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Tag Archives: Debt

Debt Management

Debt Management and Minimization

Many students seek a postsecondary education hoping to improve their career opportunities and financial future. Managing your money while in school is an important part of obtaining the lifestyle you want. However, poor money management, both while in school and after, can mean a large salary going towards debt and not much else.

Follow these steps to make getting your degree, minimizing your debt and repaying your student loans as easy as possible.

For those just beginning a postsecondary program:

  1. Identify your expected after-graduation salary by visiting sites like www.salary.com, as well as job finding services, like www.monster.com or jobs.mo.gov, to determine the demand and compensation for your profession.
  2. Determine how much the degree you want will cost and if you can afford it.
    • Research and compare the total costs for each postsecondary institution you are interested in, including course fees, add-on fees (student health fees, recreation fees, etc.), room and board, etc. The national College Navigator website provides comprehensive cost and program information as well as links to each schools’ net price calculator. The U.S. Department of Education also publishes College Scorecards on postsecondary institutions to help you make an informed decision about which program, degree, or college in which to invest your time and money.
    • Use online calculators, such as the calculator on Mapping Your Future to determine how much student loan debt you can afford (based on your expected future salary) or what salary you will need to pay your student loan debt. A general rule of thumb is to keep student loan payments to 8% of your income.
  1. Develop and follow a budget while getting your degree so you can avoid credit card and other types of debt.
  2. Try to find sources of free funding, such as Pell Grants and scholarships, before borrowing student loans. It is also a good idea to pay for a portion of your college expenses as you go through part-time employment.

Those with a degree or about to graduate should be aware of student loan repayment options. Once you have borrowed a student loan, use the National Student Loan Data System (NSLDS) to access your student loan account and keep track of your total debt. You may also get the information by calling (800) 4-FED-AID.

8 percent rule

Most financial advisors recommend student loan payments not exceed 8% of your monthly gross income. Multiply your estimated gross income (before taxes and other withholdings) by .08. Your student loan payments should not exceed this amount.

http://www.dhe.mo.gov/ppc/studentloans/debtmanagement.php

 

A Break From Payments

Take a Break from Payments

Both deferments and forbearances give you a break from monthly payments for a set period of time. Many options are available to meet a variety of needs. If you are having difficulty making payments and want to see which options fit your specific situation, log in to your account and click Postpone My Payment to see which deferment or forbearance works best for you. Of course, you can also call us at 888.486.4722 to talk through your options.

  • Log in to your account and click Postpone My Payment to apply for deferment or forbearance. You can also call us at 888.486.4722.
  • Learn more about the difference between deferment and forbearance.
  • Calculate accrued interest while in deferment or forbearance. (To avoid capitalization, you may choose to pay accruing interest or even small payments toward the balance.)

 

Avoid Default With Deferment or Forbearance

About Deferment

If you are experiencing financial hardship, go back to school, are unemployed, or are on active duty military service, postponing payments with deferment may be right for you. Subsidized Stafford loans and subsidized consolidation loans will not accrue additional interest, so your balance after the deferment period will be the same as when it started. However, for unsubsidized Stafford loans, PLUS loans, SLS loans, or unsubsidized consolidation loans, interest will accrue during the deferment period, so it’s wise to pay at least the interest on your loan each month. This will prevent your interest from being capitalized, or added to the principal of your loan, essentially increasing your total balance and requiring you to pay more in the long run.

About Forbearance

If you work an internship, perform certain types of community service, or find yourself experiencing financial hardship, you may be qualified to postpone payments with forbearance. All loans accrue interest during forbearance, so it’s smart to pay at least the monthly interest during this period to avoid interest capitalization. Forbearance resolves any delinquency on the account—log in to your account and click Postpone My Payment to see if you’re eligible. You can also call us at 888.486.4722.

Available Deferments

The federal government has allowed for these deferment options. Read on to see if these situations apply to you. Remember—just because you are eligible for a deferment does not mean you are required to request it; if you feel you can make payments on your loan, you are encouraged to do so.

Armed Forces Deferment

If you serve on active military duty in the Armed Forces or National Guard, you may be eligible for this deferment or other student loan benefits for members of the military.

http://www.nelnet.com/Postpone-Your-Payments/

Default

Default Prevention

The Missouri Department of  Higher Education promotes default prevention and debt management initiatives related to student loan borrowing and repayment. Objectives       include increasing the awareness of financing options for postsecondary education, reducing debt among postsecondary students and parents, increasing enrollment retention, reducing loan defaults, and generally increasing students’ knowledge about     their personal finances.

