3 Reasons To Think Twice Before Cosigning A Student Loan

Posted on September 15, 2014 by:

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Nice Pen With Cap Off

Before you pick up that pen, know what you’re getting yourself into.

Unless you’re a morlock and you’ve been living underground, you know that college isn’t getting any cheaper. Many students attending college bridge their financial aid gap with private student loans—and approximately 90% of those loans need a cosigner.

Have you ever cosigned for a student loan? Or has someone asked you to cosign for a loan? Better yet, do you know what cosigning for that loan really means for you? You should never take cosigning a student loan lightly. Let’s talk about why.

***

You Are Ultimately Responsible

When cosigning for a student loan (or any loan for that matter), remember that if the borrower doesn’t pay it back, you are responsible—no matter what.

If the borrower can’t make the payments for whatever reason, you have to take up the slack or face negative repercussions like delinquency and default lines on your credit report, collection costs, and tarnishing your good credit name. So, ask yourself if you really can afford the loan payments, because you may have to make them someday.

In fact, if the worst happens and the borrower dies, you may still have to repay the loan. Unfortunately, these cases have popped up in the news lately and they aren’t pretty. If you do co-sign on a student loan, strongly consider having the borrower take out enough life insurance to cover these debts should the worst happen.

Credit Implications

For the entire life of that loan, your credit score will be affected—even though it’s not “your” loan. Before you yell “not fair!” remember that the lender considers you just as responsible for the loan.

This effect can be both good and bad. On-time payments will positively affect your score, but late payments will harm it. Also, having another loan you pay in installments affects your score. How much will depend on the rest of your credit report. In addition, the loan will impact your income-to-debt ratio, even if the borrower remains in good standing.

Remember that cosigning means you are effectively lending your good credit standing. Make sure that you are going in with your eyes wide open. (By the way, you can get a free copy of your credit report from each of the three major credit reporting agencies once every 12 months here.)

It’s A Matter Of Trust

Another piece of advice: make sure the borrower is trustworthy and someone you will be in touch with for the foreseeable future, just in case you start getting collections calls about that loan. Goodtime Charlie you see at happy hour who never has steady employment and is looking to go to a party school to live the “real” college life probably isn’t the best person for you to cosign for.

The bottom line is, if you wouldn’t lend them money, you shouldn’t co-sign for them. And you know what Judge Judy says: never lend money you can’t afford not to get back. On a similar note, you shouldn’t co-sign for money you can’t afford to pay back. Trust is a two-way street, guys.

Final Thoughts

By no means am I advising you not to cosign for your nephew who is an awesome biology student at a prestigious university. But, I am advocating that you consider everything before you sign that dotted line.

You may really help your nephew get a lower, more affordable interest rate to achieve his dream of becoming a doctor—and a doctor may really come in handy if he defaults on that loan along the way.

Did you cosign a loan for this semester? Let us know how you came to your decision in the comments.

(Photo: PDPics)

Why You Have To Break Free Of The Student Loan Shackle

Posted on September 11, 2014 by:

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shackle and chain

What’s holding you back?

For the past few months, I feel like I’ve been writing a preface to my future, instead of actually living it.

I’ve been staying at home with my parents, seeing the friends I grew up with, and working two cities away from where I was born. If I learned one thing in college, it’s that you grow the most when you’re uncomfortable. The past few months have been different, but all in all, a little too comfortable for comfort.

That’s all going to change soon, though, because I’m moving to New York City.

***

Over the past few years, I’ve chronicled many phases of my life on this blog: from intern, to Oxford student, to college senior, to “young professional.” From here on out, I’m going to profile my triumphs and tragedies in America’s largest concrete jungle—specifically as they relate to my wallet.

Moving was not a decision I made lightly, once again due to financial considerations. Or, more specifically, my student loans. However, I can’t let these hold me back, and you shouldn’t either.

The Student Loan “Shackle”

I’ve heard people compare student loans to a shackle, in that the monthly payments can keep you from chasing dreams or making big changes in your life. As a recent graduate with quite a few loans, I get how scarily accurate that analogy is.

