Archive for » July, 2014 «

K-State expert dissects changes to student loan rules

By LINDSEY ELLIOTT
K-State News and Editorial Services

MANHATTAN — Whether you’re struggling to pay off student loan debt or considering taking out your first loan for college, a Kansas State University financial counselor says there are many changes to federal loans you need to know about.

Individuals still trying to manage payments on their previous college loans now have another repayment option called the Pay As You Earn program. Jodi Kaus, director of the university’s Powercat Financial Counseling, says this option adjusts the monthly repayment amount based on your discretionary income. But eligibility for this program is limited.

“The only borrowers who are eligible for this program are people who have no outstanding loan balances as of Oct. 1, 2007, and who also have a new direct loan obtained after Oct. 1, 2011,” Kaus said. “It can be a better option than some of the other repayment plans, but it’s a limited amount of borrowers who are going to be able to benefit. It’s a good way to stay in good standing on your loan if you’re in a high-debt, low-income situation and you want to make sure you’re not ruining your credit by not paying the appropriate amount each month.”

Other options are available for those who don’t qualify for the Pay As You Earn program include income-based repayment, which adjusts the loan payment based on annual salary. While having a lower monthly payment may make it more manageable, plans involving smaller payments mean it will take longer to pay off the loan, ultimately accruing more interest. Kaus recommends getting back onto the standard repayment plan when it is affordable, unless you are eligible for a loan forgiveness program.

“What many students and recent graduates aren’t aware of is there are loan forgiveness programs for federal loans,” Kaus said. “One of these programs is the Public Service Loan Forgiveness. If you’re working for a nonprofit or government agency and making loan payments on time for 10 years, at the end of the 10 years — which don’t have to be consecutive — the remaining balance of your loan is forgiven.”

Other forgiveness programs are geared for specific careers such as teaching or based on your location. Kansas offers the Rural Opportunity Zone Program, which pays up to $15,000 of an individual’s student loan debt if her or she works in rural counties in the state.

Kaus said it’s important to make some type of payment on your loans because it’s a debt that cannot be removed from your credit or removed in bankruptcy. She also said having an idea of your future career and salary is important when considering student loans for college.

Loan calculators like those found at SALT, an online program that helps students manage their money and student loans, or the federal student aid site, https://studentaid.ed.gov/, can help you determine how much your monthly loan repayment would be depending on the amount you take out. But Kaus said to keep in mind that federal student loan details can change annually.

For instance, federal loans issued after July 2015 will have a higher interest rate because the loans are connected to the interest rate on 10-year treasury notes. That means changes in the market can increase the rate. Another change is that graduate students are no longer eligible for federal subsidized loans. Options are now limited to unsubsidized loans or graduate PLUS loans.

All these changes can be confusing, so Kaus warns to watch out for scams involving student loans.

“You shouldn’t have to pay for any advice or services with your loans,” Kaus said. “A lot of these scams are promising things that aren’t available because the federal lenders have to abide by certain rules and regulations. There’s really no way around those rules, so if someone’s making promises that don’t sound legitimate, it’s not correct.”

If you suspect a scam, contact the Consumer Financial Protection Bureau to find out if the company is legitimate, Kaus said and added that the best way to find out about federal loan changes is through your service provider or the government’s federal student aid website.

KSKOLLECTIONJULYAUG

To keep grads solvent, take the middleman out of student loans

The mounting student debt crisis could cause serious economic damage to the United States. Rising college costs and declining financial aid at both state and federal levels have significantly contributed to the problem. A good deal of responsibility, however, belongs to the financial institutions that service federal student loans, according to a new report.

Millions of students use loans underwritten by the Treasury Department and granted by the Department of Education to help make college a reality. Once the loan is approved, however, borrowers usually deal with third-party servicers — and that’s where the trouble often begins.

In 2010, the Education Department expanded its Direct Loan Program and contracted many for-profit financial institutions to service and administer the loans. Complaints to the department’s Office of Federal Student Aid jumped significantly.

The Consumer Financial Protection Bureau has documented a wide range of complaints, including payments not showing up in payment histories; processing errors that maximize late fees and penalties; misinformation on how payments are applied to multiple loans; misplaced paperwork that results in missed deadlines, and poor customer service that denies borrowers vital information about flexible repayment options.

