My Eyes Glaze Over. This used to be the trademark teenage response to all things dull and boring. Such as math, french literature, and especially money issues. Today’s approximation for MEGO would be “meh”.
So as I thought about making a video to explain the difference between Federal Direct subsidized and unsubsidized student loans….guess what happened…yep MEGO!
BUT WAIT! If you, dear reader, are in the hunt for more college money, you must understand student loans. Why? Because when college bills are looming, it may be that there is no choice but to take out some student loans.
If you were offered subsidized loans and unsubsidized student loans in your college’s financial aid award letter, then it’s time to know the difference between these loans. You’ll need to know how to use their attributes strategically.
Most importantly use these Federal Direct subsidized and unsubsidized student loans FIRST (they have certain dollar amount limits) before considering any private student loans.
These are the best student loans you can get. Here’s why:
Federal Direct student loans offer the best repayment programs. Watch some of my other videos on this subject for more info.
Here is an example:
Really, after all this, you could not be blamed for drifting into MEGO and thinking about cute puppy videos.
The Consumer Financial Protection Bureau wants to make you smarter about your student loan repayment options. Basically the message is: We at the CFPB can’t solve all the student loan servicing problems, so you’re going to have to do it yourself. Here’s the best interactive learning tool we have, now please use it wisely.
Thus the Repay Student Debt Tool was created…and released to almost no fanfare. So here’s a little video to explain it. Warning to the legal community: there are some handy dandy DIY lawyer letters included in the Repay Student Debt Tool. Enjoy!
If you run all the scenarios on this decision-tree-formatted program, you WILL be smarter than the average loan servicer. Face it, you clearly have some college education, evidenced by your ownership of some amount of student debt. Plus, you are really motivated to keep yourself out of the mess you’ve been hearing your friends complain about.
The Consumer Financial Protection Bureau (CFPB) has been fielding thousands of these complaints at their Student Loan Ombudsman office.
Here are some of them:
Borrowers were being told either mis-leading or completely wrong information about repayment programs that they were eligible for and which could keep them out of default.
Borrowers attempting to pay down some of their loans early had payments applied to the wrong loan.
Borrowers making partial payments sometimes found the loan servicers were applying the money in such a way as to maximize late fees.
When borrower’s accounts got transferred from one loan servicer to another, as often happens, there was no notification, causing payments to be lost or misapplied.
Even if the borrower’s account remained at the same loan servicer, the borrower could get conflicting answers from different agents. Information that could have been helpful was lost in the shuffle.
There were complaints about lost paperwork, processing errors, and missing billing statements. And on and on…
Meanwhile, the student loan debt problem in the U.S. has gotten so bad that a large percentage of student debt holders were no longer participating in our economy in the form of purchasing homes, autos or major appliances.
To make matters worse, borrowers desperate to get help with their student loan problems started looking outside the realm of unhelpful student loan servicers. And who popped up to fill that need? You guessed it, student debt relief scamsters! (snark follows) “Why yes, just give us an up-front fee and we’ll straighten out all your problems. We’ll sign you up for repayment programs which, oh never mind, are provided completely free to federal student loan borrowers by the Department of Education. And if you act right now, you can get all your federal student loans consolidated into one tidy lower interest private loan! We just won’t mention the fact that you will lose all the rights, protections, privileges and possible forgiveness offered to federal student borrowers.” Scamsters just gotta scam.
So who can we blame for this whole student loan mess and the downright broken student loan repayment system? (Warning: rant ahead!)
Well, the original sin was the creation of the student loan system. This made it easy for completely inexperienced young people to get their hands on staggering amounts of money for college and lifestyle.
As soon as the educational industrial complex got wind of this endless stream of federal cash, the taps were turned to full-on, and rusted in place that way. Thus commenced tuition increases, huge building programs, bulging budgets for staff, researchers, and every kind of amenity for students.
Of course the interest on the loans (to be repayed by the same inexperienced students after graduation) was creating a huge profit for the banks that were issuing the federal loans. The Department of Education (DOE) took notice of this phenomenon and by 2010 took back control of these loans and all the interest.
Right about that time, it became clear that the economy was in a stall and debt-saddled young people weren’t able to buy houses or start families. But, hey, the DOE was doing just fine, thank you. By 2013, the DOE was clearing nearly $40 billion dollars a year in student debt interest.