So, is moving to the second most expensive city in the country with a considerable amount of student loan debt financial suicide? Not necessarily. I worked out the numbers before making any decisions (this is why having a budget is so important). After paying loans and rent, I’ll have money left over, but not so much that I won’t potentially have to make some tough decisions.

That doesn’t mean things aren’t scary, though. Am I going to starve? Move home after a month? Be miserable and tired? Flourish? Make mistakes? Make memories? I have no idea; neither does any new grad. But like me, you won’t know unless you try.

Freeing Yourself

Ultimately, I think student loan debt can only be a shackle if you allow yourself to see it as one. Now, I’m speaking from a position of privilege: I landed a job at a well-known NYC ad agency, and I have amazing parents who are willing to help me out if I fall and can’t get up on my own. I’m lucky, and not every borrower can say the same.

However, if you are also lucky enough to be able to chase your dreams despite loan payments, I think you should start running. I think you should start running even if it means you’re going to have to rough it for a little, or if your parents don’t agree with it, or if there’s a high chance you may crash and burn.

I think you should start running because you’re young once—and nobody owes their youth to a student loan company.

Where Do I Go From Here?

The short, not-so-vivid answer is into a tiny, overpriced apartment with some good friends and a brand new job with a lot of room to grow.

The more metaphorical answer? Into sink-or-swim territory. I’m going to do everything I can to keep my head above water. And my hope is detailing this will give college students and recent grads an unadulterated look at what “young professional life” looks like when you’re in a major city with major student loans.

If you’ve got any advice that can help me along the way, please let me know in the comments. I’m going to need it.

Post your tips for Mike below in the comments.

(Photo: lwr)

Do You Know The Essential Elements Of Your Student Loans? [INFOGRAPHIC]

Posted on September 10, 2014 by:

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Now that school is back in session, it’s time for our first pop quiz.

The topic? What exactly did you borrow to pay for this semester?

***

If you needed extra money to close your tuition gap, you may not have paid too much attention to what form it came in—you just knew you needed $X to cover your costs. And you know what? That’s understandable.

Ideally, you’d know “Perkins loans vs. Stafford loans” and “unsubsidized vs. subsidized” before you borrow. However, that doesn’t mean it’s too late to learn these differences! (It’s not like you have any real tests going on in September anyway.)

As your study aid, check out this infographic. It details the essential elements of your student loans: their interest rates and the maximum amounts you can borrow. Now, the next time you borrow, you’ll have all the information you need.

(Click image to enlarge.)

periodic_table_loans

Want even more infographics? Check out saltmoney.org.

“In This Day And Age, Is It Really A Good Idea To Earn A Degree?”

Posted on September 9, 2014 by:

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Piglet Reads NASFAA News

Piglet works hard to keep up with industry news.

Helping people understand student loans is our job at SALT™, and few are better at it than Betsy Mayotte—the director of regulatory compliance for American Student Assistance® (our parent company). We told borrowers to “Just Ask” her questions, so check out her answers below (as well as her cat—because if Piglet can’t make student loans better, what can?).

***

Should I Have Gotten A Degree?

In this day and age, is it really a good idea to earn a degree? I owe $40,000 in student loans and I am in an $8.00/hour job. It appears that employers don’t respect degrees anymore because competition is fierce.

I can understand why you might feel frustrated. Anyone considering higher education should conduct a cost-benefit analysis of their desired degree.

I always encourage consumers to check the graduation rate and anticipated debt level for the school and degree of their choice, as well as to research the anticipated outlook of job prospects and salary for the field they wish to enter when making the college decision. In my opinion, college isn’t for everyone—but it can be a great investment for most.

I sincerely wish you luck and an improvement in your job prospects. Hopefully, you’re taking advantage of the lower payment options available for federal student loans to keep your current payments manageable. Let us know if we can help.

Consolidating Cosigned Private Loans

We cosigned private loans for our children. They have graduated and are repaying the loans. The interest rates range from 8% to 9.25%. Is there a smart way to consolidate these loans in their names and at a lower rate? Since we cosigned, I believe we bear the risk of repaying if they became disabled or deceased.