Implementing default prevention and student success programs on campus are:

  • Smart for schools! Successfully educating student loan   borrowers can help reduce your institution’s default rate and prevent potential   sanctions against your institution, such as losing federal program eligibility   for student loans,  Pell Grants, and other Title IV aid programs.
  • Smart for borrowers! Default prevention activities also   improve the student loan borrowers’ knowledge of their rights and responsibilities. Extending   default prevention to implementing financial   literacy and debt management programs on   your campus also contributes to the overall financial health of Missouri’s   students, parents, borrowers, and citizens.

Top Ten Best Practices in Default Prevention

Brought to you by the MDHE’s Default Prevention Grant program team.

    1. Organize a Default Prevention and/or Student Success Team. Help the team   start strong by requesting default prevention training from the MDHE and reviewing a new printed publication, The Smart Approach to Campuswide   Retention and Default Prevention Efforts. This pamphlet was created   for Missouri’s postsecondary staff and administrators to assist with developing and promoting more cohesive retention, student success and default prevention plans. Additionally, Missouri institutions may  attend the MDHE’s free Default Prevention Day offered in May.
    2. Profile your institution’s defaulted borrowers, and put programs in place to   specifically address at-risk populations at your school.
    3. Make retention part of default prevention efforts. Focus on academics as well   as providing personal or financial counseling for at-risk students.
    4. Emphasize the benefits of paying interest on   loans while still in school. Use the MDHE’s free publication Planning for Financial Success to get freshmen   borrowers off to a good financial start. To order MDHE publications, visit our online   order form.
    5. Develop a “loan reminder” presentation/counseling session for returning loan   borrowers each year. Results of a 2009 MDHE survey of delinquent and defaulted   borrowers indicated that more than 50% of borrowers borrowed more than they   expected. Help future borrowers avoid this mistake!
    6. Conduct budget and financial management workshops in classes or include it in the new student orientation process.   Seek and use outside resources, such as the MDHE, to help make these workshops   as interactive and memorable as possible. Complete our new online   speaking and event request form to arrange for a financial literacy workshop   for your students.
    7. Provide a personalized calendar during exit   counseling (mark dates such as the half-way point of the 6-month grace   period, end of grace period, and first repayment due date). Include   comprehensive student loan debt information (total amount owed, estimated   monthly payment amounts, etc.) as well as loan holder contact   information.
    8. Provide lifetime job placement assistance.
    9. Include financial aid and retention staff in student withdrawal process.
    10.   Use creative techniques to contact students and borrowers.

Loan Repayment

Repay your Direct Loan / Federal Stafford Loan

Here are a few details about repaying Direct Loans and Federal Stafford Loans:

  • After you stop attending school at least half time, withdraw, or graduate, a 6-month grace period begins. You receive only one grace period per loan.
  • Repayment begins after the grace period ends, with your first payment usually due 45-60 days later.
  • The maximum repayment period ranges from 10-25 years, depending on the repayment plan.
  • Payments are expected each month.
  • The minimum monthly payment is generally $50, but this amount may be different depending on your loan balance and your repayment plan.
  • You may prepay your loan at any time without penalty. Prepayment may substantially reduce the amount of interest you pay.

Repayment plans

Below are brief explanations of the variety of repayment plans available to Direct Loan and Federal Stafford Loan borrowers.

Standard:

  • Minimum monthly payment is $50, but may be higher depending on balance.
  • Maximum repayment period of 10 years

Graduated:

  • Begins with lower payments that increase over time
  • Maximum repayment period of 10 years
  • More interest accrues over the life of the loan because the principal balance decreases at a slower rate.

Income-contingent for Direct Loans:

  • Adjusted payment amount based on gross income and family size
  • Payments cannot be lower than your monthly interest amount
  • Eligibility and payment amount adjusted annually
  • More interest accrues over the life of the loan because the principal balance decreases at a slower rate.
  • If you do not repay your loan after 25 years, the unpaid portion is forgiven. You may have to pay income tax on any amount forgiven.

