StudentAdvisor.com's Guide to Student Loans by StudentAdvisor.com

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CLAIM THE STUDENT LOAN INTEREST DEDUCTION

THROUGH YOUR STUDENT LOANS

STU DE NT LOAN S G U I DE • STU DE NTADVISOR.COM •

EDITOR GREG TITUS Chairman & Founder BRIAN EBERMAN Chief Executive Officer

UNDERSTANDING YOUR OPTIONS

BRIAN CARR Chief Marketing Officer bcarr@studentadvisor.com DEAN TSOUVALAS Editor-In-Chief dtsouvalas@studentadvisor.com ROB CARBONARO Vice President of Sales rcarbonaro@studentadvisor.com CLIFF W. LIBBY Director of Business Development clibby@studentadvisor.com ADDIE CONNER Vice President of Advertising aconner@studentadvisor.com TODD RODGERS Vice President of Engineering Sandra Proulx Community Manager sproulx@studentadvisor.com CARLY RODGERS Marketing Associate crodgers@studentadvisor.com TRACEY TOPOR Marketing Associate ttopor@studentadvisor.com CHRIS HALL Marketing Intern ASHLEY WALLACE JONES Production Manager

S ANDR A PR OUL X

“ COLLEGE GRADS HAVE AN AVERAGE DEBT OF $23,000 IN TUITION LOANS.”

e won’t deny that student loans are probably the least exciting part of going to college. The truth of the matter is that few students can afford to pay for college without some form of education financing. While scholarships and grants are the most attractive forms of financial aid (because they do not have to be repaid), student loans are a necessity for most students. In 2008, 67 percent of students graduating from four-year colleges and universities had student loan debt, with an average debt level of $23,200. To ensure that you graduate with the lowest debt burden possible, it is ver y impor tant that you understand all of your financial aid options. This guide intends to offer you an explanation of the different types of student loans that are out there, as well as provide advice on how to best manage your debt. At StudentAdvisor.com we know the importance of earning your college degree, and that’s why we want to make sure you are well prepared to make this worthwhile investment.

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4 • STU DE NTADVISOR.COM • G U I DE TO STU DE NT LOAN S

CONTENTS

• STAFFORD LOAN PROGRAMS

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• TYPES OF LOANS

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• FEDERAL LOAN CONSOLIDATION

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• PRIVATE LOANS

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• DEALING WITH DEBT

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• BAD CREDIT LOANS

019

• DELAYING YOUR PAYMENTS

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• MOM RUINED MY CREDIT SCORE

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• DON’T GET BURIED

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• FEDERAL STUDENT LOANS

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• STAYING AHEAD

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• IT GETS UGLY

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• WELCOME TO STUDENT LOANS

William Ford Direct Program & Federal Family Education Loan (FFEL)

Loans for students, parents and students with exceptional and financial need

Facts to consider and benefits

FAFSA first and then what to look for

Consolidate and eliminate

How to manage & pay them off

If repaying your student loan is one expense too many

Don’t get your data stolen

Are you setting yourself up for debt?

The new student loan proposal: 5 things you should know

How to check your FAFSA loan status & repaying your student loan more easily

Default on your loans and you’ll pay big anyway

G U I DE TO STU DE NT LOAN S • STU DE NTADVISOR.COM •

Introduction to $tudent Loans T

here are two primary providers of student loans: the U.S. Department of Education, which offers a number of federal student loan programs, and private sector banks, financial institutions, and commercial lenders, which offer private loans. Both federal student loans and private loans require paying interest and an origination fee on top of the lump sum of loan money. The origination or activation fee is a one-time charge that you pay the lender for creating the loan; the interest is a percentage fee that accumulates over time from the date the loan money is paid out to you. Federal student loans usually offer better interest rates and loan terms and conditions than private loans. For this reason, all government, school, and private student aid experts advise that you apply for and take advantage of as much as you can get in federal student loans before seeking private student loans. There are several federal loan programs available to both students and parents, including:

• Perkins Loans for exceptionally low-income students • Stafford Loans: subsidized and unsubsidized, for undergraduate and graduate students • PLUS Loans for graduate students • PLUS Loans for parents • Consolidation loans Federal student loan programs differ from one another primarily in their eligibility requirements, loan amounts, interest rates, and the length of time you’re given to repay the loans. No matter which program you enroll in, you’ll get the actual money through your school’s financial aid office. After you graduate, a federal consolidation loan will allow you to combine multiple student loans into a single loan with one monthly payment.

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WELCOME TO STUDENT LOANS

Loans for Students T

here are many kinds of financial aid available to students in need of assistance with the high cost of a college education. In addition to grants and scholarships, there are several types of federal loans worth considering. A Stafford loan is a low-interest loan awarded by the U.S. Department of Education to undergraduate or graduate students pursuing professional degrees. It doesn’t require a credit check to apply and is available to a wide range of students, including those who need student loans for bad credit. Unlike grants and scholarships, Stafford loans must be re-paid by the student, even if they do not graduate.

SUBSIDIZED VS. UNSUBSIDIZED STAFFORD LOANS A subsidized Stafford loan is one where the U.S.

Department of Education pays the interest on the loan during specific times, for instance, while the student is still in school. In order to qualify for a subsidized loan, a student must provide proof of their financial need. An unsubsidized Stafford loan is one where the student re-pays the interest in addition to the amount borrowed. STU DE NT LOAN S G U I DE • STU DE NTADVISOR.COM •

STAFFORD LOAN PROGRAMS

Stafford Loan Programs

Prior to July 1, 2010, Stafford Loans were available to students via these two programs: WILLIAM D. FORD DIRECT LOAN PROGRAM

The William D. Ford Direct Loan program is referred to as a direct loan and the loan is borrowed from and repaid directly to the Department of Education. Direct loans can be subsidized or unsubsidized.

http://www2.ed.gov/programs/wdffdl/index.html

http://www2.ed.gov/programs/ffel/index.html

FEDERAL FAMILY EDUCATION LOAN (FFEL) PROGRAM

The Federal Family Education Loan is referred to as a FFEL loan. The federal government guarantees FFEL loans but private lenders provide the funds. FFELs are available as subsidized or unsubsidized loans and are repaid directly to the providing lender or bank.