There’s been a lot in the press lately about families that get stuck with their children’s student loans when the unthinkable happens. The good news is that all that press has caused some lenders to rethink their policies in such situations—but it depends on the lender, and it may depend on when you co-signed the loan too.

The best way to determine your particular lender’s policies is to check your promissory notes or the lender’s website. If these feature language stating that you are responsible if the borrower dies, I’d suggest having your children take out life insurance in the amount of the loans.

Private loans can be consolidated—often at a lower rate and without the co-signer if the borrower has been paying on time for a few years and has otherwise good credit. Here’s a list of lenders who may offers that service.

Let me know if you have additional questions.

Have a student loan question you need an answer to? Just Ask.

(Note: The questions and answers above are real; however, they have been edited for grammar and clarity, but not by Piglet.)

How To Manage The Stress Of Paying $50,000 In College Tuitions

Posted on September 3, 2014 by:

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$100 bills fanned out in hand.

If Sarah had to pay tuition bills in cash, she would need something bigger than her hand to carry it all (like a U-Haul).

$14,375. $18,333. $14,860.

These three numbers glared at me on from my children’s school websites, right next to the line “Total Due.” As I made the last payment, I became officially $47,568 poorer—and felt somewhat sick to my stomach.

***

I have no doubt that an investment in three college educations will pay off for my family. Still, I felt shock as I hit send on those bills. Because no matter how much you mentally and financially prepare for it, the cost of college is very expensive—and actually paying it is stressful.

Your “Total Due” is different from ours, but I imagine the number you and your parents pay is probably painful too. Short of finding more money, what can you do to help your family manage that out-of-pocket stress? Here are a few suggestions.

1. Put Tuition Due Dates On Your Calendar

It may seem obvious, but knowing when your tuition is due is key. I was recently reminded of this the hard way, as I almost missed a tuition deadline (I think I was in denial). If I had been late, my daughter would have been at risk of losing her class registration—and there would have been late fees as well.

Fortunately, there are some easy ways around this. First, you will most likely get all tuition bills by email. Even if your parents are helping pay for college, they will not get these messages or access to the bills unless you grant them permission. So, grant them permission!

Also, be involved and proactive. To prevent another near-disaster, I asked my kids to remind me of these important deadlines going forward. You can do the same. Trust me: your parents will appreciate it.

2. Read The Fine Print—Then Pick Up The Phone

It is really important to review all the charges on your statement. Check to see if the balance due reflects any loans you have taken out. If you have not yet accepted your loans and done your pre-loan counseling, the balance may not show the loan credit.

Also, tuition bills may not reflect any outside scholarships you may have earned. And if you applied for a health insurance waiver, check to be sure that the school provided health insurance plan was taken off the total amount due.

A lot to process, right? To make sure you know exactly what you are paying for, nothing works better than calling the office of student accounts or the financial aid office for clarification. That’s what they’re there for.

3. Continue Applying For Scholarships

Regardless of what you or your family’s income status is, there is a scholarship for everyone. By spending a few hours applying for well-targeted scholarships, you may be able to bring down the cost of your future tuition. Earning one could really help reduce your overall college cost—never mind how great it could look on your résumé down the line.

We Are Almost Halfway There

As for us, I feel fortunate that both my husband and I have full-time jobs, which makes a big difference in our ability to pay these hefty tuition bills. And as I get through paying this year’s college bills, I can console myself that I will have 6 of the 12 years of tuition payments made.

Once the last tuition bill and student loan are paid off, maybe someday I will find myself with an extra $50,000 or so to spend on whatever I want. What would it go toward? The gently used Ferrari my husband has always wanted? Something for my three college graduates? OK, scratch that, I’d rather take that cash and go around the world…

But until then, the due dates for spring tuition are in huge letters on my calendar.

Have you found yourself overwhelmed when paying your tuition bills? Tell us about it in the comments. 

(Photo: speaker4td)

Upcoming College Scholarship Deadlines: October 2014

Posted on September 2, 2014 by:

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Flags from all around the world.