Pay as You Earn for Direct Loans:

  • Available to new borrowers if:
    • you have no outstanding  balance on a Direct or FFEL Program loan as of October 1, 2007 or have  no outstanding balance on a Direct or FFEL Program loan when you obtain  a new loan on or after October 1, 2007, and
    • you receive a  disbursement of a Direct Loan or a student Direct PLUS loan on or after  October 1, 2011, or you receive a Direct Consolidation Loan based on an  application received on or after October 1, 2011 (unless your loans repaid by the Direct Consolidation Loan make you ineligible because of the criteria in the preceding bullet).
  • Payment is not more than 10 percent of the amount by which your adjusted gross income exceeds 150 percent of the poverty line for your family size.
  • If your monthly payment amount is not enough to pay accrued interest on a Direct Subsidized Loan, the Department of Education will pay the remaining interest for a period of three years.
  • Eligibility and payment amount adjusted annually.
  • More interest may accrue over the life of the loan because the principal balance decreases at a slower rate, resulting in paying more money over the life of the loan.
  • Any outstanding loan balance after 20 years is forgiven. You may have to pay income tax on any amount forgiven.

Income-sensitive for Federal Stafford Loans:

  • Adjusted payment amount based on gross income
  • Payment is the greater of your monthly interest amount or 4 percent of your gross monthly income
  • Eligibility and payment amount verified annually
  • More interest accrues over the life of the loan because the principal balance decreases at a slower rate.

Income-based:

  • Available for payments made on or after July 1, 2009
  • Adjusted payment amount based on income and family size
  • Payment is not more than 15 percent of the amount by which your adjusted gross income exceeds 150 percent of the poverty line for your family size.
  • If your monthly payment amount is not enough to pay accrued interest on a Direct Subsidized Loan / subsidized Federal Stafford Loan, the Department of Education will pay the remaining interest for a period of three years.
  • Payments re-evaluated annually
  • More interest may accrue over the life of the loan because the principal balance decreases at a slower rate, resulting in paying more over the life of the loan.
  • Any outstanding loan balance after 25 years is forgiven
    • Very few borrowers will have  a remaining balance after 25 years.
    • The amount forgiven may be  taxable.
  • Estimate payment under the income-based repayment plan.

Extended:

  • Available to new borrowers on or after October 7, 1998, who have a minimum balance of $30,000 in loans
  • Payment amounts can be either fixed annually or graduated.
  • Maximum repayment term is 25 years
  • More interest may accrue over the life of the loan because the principal balance decreases at a slower rate, resulting in paying more over the life of the loan.

Debt & Savings

How can we avoid becoming part of the debt trap?

  • Recognize the Trap. Traps work because they’re disguised – they’re not easily seen or recognized. A trap is a lie.  Ask yourself these questions: What’s the lie of debt? How is it disguised?  Here’s how it is commonly misrepresented – “You need to build your credit to improve your FICO score., You deserve it!,  It’s a part of the American Dream., Everybody’s got debt.”  Who would want you to believe a lie about debt?  Credit card companies, banks, credit institutions make TONS of money when you live in debt!
  • Escape the Trap.  GO, to the point of exhaustion!  Don’t sleep until you’re free!

Three steps to getting out of debt:

(1)    Stop borrowing money!

  • You can’t get out of a hole if you keep digging it.

(2)    Get gazelle intensity.

  • You don’t ease your way out – you break out.
  • Cut spending.
  • Go bare-bones.
  • Sell stuff.  You’re in debt because you bought stuff you couldn’t afford – sell some of it!
  • Get a part-time job.  Not a long-term workaholic, but this is a sprint – get crazy.

(3)    Attack debts one-by-one.

  • Use the “Debt snowball” technique.

If you made your decisions based on MATH, you wouldn’t be in debt. Debt/money is EMOTIONAL – use that to your advantage. There’s ONE MORE THING TO DO…Destroy the Trap. HOW? By SAVING!

Two simple saving steps:

(1)    Save $1000 for emergencies immediately.

  • Do this before you do the debt snowball effect.

(2)    Once you’ve eliminated all debts except your mortgage, save at least three months worth of expenses.

Then, even when life happens, debt has no hold on you. You’ll no longer feel caught in the debt trap because you’ll have destroyed it!

Live Life Smart Guide

Nelnet’s Live Life Smart Guide is a complete tutorial on how to effectively manage your money and student loans. Information on student repayment plans, tips on saving money, budget worksheets and much more are compliled into one fun and easy to read guide. Follow the link to the PDF flie:

http://www.nelnetloanservicing.com/wp-content/uploads/22062_Live_Life_Smart_Guide_FIN.pdf