STUDENT LOAN REFORM As of July 1, 2010, all Stafford Loans will be borrowed from and repaid directly to the Department of Education. Private lenders will no longer make FFEL loans. This new law does not change FFEL loans that students have taken out prior to July 1, 2001, but does lower the cap on monthly payments -- from the current 15 percent of discretionary income to 10 percent. This will shorten the repayment window from 25 years to 20. STU DE NT LOAN S G U I DE • STU DE NTADVISOR.COM •

Loans for Parents

Good news for parents! There is a federal loan especially for parents of students called the PLUS Loan for Parents. It allows parents to borrow money to help pay for their child’s education as long as their child is a dependent, undergraduate student. The child of these parents must be enrolled at least as a half-time student attending an eligible school with an eligible program. The parents will have to provide a credit history that will impact the likelihood of getting the loan. Parents can get the PLUS Loan through the William D. Ford Federal Direct Loan (Direct Loan) program. To get more information or to apply, call your student’s financial aid office.

Loans for Grad Students Just when you think you’re done with school, loans, and the stress of figuring out how to pay for your education, you decide to go to graduate school. The PLUS Loan for Graduate and Professional students is an affordable student aid option. PLUS Loans are available either through the William D. Ford Federal Direct (Direct Loan) program. To qualify for a Grad PLUS Loan you must file a Free Application for Federal Student Aid (FAFSA) form at your school’s financial aid office. The FAFSA will be an application for the maximum loan amount of either a subsidized or unsubsidized Stafford Loan. To be awarded the loan, applicants must have an acceptable credit history.

FREE FASFA FORM 10 • STU DE NTADVISOR.COM • STU DE NT LOAN S G U I DE

TYPES OF LOANS

Loans for Students with Exceptional Financial Need The government offers low-interest rates and significant repayment flexibility with their loans, so getting a federal loan to help pay for your postsecondary education is a great option! The Perkins Loan is a federal, low-interest loan available to both undergraduate and graduate students with exceptional financial need. You apply for a Perkins Loan through your school’s financial aid office, by filing a FAFSA. The loan is federally funded but you will borrow directly from your school and when you repay the loan, you will make payments directly to the school as well. Typically, your school will pay you twice during the academic year and by check. Sometimes the loan is applied straight to your school bill. A Perkins Loan allows you to borrow up to $4,000 an academic year as an undergraduate, not exceeding $20,000. The funds are available on a first-come, first-served basis and priority is given to those students with the greatest financial need.

STU DE NT LOAN S G U I DE • STU DE NTADVISOR.COM •

Federal Student Loan Consolidation T

he U.S. government provides loans to assist with the cost of higher education. When it comes time to repay them, a federal student loan consolidation may the best choice for those with multiple loans who want to simplify their finances. Because it’s difficult to find loans that are more flexible and offer lower interest rates than federal loans, many students borrow more than one to cover their school expenses. A federal student loan consolidation is a loan that will pay off all of your student loans, leaving you with one monthly payment to a single lender. Getting behind on loan payments can become problematic quickly, so consider all of your long and short-term options regarding repayment of your student loans, including loan consolidation, carefully. As always, being well-informed and thorough in your efforts to manage your financial aid is key to a positive overall experience.

FACTS TO CONSIDER BEFORE CONSOLIDATING

•R eview your loan to determine whether you will lose certain

borrower benefits if you consolidate, such as discounts, rebates, and discharge and cancellation benefits. • C onsider deferment in the short-term, if possible. Try working with your lender to postpone repayment. • Consolidation loans are likely to lower your monthly payment. However, in the long-term you may increase the total cost of your loan, paying more interest and over a longer period of time, extending the loan to 30 years. • Contact your lender to discuss your options carefully before consolidating.

BENEFITS OF CONSOLIDATING

If you can meet your lender’s criteria, there may be benefits to consolidating your loans, including: • A lower monthly payment • The ability to make one monthly payment to one single lender • Receiving a fixed interest rate on Direct loans • S implifying your bills, therefore minimizing your responsibilities and the potential for being delinquent on your payments

HOW TO CONSOLIDATE A FEDERAL LOAN

The Federal Student Loan Consolidation program is designed to help students transition from multiple payments to one monthly payment. In this program, multiple student loans are paid off by the Department of Education and one new loan is created. Often the monthly payments are extended; however, the potential for a lower interest rate as well as the lowered monthly payment attract many debtors. The application for federal student loan consolidation is

REPAYING YOUR PERKINS LOAN It is common for students to be given grace periods, during which time you do not have to make payments on the loan. The grace period for a Perkins Loan is nine months from the time you graduate, leave school, or decrease your course load to less than a half-time status. After nine months, you must begin repaying the loan. It is your responsibility to know deadlines when it comes to managing your loan, so keep in touch with your financial aid office to avoid getting behind on your payments!

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FEDERAL LOAN CONSOLIDATION

available on the Internet. If equipped with all necessary loan information, the process takes about 20 minutes. Included on the site is the helpful online calculator feature that allows you to input all the data of all your loans and calculates an estimated monthly payment.

