Student Loan Advice

Student Loan Literacy 101: First Marblehead Launches Initiative to Help Parents and Students Avoid Common Pitfalls in Higher Education Financing

2007-09-21T14:41:00.000-07:00

Survey Finds Many Still Lack Basic Information; First Phase of Smart Borrowing Campaign Introduced With "Study Guide" for Student Loan Literacy
September 20, 2007

Parents and students looking for help answering the sometimes thorny and confusing questions surrounding student loan financing now have an easy-to-use resource center to turn to for step-by-step guidance.

The First Marblehead Corporation (NYSE: FMD) -- a national leader in creating education finance solutions -- announced today the first-phase launch of its Smart Borrowing campaign, a multi-channel effort designed to provide objective, consumer-friendly information to potential borrowers. First Marblehead created the campaign in response to recent company survey findings indicating that many people may not be aware of the lowest-cost ways to finance a college education.

The campaign begins today with a new Web site, www.smartborrowing.com, that serves as a "Study Guide" for anyone seeking to undertake self-education in higher education financing. SmartBorrowing.com provides users a set of simple yet critical tools to help navigate the process of paying for college. The site is divided into five sections, identified through years of experience and confirmed through the survey findings as areas that many borrowers often overlook:

-- Start Early
-- Estimate Your Share
-- Federal Aid First
-- Filling the Gap
-- Borrowing Smart

"Postsecondary education is a large and highly impactful investment for students and families. With the cost of college continuing to rise, it is critical that students make sound financial decisions in determining how to pay for college," said Jack Kopnisky, Chief Executive Officer and President of The First Marblehead Corporation. "Part and parcel of making sound decisions is having reliable, easy-to-understand information about how much you need, where you're going to get it, and how you're going to pay it back. That's why we've launched this educational campaign."

Start Early

The First Marblehead survey revealed that procrastination is common in college funding preparation. Of those who did any planning at all, less than half (41 percent) of parents said they did not start until their child entered high school. Less than one in five families (18 percent) had saved more than $25,000 in total for college by the time students had entered their freshman year. Kopnisky said he found the latter statistic particularly startling considering the average cost of tuition and fees at a private, four-year college is over $22,000, excluding room and board (College Board, 2006). "Students and their parents need to begin family discussions about how to pay for college, along with their specific needs and options, much earlier," he said.

Smartborrowing.com tip:

-- Start family discussions about how to pay for college as soon as you
begin to talk about your academic and career goals. Before high school is a
good time to start.

Estimate Your Share

The survey found broad disparities between what students perceived they would be contributing to financing college and what their parents believed. More than one-quarter (26 percent) of students said they would be solely responsible for paying for college, while just over one in 10 parents (11 percent) said their children would be carrying the full load. Kopnisky said First Marblehead wants to help families close the communication gap around expected costs of college and the financial resources that are available. "To ensure that families are not borrowing too little, or too much, it's really important that students and parents talk about -- and agree upon -- how much they're going to need, and who is going to be responsible for what portion of the financing."

Smartborrowing.com tip:

-- When you think about college costs, what comes to mind? Tuition, room
and board, right? There are other education-related expenses for you to
consider -- like books, lab fees, course materials, a laptop. The time to
think about these costs is before you start applying for financing.

Federal Aid First

Students and parents both felt that scholarships (95 percent), grants (81 percent) and savings (47 percent) were the top three ideal sources that should be used to finance college. Yet the ideal and the actual sharply diverge in practice. In reality, scholarships (65 percent), savings (63 percent) and federal loans (58 percent) are the top three sources. "Students and families should carefully consider the full range of financial aid options available to them," said Kopnisky. "Loan applicants should avail themselves of free and low-cost aid sources first, using private loans to supplement rather than supplant federal loans when the latter are not sufficient to cover the full cost of education, which is increasingly the case."

Smartborrowing.com tip:

-- Use the full range of financial aid options available to you. Apply
for scholarships, grants and federal student loans first.

Filling the Gap

The survey found that 42 percent of respondents did not apply for federal loans, which typically offer more favorable rates than alternative loans, and one in five (20 percent) respondents did not take out the maximum federal loan amount before seeking alternative loans. "Even when it comes to people who have exhausted all their other options before seeking a private education loan, both the survey and our experience tells us that many people don't fully understand that there are factors -- credit scores, cosigners, the amount of the loan -- to evaluate in considering their specific needs and that ultimately impact the amount they'll pay."

