Tagged: debt

“Recalculating”…. Great Tools to “Navigate” Your Loan Repayment

Sad commentary on my professional life… I get excited (okay maybe even “giddy”)  every time I discover a new online calculator that helps make loan repayment more understandable and easy.   I collect calculators like other people collect  coins, stamps or sports memorabilia.  But the good news is that  I am now prepared to share the most price pieces of my  “loan repayment calculator” collection with you.

Here are some frequently asked questions or scenarios related to loan repayment and the links to online calculators that will help “estimate”  an  answer for you.  My one disclaimer … some of the sites are specific to individual companies or private enterprises . I am in no way endorsing these sites or companies above any other competing sites and companies.  I have just found the links below to be very useful in lifting the “veil of secrecy” from loan repayment.  Of course the most effective way to use these calculators is to also schedule an individual loan repayment counseling session with our office!

How much will I pay in loan repayment?
For Federal loans:
Federal Repayment Estimator Access Group Loan Calculator–
Access Group Loan Manager
For Private loans:
Wells Fargo Private Student Loan Calculator

Will I pay less if I consolidate?
Direct Loans Consolidation Calculator
FinAid Comparative Consolidation Calculator

Will I pay less if I refinance?
Citizens Bank Refinancing Calculator-
Student Loan Hero Refinancing Calculator–

How much interest will accrue if I take a deferment?
Nelnet “Cost of Postponing Your Payments” calculator 
Student Loan Hero Deferment Calculator- 

Will I earn enough to make my loan payments?
Paycheck City-Paycheck Calculator
Mapping Your Future Debt/Salary Wizard-
Studentloans.gov Financial Aid Counseling Tool–
iGrad “Will I Be Able to Pay Back  My Student Loans” calculator –

How much in addition to my monthly payment would I need to pay to pay off my loans in “X” years?
Student Loan Hero Prepayment Calculator-
Bankrate Loan Calculator and Amortization–

What would my loan balance be after making “X” number of payments?
DinkyTown Amortizing Loan Calculator –

Should I pay off my student loans or invest?
Student Loan Hero- Payoff VS Invest Calculator–
iGrad Pay Down Debt or Invest Calculator –

Leading the Pack… YLS Loan Counseling

It’s nice to be ahead of curve, lead the pack, whatever euphemism you want to use. It’s also great to receive proof that what you are doing is the right approach.  And that’s what happened to us when TG (a nonprofit promoting education access) in cooperation with the National Association of Financial Aid Administrators released a report last month entitled INFORMED OR OVERWHELMED? A Legislative History of Student Loan Counseling with a Literature Review on the Efficacy of Loan Counseling

What that report validated for YLS was that our approach to loan counseling is on target.  Because the report concluded that in loan counseling “personalized information appears to contribute to a better understanding of information, and face-to-face counseling may be the best way to deliver this personalized information. Both students and financial aid administrators believe that some personalization, preferably face-to-face, is needed for comprehension”.

We began offering personalized loan counseling sessions to our 3Ls three years ago because we recognized that it had become increasingly challenging to navigate the “ever changing” student loan repayment landscape.   We also believed that, as an institution, we had an obligation to insure that our students made the best short term and long term decisions incorporating their loan debt into their larger financial planning.

The bottom line which underscores the need for individualized loan counseling is this… everyone’s total loan debt is different, everyone’s career path is different and, as such, everyone’s loan repayment is different.  (Let’s also add that based on all those factors everyone’s COAP eligibility is also different.)

There is no effective “one size fits all” loan counseling model. Yet so many schools simply default to having their students complete a generic “on line exit interview” required by federal regulations to get their loan repayment information.  We still have our students do the online exit (so that we are in federal compliance) but also take it one step further with our one on one sessions.

