promises a customized experience for users, depending on whether you’re a student, parent or third-party application preparer. Using myStudentAid, you can:

  • Manage your FSA ID and password.
  • Use the myCollegeScorecard feature to compare colleges’ graduation rates and average student debt per graduate.
  • Ask Federal Student Aid representatives questions about your application.
  • Use the IRS Data Retrieval Tool to transfer federal tax return information to the form.
  • Access federal student aid history using the myFederalLoans feature.
  • Get financial aid information directly from the Federal Student Aid website through the app.

Residents of seven states — Iowa, Minnesota, Mississippi, New Jersey, New York, Pennsylvania and Vermont — may also transfer FAFSA information into their state aid application using the mobile app.

How submitting the FAFSA early benefits you

The deadline for the 2019-20 FAFSA is June 30, 2020. But the sooner you submit, the better the chance you have to secure first-come, first served aid such as Pell Grants and work-study that will help limit how much you need to borrow in student loans.

Before you apply, prepare to complete the form with less stress by having all the documents you need at your fingertips. This checklist can help.

The myStudentAid mobile app is available now for iOS and Android devices.

More From NerdWallet

The article Ready to Apply for College Aid? A New App’s on Tap originally appeared on NerdWallet.

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Spend Money Guilt-Free — Even With Student Loans

Posted on by Brianna McGurran

“Ask Brianna” is a column from NerdWallet for 20-somethings or anyone else starting out. I’m here to help you manage your money, find a job and pay off student loans — all the real-world stuff no one taught us how to do in college. Send your questions about postgrad life to askbrianna@nerdwallet.com.

Earlier this year, total outstanding student loan debt surpassed $1.5 trillion.

For those with loans they can’t afford, the news was a large-scale confirmation of a small-scale truth: Student loans have gotten out of control, and they leave a smoking crater in the place where a thoughtful budget should be. Seemingly endless and urgent new priorities compete for your attention and limited income after graduation: housing, an emergency fund, paying off those loans.

Here’s one more you shouldn’t ignore: yourself.

“If you’ve got a financial plan that includes no money for fun, it’s unrealistic. It’s not going to happen,” says Matthew Angel, advice director of personal finance at USAA, a financial institution for members of the military and their families.

Managing your money well is about creating balance, which you’ll have to do over and over as the shape of life changes: You may change jobs, get married, have kids or go back to school. Learn how to keep your big expenses low, get serious about setting aside “fun” money and pick activities that will bring you lasting joy, and you’ll be able to repeat the process when new priorities edge their way in.

When you lead a life that’s more than the sum of your financial stresses, you might even feel motivated to pay off your student loans faster.

Compartmentalize your cash

Budgeting meticulously isn’t for everyone. But no matter your personality, you should have a general idea of where your money goes.

Start with this method:

  • Add up monthly fixed expenses, like your rent, transportation, utility bills, student loan payment and average grocery bill.
  • Decide how much to save per month to build a solid emergency fund, which will eventually include at least three months of expenses (it’s OK if it takes time to get there).
  • Use a retirement calculator to see how much you should save per month now to get a head start on retirement, even if it’s just a little.
  • Take a look at your high-interest debt, like credit card balances, and come up with a plan to pay it down. Put even $10 more than the minimum toward your debt each month.

The money left over is where fun money will come from.

All these expenses might seem overwhelming, and I wouldn’t recommend putting off saving for retirement or letting credit card balances linger. But you can chip away at them slowly rather than throwing all your cash at one goal, giving you the freedom to set aside cash for nonessentials.

You can also save money by making smart decisions about the big stuff. Buy a used car, or sign up for a federal income-driven student loan repayment plan, which keeps your payments from exceeding 10 percent of income.

Pick the right ‘fun’

It’s worth making the effort to earn a little extra if that’s a quicker path to building discretionary cash than cutting expenses, Angel says. You can easily sell unwanted items online, he says; you can also tutor, freelance or open a shop on Etsy.

Once you set aside the cash, spend it well. You’ll likely feel more fulfilled gaining experiences, pouring money into hobbies and socializing with friends than buying new clothes or technology. Money should make you feel freer and more like yourself. If you’re spending in a way that feels empty or hasty, pause and consider whether you’re getting the most out of the money you’ve worked so hard for.

Go in with a goal

To stick to spending only the fun money you’ve decided you can spare, make a plan beforehand, Angel says. Say, “I’m going to spend $100 at most with my friends tonight,” not, “I have $500 in my bank account, and we’ll see how much is left tomorrow.” If you have access to credit cards, setting that limit internally is even more important.

Especially when you’re with friends, it’s easy to apply a “you only live once” mentality. But think of controlling your spending as an investment in going out with them again and again. You won’t accrue so much debt that eventually you’ll have to go on an even harsher spending fast to fix it.

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

The article Spend Money Guilt-Free — Even With Student Loans originally appeared on NerdWallet.