Smartborrowing.com tip:

-- Once you have exhausted your scholarship, grants and federal aid
options, consider filling the gap with a private education loan.
-- Ask a parent, other relative, or trustworthy friend to co-sign your
private student loan to secure the best possible terms.

Borrowing Smart

Similarly, according to the survey, students and parents were not aware of many of the student loan benefits. Less than half of the respondents were aware that loan payments can be made electronically (21 percent) and that payment can begin before graduation (47 percent). Only 35 percent were aware that payments could be delayed on many private loans if borrowers experience financial difficulty.

Smartborrowing.com tip:

-- Make sure your lender provides you with loan documents that are
written in clear, simple language.
-- Know that interest rates can and do change over time. Make sure that
you can afford the monthly payments should your interest rate go up.
-- Make sure you are not penalized if you pay off your loan early.
-- If you make a loan payment electronically, you may be entitled to an
interest rate reduction.
-- You may be able to defer payments until you graduate.

"More Americans are applying and going to college than ever before, yet the annual funding gap between the cost of education and traditional funding sources such as federal student loans, scholarships and grants continues to widen and is estimated to be $122 billion," Kopnisky said. "At the same time, the value of a college education cannot be overstated. As we point out on the site, a 2002 Census Bureau study showed a college graduate can earn almost twice as much as someone with a high school degree." He added, "Through our Smart Borrowing campaign, we want to help students and parents understand what financial resources are available as well as help them navigate through the process as effectively as possible to fill the financial gap."

About the survey findings -- First Marblehead commissioned a third-party market research firm to conduct this survey to gain insight into both students' and parents' viewpoints on borrowing, including the timing of school financing research, options researched, and their overall understanding of various education financing options. An online panel of more than 400 parents and students participated. All respondents are either college students or have children who are college students and have experience applying for federal aid. The survey was conducted in July 2007.

About The First Marblehead Corporation -- First Marblehead, a leader in creating solutions for education finance, provides outsourcing services for private, non-governmental education lending in the United States. The Company helps meet the growing demand for private education loans by providing national and regional financial institutions and educational institutions, as well as businesses and other enterprises, with an integrated suite of design, implementation and securitization services for student loan programs tailored to meet the needs of their respective customers, students, employees and members. For more information, visit www.firstmarblehead.com.

Contact:
Janice D. Walker
Vice President
Corporate Communications
617-638-2047

http://money.cnn.com

Student loan lessons

2007-07-27T01:38:00.000-07:00

Student loan lessons
Degrees in hand, grads must deal with debt
By Michelle Singletary
July 26, 2007

Karen Wons of Maryland finds herself in a quandary that is confronting many parents right now.

She is struggling with how best to advise her daughter — a recent college graduate — on paying down her $25,000 in student loans.

Wons did what any wise parent would do. She asked for help.

Here’s the back story. Wons’ daughter works as a project manager at a medical software company. She has an annual salary of more than $50,000. Her employer provides a 401(k). She has about $13,000 in cash from recently redeemed Series EE savings bonds. She has no credit card debt. She has no payments on a reliable car with low mileage. She’s sharing an apartment and other living expenses with an older sister in Madison, Wis. Her portion of the rent is just over $500 a month.

Wons is unsure about the course her daughter should take with her debt. She asked the following:

• Should the daughter consolidate her college loans during her six-month grace period? (She has federally backed Stafford and Perkins loans.)

• Should she use the entire $13,000 to pay down the loans or keep making monthly payments to take advantage of the interest deduction?

• Should she invest all of the $13,000?

• While paying off the loans, should she contribute to her 401(k)?

Consolidation

Let’s take the consolidation question first. Mark Kantrowitz, publisher of www.finaid.org, one of the best student loan informational Web sites available, recommends that Wons’ daughter consolidate any Stafford loans that were disbursed before July 1, 2006. Graduates who consolidate their Stafford federal student loans during their grace period — the six months after graduation — are eligible for a 0.6 percent interest-rate reduction. If she consolidated the pre-2006 loans, her rate would be 6.625 percent compared with 7.22 percent at the end of her grace period.

Stafford loans disbursed after July 1, 2006, are fixed at 6.8 percent, so there is no need to consolidate them, he said. When you consolidate Perkins loans, you lose favorable repayment benefits such as loan forgiveness and a nine-month grace period, as well as subsidized interest during any periods of deferment. The 5 percent rate for Perkins loans is fixed, so there’s no advantage to consolidate them with other loans, Kantrowitz said.