The sessions we offer are all about developing a personalized loan repayment plan for you.  In these one hour (or so) meetings we:

  • review your total loan portfolio and current balances,
  • identify who your loan servicer(s) is, their role in your repayment and how to work with them,
  • go over a calendar of when repayment will start and what you need to do to prepare for it
  • evaluate the myriad of repayment plan options offered by the Dept. of Education so that we can compare both monthly repayment costs and overall loan repayment costs (i.e. total principal vs. interest paid) and determine the most viable plan for you’
  • project what your support under our loan repayment assistance program COAP may look like over your ten years of eligibility, even accounting for various scenarios (job changes, marriage, children, etc.) along the way.

But we didn’t really need a report to validate that our personalized approach was the way to go. The proof for us is always our student themselves. We see that many of them walk into these sessions with a lot of trepidations and fear (let’s face it no one wants to really face their loan debt head on). But overwhelming when they finish the meeting they always say things like “that wasn’t as bad as I thought it would be” or “I really can manage this”.   And that’s our goal … to have you walk out feeling confident that you have plan of action to deal with the loan debt in the context of your overall financial planning.

New Year? Time For Your Annual Credit Report Checkup

Turning the calendar page to January (seriously does anyone even have a paper wall calendar anymore?)  is the perfect time to think about getting your credit report.  (Huh?)  Because you are entitled to a free credit report once a year and why not use January 1 as your own annual reminder.

credit reportThinking that you don’t really need to worry about your credit score until after you graduate? Think again… that federal Grad Plus loan that you may have opted to borrow is reviewed for credit eligibility each year.  So that means that a small credit slip (late bill etc. ) in your 1L year  could make you ineligible for the Grad Plus for your 2L  year.   Are you considering taking out a Bar Loan to help support your living expenses while studying for the bar?  Bar loans are only offered by private lenders and all are credit based -not just for their overall approval but also in determining what your interest rate will actually be.  (i.e. good credit = low interest rate and bad credit = high rate).  Want to take advantage of the new  refinancing options on your student loans that so many lenders are new offering- those interest rates are credit based as well.  Even potential employers will review and factor your credit into the hiring decision.

Here is how this works… there are three nationwide consumer credit reporting companies- Equifax, Experian and TransUnion.  You can get a  free annual report from each one of the credit reporting companies  once every 12 months.    So there are two possible strategies…

  1. Order the report from all three companies at the same time so that you can determine whether any of our files have errors across all three agencies.
  2. Request the reports separately for each credit reporting agency at various intervals so that you can monitor your credit files more often throughout the year.

No matter if you want the report from Equifax or TransUnion or Experion- you order it from one place- www.annualcreditreport.com.  That URL is the only one that will provide the report for free. (You may have seen ads for other sites with names that make you think the credit report is free but it is not).

What will your find on the credit report? Basically the report  contains information about your credit accounts including how much credit you have vs. how much credit is available to you vs. how much credit you are  actually using. There will also be information on your bill repayment history and whether a debt or bill collection is in place against you.

What won’t you find on the report?   Well surprisingly  you won’t find  an actual “credit score” You will need to purchase a credit score directly from the credit reporting companies. But since that score is based on all the information from the credit report it is still incredibly valuable to review the report and make sure there are no inaccuracies or errors which can hurt the calculation of the  credit score.

What do you do if you find something wrong on the report?  Fix it asap so that it doesn’t harm your credit in the long term.   To correct an error reach out directly to the credit reporting  company and fill out one of their dispute forms.  Know that the agency must investigate and respond to you within 30 days.

Does asking for the report itself “ding” your  credit? No, self-inquiries do not affect your score, as long as you order your credit report directly from the credit reporting agencies, or through an organization authorized to provide credit reports to consumers (like annualcreditreport.com)!

So start the New Year right – begin by  getting  a copy of your credit report  atwww.annualcreditreport.com.   You may need that good credit in the not so distant future!

