The following is a guest article provided by J. Randy Green, Director of Financial Aid at Wittenberg University

This morning, a local reporter called me with questions about student indebtedness.  She raised some interesting points on the recent changes made by the Department of Education to ease the repayment burden on federal loans.

For example, the new Income Based Repayment guidelines should not only reduce the financial stress imposed by education debt, but also allow graduates greater flexibility in selecting a job that best fits their skills and preferences.  Someone who will make a great teacher will now be more able to afford accepting that teaching position, rather than being forced to work in a different field for the higher pay it may provide.

But the reporter’s focus was on the level of indebtedness and how that has changed in recent years; this echoes many other stories I have read lately.   Having this focus risks ignoring two important facets of borrowing – the rate of defaults and the impact of borrowing on daily activity – and one looming challenge.

If a student borrows money to attend college, and after completing college is able to repay that money, then the system is working.  The student may choose to borrow more to attend a higher cost institution, or less to attend a lower cost one, but the decision is left to the student and the equation does not change.  A school should prepare a student to repay the loan taken to attend.  One measure of this relationship is the default rate, which is the percentage of students who default within a given period and which the Department tracks for every institution.

Independent of this, the amount a student borrows may impact other aspects of life – the ability to rent an apartment, to be offered a job at a bank, the rate of a car loan – but the most closely felt impact is on day-to-day bills and purchases.  A student shouldering a large monthly loan payment (large relative to monthly income) will be less likely to be able to afford the activity that drives the economy.

An item that has not been discussed recently is the fact that the interest rate charged to financially needy students is set to double on July 1, 2012.  Currently, subsidized Federal Direct Student Loans are made at 3.4%.  Unless Congress or the Department of Education takes action, these loans will carry a rate of 6.8% for 2012-2013 and beyond.  Regardless of debt level, this change will increase the repayment burden students already face, raising the risk of delinquency, default, and diverting borrower income from the economy and into the government’s coffers.

Given the tremendous level of attention given to the cost of education and the indebtedness of graduates, it seems appropriate for some discussion to occur about this pending increase in the cost of that borrowing.

The following is a guest article submitted by Carl Letamendi. He is a PhD student of Conflict Analysis and Resolution with a concentration in Crisis Management at Nova Southeastern University and also holds an MBA in Finance.

I made a prediction about a year ago that things were going to change in the student loan and education industry; based on being a student myself, having recently worked in financial aid and institutional collections, and also in enrollment service. I knew that there were many people out there, taking advantage of current loan programs, who only went to school for the refund generated to them each term as a means of earning an extra income, and some academic institutions were behind them encouraging enrollment based on the amount of refund money from student loans they were going to get. I knew that this would soon come to an end and that congress would catch on; and they did.

There is big news brewing behind the scene that seems to be getting swept under the rug. Effective July 2012, graduate students will no longer be able to get the much coveted Federal Subsidized Loan, which accrues no interest for the student until they are no longer enrolled in school. Although this is of no immediate impact to undergraduate students, those who are in Medical School, Law School, Graduate Business Programs, and any other graduate programs, should be very aware of what is going to happen in the next few years to come.

Being a current PhD student in Conflict Analysis and Resolution and a Finance MBA-grad, whose research interests are in financial and economic anthropology and the dynamics of how people conflict and behave during a financial crisis, I boldly unravel my seven predictions for the near future for the “business” of education and the student loan industry when the student loan bubble starts to slowly deflate, after July 2012:

1) For profit, minimally endowed, and tuition-driven schools will start to close their doors. Over the past few years, we have seen people with mortgages that caved in on themselves that put people under water as well as insurance and financial institutions failing. My prediction is that schools are up next. The notion of the “survival of the fittest” doesn’t just apply to animals and banks as we have recently seen, but we will also soon see it happen with academic institutions. Schools with strong finances, that have made wise investments in the past, and that have a strong network of alumni contributing to their university’s endowment, will survive the gradual deflation of our next bubble (notice I didn’t say “burst”). With schools closing, this also means losses of jobs for those who were working in these for-profit and minimally endowed schools.