Along came the most costly of the new repayment programs. The White House ordered up PAYE, the Pay As You Earn repayment plan. This plan would essentially be an interest only gift for low and moderate income recent grads. Original loan amounts would begin disappearing from the DOE coffers and continue through year 20 of repayment. Bad for the DOE’s bottom line.
This very same agency of the U.S. government, the DOE, was also charged with hiring the loan servicers to collect payments from student loan borrowers. The attempt to hire quality servicing companies with well-trained employees has been half-hearted… and that’s being generous. One could be suspicious that all the troubles borrowers have experienced with student loan servicers was an attempt to bring in more revenue in late fees resulting from screw-ups and bad customer service.
But that would be a conspiracy theory…I’ll cast my vote for the stupidity theory instead!
The new College Scorecard website was built on a data dump the size of Mt. Denali…in fact, it’s like data heaven for college data geeks!
HA! Try to put THIS genie back in the bottle.
Watch my video for a demonstration of College Scorecard’s main features.
Well, if this isn’t some fine payback by the Obama administration for all those who scuttled the President’s new college rating plan. And it’s so sincere and sounds so well-meaning that even the opposition is mumbling grudging kudos. But the word is out on colleges that don’t live up to their promises.
So much data, in such an easy-to-use format, built for mobile devices, rolled out just in time for students and their families to make critical decisions about colleges. Whatever the quality of the data, there will be some significant changes in the world of higher education. Tah dah!
Just in my ramblings around this new College Scorecard website at collegescorecard.ed.gov, I could not resist making a search for all medium and large “for-profit” schools. I kind of knew what the results would be, but it was worse than I thought. Apparently, nobody bothered to tell the University of Phoenix that their search results would show that EVERYONE who had attended their schools on all their campuses made salaries of $53,400 dollars after 10 years. Yep, everyone. Clerical error? Or, maybe Phoenix wants it that way.
And then I was wondering about where that data on the salaries of former students came from. And how about the data showing how former students were progressing with their loan repayments?
Well, turns out this info is new, never before seen in public. The federal government, apparently working for the common good, decided to combine the data from federal student loan borrowers with data from their tax records. This data produced lots of useful information. Some of it makes certain schools look good and some of it is very damaging for others. The data is out there for all to see and use.
I didn’t get to vote on the idea to combine this information, nor on the distribution of it. Did you?
Supposedly the personal identifiers have been removed from the data. Hope so.
Here are the assurances of privacy put forth in the data documentation for College Scorecard:
“All National Student Loan Data System (NSLDS) and Treasury elements are protected for privacy purposes; any data not reported in order to protect an individual’s privacy are shown as PrivacySuppressed.”
Is “Privacy Suppressed” what they really meant to say?
I don’t know about you, but I felt like my privacy was suppressed when my data was compromised at Target and at Home Depot!
A young friend of mine just graduated from college and, even has a brand new well-paying job! And that’s not all, he’s newly married! What a lucky guy!
What’s not lucky is that he has student loans. In just 6 months he’ll be out of his grace period and will have to start paying those loans back.
What are his options?
The first thing he might want to consider is consolidating his loans.
Let’s say his loans are all federal direct loans and that some are subsidized and some aren’t. These loans were made in different school years for different amounts and at different interest rates.
So, even though he’ll probably have his loans grouped with one servicer by his lender (the U.S. Education Department), keeping up with all those different loans requires a lot of attentiveness. Mistakes can easily be made by the borrower. Or even by the servicer…shocking, right?
Consolidate Student Loans and Stay Organized
Consolidating his loans would give my young friend a far simpler repayment picture. His interest rates would be averaged and weighted into a rate nearly the same as if he had kept them all separate. Not only that, but he would gain access to at least one of the new affordable repayment plans.
Consolidate Student Loans and Get Affordable Payments
So far, the very newest repayment plan is not quite finalized, but is nearly certain to be available in December of 2015. It’s called the Revised Pay As You Earn plan, or REPAYE for short. My friend would be eligible for REPAYE and it might keep his payments down enough for he and his wife to save for their first house, and to start a family.
He would have been eligible for REPAYE’s more borrower-friendly older cousin, the PAYE plan, IF he had not gotten that well-paying job right out of college. Thanks to his new paycheck, he will not be poor enough in comparison to his student debt to get on the PAYE plan. Moreover, the ratio of wealth to debt for my friend gets even worse under REPAYE because the fed’s calculation of HIS income will include his wife’s income as well. Who knew he should have borrowed more? Just kidding!