Contact Info for the consumer credit reporting companies:

  • Equifax: 1-800-685-1111 or www.equifax.com
  • Experian: 1-888-397-3742 or www.experian.com
  • TransUnion: 1-800-916-8800 or www.transunion.com

Continue reading →

T’was 11 Months Before Loan Repayment- Holiday Greetings from Financial Aid

T’was 11 months before repayment
And all through YLS
All the 3Ls were worrying about their loan mess
All the borrowing had been done
All the MPNs signed
And the reality of debt was beginning to shine
When what to their wondering eyes should appear
But a counseling session with financial aid… to make their loans clear
On Standard, on IBR, or on Graduated too
We will discuss what repayment plan makes most sense for you
Would consolidation or refinancing help in your plight?
And does the future of Public Service Loan Forgiveness look at all bright?
With calculators and spreadsheets that will give you hope
We’ll finish off by projecting your COAP
And I hear the 3L exclaim as they leave YLS
“I have a loan repayment plan now and feel a lot less stressed”.

That rhyme (in the spirit of the holidays) was meant to reinforce that the Financial Aid Office is always willing to do individual loan counseling sessions to review your entire loan portfolio, repayment timeframe, servicer contact, repayment plan options and COAP eligibility. Why are these sessions so important (and why do we keep promoting them)? It’s simple … despite the fact that we offer group workshops on loan repayment and COAP… there is no “one size fits all” advice for loan repayment because:

  1. Everyone’s loan debt (how much and why type of loans at what interest rate) is different,
  2. Everyone’s career trajectory and income is different
  3. And as such (because of 1 and 2) … everyone’s COAP eligibility is different.

That’s why an individual session is so valuable… beause we can develop a long term financial plan which meets your own circumstances and life. And if you have significant others in your life (boyfriends/girl friends, fiancees, spouse, parents … whoever) who you want in on this loan repayment conversation, you are welcome to bring them to the session.

So, 3Ls… if you haven’t scheduled a session yet.. the proverbial loan repayment clock is ticking. Contact the financial aid office to get on our schedule for the Spring term when these sessions are in peak demand.

Let’s Make A Deal- Refinancing Your Student Loans

Remember the basic premise of the vintage game show “Let’s Make A Deal” – you win a prize but then are asked if you want to keep what you have or trade it for another unknown prize that may or may not be better than what you originally had. That’s basically the scenario you are faced with when considering refinancing or consolidating your student loans.

Right now you know how much you borrowed on each loan, you know the interest rate on that loan and if you use the handy Department of Education Loan Estimator you can project (depending on what repayment plan you choose) what that means in terms of a monthly payment, as well as total interest and principal paid over the life of the loan. But what happens when you are facing the decision of refinancing or consolidating your student loans?

First a little background… historically the only vehicle to refinance or consolidate has been the federal Direct Consolidation Loan under which all your federal loans are basically bundled (not unlike a cable/internet/wireless phone package) to create one “mega” loan with a new interest rate based on the weighted average interest rate (from all your individual loans) rounded up to the nearest 1/8th of 1%. Since it is a weighted average rate in some cases (if your overall loan portfolio is made up of loans at high interest rates – like the Grad Plus) you may actually end up paying more over the life of the loan then if you kept the loans individual. You also lose the ability to triage your loans and pay down the highest interest loans first if they are now combined. But for some people the idea of managing multiple loans (1 or 2 for every year of Law School) makes a consolidation seem like a manageable benefit. In addition because it’s still a federal loan you still get the advantage of multiple repayment plan options, the ability to switch plans, can still participate in Public Service Loan Forgiveness, and have generous options for medical and economic forbearance.