Want to study abroad? One of this month’s scholarships could help you.

To make your scholarship search a little easier, we’ve put together a list of scholarships with deadlines in October 2014. Be sure to read through the eligibility requirements carefully and visit the scholarship provider’s website directly before applying.

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The Central Intelligence Agency (CIA): Undergraduate Scholarship Program

Scholarship Deadline: October 15, 2014 (And Various)

This scholarship is actually a highly prestigious paid internship with the United States Central Intelligence Agency. This program is one of the most competitive in the country. Thus, students who are interested in applying should work especially hard on their applications. The program has a preference for minority and disabled students, but all are encouraged to apply.

To apply for this scholarship, you must meet the following eligibility requirements:

  • Must be a U.S. citizen
  • Must be at least 18 years of age
  • High school applicants must have SAT test scores of 1,500 or higher or ACT test scores of 21 or higher
  • Must have a minimum GPA of 3.0
  • Must demonstrate financial need with a household income of $70,000 or less for a family of four or $80,000 or less for a family of five or more
  • Must be willing to work in Washington, DC for the program

Benjamin A Gilman International Scholarship

Scholarship Deadline: October 15, 2014 (And Various)

This scholarship is offered to students who are planning to/would like to study abroad but have limited financial means to pursue the program. Awards of up to $5,000 will be awarded, with the average award being approximately $4,000.

Students must meet the following eligibility requirements to apply:

  • Must be a U.S. citizen
  • Must be studying or interning abroad in any country except Cuba or a country on the U.S. Department of State’s travel warning list
  • Must be studying or interning abroad for at least 4 weeks in one country
  • Must be applying or accepted to a study abroad program which is eligible for credit at the student’s university
  • Must be receiving a federal Pell grant or provide proof that you will be receiving a Pell grant at the time of studying abroad

The Kelly Engineering Resources Future Engineers Scholarship

Scholarship Deadline: October 15, 2014

This scholarship awards $5,000 to one student who demonstrates potential for and commitment to a career in engineering.

To apply for this scholarship, you must meet the following requirements:

  • Must be a full-time student
  • Must be pursuing a degree at an accredited institution in the United States or Canada
  • Must be accepted into a school of engineering
  • Must be an undergraduate sophomore or junior
  • Must have a minimum 3.0 GPA

Happy hunting!

For more information on college scholarship deadlines in 2014, including our scholarship of the month feature, check out our post on Upcoming 2014 College Scholarship Deadlines

(Photo: Wikimedia)

How Marriage Law Ruling Affects Financial Aid Options [EXCERPT]

Posted on August 19, 2014 by:

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Wedding bands

Due to the Supreme Court’s ruling, federal programs now recognize legally married same-sex couples.

A little more than a year ago, the U.S. Supreme Court found the Defense of Marriage Act (which defined marriage as a union between one man and one woman) to be unconstitutional. What does this have to do with paying for college?

A lot, actually.

***

Based on the Supreme Court’s ruling, eligibility requirements changed for borrowing federal student aid and some student loan repayment options.

Over on the U.S. News Student Loan Ranger blog, our own Betsy Mayotte detailed five things that all borrowers and their families should know about DOMA and these changes. Check out an excerpt from her post below, and click through to read the entire piece.

Last year, the U.S. Supreme Court ruled that part of the federal law against gay marriage, the Defense of Marriage Act, was unconstitutional. This section had prohibited all federal agencies, including the Department of Education, from recognizing same-sex marriages for the purpose of federal programs, including financial aid programs.

This ruling resulted in significant changes to eligibility for both federal student aid and certain student loan repayment options. Here are five things all families, regardless of current marriage status, need to know about changes to the financial aid process in the wake of the ruling.

View Complete Article

Want to learn more about borrowing student loans for college? Check out saltmoney.org

(Photo: TungstenRepublic)

What’s The Worst-Case Scenario For A Defaulted Student Loan?

Posted on August 14, 2014 by:

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gray and brown cat

But first, let Piglet take a selfie.