HOW TO APPLY

Submit your information for review at www.loanconsolidation.ed.gov, using the application home tab. After applying, you may print a digital promissory note that can be signed instantly online, or mailed to the program within 14 days. You’ll receive an email with a toll free number that you can use to check on the status of your loan

HOW THE PROCESS WORKS

Assessing the Application: Your application is reviewed and, if necessary, additional information is requested. A promissory note is mailed if one has not been electronically signed. If requested information is not supplied within 14 days, the loan application process is aborted. Verifying the Loans: After reviewing the application, loans are verified. Lenders are allowed 10 days to verify the loans by postal mail, although some are electronically verified. Processing Repayment Plan: If you, the borrower, selected Income Contingent Repayment (ICR) Plan or is required to repay by this method due to a defaulted loan, the Internal Revenue Service must confirm the accuracy of the information or the process is slowed with additional requests for borrower information. Eradicating Previous Loans: Once these processes have been completed, previous loans are repaid and summaries are mailed to the borrower.

TO LEARN ALL ABOUT THE PROCESS AND WHAT YOU CAN EXPECT, GO TO: WWW.LOANCONSOLIDATION.ED.GOV STU DE NT LOAN S G U I DE • STU DE NTADVISOR.COM •

Private Student Loans – Be A

college degree is an investment in a promising future, but it isn’t free of charge. Once you’ve exhausted all the federal financial aid you’re eligible for, you may find that it just doesn’t cover everything. In this case, you may need to turn to a private student loan to fund the remaining costs. A private loan typically comes with higher interest rates and charges, so you should comparison shop and read all fine print carefully.

begin your research into private student loans: •K now how much you need to borrow. Look at your own financial situation and figure out how much you will need to borrow in order to pay for school. Do not borrow more than you need because debt adds up quickly and can be overwhelming when not managed carefully and responsibly.

FAFSA FIRST

Your first step in the process of paying for school is filing a FAFSA to see what kind of federal assistance you are eligible for. Since grants do not have to be repaid and federal loans and workstudy programs offer more flexibility and lower rates than most private student loans, you will want to make every effort to receive federal assistance first. Got FAFSA questions? Download StudentAdvisor’s FAFSA Guide.

BEFORE YOU BORROW

Before you make a commitment with the significant financial consequences of a private student loan, you want to be as informed as possible. Consider the following guidelines as you

• Understand the private student loan process. Before taking out a loan, learn everything you can about the loan process, including interest rates and any fees you may be charged. Know what you are getting into before you get into it!

WHAT TO LOOK FOR IN A PRIVATE STUDENT LOAN

In addition to the actual amount of the loan, there will be fees and interest for each loan, adding to the overall amount to be repaid. When hunting for the best private student loan, you will be comparing the many that are out there. Here are some tips to think about in your search: • Low interest rates are not the only thing to focus on

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PRIVATE LOANS

Smart About Your Decisions when choosing a loan. Some loans can have low interest rates but high fees and vice versa. Finding the right balance of fees and interest rates is key to finding the most affordable loan. • Loans that have different repayment plans should not be compared to one another. Loans with longer repayment terms have lower annual percentage rates but the amount of interest you’re charged will increase because you will be paying the loan back over a longer period of time. Use the StudentAid’s Loan Analyzer Calculator to find and compare loans with similar repayment plans. • A cosigner with good credit and a solid credit history of your own will give you the greatest opportunity to get the best loans with the best rates. •B ecome familiar with the various terms associated with private student loans. The more informed you are, the better choices you will make and the lesser your financial burden will be in the long run. Click here and

scroll to the bottom of the page for a list of definitions on StudentAdvisor.com • You may not receive the full details regarding loan terms of certain loans until you submit an application because students with good credit will likely be offered lower rates and fees and students with bad credit will likely be offered higher rates and fees. • Work with a lender who has a good reputation and excellent customer service. This is a long-term relationship and significant commitment, so you want to work with the most reliable and helpful professionals around. Going back to college is a worthy investment. Finding the finances to pay for tuition as well as other possible costs including transportation, computers, textbooks, and even living expenses is a task requiring considerable preparation, organization and effort. Finding a reasonable private student loan gives you the opportunity to pay for school with the comfort and security that comes with knowing you’ve made a sound, well-informed choice.

STU DE NT LOAN S G U I DE • STU DE NTADVISOR.COM •

Debt Negotiation/ Elimination

onsumers are being battered on all fronts and offers from companies to help get them out of debt are extremely tempting in troubling times. Offers of debt negotiation, debt settlement, and debt elimination are three different options available to consumers. The Better Business Bureau advises consumers to ensure they understand these critical differences before enlisting the help of a company to manage their debt or they could end up making their current financial situation worse. While the unemployment rate continues to rise, so do complaints filed with BBB against companies that claim to help consumers manage their debt. In fact complaints against debt consolidation and negotiation companies rose by almost 19 percent in 2008 over the previous year. “Consumers are bombarded every day with ads and e-mails offering services to manage or reduce debt and it’s hard to know which offer will work for them, let alone if the company can be trusted,” said Steve Cox, BBB spokesperson. “Families in debt may think their situation can’t get any worse, but trusting the services of some debt negotiation, consolidation or elimination firms can actually

lead to increased debt and bigger headaches.” To help consumers understand various options for dealing with debt, BBB offers a brief explanation of debt negotiation, consolidation and elimination services and tips on finding help to deal with debt: WHAT IS DEBT NEGOTIATION/SETTLEMENT? Debt negotiation companies claim that they will negotiate with a consumer’s lenders to lower the total amount of debt owed for an upfront fee. Unfortunately, some consumers who paid for debt negotiation services found out that the company never contacted their lenders, but instead, took their money and ran. Because the debt negotiation company made it sound like they had everything under control, the consumer