Borrowers also complain that servicers often make debt management more complicated instead of helping them manage their debt. Servicers, however, are at fault for far more, according to the new report by Eric Fink, associate professor of law at Elon University, and Roland Zullo, an assistant research scientist at the University of Michigan.

Their study shows that servicing firms are playing a major role in the huge increase in student-loan defaults and delinquencies — because the companies have neglected their responsibility to counsel borrowers with distressed loans. By complicating the process and providing misinformation about repayment options, many servicers make paying off student debt an incredibly difficult process.

Since Education Department contracts cap the total revenue a servicer can make on each account, many companies seek higher profits by trying to cut other costs. The result is often a reduced customer-service staff and overall decline in service.

Yet these financial institutions do not shoulder all the blame. The report also blames the Education Department for not providing appropriate oversight and allowing servicers to take on new loans they cannot manage efficiently. Though the department periodically reviews each contractor, the companies are all guaranteed to receive some proportion of new accounts — essentially undermining any demands for performance improvements.

Moreover, because contractors are assessed against each other — rather than against independent standards — the entire floor is lowered with no consequence or penalty for poor performance.

Education Secretary Arne Duncan has recently agreed to conduct an internal investigation of his department’s servicers. But other government agencies have already looked into this — and the results were troubling. The Federal Deposit Insurance Corporation and the Justice Department both investigated one of the largest student-loan servicers, Sallie Mae (as well as Navient, formerly a division of Sallie Mae). The companies were found to be overcharging active-duty soldiers  on their federal student loans. The investigation resulted in a large settlement from both companies.

This helps demonstrate the Education Department’s failure to oversee its contractors effectively. Several senators have also called on the Office of Federal Student Aid to address complaints about Sallie Mae. Senator Tom Harkin (D-Iowa), for example, charges that the servicers are being treated as though they’re “too big to fail.”

To rein in servicers, policymakers should move contract monitoring to the Consumer Financial Protection Bureau. It has no stake in the servicers’ performance.

Another way to overhaul the program is to cut out the middle man. Administration of the loans could be taken on fully by the federal government and moved to a government agency better equipped to handle it, with a mandate to insist on responsible servicing rather than revenue maximization. In their report, Fink and Zullo recommend moving oversight to the Treasury Department, the Internal Revenue Service or the United States Postal Service.

Their suggestion dovetails with the Postal Service inspector general’s recent comments about expanding into nonbanking financial services, particularly for people underserved by existing banks and other financial institutions.

The agency is logistically well-positioned for loan servicing with its vast network of offices, many on college and university campuses. It has the personnel and infrastructure to assist borrowers with financial transactions.  Unlike current servicers, the Postal Service could offer face-to-face counselors. In addition, the Post Office is already more trusted than banks.

Combating student-loan debt will require reform on many fronts — including tackling college affordability. There are clear, actionable steps, however, that can be taken immediately to ease borrowers’ debt burdens and lessen the resulting drag on our economy.

One crucial missing ingredient, however, is the political will to stop this crisis from getting even worse.

 

PHOTO (TOP): Occupy Wall Street demonstrators participating in a street-theater production wear signs around their neck representing their student debt during a protest against the rising national student debt in Union Square, in New York, April 25, 2012. REUTERS/Andrew Burton

PHOTO (INSERT 1): Thousands of college students and faculty march at the State Capitol in Sacramento, California, March 14, 2011. REUTERS/Max Whittaker

PHOTO (INSERT 2): U.S. Post Office and Court House in Larado, Texas. Courtesy of LIBRARY OF CONGRESS

To keep grads solvent, take the middleman out of student loans

The mounting student debt crisis could cause serious economic damage to the United States. Rising college costs and declining financial aid at both state and federal levels have significantly contributed to the problem. A good deal of responsibility, however, belongs to the financial institutions that service federal student loans, according to a new report.

Millions of students use loans underwritten by the Treasury Department and granted by the Department of Education to help make college a reality. Once the loan is approved, however, borrowers usually deal with third-party servicers — and that’s where the trouble often begins.

In 2010, the Education Department expanded its Direct Loan Program and contracted many for-profit financial institutions to service and administer the loans. Complaints to the department’s Office of Federal Student Aid jumped significantly.