But, no matter! Getting your student loan payment down to 10% of your JOINT discretionary income is still a wonderful thing! And, since my friend only has undergraduate loans, any remaining balance will be forgiven after 20 years. The forgiven amount could be taxable that year as income, but it’s likely this tax threat could be gone in the future, thanks to congressional efforts.
If my friend decides to consolidate all his student loans into a single Federal Direct Student Loan for simplicity’s sake and then decides to enter the REPAYE plan, he will have to understand one important fact. As a participant in the plan, he is obligated to send in a form which verifies his family’s joint income EVERY SINGLE YEAR. If he forgets the verification form, he will be placed in an alternate version of the REPAYE plan until he is jolted awake by the higher payments!
The new REPAYE plan will allow many more borrowers to get affordable payments as well, no matter when they got their loans and no matter how much money they earn. The older borrowers will need to get some of their “non-direct” federal loans, such as FFEL, consolidated into Federal Direct Consolidation loans. The biggest thing for older borrowers to remember is that Parent Plus loans cannot be included in these new Federal Direct Consolidation loans. And, even if an earlier consolidation loan paid off a Parent Plus loan, then that consolidation loan is considered “tainted”. It cannot be included in the borrower’s new Federal Direct Consolidation loan, whose purpose it is to access the REPAYE plan.
So you might be wondering why this latest round of cleverly acronym’d student loan repayment plans has come to be a dinner party topic. Here it is: REPAYE clamps down on the excesses of PAYE. Simple as that.
People had begun to game the system. Doctors, lawyers and other high student loan borrowers figured out that they could combine the generous features of PAYE with the Public Service Loan Forgiveness program (PSLF). In 2017, the first of many lucky borrowers will have hundreds of thousands of student loan debt forgiven. The forgiven amounts will not be taxed.
All this system-gaming has given colleges the idea that they can raise their tuitions to match the benefits of the PAYE plan and PSLF program. Taxpayers will be on the hook for the ever-spiraling debt and tuition crisis at private non-profit colleges AND to some degree at public universities.
The cry has gone up to politicians and higher education policy-makers: Put the brakes on PAYE! So REPAYE was invented, and here we are on the brink of it’s implementation.
We can only hope that this time they got it right. I’m taking bets starting now! Who’s in?
Now here’s where I get to share some other insights, and/or just plain rant.
I’ll admit I was concerned when my 10th grade daughter announced that she wanted to take some dual enrollment classes at the local state college. That meant my little girl would be sitting in classes with real college students, half of whom were working adults taking night courses.
Sounded scary, but I let her do it because I would be driving her there and back until she could drive herself. I didn’t doubt that she could do the work, and that proved true. Thank goodness!
Her big thrill was that she could complete courses in one semester that would have taken two semesters in her high school.
Her second big thrill was that, unlike high school, she wouldn’t be asked by her college professors to make “ridiculous, time-wasting projects” like poster-board maps, plastered with pictures cut out of magazines!
MY big thrill was the realization that she was getting free college credits! WooHoo! Free money toward one of our many state universities, should she decide to stay in our state for college. YAY!
Eventually my daughter gathered almost enough dual enrollment courses that when combined with her AP classes would have produced an Associate’s degree. She would have received this degree from our local state college in the week prior to her own high school graduation. While she did not (for other reasons) complete her Associate’s degree, many high school students before her time have done it. Many more high schoolers will collect their AA’s through dual enrollment in the future.
What a boon to the families of these hard-working, ambitious young students! With two years of college completed, students in our state (and many other states) can transfer right into a 4 year public university and start their remaining two years! The families of these students are NOT on the hook for the cost of those first two years of college education. Ding, ding, ding…we have some winners here!
Now, in my research for this video, I read a lot of good material from many sources on the subject of dual enrollment. But it wasn’t coming together until I stumbled on a wonderful resource. This is the website of The Education Commission of the States, a national organization created in 1965 and funded by the 50 states, the District of Columbia, and several territories.
This organization was founded to “track state policy trends, translate academic research, provide unbiased advice, and create opportunities for state leaders to learn from one another”.