But evolving on the student loan landscape over the last couple of years have been lending agencies that will refinance your federal student loans. Some of these agencies are traditional “bank” lenders and others are new ventures created just for the refinancing opportunities. Many of these new companies operate somewhat on a crowd sourcing model where company investors and borrowers are connected with one another for mutual benefit. Many offer borrowers the chance to build their own community for their personal and professional advancement through social and networking events. It’s a new and very different way of looking at student loan repayment and very well may be the wave of the future.

the balance

In refinancing the borrower upfront likely makes two critical decisions: 1) which loan term (i.e. 3 of years to repay the loans) and 2) the choice between a variable and fixed rate. These two decisions are actually interconnected in that the combination of choices drives the ultimate loan payoff amount. A fixed rate (more than likely higher than a variable) partnered with a long repayment term (say 15 years) is always going to yield a more expensive loan repayment than the variable rate at a short repayment (say 5 years). But what if you have a fixed rate on a short repayment vs. a variable rate on a long repayment- that combination may be much harder to analyze. Also with private refinancing your interest rate (whether fixed or variable) is going to be based on your credit (good credit = low rate and not so good credit = higher rate). So depending on what your interest rate turns out to be also drives which combination of the choices will be most advantageous to you.

Weighing the overall value of the fixed vs variable rate is also challenging. The fixed rate will be higher but will be stable throughout the life of loan making long term projections of repayment far more accurate. The variable rate may provide a financial gain over the life of the loan but given that the rate will change makes projections far more “guestimates”

The only way to really assess what to do with your loan among the choices of: 1) keep as is, 2) consolidate or 3) refinance is to try to do a side by side comparison of the following factors: your monthly payments, years in repayment, your total cumulative payments and your total interest paid over the life of the loan. Talk to present loan servicer, talk to the Department of Education’s Loan Consolidation Information Center and your potential private refinancing lender and make sure you understand fully the terms of each decision.

Finally… let’s talk about the elephant in the loan repayment room… COAP. Beginning in the January 2015 COAP cycle, federal loans refinanced through private lenders (that meet our definition of a “private refinanced student loan”) will be allowed into COAP. And while that sounds like a great development (i.e. if you get a significantly lower interest rate in refinancing you will pay less in your loan repayment) remember that that also means that we recalculate your COAP eligible loan balance at that new lower interest rate for a new (presumably lower) annual payout. . That lower annual payout minus your participant contribution based on income will equal a decreased annual COAP award. More significantly it may mean that you will reach the “income out” threshold (that point where the annual payout equals your assessed participant contribution) at a lower income level.

Lots of options, variables need to be analyzed and evaluating in this refinance/consolidate or not decision. Welcome to Let’s Make A Deal.

Want more information on federal consolidation and/or private refinancing of your student loans. See our FAQ on this topic, review the COAP Policy and Procedure Manual and join us for a webinar “ Frequently Asked Questions –Federal Loan Consolidation and Refinancing (and COAP!” ) on Friday, October 17th from 12:00-1:00 PM EDT (registration info) .

I Have An Aid Award…. Now What?

Note- this posting was update since its initial publication in April 2014

You applied for aid and have viewed your aid award letter on the Yale Student Information System (sis) and now… (pause, silence, crickets etc.)

The letter you received is termed a “preliminary” award meaning there are a couple of things you need to do to turn the preliminary award into a final award:

1) Send the required tax documentation. We will actually compare your prior year 1040 tax return to the information you provided on Need Access upon which the preliminary award was made. If there is a substantial difference between the two an aid award adjustment (either increase or decrease ) may be made. Remember you need to file tax documentation for anyone whose data you reported on Need Access (including spouse or parent(s) if you are under age 29 by 12/31 of the year for which you are seeking aid). Weren’t required to file a tax return? Then you need to complete a “Non Filer” Statement on the Forms section of our website. Big requests … please only send the first two pages of the 1040 return . Our office printers and fax machines have died slow and painful deaths printing out tax returns that include multiple pages of Schedules. Save some trees, save our office machines… only send the first two pages. If we need any of those additional forms for further clarification.. .we will let you know at the appropriate time. Final step on the tax returns … by federal aid regulations they must be signed preferably on page 2 of the 1040 where it says “ Sign Here” (you would be surprised how many people miss that). Electronic or scanned signatures are totally acceptable. And if you e-filed your returns just sign anywhere on the copy you are sending us.

