The Credit Problems Students Usually Face

Part 2:  Click Here To Review Previous Article

Refinance Student Loans Benefits

Students, at their age and status, are slowly being introduced to their financial responsibilities with the number of student loans presented to them. And sadly enough, not all of them pass this particular real-life test of accountability.  In fact, a lot of them are facing credit problems, which they are likely to bear for several years after leaving college. Most of the problem they face are due to:

  1. Unusually high interest and credit line. 
    While a lot of credit card companies are extending credit lines to college students who don’t necessarily have stable jobs, they make up most of it with high interest rate and ironically, unaffordable credit line. So if students are not careful in using the cards and loans, they will end up with unfathomable debts.
  2. Increasing educational expenses. 
    Sending a child to college is very expensive. And for the student, staying in college is equally expensive. Each year, college fees go a notch higher. And so does everything else that is related to it. Such expenses include dormitory fees, books, and other learning materials, not to mention daily living allowance. As a result, students end up borrowing a bigger amount every year. And by the time of their graduation, the college student loans they acquire are higher than what they can pay off with their prospective salary.
  3. Peer pressure. 
    In college, students stay in the company of friends who could be compulsive shoppers and not with their sometimes-frugal parents. And so peer pressure becomes a factor. Friends and credit cards usually translate to shopping and buying stuff when they come together. And because of this, students end up buying items they don’t really need.
  4. Financial ignorance. 
    Because most college students are not briefed with proper credit management, they end up deep in debts without even knowing about it. High interest rates, late payment charges, and other finance charges are the fees that usually put the student borrower off-guard. And so the need to refinance student loans sooner than expected becomes necessary for them.

Student loans play an important role in college education. For one thing, these loans can certainly help them a lot because as their go through college. In a deeper perspective, student loans facilitate the achievement of a person’s dream. And because college life is expensive, multiple loans have to be secured in order to finish it. As a result, the need to consolidate student loans is there so as to gain better fund and financial management despite a student’s rather young age.

Improve Credit Now! Consolidate Student Loans

How To Consolidate Student Loans

Student loans are the type of financial aid offered by the government to qualified college students so as to help them with the rising costs of university education. Just like any other loans, student loans are also given with an interest rate.But the interest bestowed upon student loans is considerably low when compared to the regular ones. Most consolidate student loans with student grants. When done that way, part of the loan need not be repaid anymore. That alone is going to be a big help in the long run.

Aside from credit cards, there are also student loans in the form of aids and grants. To avail of it, students have to file a Free Application for Federal Student Aid or FAFSA. And even if it’s the government that sponsors FAFSA, a lot of private financial institutions use it to determine a particular student’s eligibility for grants, scholarships, loans, and similar programs they are offering.

The Nature of Student Credit

Research has it that more than eighty three percent of college students own one credit card at least. Recent studies reveal that around 54% of college freshmen have one. And that rate increases as students go up a year higher in their respective educational level. On the other hand, ninety percent of graduate students have around six credit cards each.

Given these data, the cases of student loans consolidation show that undergraduate college students owes more than $20,000 as they reach their final years of college. Furthermore, graduate students have student consolidation loans reaching as much as $50,000.

Much of this is because of the fact that it is fairly easy for college students to apply for credit cards and be approved for it. In fact, at the start of every semester, credit card companies set up several booths and tables inside schools and universities. They are even offering sign-up gift items such as water bottles and t-shirts to the applicants. Credit card companies are somehow lax on students because they believe that if and when credit problems arise among them, their parents are more than willing to intervene and bail them out with their defaulted student loans. And also, credit card companies sees students as an opportunity to produce a group of loyal customers in the future.

Continued Reading:  Part 2 Credit Problems Faced By Students

Income-Based Repayment (IBR) for a Federal Student Loan

The federal government’s income-based repayment program (IBR) for student loans allows qualified borrowers to tie their monthly federal student loan payments to their discretionary income. A new version of the IBR program called “Pay As You Earn” took effect on December 21, 2012 (it was originally scheduled to be phased in during 2014, but the Obama administration took regulatory measures to make it available sooner). The potential for IBR to change the landscape for college borrowers is enormous. According to the U.S. Department of Education, as of last October, about two million borrowers had applied for IBR.

What exactly is IBR for a Federal Student Loan?

Under the Pay As You Earn program, monthly federal student loan payments are based on income and family size (your payment is readjusted each year based on changes to these criteria). Payments are equal to 10% of your discretionary income, and payments are made over a period of 20 years, with all remaining debt generally forgiven after 20 years of on-time payments (loans are forgiven after 10 years for those in qualified public service if all payments are made on time and other requirements are met).

Note:   An earlier version of IBR capped monthly payments at 15% of discretionary income and offered loan forgiveness after 25 years.

How do I qualify for IBR?

Not everyone is eligible for IBR. To qualify, you must meet several requirements:

1. You must have an eligible federal student loan. Loans eligible for IBR include federal Stafford Loans (subsidized and unsubsidized), Direct Loans (subsidized and unsubsidized), PLUS Loans made to graduate or professional students, and consolidation loans (that don’t include underlying PLUS Loans made to parents). Loans not eligible for IBR include PLUS Loans made to parents, consolidation loans that include underlying PLUS Loans made to parents, and private education loans from banks or other lenders.

2. You must be a new borrower as of October 1, 2007, and you must have received a disbursement of a qualifying federal student loan on or after October 1, 2011.

3. You must have a “partial financial hardship.” You are considered to have a partial financial hardship when the monthly amount you would be required to pay on your federal student loans under the 10-year standard repayment plan (i.e., fixed monthly payments over 10 years) is higher than the monthly amount you would be required to pay under IBR.

The Department of Education has an IBR calculator on its website that you can use to determine whether you are likely to qualify for IBR and to estimate what your IBR monthly payment would be (www.studentaid.ed.gov/ibr). The calculator considers your federal student loan balance, adjusted gross income (AGI), federal income tax filing status, family size, and state of residence. However, for an official determination of your eligibility for IBR, or to apply for IBR, you’ll need to contact your loan servicer. If you are unsure who holds your loans or who your loan servicer is, you can find out more at the National Student Loan Data System website (www.nslds.ed.gov). You’ll need your Federal Student Aid PIN to sign in to the database.

A word of caution

IBR sounds like a gold mine, right? Well, there are some things to be aware of. First, with IBR, you may pay substantially more interest over the life of the loan than you would under a standard 10-year repayment plan because you are paying your loan over a longer period of time. Second, you must submit annual documentation to your loan servicer so your monthly payment amount can be reset (if necessary) each year. Third, and perhaps most significant, you may owe federal income taxes (and possibly state income taxes) on the amount of the loan that is forgiven after 20 years. For more information on IBR, visit www.studentaid.ed.gov/ibr.