The Consumer Financial Protection Bureau has documented a wide range of complaints, including payments not showing up in payment histories; processing errors that maximize late fees and penalties; misinformation on how payments are applied to multiple loans; misplaced paperwork that results in missed deadlines, and poor customer service that denies borrowers vital information about flexible repayment options.

Borrowers also complain that servicers often make debt management more complicated instead of helping them manage their debt. Servicers, however, are at fault for far more, according to the new report by Eric Fink, associate professor of law at Elon University, and Roland Zullo, an assistant research scientist at the University of Michigan.

Their study shows that servicing firms are playing a major role in the huge increase in student-loan defaults and delinquencies — because the companies have neglected their responsibility to counsel borrowers with distressed loans. By complicating the process and providing misinformation about repayment options, many servicers make paying off student debt an incredibly difficult process.

Since Education Department contracts cap the total revenue a servicer can make on each account, many companies seek higher profits by trying to cut other costs. The result is often a reduced customer-service staff and overall decline in service.

Yet these financial institutions do not shoulder all the blame. The report also blames the Education Department for not providing appropriate oversight and allowing servicers to take on new loans they cannot manage efficiently. Though the department periodically reviews each contractor, the companies are all guaranteed to receive some proportion of new accounts — essentially undermining any demands for performance improvements.

Moreover, because contractors are assessed against each other — rather than against independent standards — the entire floor is lowered with no consequence or penalty for poor performance.

Education Secretary Arne Duncan has recently agreed to conduct an internal investigation of his department’s servicers. But other government agencies have already looked into this — and the results were troubling. The Federal Deposit Insurance Corporation and the Justice Department both investigated one of the largest student-loan servicers, Sallie Mae (as well as Navient, formerly a division of Sallie Mae). The companies were found to be overcharging active-duty soldiers  on their federal student loans. The investigation resulted in a large settlement from both companies.

This helps demonstrate the Education Department’s failure to oversee its contractors effectively. Several senators have also called on the Office of Federal Student Aid to address complaints about Sallie Mae. Senator Tom Harkin (D-Iowa), for example, charges that the servicers are being treated as though they’re “too big to fail.”

To rein in servicers, policymakers should move contract monitoring to the Consumer Financial Protection Bureau. It has no stake in the servicers’ performance.

Another way to overhaul the program is to cut out the middle man. Administration of the loans could be taken on fully by the federal government and moved to a government agency better equipped to handle it, with a mandate to insist on responsible servicing rather than revenue maximization. In their report, Fink and Zullo recommend moving oversight to the Treasury Department, the Internal Revenue Service or the United States Postal Service.

Their suggestion dovetails with the Postal Service inspector general’s recent comments about expanding into nonbanking financial services, particularly for people underserved by existing banks and other financial institutions.

The agency is logistically well-positioned for loan servicing with its vast network of offices, many on college and university campuses. It has the personnel and infrastructure to assist borrowers with financial transactions.  Unlike current servicers, the Postal Service could offer face-to-face counselors. In addition, the Post Office is already more trusted than banks.

Combating student-loan debt will require reform on many fronts — including tackling college affordability. There are clear, actionable steps, however, that can be taken immediately to ease borrowers’ debt burdens and lessen the resulting drag on our economy.

One crucial missing ingredient, however, is the political will to stop this crisis from getting even worse.

 

PHOTO (TOP): Occupy Wall Street demonstrators participating in a street-theater production wear signs around their neck representing their student debt during a protest against the rising national student debt in Union Square, in New York, April 25, 2012. REUTERS/Andrew Burton

PHOTO (INSERT 1): Thousands of college students and faculty march at the State Capitol in Sacramento, California, March 14, 2011. REUTERS/Max Whittaker

PHOTO (INSERT 2): U.S. Post Office and Court House in Larado, Texas. Courtesy of LIBRARY OF CONGRESS

Personal Loans Offer Discipline for a Credit-Phobic

Feel like we miss a fortify to compensate down your credit label debt? One choice is to steal income to compensate behind a income we borrowed, with a personal loan. NY1’s Tara Lynn Wagner filed a following report.

Americans steal income in all sorts of ways—mortgages, automobile loans, tyro loans and of course, credit label debt. Another product we competence not hear about as often, though, is a personal loan.