Under the federal consolidation program, student and parent borrowers can bundle all of their loans into one fixed-rate loan and stretch out the payments to 30 years from the standard 10 years, depending on the debt amount. Stretching out the loan means a lower monthly payment. It also means increasing the cost of the loan.

I agree that Wons’ daughter should resist the temptation to stretch out the payments. Her expenses are low now, so why not pay off the loans? Besides, people say they’ll make extra payments, but it’s a promise that is easily and often broken because it’s hard to maintain the discipline to retire debt early.

Investment options

With regard to paying down the loans versus investing the $13,000, it’s a matter of comparing the after-tax impact of the two options, Kantrowitz said.

That comparison would include the fact that some borrowers can deduct up to $2,500 of student loan interest.

However, if you’re single and your modified adjusted gross income is between $50,000 and $65,000, the interest deduction is gradually reduced, as it would be for Wons’ daughter. Once her MAGI is $65,000 or more and if she’s still single, she gets no deduction.

I know conventional wisdom says that if the projected after-tax gain on the $13,000 investment is higher than the interest she would pay on the loans, taking into account the tax break, she shouldn’t worry about paying down the debt. But an investment return isn’t guaranteed. Investing involves risk. There’s also the possibility she’ll be tempted to spend the $13,000 and any gains.

If it were my daughter, I would tell her to pay down the debt, holding back three months’ worth of living expenses. For Wons’ daughter, that might come to about $4,500, which she should park in a high-yielding savings account or money market.

The remaining $8,500 should go to pay off as much of the Stafford loans as possible.

Pay the Staffords first because they carry a higher interest rate than the Perkins loans.

Retirement needs

And, yes — even while paying down debt — the daughter should contribute to the 401(k), especially if her employer offers to match a percentage of her contributions.

ljworld.com

IRS: Topic 456 - Student Loan Interest Deduction

2007-07-27T01:33:00.000-07:00

Topic 456 - Student Loan Interest Deduction

You may be able to deduct interest you pay on a qualified student loan. And, if your student loan is canceled, you may not have to include any amount in income.

The deduction is claimed as an adjustment to income so you do not need to itemize your deductions on Schedule A Form 1040.

You cannot claim the deduction if:

1. Another taxpayer claims an exemption for you as a dependent,
2. Your filing status is married filing separately, or
3. You are not legally obligated to make payments on the loan.

A qualified student loan is a loan you took out solely to pay qualified higher education expenses. The expenses must have been:

1. For you, your spouse, or a person who was your dependent when you took out the loan,
2. Paid or incurred within a reasonable time before or after you took out the loan, and
3. For education furnished during an academic period when the recipient was an eligible student.

Qualified higher education expenses are the costs of attending an eligible educational institution, including graduate school. The costs of attendance are determined by the eligible educational institution and include tuition and fees, an allowance for room and board, and an allowance for books, supplies, transportation and miscellaneous expenses.

Costs you incur have to be reduced by:

1. Non–taxable employer – provided educational assistance.
2. Non–taxable distributions from a Coverdell education savings account,
3. Non-taxable distributions from a qualified tuition program (QTP),
4. U.S. Savings Bond interest that is non–taxable because it is used to pay qualified higher education expenses,
5. The non-taxable part of scholarships and fellowships,
6. Veterans educational assistance, and
7. Any other non–taxable payments (other than gifts, bequests, or inheritances) received for educational expenses.

The student must have been enrolled in a degree, certificate, or other program leading to a recognized educational credential at an eligible educational institution and must have carried at least one half of a normal full–time work–load for the course of study being pursued.

The deduction will start to phase out when modified AGI exceeds certain amounts, please refer to Publication 970 for these limits.

If you paid $600 or more of interest on a qualified student loan during the year, you will receive a Form 1098-E (PDF), Student Loan Interest Statement, from the financial institution, from a governmental unit (or any of its subsidiary agencies), from educational institutions, or any other person to whom you had paid student loan interest of $600 or more in the course of their trade or business.

More information on student loan interest deduction and other education benefits is available in Publication 970, Tax Benefits for Education.

Student Loan Report: Confusion Reigns

2007-07-21T15:10:00.000-07:00

Student Loan Report: Confusion Reigns
By Kim Clark
Posted 7/20/07
(usnews.com)

Students and parents are so befuddled by financial aid that they end up making expensive mistakes, such as taking out unnecessarily expensive loans, according to a report by Consumers Union.