2) Send the Notification and Confirmation Form. The most important part of the 3 page form is Section A where we as are asking you to accept or decline your aid offer. This is also the part where you can indicate how much or how little of the loan funds offered you are actually accepting as well. A couple of notes on that topic:

  • If you have decided to borrow additional loan funds to cover the calculated parent contribution you would simply add that additional borrowing to your Grad Plus loan . You can never increase the Direct loan above the $20,500 federal limit. International students should just increase their Yale Graduate and Professional International loan for any parent contribution borrowing.
  • Think about how much you truly need to borrow- do you really need the full amount of loan funds offered? Can you budget for less than the $17,000 living allowance to decrease borrowing? Even a few dollars less in borrowing can save you considerable money in ultimate loan repayment. Also know that if you do decline any portion of your loans now… at any point during the academic year you can re-accept those funds .
  • The Notification and Confirmation form is flexible… you can change this form at any time between now and the beginning of the academic year. Not just in terms of accepting and declining funds .. but you can also change loan types as well. When the interest rates on federal student loans for next academic year come out (on or around June 1) and if you feel based on those loan rates that you want to look at private student loan options .. you can do that and submit a revised Notification and Confirmation form. The reason why we ask for this form now ( or by the May 3rd deadline) is because:
    • We have to know how much aid you are accepting so that those funds appear as “ anticipated aid” and will against the direct Yale charges of tuition and fees on your soon to be issued (July 1) Fall term bill.
    • Equally important… receipt of the Notification and Confirmation Form is our indicator that your file is ready for a final review. Submitting the taxes alone will not trigger that process .

Is there more to the financial aid process? Oh yes. Between now and the end of the summer, financial aid requirements including loan master promissory notes , online entrance counseling, asset verification forms, refund requests will all come into play. All to insure that when you do arrive on campus the bill is paid and you have funds in hand to support your living expenses. But that’s info for another blog at another time. For now just focus on finalizing the aid award.

For more information on the aid award process with links to the tax return and Notification and Confirmation Form requirements visit our website.

The Gift That Keeps on Giving- Sequestration and Loan Fees

You remember sequestration don’t you? That hot topic that everyone was talking about at the start of the year and now is very rarely mentioned. Well just because we’ve forgotten about it doesn’t mean it has forgotten you. And to make sure that it stays on our radar, it’s just given all of you a reminder… yet another increase in your loan origination fees.

Let’s back up a little with a few basics on origination fees in general. What are they? How do I pay them? Why do I pay them? Origination fees on student loans were initially imposed by Congress in the mid 1980’s as a “temporary solution” to budget issues and to reduce the cost of running the federal student loan program.

So fast forward thirty years and the temporary fees are still in place. According to the Department of Education Federal Student Aid website “the loan fee is an expense of borrowing one of these loans”. The fee, based on a percentage of the amount of each loan, is directly deducted from your actual loan disbursement. You may have noticed that the amount of loan funds initially awarded by the financial aid office differs from the amount that show up on your SIS account- that difference (the gross to the net) accounts for the origination fee that automatically comes out of the disbursement. But…. In terms of repayment, you are responsible for the full (“gross”) amount of the loan including the fee that never actually disburses to you.

This is why the issue of origination fees increasing might become a concern for you. Because as these fees increase, you will have less net funds to actually apply toward your costs while enrolled and higher debt afterwards.

So back to sequestration, resulting from the Budget Control Act of 2011, the automatic budget cuts under the “sequester” impacted federal student aid programs in a variety of ways one of which was an increase in the loan origination fees. Most students saw the first increase in these fees at the beginning of this academic year when the Direct Unsubsidized loan fees jumped from 1.0% to 1.051% and (more significantly) the Grad Plus jumped from 4.0% to 4.204 %. But those increases were only year one of the Sequester, applied during the middle of federal fiscal year 2013. Now they are quickly being followed by year 2 which further increases the fees from 1.051% to 1.072% on the Direct Unsubsidized loan and from 4.204% to 4.288% on the Grad Plus.