Helping people understand student loans is our job at SALT™, and few are better at it than Betsy Mayotte—the director of regulatory compliance for American Student Assistance®(our parent company). We told borrowers to “Just Ask” her questions, so check out her answers below (as well as her cat—because if Piglet can’t make student loans better, what can?).

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The Consequences Of Default

My mom is a flight attendant making under $30,000 a year. Her husband is retired. She took out a Parent PLUS loan years ago for around $40,000. That has now ballooned to $100,000 due to forbearance after forbearance and default. There are many reason she let it go this long, but at this point, it really doesn’t matter. I need to know what her worst-case scenario is —not the generic stuff, but some hard numbers.

She collects Social Security every month, and from what I read, they will take 15% maximum? Is that correct? How much of her salary can they garnish on top of that percentage? How will this play out?

I’m so glad you reached out. First of all, I think you should work with your mom to get this loan out of default through either rehabilitation or consolidation. You can read about these options here.

The reason I suggest this is that getting the loan out of default will not only get rid of the risk of Social Security, wage, and tax refund garnishment, but it will also allow her to be eligible for income-contingent repayment. This plan can keep her payments manageable and allow the remainder to be forgiven if there is still a balance after 25 years (10 if she works for a nonprofit or the state or federal government). Parent PLUS loans aren’t technically eligible for income-contingent repayment, but if they are consolidated into the Direct Loan program, they gain that eligibility. Unfortunately, they are never eligible for income-based repayment.

If you think that’s not a good solution for her, that’s OK too. To answer your question, yes—they’d garnish up to 15% of her Social Security (unless it was SSI; that cannot be garnished) that is over $9,000 per year and 15% of her wages, as well as taking her state and federal refund. There’s also a chance they sue her, and this tends to happen more with six-figure balance loans. This is why I think she’s better off getting the loan out of default and pursuing income-contingent repayment.

Take a look at those options then email me again and we’ll work out the best strategy for her.

Refinancing Student Loans

I currently have my loan consolidated with an interest rate of 6.5%. I have a fairly good credit score (between 700 and 750). Is it possible to or wise to transfer my loan to someone else to get a lower interest rate?

Is this a federal student loan? Interest rates for these loans are set in federal law by Congress and cannot be refinanced within the federal program. They also are based on a weighted average of your underlying loans rounded up to the nearest 1/8%, not on your credit score (but congratulations for having a good score, by the way!).

Some companies outside the federal program are willing to consolidate federal loans, and they may offer you a lower rate—but I would not recommend taking that action. Federal student loans offer lower payment options and protections that private loans do not. These include postponements, income-focused repayment plans, loan forgiveness, and discharge options. You will want to preserve these options in case life throws you any curveballs along the way.

You can save additional money in interest by paying extra when you can. There is a never a pre-payment penalty on student loans, and the faster you pay your debt off, the less you pay in interest.

Please let me know if you have additional questions

Have a student loan question you need an answer to? Just Ask.

(Note: The questions and answers above are real; however, they have been edited for grammar and clarity, but not by Piglet.)

Upcoming College Scholarship Deadlines: September 2014

Posted on August 7, 2014 by:

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New York City skyline at sunset

Think a particular city could benefit your career? Writing an essay about it could win you a scholarship.

To make your scholarship search a little easier, we’ve put together a list of scholarships with deadlines in September 2014.

Be sure to read through the eligibility requirements carefully and visit the scholarship provider’s website directly before applying.

***

Joseph A. Levendusky Memorial Scholarship

Scholarship Deadline: September 5, 2014

The International Water Conference will award a $7,000 scholarship to an undergraduate mechanical or chemical engineering student who has a passion for water technology.

To apply for this scholarship, you must meet the following eligibility requirements:

  • Must demonstrate interest and commitment to seek a career in the field of water technology (environmental wastewater, water pollution control, and water resource management not included)
  • Must be accepted for enrollment in or be enrolled in good standing as a student in an accredited institution in the United States
  • Must be of sophomore or higher class status
  • Must not be planning on studying outside of the country or planning to use monies to do so

Hit The Books Scholarship

Scholarship Deadline: September 30, 2014

This is a quick and easy $500 scholarship to be used toward the cost of your college textbooks and materials.