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DEALING WITH DEBT stopped talking directly with their lenders and ended up slipping deeper into debt. Relying on debt negotiation firms could also put a dent in a consumer’s credit report. WHAT IS DEBT CONSOLIDATION? Debt consolidation companies offer to roll up various debts allowing the debtor to make one lower payment to the company, rather than many payments to the different lenders. While debt consolidation can make paying monthly bills more manageable, some companies tack on high fees and charge exorbitant interest rates, which means the consumer is paying much more in the long run. WHAT ABOUT DEBT ELIMINATION OFFERS? Companies that offer debt elimination rely on many different schemes but they all hinge on the notion that credit lines are illegal. Debt elimination companies typically provide, for an upfront fee, a document for the lender that supposedly absolves the consumer of the debt. Unfortunately, the document has no bearing whatsoever on the debt owed and consumers paying for such services have found that they’ve wasted money on a debt elimination scheme that would have been better spent on actually paying back their debts. Before enlisting the help of a business to manage debt, BBB offers the following advice for consumers:

• S tay in contact with lenders and try to work out a plan with them first before enlisting outside help. •A lways check the company out first with BBB. BBB Reliability Reports on debt negotiation, consolidation, and elimination companies are available online for free at www.bbb.org. • S tart with a credit counseling service. Credit counseling services are often nonprofits that offer financial guidance for a small fee, or even for free. Click here for more advice on choosing a credit counseling agency. •B eware of offers that sound too good to be true. There is no easy fix for reducing debt and any company that makes huge claims and guarantees, probably can’t deliver.

FOR MORE ADVICE ON DEALING WITH DEBT INCLUDING HOW TO MANAGE A BUDGET, GO TO: WWW.BBB.ORG.

TIPS ON HOW TO BE ABLE TO AFFORD STUDENT LOANS Based on data from the 2009 National Postsecondary Student Aid Study, the Project on Student Debt publicized these numbers: • For the past 4 years, approximately two-thirds of students graduating from four-year colleges have student loan debt upon graduation. • Nationwide, the average debt for graduating seniors with student loans rose to $23,200 in 2008, an increase of about 6%/year between 2004 and 2008. • At some colleges, average debt soared to as high as $106,000. The good news is that there are ways to minimize and control student loan debt, and many personal finance experts who offer tips on how to do this. These tips for affording student loans are not new—just a little dusty from not having been used for a while.

STU DE NT LOAN S G U I DE • STU DE NTADVISOR.COM •

Get Your Income Tax Break SOURCE: EducationGrant.com

he Student Loan Interest Deduction is a federal tax deduction for higher education expenses. If you took out a student loan to pay for your postsecondary education, you may be able to deduct up to $2,500 per year in the loan interest you paid. To qualify for using this deduction, you must have paid interest on a qualified student loan. You must also have used the loan money for qualified higher education expenses, such as tuition, fees, room, board, supplies, and other related expenses. The student can be you, your spouse, or your dependent.

STUDENT LOAN INTEREST DEDUCTION AMOUNT

At present, the maximum amount of the Student Loan Interest Deduction is $2,500 per eligible student per year.

STUDENT LOAN INTEREST DEDUCTION RESTRICTIONS

The Student Loan Interest Deduction is available to taxpayers whose Modified Adjusted Gross Income (MAGI) is less than $70,000 ($145,000 if filing jointly). For a MAGI between

$55,000 ($115,000 for a jointly-filed return) and $70,000 ($145,000 for married, filing jointly), the maximum allowable deduction is reduced on a sliding scale.

HOW TO CLAIM THE STUDENT LOAN INTEREST DEDUCTION

The student loan interest deduction is an adjustment to income before calculating your income tax. You don’t need to itemize your deductions to claim the student loan interest deduction. There are instructions on the 1040 forms for figuring out the correct sliding-scale deduction. The filer can be you, your spouse if you file jointly, or your parent if you’re being claimed as a dependent. If you paid interest on a qualified student loan during the year, the IRS will send you Form 1098-E: Student Loan Interest Statement. Be sure to read all the terms and conditions related to IRS education tax breaks. For complete, detailed explanations of “qualified expenses,” “eligible school,” “academic period,” and allowable “funding sources,” and other terms, carefully read all the information in the IRS Tax Benefits for Education web site.

SOURCE: U.S. Internal Revenue Service NOTE: This article is intended to be a general overview of an education tax benefit for the current tax year. StudentAdvisor.com does not advise on any personal income tax requirements or issues. Use of any information from this web site is for general information only and does not represent personal tax advice either expressed or implied. You are encouraged to visit the IRS website for more information and to seek professional tax advice for personal income tax questions and assistance.

BAD CREDIT LOANS

Bad Credit Student Loans T

he poor economy has many people in a bind. There’s a lot of value in going back to school because additional education often increases employment options. But job lay offs and impossible mortgages can damage personal credit scores, leaving students unable to qualify for loans. Don’t give up on your dream! There are bad credit student loans for adult learners trying to improve their lives with education.

FEDERAL GOVERNMENT: FIRST PLACE TO FIND BAD CREDIT STUDENT LOANS

The U.S. Department of Education financial aid program offers low-interest-rate student loans that don’t require credit checks to qualify. These include Stafford Loans and Perkins Loans.

signing a promissory note as well. Your co-signer does not have to be a parent or guardian, but he or she must have good credit. •O nce your student loan payments begin, don’t ever miss a payment and make every payment on time.

PAYING OFF BAD CREDIT LOANS

After you graduate, do everything you can to pay back your bad credit student loan reliably and on time. If you can’t make the payments or if you fall behind, consider a federal government consolidation loan, offered through its direct lending program.

Federal loans are a good solution because: • Y ou’ll get lower interest rates and fees compared to private loans. •T he federal government will pay your interest payments while you’re in school. •Y ou may not need to make loan payments while you’re in school. • You get longer, better repayment terms.