The new increase in fees will impact any “new” loans disbursed after December 1, 2013. So if you have an academic year loan awarded last summer for which a fall disbursement has already been made and a spring disbursement is pending – your fees will not change between the two disbursements- it’s still considered one pre-existing loan. BUT if you initially declined all your loans and are now deciding to accept them for Spring – those new loans would be subject to the increased fees. In addition, if you choose to increase an existing loan – that increase (because it’s recorded as a separate loan on your loan portfolio) would be subject to the new fees.

What is the increase actually costing you? For a $25,000 Grad Plus loan the total origination fee based on the new 4.288% means that $857.60 would come right out of your loan disbursement immediately. But you are still obligated to pay back that $857.60 as part of your total loan debt … which based on a 10 year repayment schedule at the current Grad Plus interest of 6.41% equates to a repayment of $1164.38 on those fees alone. Put yourself on the 25 year repayment plans and now those same fees cost you $1,723 over the life of your loan. Again, all for monies that you never have your disposal but for which you then pay back with interest.

So what happens next… when will the next hike in the origination fees happen given the fact that Sequestration is a 10 year process? Ah… for that question my trusty Magic 8 Ball shows a reply of “Cannot predict now”.
51T0DnfCflL._SY450_

Get On Board the Public Service Loan Forgiveness Train

Any 3L who has already come in for a loan counseling session has probably heard my (overused) analogy of “ getting on the COAP train and riding it to the end of the station”, meaning determining a way to maximize your COAP benefits for a full ten years of eligibility. Well, there’s another train that you may also wish to ride either exclusive of or in tandem with COAP…. Public Service Loan Forgiveness.

Public Service Loan Forgiveness was initially established by Congress with the College Cost Reduction and Access Act of 2007. And despite the fact that its been around for 6 years, as a recent article in the New York Times reported, the program has been underused. The Consumer Financial Protection Bureau has even developed an “Employer’s Guide to Assisting Employees With Student Loan Repayment” to encourage public service employers to start actively promote PSLF among their workforces.

So why aren’t more people taking advantage of this “free” loan forgiveness? Two factors come to mind:

First, while the program was launched in 2007, the Department of Education had no system in place to actually track public service employment until 2012 (yes five years into the program!). But now that a system has been established with an annual ‘Employment Certification for Public Service Loan Forgiveness Form” and a loan servicer (Fed Loans) appointed as the sole servicer for borrowers in this program, these issues should be addressed going forward.

Second, as the article in the Times references, is the complexity of who gets PSLF for what loans under what conditions. Basically PSLF works this way… IF the borrower makes 120 separate, one time monthly payments IN certain loan repayment plans WHILE maintaining working in a public service organization(s) during that 120 month period THEN the borrower may have the remaining balances on the Direct Loans forgiven. For more information on what the IF, IN, WHILE AND THEN really means – see the federal PSLF website for the program’s specific eligibility requirements.

Because what I wanted to focus on in this post are the two questions I get asked most frequently by students considering PSLF :

Question 1: If I have COAP, why would I need Public Service Loan Forgiveness?

The general answer in most cases would be, if you have full COAP eligibility for all ten years of COAP (again the COAP train analogy), then most likely you would not even need to consider Public Service Loan Forgiveness as an option. But given changes in your own income, the addition of a spouse income, accumulated assets or even the amount of your total debt burden, there may be situations where based on the COAP formula you “income out” of COAP (i.e. your assessed COAP contribution surpasses the calculated COAP repayment amount based on either the 15 year repayment in COAP years 1-5 or the 5 year repayment in COAP years 6-10). In that situation if you were not eligible for COAP but still were employed in public service (and committed to it for the balance of the 120 loan payments) then PSLF might be a viable alternative for you. The issue would be that you would have to have a sense of that happening right from the outset of your loan repayment to insure you got on one of the eligible PSLF repayment plans from the get go and started banking those 120 payments as soon as possible. This is where one of our loan repayment counseling sessions can really assist you because part of that process is actually estimating your COAP eligibility (based on projected income and loan debt) for the full 10 years of COAP so that you can see how long you might receive support and if you should be making accommodations for PSLF as an option.

