Month: May 2017

May 24, 2017 / by admin / advice / No Comments

Repayment Plans for Consolidated Student Loans: Federal Student Loan Consolidation’s Four Repayment Options

Those looking to bundle multiple federal student loans into a single loan do so for many reasons. For some, it’s the organizational convenience of making one monthly payment which makes consolidation attractive. Others seek federal student loan consolidation to lower their monthly payments and reduce their short-term debt after financial hardships brought them close to defaulting.

Regardless of the reason, those considering federally-backed Direct Consolidation Loans have four repayment options from which to choose. This article will explain these repayment plans and describe the benefits of each.

Federal Student Loan Consolidation – Two Basic Repayment Plans

For borrowers of federal student loans, two basic repayment plans exist:

  • Standard Repayment Plan – borrowers pay a fixed monthly amount which must be at least $50. Depending on one’s total indebtedness, the consolidated loan must be payed back to the Department of Education within 10 to 30 years. (The guidelines for when a loan must be repaid are found at the end of this section.) One benefit of a Standard Repayment Plan is that, over time, borrowers may end up paying less in interest than with a Graduated Repayment Plan.
  • Graduated Repayment Plan – borrowers’ minimum payments with this plan must be at least as much as the monthly amount of interest accrued. Often, payments begin very low. However, they increase every two years during the life of the repayment. Due to the low initial monthly payments, borrowers normally will pay more overall with this loan than with a Standard Repayment Plan. Despite this, it may be ideal for low income earners who anticipate better earnings in the future. As with a Standard Repayment Plan, borrowers on this plan must repay the loan within 10 to 30 years, depending on one’s indebtedness.

For both of the above plans, repayment of the consolidated federal student loan depends on the amount of indebtedness a borrower has. Below are the repayment time requirements:

  • For those whose indebtedness is less than $7,500, the consolidated loan must be repaid within 10 years;
  • For those whose indebtedness is between $7,500 and $9,999, the loan must be repaid within 12 years;
  • For those whose indebtedness is between $10,000 and $19,999, the loan must be repaid within 15 years;
  • For those whose indebtedness is between $20,000 and $39,999, the loan must be repaid within 20 years;
  • For those whose indebtedness is between $40,000 and $59,999, the loan must be repaid within 25 years;
  • For those whose indebtedness is $60,000 or more, the loan must be repaid within 30 years.

These two plans offer simple, long-term repayment options for consolidated loan holders. The next section will detail two additional plans which have more complex applications.

Federal Student Loan Consolidation – Two Complex Repayment Plans

The following two plans offer additional repayment choices for consolidated federal student loan holders:

  • Extended Repayment Plan – borrowers can only qualify for this repayment option if their total indebtedness exceeds $30,000. If such is the case, borrowers have up to 25 years to repay the consolidated loan, and may choose either a Standard Repayment Plan or Graduated Repayment Plan to do so.
  • Income Contingent Repayment Plan – this plan provides flexible options for borrowers so as not to jeopardize their financial solvency or the solvency of their family. The amount of a borrower’s monthly payments is determined by measuring one’s Adjusted Gross Income, family size and remaining loan balance. To qualify for this plan, borrowers must be willing to disclose their personal tax information (and if married, information for one’s spouse as well). According to Federal Student Aid, “Monthly payment amounts for some borrowers may not be enough to cover the interest accruing on their loans. This situation is referred to as negative amortization. In such cases, the unpaid interest is capitalized and added to the principal balance once per year. The amount added to the principal balance will never exceed 10 percent of the original Direct Consolidation Loan amount. Once this capitalization limit has been reached, interest continues to accrue but is not capitalized. The capitalization limit does not apply to interest that accrues during deferment or forbearance.” It should be noted that often times, because repayment amounts are small, loans are not repaid within 25 years. In such cases, the remaining balance of the consolidated loan can be forgiven.

Borrowers with a consolidated federal student loan considering each of the four repayment options must balance near-term financial needs with long-term financial obligations. However, immediate financial needs will often dictate which plan works best.

Federal Student Loan Consolidation – Changing Repayment Plans

It is possible for borrowers to switch repayment plans for their consolidated federal student loans, and there is no limit to the amount of times a borrower may switch. However, those who have chosen an Income Contingent Repayment Plan must make at least three payments before changing options.

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May 24, 2017 / by admin / advice / No Comments

Best Credit Cards for Students in HS & College: How to Pick a Credit Card &Teach Your Student Responsible Use

Your child is leaving home for college where he will have to learn everything from how to register for classes to how to take the pens out of his jeans before putting them in the washer. Consider whether this is the right time for him to learn responsible use of credit along with a thousand other things. Here’s how to send your student out into the world armed with the knowledge that will prevent the kind of credit card abuse that wreaks havoc on credit ratings and can take years to overcome.

The Right Age for Credit Cards for Teens

Young children seeing their parents at the automatic teller believe that all the money you ever need is available at the push of a button. Teenagers, watching their parents use plastic for everything from iTunes to eye exams, but missing the part where the monthly bill is paid, might also think that a credit card is the key to a kingdom of unlimited shoes, video games and tacos. Basic as it seems, the first step toward successful use of credit cards is making sure your teenager understands how they work

According to Assistant Vice President Ryan Mills of Park National Bank  a teen is ready for a credit card only when she has completed a personal budget. Students should understand the mechanics of budgets, loans, and interest, and the difference between planned and unexpected expenses, necessities and discretionary spending. Learning to use credit cards responsibly means understanding when and how it is appropriate to use them.

Debit Cards for High School & College Students

Debit cards are a good first step, and according to the ABA (American Bankers Association) Education Foundation Get Smart About Credit Program, 50% of 18 and 19 year olds who use plastic have them. Debit cards are tied into an existing account, and because the cardholder is spending his or her own money, this is a good introduction to the use of plastic without the potential for debt. It is important for parents to realize that while debit cards are a valuable tool for students, they are not borrowing and repaying money so they are not generating a credit history. To do that, your student will need to go to the next step, which could be a low credit limit card,

Secured Credit Cards for Students

The best credit card for a student who has successfully mastered use of a debit card might a secured credit card. This type of card, while not funded with an account like a debit card, is backed up by a deposit at the bank. In the event that the cardholder does not pay her bill, the bank can and will deduct the payment (along with a hefty amount of interest) from the bank account.

Low Credit Limit Cards for Teens

Your best bet, once your teen has proven herself with a debit card, might be a credit card with a low credit limit. Parents should consider setting up a credit account in which they are the primary borrower, with the student as a cardholder on the account. The primary borrower receives the monthly statement and should review these statements and discuss them with the student until he is certain that the cards are being used wisely. Proper procedure for handling a credit card account includes the following:

  1. Keeping all receipts
  2. Checking the purchases (receipts) against the statement
  3. Paying the full amount on time ,every month

Compare Credit Card Rates

Although it should be your student’s goal to maintain a zero balance on his account, one of the best aspects of credit cards is the availability of funds for emergency use. Even the most careful young savers are sometimes faced with transmission repairs and broken bones that will need to be paid for over a series of billing cycles. When applying for a credit card, compare credit card rates, and even if you intend to pay off the balance every month, select a card with a low APR (annual percentage rate, the amount of interest you will pay annually on credit card balances) just in case.

Credit cards, a fact of life in today’s financial world, are easily abused in ways that can take years to overcome. Don’t wait till your student is drowning in credit card debt to teach him responsible use of this helpful financial tool!

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