“ SCAM ARTISTS LOVE A BAD ECONOMY”

BAD CREDIT STUDENT LOANS FROM PRIVATE FINANCIAL INSTITUTIONS

Qualifying for reputable, manageable private loans is always based on good credit. While you have bad credit, you probably won’t be able to get a private loan unless it has a very high interest rate and a lot of restrictions to make sure you don’t default. Remember that scam artists love a bad economy because it’s so easy to rip off people who feel desperate. Any private loan that seems too good to be true—especially for someone who has bad credit—almost certainly is, especially if it offers a very low interest rate and claims to offer all kinds of easy repayment terms.

TIPS FOR MANAGING A PRIVATE LOAN IF YOU HAVE BAD CREDIT: •C arefully read all the small print and make sure they’re not going to double the interest rate on you in 3 months, or something like that. The last thing you want to do is to add more bad credit to the bad credit you already have. •A sk someone whom you trust (and who trusts you) to be a co-signer on the loan. This will include the both of you STU DE NT LOAN S G U I DE • STU DE NTADVISOR.COM •

LAST RESORT: Delaying Your Payments O

ne of the most stressful realities of financial misfortune is that you often have to deal with several financial strains at a time. A job lay off isn’t an “only” problem; it’s a problem that causes other financial difficulties to follow. Even if you haven’t lost your job, other financial obligations may strain your income. If student loans are part of the debt you’re carrying, you may qualify for federal programs that allow you to postpone, or defer, your student loan payments until your financial situation improves. Similar to other federal assistance programs, student loan deferment is intended to allow you to cover your basic living expenses without the added burden of student loan debt. The U.S. Department of Education offers the following advice to financially strapped families carrying student loans:

a Federal Perkins Loan, the federal government will pay interest on your loan during deferment. If you have an unsubsidized Stafford Loan, however, you will be responsible for paying the interest during deferment. If you don’t pay the interest as it accrues, it will be added to your loan balance and the amount you have to pay after the deferment will be higher. You must apply for a student loan deferment with your loan provider (the organization that handles your loan), and you must continue to make your loan payments until your bank tells you they’ve given you a deferment. Otherwise, you may be charged late fees or go into default.

IF REPAYING YOUR STUDENT LOAN IS ONE EXPENSE TOO MANY

A Stafford Loan or Perkins Loan borrower may qualify for a student loan deferment for a maximum of three years if you’re experiencing economic hardship as defined in federal regulations. If your student loan payments equal more than 20% of your gross monthly income, you may qualify for the federal economic hardship deferment. Other conditions that may allow you to qualify for an economic hardship deferment include receiving payment under a federal or state public assistance program, such as Temporary Assistance for Needy Families (TANF), Supplemental Security Income (SSI), Food Stamps, or state general public assistance. You should contact your lender as quickly as possible to get the appropriate paperwork for figuring out if you qualify.

If you’re having trouble making your student loan payments or are getting close to more than 90 days delinquent on your payments, you are in danger of defaulting on your loan. You should immediately get in touch with the loan program. Under economic hardship circumstances, you may qualify for a student loan deferment, student loan forbearance, or other form of payment relief. It is very important to contact your student loan financial institution as soon as you think you may run into trouble, before you are charged late fees or default on your student loan.

STUDENT LOAN DEFERMENT

A deferment is a temporary freeze on loan repayment during specific situations such as unemployment, economic hardship, or re-enrollment in school. If you have a subsidized Stafford Loan or

ECONOMIC HARDSHIP STUDENT LOAN DEFERMENT

MILITARY SERVICE STUDENT LOAN DEFERMENT An active duty military student loan deferment is available to borrowers in the Stafford Loan and Perkins Loan programs who

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DELAYING YOUR PAYMENTS

are called to active duty during a war or other military operation or national emergency. This deferment is available while the borrower is serving on active duty during a war or other military operation or national emergency, performing qualifying National Guard duty during a war or other military operation or national emergency, and, if the borrower was serving on or after October 1, 2007, for an additional 180-day period following the demobilization date for the qualifying service.

ACTIVE DUTY STUDENT DEFERMENT

Effective October 1, 2007, a Stafford Loan or Perkins Loan borrower who is a member of the National Guard or other reserve component of the U.S. Armed Forces (current or retired) and is called or ordered to active duty while a student enrolled at least half-time at an eligible school, or within six months of having been enrolled at least half-time, is eligible for a student loan deferment during the 13 months following the conclusion of the active duty service, or until the borrower returns to enrolled student status on at least a half-time basis, whichever is earlier.

STUDENT LOAN FORBEARANCE

If you do not qualify for a student loan deferment, you may still be eligible for the student loan forbearance program, which is another type of temporary loan repayment postponement due to financial difficulty. Unlike deferment, under loan forbearance you are responsible for paying for all accrued interest on your loan, subsidized and unsubsidized. Loan forbearance is typically granted for up to 12 months at a time for up to 3 years. You have to apply to your loan provider for student loan forbearance, and you must continue to make your loan repayments until your bank

lets you know the forbearance period has begun. Generally, the same eligibility requirements and procedures for requesting a deferment or forbearance that applies to Stafford Loan borrowers also apply to PLUS Loan borrowers. However, because all PLUS Loans are unsubsidized, you’ll be charged interest during either deferment or forbearance. If you don’t pay the interest as it accrues it will be added to your loan balance.

FEDERAL STUDENT LOAN DEFERMENT RESOURCES

If you’re having trouble with student loan payments, contact your loan servicer immediately. If you don’t know whom to contact, find your federal student loan account information at the National Student Loan Data System (NSLDS), the U.S. Department of Education’s central database for student aid. • For Federal Perkins Loans, contact your loan servicer or the school that made you the loan. • For FFEL Loans, contact the lender or agency that holds your loan. • For Direct Loans, including loans taken out before July 1, 1993, contact the Direct Loan Servicing Center at 1-800848-0979 or 1-315-738-6634. TTY users should call 1-800-848-0983. If you have already contacted your loan servicer(s) and you haven’t been able to get help, contact the Federal Student Aid Office of the Ombudsman at 1-877-557-2575 as soon as possible.