Question 2: How likely is it the Public Service Loan Forgiveness will be around when I actually need it?

We have no indications that PSLF is going anywhere yet this question continues to haunt us Financial Aid folks. Why? Do the math.. the program started in 2007 which means the first “graduating class” (i.e. the first group of borrowers to complete the 120 payments) won’t happen until 2017. That’s the magic moment when all these people (who up until last year when they required people in PSLF to identify themselves we had no idea existed) will step forward and ask the government to forgive the balance of their loans and write off their debt. Why is that significant? Because unlike other federal loan forgiveness programs where the forgiven debt is a taxable occurence (i.e. must be declared as income by the borrower in the tax year in which it is forgiven) in Public Service Loan Forgiveness the forgiven debt is not taxable . So while you could argue that the actual forgiveness of PSLF loans doesn’t have a direct cost to the government (these are all federal loans so the debt is “written off”) it could have a significant tax loss which may make it a target for review. On the optimistic future side for PSLF it should be noted that PSLF is not subject to appropriations or the budgetary process so literally it would take an act of Congress for it to go away. And if that were to happen (switch to pessimistic side) one would also hope that individuals currently clocking time in the program would be grandfathered to completion. The reality is that I don’t have a crystal ball capable of predicting the long term future of PSLF let alone any other federal aid program.

Want to learn more about if Public Service Loan Forgiveness is right for you or how it can work with COAP? Come to our COAP In Action workshop this spring where we dedicate a portion of the session to the specifics of PSLF. Want an individual loan counseling session to chart out your COAP eligibility? Contact the Financial Aid Office at financialaid.law@yale.edu.

“Fixed- Variable” And Other Student Loan Oxymorons

The recent Bipartisan Student Loan Certainty Act of 2013 sped its way through Congress and the President’s desk on its way to significantly changing the federal student loan landscape. Let’s take a looks at it and see what are the upsides and what are the downsides….

First I need to say up front that anytime I see the words “bipartisan” anything I have to believe it’s a good thing. So let’s acknowledge that this really was a good faith effort on the part of Congress to address the student loan crisis. How effective their solution will be in providing real term debt relief may be difficult to assess in the immediate.

The major change of this act was to move the present federal loan system from one where Congress established interest rates to a system where interest rates are linked to the financial markets. Every academic year a new interest rate would be established for both Direct Unsubsidized Loans and Graduate Plus Loans. The rate would be based on the high yield of the 10 year Treasury Note (T-bills) prior to June 1 plus additional add-ons of 3.6% for the Direct Unsubsidized Loan and 4.6% for the Grad Plus Loan. So for academic year 13-14 we are looking at a 5.41% interest rate on the Direct Unsubsidized Loan (previously 6.8%) and a 6.41% interest rate on the Grad Plus loan (previously 7.9%).

The most common question asked of any loan regarding interest is … is this a fixed or variable rate? And the great answer regarding these new student loan is that it’s termed a “fixed-variable” rate. (Seriously that’s a better oxymoron than “jumbo shrimp”). What it means is that while the interest rates will change and be re-established every academic year depending on the T-bill and market, once that interest rate is established it will be locked in for the life of the loan through both your in-school enrollment and your full repayment. What that translates to is that you could end up finishing YLS with six different loans (a Direct Unsubsidized and Grad Plus per year for three years) all with different interest rates. That could make loan repayment just a little challenging but also may afford you a good opportunity to pay off your loans strategically using a “debt stacking” model (i.e. pay off the highest interest rate loans first).