The Yonkers, N.Y.-based nonprofit called on government, schools, and lenders to provide more and better information.

Consumers Union said its interviews with students revealed widespread confusion and misunderstanding. A sophomore at a two-year college in the Boston area, for example, told CU: "You can just put [tuition] on your credit card, and you don't have to take out a loan," not realizing that credit card charges are loans with, typically, very high interest rates. A sophomore at a Los Angeles-area community college took out a private loan at 11 percent interest and was suspicious that there was "a catch" to the 6.8 percent interest rate for federal Stafford loans.

High school seniors and new college students "lack the personal financial sophistication necessary to make informed college funding decisions," says Michael Wroblewski, author of the report.

CU called for groups such as testing agencies to offer more information about financial aid so that high school students will start to learn about finances earlier. And it called on colleges to standardize financial aid offer letters so that students can more easily compare the true costs of different colleges. It said that lenders ought to explain rates, fees, and terms to students in plain English and that colleges ought to require more counseling about loans before they allow students to borrow.

The recommendations added to a flurry of financial aid activity on Capitol Hill. After much acrimony, the Senate Thursday night passed a bill halving interest rates on student loans over five years and boosting the size of federal Pell grants by $200 next year and $500 by 2012. The Senate also followed the House's lead and slashed the profits the government guarantees private lenders that make student loans. It also ordered the government to forgive the federal student loans of teachers, police officers, and other public servants.

Lobbyists said the Senate and the House would soon begin negotiations to reconcile their respective bills. Alexa Marrero, spokeswoman for a trade association representing nonprofit student lenders, said the proposals that are popular with both parties, such as increasing scholarships and banning college financial aid officers from accepting gifts from lenders, are likely to make it into law.

Matt Owens, a lobbyist for the Association of American Universities, said he expected that Congress would eventually require schools and lenders to provide more and better information to borrowers. In addition, he said there is wide agreement on proposals to simplify the Free Application for Federal Student Aid, or FAFSA, which is currently longer and more complex than the 1040 tax return.

Health Tips: Lighter back-to-school load

2007-07-21T15:04:00.000-07:00

Published: July 20, 2007
By ALEX CUKAN
UPI Health Correspondent
Flip-flop foot problems

Flip-flops are the footwear of choice for many students, but while they may be inexpensive and stylish, they don't cushion or support the foot and can result in the groans of foot pain. The American College of Foot and Ankle Surgeons reminds parents and students that foot pain isn't normal and can be reduced or eliminated. To locate an ACFAS foot and ankle surgeon, visit the Web site FootPhysicians.com.

"People may not realize that even into your mid-teens, there's new bone growing in your heel," says Michael Cosenza, a foot and ankle surgeon in Ukiah, Calif. "Flip-flops don't cushion the heel, so repetitive stress from walking can inflame that heel bone growth area and cause pain and tenderness."

The most common complaints from flip-flop wearers are heel pain and arch pain. Other flip-flop foot problems include inflammation of the Achilles tendon, painful pinched nerves, sprained ankles, broken or sprained toes, cuts and scrapes, plantar warts, athlete's foot and callus build-up on the heels and toes.

Foot and ankle surgeons can usually reduce or eliminate students' foot pain with simple treatment methods including:

-- Stretching exercises.

-- Ice massage.

-- Anti-inflammatory medications.

-- Custom or over-the-counter shoe inserts.

Fighting the freshman 15

The freshman 15 refers to the pounds college students in a new school inevitably gain. It is not a myth, according to Virginia Tech administrative dietitian Jenny Lindsey. It has been shown that students tend to gain weight, but exactly how many students gain how many pounds is still under dispute.

"The weight gain generally occurs for freshmen because it's the first time that students have had to make all of their food decisions on their own," says Lindsey. "With their newfound freedom, confronted with a multitude of appealing items, they find it difficult to practice moderation."

Changes in behavior can also affect weight -- with alcohol consumption playing a major role, as well as stress, which many people deal with by eating, according to Lindsey. In addition, activities get changed and those no longer involved in sports are burning fewer calories.

Lindsey advises students to pick wisely -- fruits and vegetables, whole grains and low-fat dairy items. She also advises students to:

-- Make sure that meals are varied and contain items different from previous meals.