2) Fewer graduate students will be able to afford going to school. One of the motivating factors for a student deciding which school they will be attending is the amount of aid they are going to be receiving. If a student has to pay for tuition, or if they are going to be receiving a less favorable financial aid award package, they are less likely to attend that school. Students don’t usually cough up thousands of dollars out of pocket for tuition per term; they rely on scholarships and loans. If there is no money for school, students will probably not be able to afford it; especially if these students are unemployed, and optimistic about graduate school making them more competitive in the job market.

3) Students will reconsider the value of their graduate education. There are a lot of television programs and articles in magazines questioning the value of higher education all together; and showing the incomes of very wealthy non-degree holders. One thing that I advise people who speak parallel to the objective of these articles and shows is that we are in a different time now than at the time when these millionaires became rich. They were innovative, they had ideas, they found niches in the market and societal needs, and met those needs by introducing something new to the world. You can still be innovative while getting an education, but the weight of a high-school diploma in the 60s and 70s is much different than the weight of a high-school diploma in our day and age.

4) Admission decisions will be greatly affected. Universities usually boast on having a diversified pool of students from various states. With universities offering reduced rates to in-state students, and in some states also offering students state grants ,why would a student attend a much more expensive university outside of their state of residence, and end up paying more money and incurring more expenses? The dynamic will change, and universities need to figure out how to invest in external talent if they want to continue to get out-of-state students.

5) Higher interest rates. Graduate students who do elect to continue to pull loans after July 2012 will only be able to pull the unsubsidized loan. There will still be a good number of students who are unable to repay their student loans, and interest will still be accruing. This means an increase in student loan defaults. The way to ensure that at least some of the money is recovered is regrettably, by increasing rates to other borrowers, a practice that is not estranged to us who know the credit and lending world.

6) Educational grants will be reduced for subsequent students. I predict that graduate students who will be entirely affected by this, those of the 2014-2016 class, will be less likely to contribute to their university’s endowment – a pool of funds usually used to issue scholarship and institutional grants to students.

7) Reduction of the subsidized loan for undergrads may be out in the horizon. I believe that this change will undoubtedly filter out students who are only in school for the extra refund money generated as a result of their loan disbursements. The success of this change, may also impact undergraduate students in the years to come.

If you would like to chat more with Carl Letamendi, please feel free to drop him an email at: letamend@huizenga.nova.edu

If you are paying for your college expenses through discretionary income or savings that you have accumulated over the years, a poor credit history isn’t going to be an issue for you. However, if you are planning on taking out loans to cover the lion’s share of your educational costs, a questionable credit rating may require you to jump through some additional hurdles to gain access to the funding that you need.

Poor credit really shouldn’t keep you from obtaining your educational goals. The following tips should hopefully help you in your search for college loan money if an adverse credit rating is getting in your way.

• Appeal Loan Denials: Every education loan program has some sort of system in place to allow families to appeal the outcome of their loan application. Your story will have to be compelling but if you have a good excuse for your lack-luster credit history, you may be able to get the bank to change their mind. For example, here is the process for how you appeal a Sallie Mae loan denial.
• Shop Around: Different lenders have different credit criteria when it comes to awarding loans. Your credit may keep you from getting a loan at one place but be considered a marginal approval at another. CheapScholar’s Private Loan Comparison Tool may be able to help.
• Sometimes A Denial Is A Good Thing: Did you know that if you are denied on the Federal Direct Parent Plus loan, the student is automatically eligible to receive an additional $4,000 in Direct Unsubsidized Federal loans? More information can be found here.
• PLUS Loan Endorser: If you are denied on a Federal Plus loan, you have the option of appealing and/or you can see about getting an endorser (kind of like a co-signer)
• Find Another Co-Signer: If mom and dad have a sketchy credit history, maybe you have an aunt, uncle, grandparent, or friend of the family that would be willing to serve as a co-signer. Some private loans now provide a co-signer release provision (after so many on-time payments are made) that may make the co-signer more open to helping out.
• Try Your Neighborhood Credit Union: Credit Unions have long since been known to lend money to people where other traditional banks would not. They can do the same thing for educational expenses, so you may want to give them a call or stop by your local branch.