Here is the link to the section of ECS that contains a database on dual enrollment:
This information was gathered from all the states and collated by an enthusiastic young woman named Jennifer Dounay Zinth. She has done a fabulous job, and the product is absolutely enlightening. I enjoyed comparing my state’s dual enrollment policies to that of other states. I also liked the State Profiles on this topic that you can access by clicking on a particular state in a map of the U.S.
Using this database allowed me to realize how much work is left to be done on dual enrollment to make it universally available in the U.S.
Thus far, ALMOST NOTHING is standardized, not even WITHIN certain states! A few states, like Florida, have their dual enrollment acts together. But, overall, the picture is pretty sad.
So here is my rant:
Attention all you so-called “Education Leaders” attending the next ECS convention from all your various states: Before you settle down in a comfy lecture hall in the duly appointed city, and before you tuck into that sumptuous luncheon, try to concentrate on this one little request from me:
Fix Dual Enrollment!
Why? We need all educational efforts to point our kids in the right direction with all the right tools for a reasonably good future life. Right?
AND, we also want these efforts not to destroy family finances when it comes time for college.
Dual enrollment, done right, can help…SO JUST FIX IT… please!
Now that the President has decreed a new “Student Aid Bill of Rights”, the ship of state will turn slowly toward a better way for student borrowers to manage all their loans through one portal. A new centralized complaint system will give more borrowers the ability to resolve disputes with loan servicers and debt collection agencies.
Thanks to the National Consumer Law Center and it’s Student Loan Borrower Assistance project, a prototype of this new system exists now. Watch this video to get a guided tour of how the Student Loan Borrower Assistance (.org) website links the pieces of the new system together.
If I was asked to magically build a new system to get student loan help, I would create the new loan management portal using the building blocks provided by the the National Student Loan Data System. Currently, this system provides credentialed visitors with access to all their Federal student loan information. However, the visitor cannot find information about his/her private student loans. This is the next important task. But it’s just too hard to think about compiling private student loan information, so my magic wand would just “Make It So”!
As for the centralized complaint reporting piece of the new “Student Aid Bill of Rights”, I would just (poof!) combine the best parts of the two existing Student Loan Ombudsman offices. The Department of Education now handles complaint arbitration for Federal student loan disputes. The Consumer Financial Protection Bureau’s Student Loan Ombudsman office makes a specialty of resolving private student loan disputes. Cue the magic MixMaster!
And finally, just like the Student Loan Borrower Assistance website, I would have a whole list of free legal help right there on the new centralized complaint system website. Hey, not every student loan complaint can be resolved in a tidy fashion. What’s more, the rule against discharging student loan debt through bankruptcy looks like it’s on the table for revision. New bankruptcy rules will produce a tsunami of borrowers who will need legal guidance. Or a fairy godmother!
So the President is expanding and changing his favorite student loan repayment plan…Pay As You Earn…again!
PAYE, is an apt acronym for the Pay As You Earn plan. If you borrowed money from the government to attend college, you are going to PAYE, but maybe not as much as you expected.
If you are a taxpayer, you are going to PAYE for a portion of someone’s education, and maybe more than you expected.
And then there are the colleges and universities who will, as usual, plan their yearly tuition increases around the latest proposals to increase the availability of ever more liberal student loan repayment schemes. Maybe it IS time for a change.
Take a look at my video, in which I try to make PAYE more understandable!
As much as I’d like to see the PAYE plan help student borrowers, and it will, I’d also like to see if any of the proposed PAYE plan limitations will help to put the brakes on the insidious cycle of tuition creep.
For your enjoyment, I copied this right out of the Department of Education’s 2015 Proposed Budget:
The 2015 Budget proposes to extend Pay As You Earn (PAYE) to all student borrowers and reform the PAYE terms to ensure that program benefits are targeted to the neediest borrowers. The reforms also aim to safeguard the program for the future, including by protecting against institutional practices that may further increase student indebtedness. In addition, to simplify borrowers’ experience while reducing program complexity, PAYE would become the only income-driven repayment plan for borrowers who originate their first loan on or after July 1, 2015, which would allow for easier selection of a repayment plan. Students who borrowed their first loans prior to July 1, 2015, would continue to be able to select among the existing repayment plans (for plans for which they now qualify and for loans originated through their current course of study), in addition to the modified PAYE.
The Budget proposes additional changes to PAYE that include:
Eliminating the standard payment cap under PAYE so that high-income, high-balance borrowers pay an equitable share of their earnings as their income rises; (Listen up doctors, lawyers and dentists!)