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INFORMATION PROTECTION

Don’t Get Your Data Stolen H

eads up to any of our readers who are paying off student loans: in April 2010 ECMC, a federal student loan agency and the U.S. Department of Education’s designated provider for student loan bankruptcy, revealed that the names, addresses, Social Security numbers and dates of birth for 3.3 million people were stolen from its headquarters. No savings, checking or credit card information was included in the data, which has since been recovered. A suspect is in custody, and ECMC does not believe that any data was compromised, but the incident illustrates the importance of taking precautions to secure your personal information.

HOW DO YOU FIND OUT IF YOUR INFORMATION HAS BEEN COMPROMISED? Here are some options:

• H e a d t o w w w. e c m c . o r g / register/Register.do and fill out your information • C all ECMC at 1-888-221-3262 Monday-Friday between 9a.m. and 9p.m. ET, Saturday from 9a.m. and 6 p.m. ET Sunday 10 a.m. to 5p.m. ET • V isit w w w.nslds .ed.gov, a national student loan database where you can log in and check on information about your loans. ECMC is also working with credit reporting firm Experian to offer affected borrowers free credit protection and monitoring for a year. If you are affected by the data theft, you will be notified soon, if you haven’t already. You’ll need a code from this letter in order to activate your credit protection services.

WHAT CAN YOU DO TO PROTECT YOURSELF IN THE MEANTIME?

Keep in contact with your bank and credit card companies. Double-check your existing accounts for any unauthorized purchases, and make sure no new accounts have been falsely opened in your name. Go one step further and create new passwords and PIN numbers for your accounts, just to be safe. Make sure these passwords and PIN numbers are complicated and not easy to guess. Don’t use birthdays, years, names, phone numbers, or other obvious identifying information to create a new code.

CHECK YOUR CREDIT REPORT.

While no misuse has been reported, it doesn’t mean you are in the clear. Run your credit report to be certain that no questionable accounts or loans have been opened in your name.

DON’T BE FOOLED BY “FREE” CREDIT REPORT OFFERS! Sure, the jingles are catchy and the ads are funny, but there’s a great big catch: to get your “free” report, you first have to enroll in a paid program. Don’t fall for it! The Federal Trade Commission’s Fair Credit Reporting Act requires each of the nationwide consumer reporting companies — Equifax, Experian, and TransUnion — to provide you with a free copy of your credit report, at your request, once every 12 months. There’s no hidden charge or memorable jingle – just your credit information. Find out more at the FTC website: http://www.ftc.gov

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What Happens if You Don’t Repay If you default on your student loans – meaning that you are more than 270 days delinquent on your loan repayments -- there are serious consequences. Here are 10 things that could happen if you default on your student loans:

6. Yagencies. ou’ll be harassed by collection 1. Ytheougovernment could get sued. Private lenders and Collection agencies will call could sue you to collect defaulted student loans. And unlike other debts, there is no time limit on suing to collect back student loans, so you could possibly be sued indefinitely.

your home, work, your family members, and anyone else they can track back to you. Until you start to pay, they will continue to harass and call.

federal benefit payments (like Social Security retirement benefits & Social Security disability benefits) to use as reimbursement for student loans.

apartment, usually realtors, apartment owners, or rental agencies run a credit check on you to ensure you will make payments on time. You may run into trouble finding a place to live if you haven’t been paying your student loans.

7. Fyouorgetsubmit renting apartments. When 2. YTheourgovernment federal benefits could be taken. an application to rent an can take some of your 3. Ycredit our credit rating will be ruined. Your rating will be wrecked for at least seven years, so trying to borrow money for a car, home, or expensive items is out of the question.

4. Tloans ax refund offsets. Until your student are paid in full, the IRS can

intercept any income tax refund that you may be entitled to. This is one way the Department of Education annually collects hundreds of millions of dollars, and is a popular method to collect payment on defaulted loans.

5. Ygovernment our paycheck may dwindle. The can take a limited

portion of your wages if you don’t pay student loans back (up to 15% of your disposable income).

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8. Nnearly o more federal financial aid. It will be impossible to receive more federal financial aid until you repay your student loan in full.

9. agencies Associated collection fees. Loan may charge you collection

fees on your unpaid student loans. Also, collection agencies charge the Department of Education a commission, which you end up paying. So in the end you actually have to pay back your student loan with interest, the collection fees, and the commission.

10. DEven ropping out of school won’t help. if you drop out or switch

schools, you will still need to repay the student loans you took out.

DO YOUR RESEARCH

Are You Setting Yourself Up for Debt?

ccording to Bankrate.com, the number two mistake students face when it comes to paying for college, is choosing a school that costs too much. “You have to look at two cost comparison points — how much is the cost minus gift aid such as grants and scholarships, then how much is the total cost with loans,” says Tally Hart, Senior Adviser of Economic Access at Ohio State University. “Compare the total debt you will have to take on to graduate from each school.” It’s important to do a real apples-to-apples cost calculation of all the colleges. This comparison isn’t as simple as deducting the financial aid package from the school’s sticker price because the aid package usually includes student loans. The true price of paying for college is what you’re paying now plus the debt you must take on over the four or five years until graduation, Hart says. There are plenty of people out there who may assume they do not qualify for financial aid, but this advice from Bankrate addresses the other side of the coin – those people who do not

think long-term about their college choice and the debt they may face once they graduate. When shopping for your college education, it’s essential that students today think about the industry they are going to go in to and the income level they should expect to be in with an entry-level job. It makes no sense to accept the burden of loans just because you don’t have to think about it for 2-4 years. You wouldn’t buy a house without figuring it into your existing budget, and you shouldn’t invest in a college education without doing the same. If you can’t go to a certain college without taking on a drowning debt, then that particular college shouldn’t be on your list. Do your research, and keep in mind that few industries are “safe” (i.e. not every industry will flourish all the time; our economy has taught us that over the last two years). Be realistic about the salary you can expect by looking at sites like Salary.com and PayScale.com, which offer you income averages for your geographic location and the level of employment.