Hope you find this information helpful. If you know of anyone else that can benefit from these tips, please feel free to utilize the “share tab” below to pass this along. Also, don’t hesitate to check out CheapScholar’s College Resource Center for more helpful advice on making college affordable.

Summer marks a great time to be traveling on vacation, having cookouts with friends and family, and hanging out by the swimming pool. However, it is also the time of year when Fall billing statements are sent by colleges and universities around the country. I am sure if you had your choice of summer activities, paying your fall tuition bill would probably rank pretty low. But, before you put that tuition bill on the back-burner, it is important that you know the time frame that you may encounter if you are using private education loans to cover your college expenses.

Last year (February 14th to be exact), the Higher Education Opportunity Act implemented regulation Z which mandates that a series of disclosures be distributed to borrowers at key steps throughout the private education loan process. The underlying goal is to make sure students and families exhaust all of their federal loan options before moving forward with a private education loan. In addition, the disclosures serve as an educational tool to help borrowers fully understand the terms of their loan program.

There are multiple disclosures that you should encounter when applying for a private education loan:

• Loan Application and Solicitation Disclosure: Schools or lenders are required to provide general information about loan rates, fees, and terms and must also inform a prospective borrower of the potential availability of federal student loans and the interest rates for those loans, and where to locate additional information.
• Loan Approval Disclosure: When the school or lender approves the borrower’s application for a private education loan, they must give the borrower a transaction-specific disclosure, including information regarding the rate, fees and other terms of the loan including total repayment figures (very similar to the 1st disclosure). However, at this time, they must also notify the borrower that the rates and approval are good for 30-days. This allows the borrower time to shop-around…
• Self-Certification Form (Designed by the Department of Education): Must be completed by the borrower and collected by the lender/school prior to any private loan disbursement.
• Loan Consummation Disclosure: This, again, is very similar to the other disclosures already received by the borrower regarding terms and rates. The only additional piece of information that is provided is the 3-day right of refusal clause. Which means that funds can’t be disbursed to your college until after that Loan Consummation Disclosure is provided.

I am not sure what you think about all of these disclosures but it is starting to remind me of the paperwork that is required to be signed and initialled at a house closing. It could be very easy for your eyes to glaze over through this process but the disclosures do serve a purpose and the information provided on them is helpful when you are are trying to discern your total education loan indebtedness.

If you are getting a private education loan to cover your college expenses, the important thing for you to do is start the process as soon as possible. The earlier you get your loan paperwork complete (and all the disclosures filed away), the better your chances of meeting any payment deadlines imposed by the college. And, as we all know, paying by the due date does have it’s advantages — no late payment penalty fees and your registration doesn’t get cancelled.

Paying for college sometimes requires a student to research available loan options. In an effort to help families navigate this process, CheapScholar.org is pleased to offer the following education loan resources:

Federal Loan Programs – StudentLoans.gov

Federal Loans come in many different forms.  Some of the loans are only available to students (Federal Direct Student Loan) and others are specifically geared for parents (PLUS Loan).  All of these Federal Loan Programs can be accessed through StudentLoans.gov.

Private Student Loan Comparison Tool

If you have exhausted all of your federal loan options, a private education loan may help you to bridge the gap in covering your college expenses. Utilize CheapScholar.org’s loan comparison tool to help find the right private education loan for you.

Education Loans – Additional Articles and Resources

• StudentLoans.gov – Your New Best Friend For Federal Loans
• Tips For Choosing The Right Private Education Loan
• Need A Private Education Loan? Try A Credit Union!
• Repayment Options For Federal Student Loans
• How to Appeal a Student Loan Denial – Sallie Mae
• Parent PLUS or Private Loan – Which is Better?
• The Past, Present, and Future of the Private Education Loan Industry
  

The basics of financial understanding usually recognize debt in one of two ways- Good Debt or Bad Debt. Owning a home and taking out a mortgage is an example of good debt, assuming you are not buying a home that will put you in the poor house -pun intended! Credit card debt is an example of bad debt. So where does student loan debt fall in the good debt/bad debt categories?