-- Learn proper portion sizes. Take a few things at a time and if still hungry, then go back for seconds.

-- Keep healthy snacks on hand such as pretzels, unbuttered popcorn, granola bars and raisins.

-- Don't forget to exercise. It keeps stress levels down, promotes better sleep, and improves health.

Defeating depression

The number of college students suffering from depression has been rising -- it was at 15 percent last year, up from 10 percent in 2000. A number of colleges are responding by instituting a depression screening program.

"This is to ensure that students with depression do not slip through the cracks but rather are identified and treated as soon as symptoms arise," explains Patricia Ellis, director of health and counseling services at St. Lawrence College in Canton, N.Y. The other participants are Cornell University, Princeton University, Hunter College, Baruch College, Case Western Reserve University and Northeastern University.

Using a nine-item Patient History Questionnaire, or PHQ-9, which takes students only a few minutes to fill out -- often while they wait to be treated for a minor ailment at the health center -- Ellis expects to screen more than eight out of 10 St. Lawrence students by the year's end.

"We had a student recently come in complaining of a cold," Ellis says. "She took the PHQ-9 and scored an 18. We immediately began counseling on a weekly basis. The student is now doing well academically and feeling much better. I have no doubt that our early screening and treatment avoided negative consequences."

The negative consequences of depression, she says, typically include:

-- Poor grades.

-- Flunking out of school.

-- In serious cases, doing harm to oneself or others. Suicide is also rising steadily in adolescents.

Lightening the load

Today's student carries a heavy load -- usually in a backpack. Healthcare professionals are concerned these backpacks may play a role in the development of serious conditions, such as chronic back pain and functional scoliosis.

"The old adage, 'As the twig is bent, so grows the tree,' comes to mind," says Kevin Slates, of Indiana University.

More than 55 percent of the college-age respondents reported experiencing pain from carrying their backpacks, with a higher percentage of women -- 67 percent -- reporting such pain, according to Slates. Graduate students had the heaviest packs, weighing in at 12 pounds, 2 ounces on average.

Slates suggests keeping backpack weight as close to the body as possible with waist and chest straps and minimizing problems by distributing the weight evenly across the body. He also advises schools supply temporary lockers so all books for all classes need not be carried all day.

Slates advises:

-- Keeping backpack weight below 15 percent to 20 percent of total body weight.

-- Wearing backpack straps over both shoulders for an evenly balanced load.

Back To School 2007: Owens develops top student success plan

2007-07-21T14:49:00.000-07:00

7/20/2007
Back To School 2007: Owens develops top student success plan
By Duane Ramsey
Toledo Free Press Staff Writer
news@toledofreepress.com

Owens Community College is the lead institution in Ohio for the development of Student Success Initiatives and introducing the new First Year Experience class. After a pilot program in the spring and summer, the college will offer 26 sections of the new class in the fall for about 600 of its estimated 20,000 students to attend.

“Owens Community College's selection as a lead institution demonstrates the college's responsiveness to continuing to meet Northwest Ohio's educational needs and ensuring that every student succeeds in pursuit of their academic aspirations,” said Paul Unger, executive vice president and provost.

Owens was one of only 34 institutions nationwide to receive a $1.65 million Title III, Part A, Strengthening Institutions Grant from the U.S. Department of Education. The five-year grant is to be used to enhance and expand educational resources designed to support student success.

The ultimate goal of the federally funded project was to establish and implement the First Year Experience program for students. The $1.65 million in federal funds is the largest grant or gift received in the college's 41-year history.

“The program is designed to help students be more successful by completing their program and graduating,” said Bruce Busby, vice president of Academic Services. “Students come here to live fully enriched lives, identify their goals, showcase their skills, and realize fulfilling employment in their field of endeavor.”

The new class is designed for first-year students with less than 30 credits from age 18 to 65 or older. By next year, they expect to have 150 sections of the First Year Experience class to make it available to students in business, health sciences and technology.

“The class is built on the institution from the students' eyes but also looks at the institution through every aspect,” said Renay Scott, dean of the School of Arts and Sciences.

“Is this program helping our students to be successful?” Scott said they have to ask. “If so, great. If not, what do we need to do to make it work for them.”

The college's strategies are based on research conducted by John Gardner of the National Resource Center for First Year Experience and Students in Transition.

That research shows that students who have a clear goal in mind usually achieve it. This program helps students think about what they want to get out of their education and look at the steps needed to complete their education.