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New Federal Rules:

5 Things to Know T 2. he U.S. House of Representatives recently approved a proposal to overhaul the federal student loan program. The proposal is having its fair share of fierce debate — and where there’s ideological debate, there’s often a loss of basic information. HERE ARE 5 THINGS YOU MAY NOT KNOW ABOUT THE NEW STUDENT LOAN PROPOSAL:

Federal student loans only. The new changes to the student loan program will not apply to all student loans — only to student loans provided by the federal government. Those are: Stafford Loans (both subsidized and unsubsidized), Perkins Loans, PLUS loans for parents, and PLUS loans for graduate students. If the student loan proposal is approved in the U.S. Senate, then starting in July 2010, students who take out federal Stafford loans, Perkins loans, or PLUS loans will get them solely through the Direct Lending program. (The Federal Family Education Loan program, or FFEL, will stop operating.)

Application processes won’t change. There won’t be any change to the way students apply for Stafford Loans, Perkins Loans, and PLUS loans. The application process will stay the same as it’s always been: filling out a FAFSA each year a loan is needed. The only difference students may notice is that the FAFSA will be simpler, with fewer questions and pages, and on the online form, the option to transfer financial information directly from the student or parent IRS income tax form.

Private banks can still offer private student loans. Free market competition is not being eliminated — private financial institutions and commercial student-loan lenders will still be able to offer all the private student loans they want. They just won’t be middlemen for federal student loans any more, or get the federal government subsidies that rewarded them for offering student loans with the low interest rates, low fees, more inclusive application rules, and greater protection that the federal government required.

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FEDERAL STUDENT LOANS TIP Keep making your interest payments or loan repayments as you have been all along. If the new student loan proposal becomes official, the transfer of existing loans from the FFEL program to the Direct Lending program will be handled by the Department of Education and your school(s).

WHAT NOT TO DO WITH YOUR STUDENT LOANS

A few private institutions will help out with direct lending customer service. After the FAFSA stage of the loan process, there will probably still be a few private student-loan companies involved in handling the loan agreement and maintenance on behalf of the Department of Education. These companies will be paid a fee for providing this customer service to students, and will be selected by the Department of Education through a competitive bidding process.

Don’t worry about the FFEL student loans you have now. If you have any current FFEL Stafford, Perkins, or PLUS loans, just keep making your interest payments or loan repayments as you have been all along. Since the new student loan proposal became official, the transfer of existing loans from the FFEL program to the direct lending program will be handled by the Department of Education and your school(s). If your school’s financial aid office needs you to do anything, it will let you know. (And if you’re about to apply for a federal student loan, check with your school to see if it has signed up for the direct lending program.)

few years ago, Cynthia M. Tiemann of St. Peters, MO, took out seven college loans in her daughters’ names totaling nearly $140,000. She had no intention of paying their tuition with this money, as she forged the names of her two daughters and 71-year-old mother as a cosigner. Instead, she gambled it away at a local casino. How’d they find out? The girls’ father suggested to one of them that she learn about her credit, so he suggested that she pull her credit report online. That’s when she found out about the student loans that were taken out in her name nearly 18 months prior, according to fox4kc.com. Cynthia, who suffers from a gambling addiction, was sentenced to five years in prison. The loans have been cleared from her daughters’ credit reports, but surely the emotional stress will take some time to pass. The lesson: Pull your credit report annually! The Fair C redit Repor ting Act requires Equifax, Experian, and TransUnion to provide you with a copy of your credit report, at your request, once every 12 months, at no cost to you. Now you know – there’s no excuse not to have a handle on your credit report!

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How to Check Your FAFSA Loan Status

he National Student Loan Data System (NSLDS) is the U.S. Department of Education’s online mega-database of federal financial aid accounts. This database keeps track of all federal student grants and loans (Title IV financial aid) awarded to students through the FAFSA program, including FFEL and Direct Lending student loans. The information about all these student loans comes from the institutions that loaned or manage the money awarded to borrowers via the FAFSA, including banks, financial institutions, loan guaranty agencies, individual schools, and the U.S. Department of Education (Direct Loans). The National Student Loan Data System provides you with a convenient way to check on the status of your FAFSA loan yourself, without having to go to a physical location or wait in line or on hold to speak to a bank teller or customer service rep. By logging in to the National Student Loan online

database, you can see what your loan status is 24/7 and find information such as: • The FAFSA grant and loan amounts you were awarded • How much money was paid out to you or your school, and when • What your FAFSA loan’s outstanding balance is • Whether you are up-to-date or falling behind on any required interest payments or loan repayments You’ll need a FAFSA PIN (Personal Identification Number) to check your FAFSA loan status at the National Student Loan Data System site. If you filed your FAFSA online, you already have a PIN. If you mailed in a paper FAFSA, you’ll need to get a PIN before you can check your account status. You can find more information about getting a FAFSA PIN and checking your FAFSA loan status on the Frequently Asked Questions (FAQ) page of the federal Student Aid website. And you can always review our FAFSA Guide.

Repaying Your Student Loan More Easily HOW DOES THE INCOME-BASED REPAYMENT PLAN WORK?