The good column..I think.. but not for the reasons recently cited in the Wall Street Journal. They believe that educational loan debt (and the accompanying monthly loan repayment) helps to inspire recent graduates to get a job. Not only does it encourage them to find employment but the WSJ states that loan debt encourages students to find new ways to make money (spurs young entrepreneurs and stimulates the economy). Ironically, they also state that graduates burdened with large student loan debt usually end up living with mom and dad longer and getting married later in life…

The National Center for Education recently released a study that states the 2011 graduating class will be leaving college with more education debt than any graduating class before them. It is estimated that the students will be taking a diploma and $23,000 in debt with them when they leave campus this summer. In the grand scheme of things, $23,000 dollars really doesn’t seem like that much to me but it represents an 8% increase from last year and a 47% jump from over a decade ago.

With the amount of education loans moving in an upward direction, is it still a justifiable debt to take on to obtain a college degree? My answer is still yes. I believe that educational loan debt is a necessity to help families and students bridge the financial gap that is not covered by their financial aid packages. In addition, education loans may be the only option a student/family has to help make a quality college experience accessible. Lastly, it is hard to put a value (price) on education but I can tell you that the education a student receives will outlast any car, boat, motorcycle, or any other material item that the same money can be borrowed against…

Education is an investment of time and money. If a student loan helps to make that happen, then I say it should probably be categorized as “good debt in moderation”.

It is not uncommon for families to implement a private education loan into their approach to paying for college. For some families this form of payment is the only option. So imagine the anxiety that quickly ensues when they receive a denial notification verses an approval notice on their recent loan application. The good news is that many lenders have an appeal process. The bad news is that the process takes time and most families like to get this type of situation resolved ASAP.

Since Sallie Mae is one of the largest education lenders in the nation, I thought that it would be a good idea to share with our CheapScholar.org readers the best way to appeal their Smart Option Student Loan if you are one of the unlucky ones that gets denied on your application due to an adverse credit history.

Although Sallie Mae is sometimes portrayed in the media as being a 500lb heartless gorilla in the education loan sector, the truth of the matter is that they actually do try to help their borrowers and are willing to listen to your story as to why your credit history may not be as stellar as you had hoped. I recently talked with Joe Fries, a long-standing representative with Sallie Mae, and he was able to share some key information to help walk families through the appeal process.

Some situations that may warrant an appeal of your denied loan application are as follows:

• Temporary credit issues due to divorce
• Disputed credit record based upon a billing error
• Natural disasters: Tsunamis, Earthquakes, Tornadoes, Hurricanes, etc..
• Medical emergencies
• Temporary loss of job

If your Sallie Mae loan is denied and you think that you have a compelling story to overturn that decision, the following are the steps that you want to take right away:

1. Contact the Sallie Mae Appeal Hotline at (800) 695-3317 (There is no form to fill out and all appeals are initiated via this phone number)
2. Talk with the representative and share your story. If they deem it a plausible explanation, they will pass your information onto the credit department for further review.
3. It is possible that Sallie Mae will ask you to provide 3rd party documentation to help support your claims. If this is the case, you will can send that information to them via one of the following methods:
   1. Fax: (888) 777-7562
   2. Email: pco-scanned-images@salliemae.com
   3. Mail: Sallie Mae P.O. Box 9435 Wilkes-Barre, PA 18773-9435
   4. Overnight Mail: Sallie Mae 220 Lasley Ave Wilkes-Barre, PA 18706
4. Now you just wait… Depending on the workload being experienced by Sallie Mae, it could take up to a week for your case to be reviewed and a decision made by the credit reconsideration team.
5. If all of the above fails, then it is probably time to start looking for another co-signer to help make the loan happen. Sallie Mae does currently have a co-signer release option that could allow the co-signer to be released from the loan 12 months after the student graduates (however…underwriting requirements must be met in order for this to happen).

I hope that you found this information useful. If you think this article would benefit someone else, please feel free to utilize the “share tab” below to pass it along.