“This program builds relationships with faculty and staff who can help our students to be successful if we can provide the relationships with people to whom they can go for advice and/or problems,” Busby said.

The First Year Experience emphasizes five core competencies for students that include writing, oral communications, mathematical reasoning, social responsibility, and critical thinking.

“Students must be able to demonstrate some level of competency in these five categories. It's important because it's our promise to them,” said Jason Tetzloff, director of Student Success Initiatives and chair of the School of Arts and Sciences.

A key component in the program is the development of an Electronic Portfolio where students can store their work and reflect on what they have accomplished. It's also a vehicle for faculty to assess their work and the program to help improve it, Scott said.

The e-portfolio is an electronic file designed for storing all types of the student's work from documents, papers, photos, and videos, to graphic and CAD designs. Anything that can be made into a digital file can be stored in an
e-portfolio.

“This unique feature gives students a way to display what they have learned and will be expandable with new technologies being developed,” Tetzloff said.

Students can become more efficient users of technology, which is what the workplace is looking for in today's college graduates. The process is as important as the product for the students and the institution to evaluate, according to Tetzloff.

Students can take it with them to further their education or show potential employers at job interviews. Everything in the portfolio can be passed along to other sources.

“The e-portfolio is the showpiece of that program (First Year Experience), a piece that is transformational for the student and the institution,” Tetzloff said.

Owens is the lead institution for developing the e-portfolio as a pilot program in the state of Ohio. The goal for the state is for all students to have such a portfolio for college and long-term to develop one over a lifetime from kindergarten through college.

“It's exciting that we're the pioneers for what's going to be a statewide program,” Tetzloff said.

A stable platform is required for the portfolio to become a statewide document. Owens is working with the Ohio Learning Network to develop an open source platform for the e-portfolio.

“The goal is that we'll all be on the same stable platform supported by the state,” said Tetzloff.

“Ohio needs more better-educated students who are successful and can show that success,” Tetzloff said. “It could have an incredible economic impact in the state.”

The Early Childhood Program in the Teacher Education Department at Owens already requires students to have a portfolio so that state and national accreditation can recognize the value of students and their talents, Scott said.

Intro to 529s: gift and estate tax advantages

2007-07-19T23:58:00.000-07:00

Intro to 529s
I thought there were some gift and estate tax advantages with 529 plans, but you didn't mention that as a benefit. Am I wrong?

The gift and estate tax treatment of an investment in a 529 plan is a good news, bad news situation.

The bad news is that your contribution is treated as a gift to the named beneficiary for gift tax and generation-skipping transfer tax purposes and so you need to be aware of this exposure particularly if you are making other gifts to the beneficiary during the same year.

The good news is that your contribution qualifies for the $12,000 annual gift tax exclusion and so most people can make fairly large contributions without incurring the gift tax.

Even better news is that if you make a contribution of between $12,000 and $60,000 for a beneficiary, you can elect to treat the contribution as made over a five calendar-year period for gift tax purposes. This allows you to utilize as much as $60,000 in annual exclusions to shelter a larger contribution. The money (and the growth of your account) gets out of your estate faster than if you made contributions each year.

And the best news is that the asset leaves your estate but doesn't leave your control. This is a truly remarkable benefit when you compare it to the "normal" gift and estate tax laws. Anyone who is being advised to reduce their estate tax exposure through gifting, but cannot stand the thought of irrevocably giving away their assets, can now have their cake and eat it too. Of course, if you later revoke the account its value comes back into your estate. Your estate will also have to include a portion of any contribution made with the five-year averaging election if you don't live past the fourth year.

Intro to 529s: Can I transfer my child's existing Uniform Transfers to Minors Act (UTMA) account into a 529 plan?

2007-07-19T23:56:00.000-07:00

Intro to 529s
Can I transfer my child's existing Uniform Transfers to Minors Act (UTMA) account into a 529 plan?

