Fixed rate Stafford loan rate drop
June 30, 2008
As of July 1, 2008, the interest rate on all NEW subsidized Stafford loans will drop to 6.0%, a reduction of 0.8%. Bear this in mind next year when it’s time to consolidate your student loans!
Private student loan bankruptcy protection denied
February 8, 2008
Private student loan bankruptcy protection denied
In the Higher Education Act Reauthorization (HR 4137) currently moving through Congress, an amendment by Representative Davis of Illinois would have extended some bankruptcy protection to students holding private student loans. Unfortunately for students, the amendment was voted down after strong opposition from banks and financial institutions.
The argument against the bankruptcy protection amendment was that its inclusion would ultimately make private student loans more expensive as lenders would need to increase rates and fees to cover loans that were in default and discharged in bankruptcy.
The Financial Aid Podcast has also done an analysis piece on this legislation.
The short version? For now, private student loan consolidation remains the best avenue for making private student loans more affordable.
End of year student loan consolidation tax deductions
December 10, 2007
As 2007 wraps up, make sure you’re taking full advantage of your student loan payments by noting the interest you’ve paid this year on your federal student loans. As long as your income is below a certain level, interest you’ve paid on your student loans is tax deductible on your federal tax return.
If you’ve paid less than $600 in interest, your student loan lender is not legally required to send you a 1098-E form in January for interest you’ve paid. You will need to request it.
Consolidated student loans are eligible for the interest deduction as well.
Consult IRS Publication 970 for details about education tax incentives
Student loan consolidation: a balanced perspective
November 29, 2007
I was speaking in the office break room with our director of student loan consolidation, Jon Rudy, about how we’re marketing our federal and private student loan consolidation products. We’re in agreement, as we frequently are, that student loan consolidation has a vital role in the education finance process.
Where I think a lot of student loan companies get hung up is on the idea of saving money for students. Student loan consolidation does not save you money over the long term if you only make the minimum payment, because at the bare minimum payment, you’ll be paying off your loan longer.
Think of it this way. If you rent an apartment, over a period of time, you’ll pay a certain amount for rent. If you rent that apartment longer, it costs you more money. If you rent a smaller apartment for longer, it will still probably cost you more money than a larger apartment for less time.
A loan is nothing more than a money rental. You’re renting money from a lender, and the interest you pay is the rent.
What student loan consolidation does is agree to reduce your rent, trading off with renting the money for a longer period of time, if you make the minimum payment.
Our perspective as a company is that students just out of school need to take a few years to get on their feet in their careers and personal finances. During that time period, a reduced monthly payment is just the thing they need. After a few years, when presumably they’re making good use of their education and degree, we strongly recommend that students step up and make more than the minimum payment, ideally making a payment that’s a little larger than the original, unconsolidated loan payment.
Because there are no early repayment penalties, they can effectively get on their feet financially and then be done with the loan in the same amount of time as if they hadn’t consolidated.
Does student loan consolidation save you money? Not necessarily. Does it reduce your monthly payment? Yes, absolutely. But more than anything else, student loan consolidation helps to buy you some time in the first years after school.
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