To apply, students must complete a 500-word essay on the importance of education and how the scholarship money will help them achieve their goals. Bonus points are awarded to the student who finds a creative way to include their passion for coffee in their essay.

Students must meet the following eligibility requirements to apply for this award:

  • Must be at least 18-25 years of age
  • Must be enrolled in an accredited college or university

The Odenza Marketing Group Scholarship

Scholarship Deadline: September 30, 2014

The Odenza Marketing Group Scholarship is open to students from any major (not marketing specific). In fact, this scholarship is judged primarily on responses to the following essay topics:

Essay #1: Choose a city located anywhere in the world that you believe would, from a future employment prospective, benefit your career. Explain in under 500 words how spending time in this city would help you become more marketable to a potential employer(s). Clearly identify how it will benefit you.

Essay #2: Explain in under 500 words, why you think you should be granted the Odenza Marketing Group Scholarship.

(Note to my readers: For essay #2, you can use the “personal statement” template essay and simply modify it slightly to address the prompt more specifically.)

To apply for this scholarship, you must meet the following requirements:

  • Must be a citizen of the United States or Canada
  • Must have a GPA of 2.5 or higher
  • Must have at least one full year of post-secondary studies remaining at the time of the award
  • Must be between the ages of 16 and 25 on September 30, 2014

The Xerox Technical Minority Scholarship

Deadline: September 30, 2014  

This scholarship provides $1,000 – $10,000 in scholarship awards to minority students enrolled in one of the technical sciences or engineering disciplines.

To apply for the Xerox Technical Minority scholarship, you must meet the following requirements:

  • Must be a United States citizen or permanent resident
  • Must be a full-time student enrolled in a 4-year institution
  • Must have a B average or better
  • Must be pursuing a BS, MS, or Ph.D. in a technical science or engineering discipline
  • Must be black, Asian, Pacific Islander, Native American, Alaskan, or Hispanic
  • Must demonstrate financial need

For more information on college scholarship deadlines in 2014, including our scholarship of the month feature, check out our post on Upcoming 2014 College Scholarship Deadlines.

Happy hunting!

(Photo: Wikimedia)

Stop Sending Your Student Loan Payments To The Direct Loan Servicing Center

Posted on August 1, 2014 by:

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Three blue mailboxes in front of brick building

Make sure you mail your payments to your loan servicer, not the Direct Loan Servicing Center.

It can be hard to keep up with what’s happening in the student loan industry, but policy changes can sometimes mean the difference between paying off your loans on time and facing a delinquent status.

Fortunately, the SALT™ Blog is here to keep you up to date in the world of student loans, including a big change affecting Direct Loan borrowers.

***

The Department of Education (ED) has been transitioning away from its Direct Loan Servicing Center for nearly a year now.  On June 30, after many communications to affected borrowers, they shut down the mailbox that had previously accepted payments for those borrowers serviced by that particular center. Despite these communications, we hear that many people continue to send their student loan payments to this particular mailbox. This may not seem like a big deal, but sending your payment to the wrong address could mean that your loan is not paid on time—and that has serious consequences. If you have been sending your payments to P.O. Box 530260, it’s time to stop.

Any payments sent to that mailbox will be returned, but if you sent it too close to your due date, you may not get it back in time to send to the right servicer’s address. As a result, your account could become delinquent—even though you had the funds to make your payment and tried sending it on time. Not good, since delinquency can result in late fees and affect your credit rating.

Fortunately, there’s a pretty easy fix. If you’re making your own payments, just start sending them directly to your servicer’s payment address. If you use a bank or bill paying service to pay off your loans, let them know your servicer’s name and payment address.

But what if you don’t know exactly where to send your payment? Check the mail you’ve received from your loan servicer, and you’ll find their address. You can also look up your loan servicer’s address in the National Student Loan Data System (NSLDS®). You can find other contact information for loan servicers here.

Have a question about where to send your student loan payments? Let us know in the comments.

(Photo: Pixabay)