Many, if not all, 529 plans accept funds coming from an existing UTMA or UGMA. However, because these funds belong to the minor under a custodial arrangement, any withdrawals from the UTMA/529 account must be for the benefit of that minor only. Program rules and state laws will generally prevent you from making any beneficiary changes to the UTMA/529 account, and the minor will assume direct ownership of the account when the custodianship terminates at the age of majority. Parents who are nervous about a child getting their hands on money in an UTMA account, and who may be looking to "regain control" of the money by transferring the funds to a 529 account, may be disappointed to learn that they are not able to accomplish that objective without violating state laws (see your attorney). Still, the placement of UTMA funds in a 529 account can provide all the tax and investment benefits associated with 529 plans. Remember, however, that a 529 plan can only accept cash and so any appreciated securities in the UTMA would first have to be sold and capital gains would be reportable on the minor's tax return.
(savingforcollege.com)

Intro to 529s: Can I transfer my existing Coverdell education savings accounts and U.S. savings bonds into a 529 plan?

2007-07-19T23:55:00.000-07:00

Intro to 529s
Can I transfer my existing Coverdell education savings accounts and U.S. savings bonds into a 529 plan?

Yes, you can accomplish these transfers without triggering tax, but you should be careful about ownership issues. For instance, the Coverdell ESA (formerly the Education IRA) is effectively owned by your child and so it may not be proper to transfer the funds into a 529 account that is owned by you. Also note that the tax-free transfer of U.S. savings bond redemption proceeds into a 529 plan requires that you meet all the qualification requirements for the education exclusion, including the income limits in the year of the redemption.
(savingforcollege.com)

Tutorial: Intro to 529s, penalty doesn't sound so bad

2007-07-19T23:51:00.000-07:00

Intro to 529s
That penalty doesn't sound so bad. Am I missing something?

What could be worse than the penalty is the fact that the earnings portion of a non-qualified distribution that comes back to you, the account owner, will be subject to tax as ordinary income at your tax rate. (Some 529 plans allow you to direct the withdrawal to the beneficiary, which would presumably keep it in a low tax bracket.) In addition, if you were able to deduct your original contributions on your state income tax return, you will generally have to report additional state "recapture" income.

Tutorial: Intro to 529s, penalty on refunds

2007-07-19T23:48:00.000-07:00

Intro to 529s
What's this I hear about a penalty on refunds? What happens if my child doesn't go to college or if I simply end up with more in the account than he needs for college?

Federal law imposes a 10% penalty on earnings for non-qualified distributions beginning in 2002. The penalty is not assessed on principal. An exception to the penalty can be claimed if you terminate the account because the beneficiary has died or is disabled, or if you withdraw funds not needed for college because the beneficiary has received a scholarship.

You can change the beneficiary to another qualifying family member at any time in order to keep the account going and avoid (or at least delay) taking non-qualified withdrawals when the original beneficiary doesn't need those funds.

Tutorial: Will a 529 plan affect my child's chances to qualify for financial aid?

2007-07-19T23:45:00.000-07:00

Intro to 529s
How will a 529 plan affect my child's chances to qualify for financial aid?

A new law enacted in early 2006 (Deficit Reduction Act of 2005) made substantial changes to the treatment of 529 plans in the federal student aid eligibility formula. The changes were first effective for the 2006-07 school year.

Before these changes, we relied on guidance from the U.S. Department of Education stating that a 529 savings account is treated as an asset of the parent or other account owner in determining eligibility for federal financial aid. This was generally considered good news because it meant that your expected contribution towards your child's college costs would count only 5.6 percent, or less, of the value of any 529 account of which you are the account owner. However, a 529 account owned by your child, including a "custodial" 529 account funded from an existing UGMA/UTMA account, was still considered to be a student asset. Students assets are assessed in the financial aid formula at a much higher 20 percent rate (35% percent for years prior to the the 2007-08 school year).

The 2006 law now prevents a 529 account from being treated as a student asset on a FAFSA filed by a dependent student. This means a custodial 529 will no longer be subject to the 20 percent assessment rate. In fact, it shouldn't be included on the FAFSA at all. The transfer of UGMA/UTMA assets from taxable investments into a 529 plan can immediately produce much higher eligibility for federal financial aid. Even if Congress decides that this result was not intended, and enacts further changes to eliminate the "loophole," the worst case is likely to be treatment of the student-owned 529 account as a parent asset. This would still produce a substantial benefit.

Along with favorable asset treatment, a 529 account also garners favorable treatment in the income portion of the financial aid eligibility formula. A tax-free distribution from a 529 plan to pay this year's college expenses will not be part of the "base-year income" that reduces next year's financial aid eligibility.