Unlike a credit card, where we can assign adult to a certain limit, with a personal loan we are given a pile sum of income upfront along with a report for profitable it back. PNC Bank’s Daniel D’Amico says this can unequivocally assistance a customer budget.

“You know, they compensate it behind during a specific volume any month during a specific time. They don’t need to worry about what opposite change competence be during a finish of a month. They know what their balances are,” D’Amico says.

You’ll also know what your seductiveness rate is, given that’s sealed in, and you’ll know accurately when you’ll be finished profitable it off given a loan is given for a set duration of time—48 months, 72 months.

Again, that’s opposite from a credit label where we can revolve your debt for decades.

“So there’s no vigour to compensate a loan off and if you’re not a trained chairman we can compensate down your credit label debt, run it right behind adult again, and it’s usually an unconstrained cycle. So, an installment loan—if we wish some discipline, that personal loan could assistance we with that,” says credit label researcher Jeanine Skowronski.

The income can be used for a series of things—to compensate off a vast medical check or puncture home correct or, on a brighter side, account a vital squeeze like an rendezvous ring.

“You can get a smashing present for a desired one or set adult a smashing marriage or go on a smashing trip,” D’Amico says.

It can also be used to connect debt and compensate off high seductiveness credit cards, though usually if your credit measure is high adequate to get we a low seductiveness rate.

Skowronski says when we start your research, you’ll expected see a range.

“The low finish is substantially a small bit underneath 7 percent, though afterwards a high finish will be around 36 or 39 percent, that is unequivocally high, and your rate can tumble anywhere in between there, depending on how good your credit is,” Skowronski says.

If we do get a personal loan, consistently creation on-time payments can indeed boost your credit score, though while there are advantages to this banking product, Skowronski warns it is still a loan, and a loan means debt.

“At a finish of a day, a debt is a debt and we always wish reduction debt than some-more debt. So if you’re going to take these loans out it should be since we need it,” Skowronski says.

Personal Loans Offer Discipline for a Credit-Phobic

Feel like we miss a fortify to compensate down your credit label debt? One choice is to steal income to compensate behind a income we borrowed, with a personal loan. NY1’s Tara Lynn Wagner filed a following report.

Americans steal income in all sorts of ways—mortgages, automobile loans, tyro loans and of course, credit label debt. Another product we competence not hear about as often, though, is a personal loan.

Unlike a credit card, where we can assign adult to a certain limit, with a personal loan we are given a pile sum of income upfront along with a report for profitable it back. PNC Bank’s Daniel D’Amico says this can unequivocally assistance a customer budget.

“You know, they compensate it behind during a specific volume any month during a specific time. They don’t need to worry about what opposite change competence be during a finish of a month. They know what their balances are,” D’Amico says.

You’ll also know what your seductiveness rate is, given that’s sealed in, and you’ll know accurately when you’ll be finished profitable it off given a loan is given for a set duration of time—48 months, 72 months.

Again, that’s opposite from a credit label where we can revolve your debt for decades.

“So there’s no vigour to compensate a loan off and if you’re not a trained chairman we can compensate down your credit label debt, run it right behind adult again, and it’s usually an unconstrained cycle. So, an installment loan—if we wish some discipline, that personal loan could assistance we with that,” says credit label researcher Jeanine Skowronski.

The income can be used for a series of things—to compensate off a vast medical check or puncture home correct or, on a brighter side, account a vital squeeze like an rendezvous ring.

“You can get a smashing present for a desired one or set adult a smashing marriage or go on a smashing trip,” D’Amico says.

It can also be used to connect debt and compensate off high seductiveness credit cards, though usually if your credit measure is high adequate to get we a low seductiveness rate.

Skowronski says when we start your research, you’ll expected see a range.

“The low finish is substantially a small bit underneath 7 percent, though afterwards a high finish will be around 36 or 39 percent, that is unequivocally high, and your rate can tumble anywhere in between there, depending on how good your credit is,” Skowronski says.

If we do get a personal loan, consistently creation on-time payments can indeed boost your credit score, though while there are advantages to this banking product, Skowronski warns it is still a loan, and a loan means debt.

“At a finish of a day, a debt is a debt and we always wish reduction debt than some-more debt. So if you’re going to take these loans out it should be since we need it,” Skowronski says.