It may also make accepting your aid award each year difficult, as you would not have confirmation of what your loan interest rates would be for the forthcoming academic year until after June 1 annually. It would put you on a very tight timeframe to decide if you would then take the loans at that rate or perhaps look at private loan alternatives and get it all sorted out by the time the August 1 bills are due.

Probably the biggest unknown out there is how high can the interest rates rise and ,depending again on the health of the market, how fast would it get there. As a safeguard, Congress did build “maximum” rates into the “fixed-variable” plan… for Direct Unsubsidized it’s a 9.5% rate and for the Grad PLUS it’s 10.5%. The reality is that if the economy improves these rates could increase quickly (some experts are even predicting that as earlier as 2015 we could already exceed the existing 6.8% on the Direct Unsubsidized loan.). Though the Congressional Budget Office predicts we would not reach the maximum interest rates within the next ten years. We all want fast economic recovery but we may be developing a culture of current students who need it to happen at a slightly slower pace until they graduate.

So why did Congress take this approach in addressing the student loan crisis? According to the bill’s proponents the measure was a “victory” for taxpayer who won’t be forced to subsidize student loan rates arbitrarily set by politicians. In addition the bill is estimated to reduce the deficit by $715 million over the next decade. Graduate and Professional students, the often ignored in the student loan debate, probably also want to applaud the fact that the bill actually addresses their loans.

Critics of the bill (including many student and consumer groups) are worried that the maximum caps are still far too high and should have been set lower to protect future borrowers – i.e. are we offering an immediate interest rate reduction to today’s current college student but on the backs of our current middle schoolers.

And the other question behind all this is… is how permanent is this solution? Would this all change (again) when Congress takes its rewrite of the Higher Education Act this Fall? Stay tuned.

The Price of Solitude … the cost of living with or without a roommate

I know that this is the time of the year when our new admits are scrambling to find housing and put deposits down before someone else snatches up a good apartment. Lots of pressure to insure that you have a place to actually “land” when you get here in August.

And not wanting to add any additional pressure onto those tough, timely choices but…. thought it would be worth just throwing out a few numbers which show why we advocate that students give serious cost consideration to finding roommates. Yes, I know that the thought of sharing space with someone you barely know at this stage of your life probably just makes you groan. Are they going to “mistakenly” eat your peanut butter… probably yes? Are they going to play some unbearable (you fill in the genre) music night and day … most likely. And are they going to have a whole warren of dust bunnies living under their bad? Absolutely. They will invariably do things to annoy you and impede your independence.

But what they will also do is save you considerable money in your student budget. Here’s why we know that… as some of you may have read on the blog post “The Means to Live Within Your Means” we do an annual costs of living survey among current students to assess if the number we use for “living expenses” in the student budget is accurate (which it is). What that survey also shows us is the overall cost differential between living alone, living with one roommate and living with two or more roommates.

COL Roommate Chart

Using the example of the cost differential of single to one roommate.. that’s $203 per month or $1,827 per academic year or $5,481 over a 3 year JD degree. So let’s say that you chose to live alone and let’s suppose that you then have to borrow ( in a Grad Plus loan) the additional funds of the cost differential in loans in order to make up for that extra expense of living alone. That $5,481 extra you borrowed over your 3 year enrollment translates to $7,946 on a 10 year loan repayment and $12,582 on a 25 year loan repayment. (And that is not factoring in the interest that is building on the borrowed amount while you are enrolled). So you just spent at a minimum $7,946 to live without a roommate. Is it worth it?

You are going to hear two things ad nauseum from me during your enrollment. First, you have a limited amount of money to live on in your student budget. Basically you are on a fixed income (and you didn’t even have to wait till social security). You can live adequately on our student budget provided you make some fiscally sound life choices. Second, any opportunities that you have to mimimize your borrowing saves you considerable funds in the future. Sacrifice a little now for long term financial gain. And choosing whether to live alone or with a roommate is one of the first choices you make that will impact both budgeting and borrowing.