In a standard 10-year student loan repayment agreement, your monthly payment is calculated from the total amount you borrowed and the applicable interest rate applied over 10 years. By contrast, under the income-based repayment program, your monthly payment is calculated from your Adjusted Gross Income (AGI) using a federal formula that adjusts for family size. Divided by 12 to produce a consistent monthly repayment

ADVANTAGES OF THE INCOMEBASED LOAN REPAYMENT PLAN

Pay as you earn: Your IBR payment is calculated so you can pay off your student loan without draining your budget. Your monthly payments will likely be less than 10% of your income and will be capped at 15% – usually less than the amount you’d have to pay under a 10-year standard repayment plan. (If your IBR repayment turns out to be higher than what you’re paying under the 10-year standard repayment, then your lender may recommend that you stay with your original repayment agreement.)

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STAYING AHEAD

Don’t worry about loan interest for three years: If your IBR payment isn’t enough to cover the interest that accrues on your subsidized Stafford loan (either Direct Loan or FFEL), the government will pay your unpaid interest for up to three consecutive years. After three years, and for grad PLUS loans and consolidated loans, the accrued interest will be added to the loan principal only after you’re no longer is eligible for an IBR repayment amount. Longer repayment period and loan cancellation: The loan repayment period for the IBR plan is 25 years (more than double the standard loan payment period). If you meet your IBR plan payments and obligations over that time, whatever loan debt you have left will be cancelled outright.

DRAWBACKS OF THE INCOMEBASED LOAN REPAYMENT PLAN

There are also a couple of drawbacks to keep in mind when you evaluate the income-based repayment plan. One is financial; one is a matter of convenience. You may pay more interest over the long run. The faster you repay a loan, the less interest you pay; the longer you take to repay, the more interest you pay. Since the IBR plan will extend your repayment period, you’ll owe a lower monthly payment but you’ll pay more total interest over the life of the loan.

There’s more paperwork to do. To determine your IBR payment amount each year, your lender will ask you to provide updated information about your income and family size every year. If you don’t provide your lender with this documentation on time, your payment will revert to the standard 10-year repayment amount. The IBR Plan may not benefit you if you’re married and file taxes jointly. Because of a poorly written rule in the program, the income of both spouses is counted as total income for the purposes of determining monthly affordability, even if there’s only one student loan to repay. This is rule will likely be changed in the future, but is in effect for the first year of the IBR plan. The Project on Student Debt has a good FAQ section on the Income-based Repayment Plan.

HOW DO YOU SIGN UP FOR THE INCOM E-BASED LOAN REPAYM ENT PLAN? Contact the financial institution you got your student loan from. Your lender will confirm your eligibility for the IBR program and calculate your final income-based payment for you.

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IT GETS

UGLY Default on your loans and you’ll pay big anyway

tudent loan debt is a serious concern for students all over the country, as has been proven by the incredible response to a group created on Facebook by a law school graduate who owes $80,000 in student loans. Robert Appelbaum created the “Cancel Student Loan Debt to Stimulate the Economy” Facebook group in response to the recurring news about business executives being bailed out by the government and using the money for bonuses and other luxuries. Rather than complain to his friends, he created the Facebook group only to find, to his surprise, that in a relatively short period of time, over 100,000 people joined. Not only did they click a button – which is all it takes to be a member of one of the thousands of Facebook groups out there – but they were taking action, calling for Congress to take legislative action towards student loan forgiveness. Robert found that his story – whereby the modest salary of $36,000 a year that he made right out of law school was not enough to keep up with his monthly payments towards his $80,000 student loan and caused him to go into forbearance for 5 years – was far from unusual. Ultimately, he ended up with a total loan amount of $100,000, sometimes making him regret getting an education in the first place. All over the country, there are similar stories since so many students seeking a higher education cannot afford it without taking out either federal and/or private student loans. According to the Project on Student Debt, the average debts of students

graduating with loans rose from $18,796 in 2006 to $20,098 in 2007. FinAid.org reports that in 2008 there were nearly $131 billion in outstanding private loans and $544 billion in outstanding federal loans. Under certain circumstances, the federal government will cancel the debt from all or part of an education loan. This is the process of student loan forgiveness. Considering the troubled economy plus a growing number of students who, after graduating, cannot afford their monthly payments on their modest salaries, it’s no wonder this group got the frenzy of attention it did. The popular Facebook group continues to seek help with their overwhelming monthly payments and restrictive repayment plans in the hope that they may eventually have their loans forgiven. Appelbaum’s efforts have also turned into a website: http://www. forgivestudentloandebt.com/

PROMISING PLANS FOR FEDERAL LOAN BORROWERS

Some plans are being established for federal loan borrowers

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IT GETS UGLY

NEXT STEPS You’re on your way to supporting your child’s journey to higher education. What’s next? Let StudentAdvisor be your guide. including the Income-Based Repayment Plan and the Public Service Loan Forgiveness Plan. Both plans promise to make adjustments on monthly payments based on the borrower’s income and loan forgiveness after an allotted period of time. Other plans include the Income-Contingent Repayment Plan for Direct Loan holders and Income-Sensitive Repayment Plan for FFEL Loan holders, also impacting the monthly payments and ultimate forgiveness of the loans.

ROOM FOR GROWTH FOR PRIVATE LOAN LEGISLATION CHANGE

Go to StudentAdvisor.com Try College Match on Student Advisor.com B rowse through the different schools that match your child’s selected criteria. Read reviews and ask questions

Private loan borrowers have less promising chances for student loan forgiveness, but there are those that are fighting for changes to legislation preventing private student loans from being forgiven as bankruptcy cases.

equest information directly from the R schools of interest

SOURCES: “Asking for Student Loan Forgiveness”,

ead up on Federal Financial Aid and R Student Loans in our other guides.

BusinessWeek.com, “Difficulty Repaying,” Student Aid on the Web, Project on Student Debt

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