Calculating payments for married borrowers filing separately on the combined household Adjusted Gross Income; (so the message is, don’t get married?)
Capping Public Service Loan Forgiveness (PSLF) at the aggregate loan limit for independent undergraduate students to protect against institutional practices that may further increase student indebtedness, while ensuring the program provides sufficient relief for students committed to public service; (the cap would be $57,500)
Establishing a 25-year forgiveness period for borrowers with balances above the aggregate loan limit for independent undergraduate students; (this is aimed at lower income borrowers who used the higher threshold PLUS loans).
Preventing payments made under non-income driven repayment plans from being applied toward PSLF to ensure that loan forgiveness is targeted to students with the greatest need; and
Capping the amount of interest that can accrue when a borrower’s monthly payment is insufficient to cover interest costs, to avoid ballooning loan balances. (Currently 10%)
If your eyes have not glazed over by all this budget stuff that really won’t take effect until early 2016, here are the contents of the “special sauce” that I mentioned in the video. The two big deals about the PAYE plan are that your monthly payments are kept low by a calculation of what 10% of your discretionary income would be according to your salary. This calculation of your payment can never be greater than what you would have paid if you had been using the Standard Repayment Plan. If the calculation shows that, in any year, your payment IS greater than the Standard plan, a loud buzzer goes off and you are OUT…yes, you are sent back to the hell of HUGE monthly payments! The message is: have a good accountant who will warn you and make sure you send in proof of your eligibility and family size each and every year. Because they will throw you out for forgetting that too!
Here’s the other big deal part of the special sauce: a 10% limit on capitalization for unpaid accrued interest! For those moderate non-doctor borrowers (60K to about 150K) that means that they will never find their loan amount ever gets bigger than 10% more than the amount they originally borrowed. There you have it. Special Sauce!
And now, having read the proposed new PAYE rules, you know why the doctors, lawyers, and dentists are going to be spitting fire at the Administration. You would too if you’d had to borrow $400,000 or more just to get through school, and then had to face a 6K a month payment for the next ten Standard Plan years
Seems like the payments on your college loans will never end, right? Well they will someday, due in no small part to your diligent efforts to stay in touch with your federal student loan servicer. At least that’s what I hope you do, or what I hope you would tell your college-bound child to do! Check out my latest rant (I mean video) on this issue !
If you wanna go, you gotta know! Don’t get ripped off in the pursuit of a degree.
Thank goodness for IPEDS, the data bank of collegiate information that was created by congress some years ago. All schools have to report certain categories of information every year to this slow-moving federal behemoth (it’s about 3 years behind, but who’s counting!) Without IPEDS and a Department of Education website called College Navigator this information would not be very accessible for the public. In my video this week, I show how to use this information to detect whether an online for-profit college is doing a good job or not before a potential student makes the decision to attend it. We are in a major shake-up of the for-profit college industry (and believe me it IS an industry) and with some luck only the righteous will survive. Some of the biggest BIGS are going down in flames even as I write. Ha HA! We shall see. Meanwhile, let the buyer beware!
Student loan info is the new hot commodity among financial writers.
As students are going to college for the first time, or back to college for the second, third (or even tenth) year, the number of articles I see about the issue of student loan debt are multiplying faster than I can read them online. But when an exceptionally good article appears in a real live publication in my mailbox, it’s going to get my full attention. I might even read it twice…mostly while eating (low carb, of course!). This article appears in the Fall 2014 USAA magazine, Volume 50, Number 3. It’s title is “ Escaping the Shadow of College Debt”. Here is a link to read it online: >http://www.nxtbook.com/nxtbooks/pace/usaa_2014fall/#/12 . The article contains good stories about two women, who, for different reasons, got themselves into some serious student loan debt. It lays out the scope of the student loan problem and then engages the help of some of the heavy hitters in the college financial business, including Mark Kantrowitz of Edvisors Network and Lynn O’Shaughnessy, author of “The College Solution: A Guide for Everyone Looking for the Right School at the Right Price”. It also gets a lot of great info from the very same website I use in this episode of The College Money Mom. This website is brought to you by the Consumer Financial Protection Bureau, a relatively new department of the U.S. government. So watch this episode to learn about the different kinds of student loans in a really easy to understand way! And, once you have this knowledge, you’ll be able to steer yourself, and others, out of harms’s way.