Here is a simplified example of how this all works: You file the FAFSA aid application when your child is a senior in high school. Let's say you have a 529 savings account (you are the owner, not your child) with $20,000 in it, of which $10,000 represents your original contribution and $10,000 is earnings. Your eligibility for federal financial aid this year will decrease by no more than 5.64% of the account value, or $1,128. Assume there is no further appreciation in the account and you withdraw $5,000 in the Fall to pay for the first semester college bills. If you have $15,000 left in the account when you apply for aid for sophomore year, you will again be assessed up to 5.64%, or $846, of the account value. The $5,000 withdrawal brought $2,500 of excluded earnings with it, but as indicated above, none of the withdrawal is counted as financial aid income. The federal aid formula is even more complicated than what is described here.

Another major change in the 2006 law is the way a 529 prepaid tuition plan is treated. Under the old law, your investment would not show up at all on the FAFSA, but the benefits paid out would be considered by the institution as a resource that reduced your child's overall financial "need". The bottom line effect for most families was a dollar-for-dollar offset in eligibility.

Going forward, a 529 prepaid tuition plan will be treated the same as a 529 savings plan. It will no longer cause a dollar-for-dollar reduction in financial aid. Instead, the reduction will be no more than 5.6 percent of the refund value of the prepayment account.

Sound complicated? It is. And we are only talking about the federal financial aid rules here -- each school can (and most will) set its own rules when handing out its own need-based scholarships, and many schools are starting to adjust awards when they discover 529 accounts in the family. Also consider that the federal financial aid rules are subject to frequent change. Finally, remember that most financial aid comes in the form of loans, not grants, and so you end up paying it back anyway.

Tutorial: What's so great about 529 plans

2007-07-19T23:43:00.000-07:00

Intro to 529s
What's so great about 529 plans?

You're looking at four main advantages.

First, you get unsurpassed income tax breaks. Although your contributions are not deductible on your federal tax return, your investment grows tax-deferred, and distributions to pay for the beneficiary's college costs come out federally tax-free. The tax-free treatment was made permanent with the Pension Protection Act of 2006. Your own state may offer some tax breaks as well (like an upfront deduction for your contributions or income exemption on withdrawals) in addition to the federal treatment.

Second, you the donor stay in control of the account. With few exceptions, the named beneficiary has no rights to the funds. You are the one who calls the shots; you decide when withdrawals are taken and for what purpose. Most plans even allow you to reclaim the funds for yourself any time you desire, no questions asked. (However, the earnings portion of the "non-qualified" withdrawal will be subject to income tax and an additional 10% penalty tax). Compare this level of control to a custodial account under the Uniform Transfers to Minors Acts (UTMA).

Third, a 529 plan can provide a very easy hands-off way to save for college. Once you decide which 529 plan to use, you complete a simple enrollment form and make your contribution (or sign up for automatic deposits). Then you can relax and forget about it if you like. The ongoing investment of your account is handled by the plan, not by you. Plan assets are professionally managed either by the state treasurer's office or by an outside investment company hired as the program manager. You won't even receive a Form 1099 to report taxable or nontaxable earnings until the year you make withdrawals. If you want to move your investment around you may change to a different option in a 529 savings program every year (program permitting) or you may rollover your account to a different state's program provided no such rollover for your beneficiary has occurred in the prior 12 months. (There is no federal limit on the frequency of these changes if you replace the account beneficiary with another qualifying family member at the same time.)

Finally, everyone is eligible to take advantage of a 529 plan, and the amounts you can put in are substantial (over $300,000 per beneficiary in many state plans). Generally, there are no income limitations or age restrictions. Thinking about going back to college or graduate school in the future? Then set up a plan for yourself!

Tutorial: Why should I invest in a 529 plan

2007-07-19T23:40:00.000-07:00

Intro to 529s
Why should I invest in a 529 plan when I can't be sure that my child will attend a public university in my state?

There's a misconception that state-sponsored 529 plans are only geared to families that send their children to a state school. That's just not true. There are two general types of 529 plans: prepaid programs and savings programs. The states offering prepaid tuition contracts covering in-state tuition will allow you to transfer the value of your contract to private and out-of-state schools (although you may not get full value depending on the particular state). If you decide to use a 529 savings program, the full value of your account can be used at any accredited college or university in the country (along with some foreign institutions). You can look up eligible institutions here.

Recent tax law changes now permit higher education institutions to offer their own 529 prepaid programs. These will allow you to target your tuition prepayment to the sponsoring institution (or group of institutions). The Independent 529 Plan is the only such program currently in operation.
(savingforcollege.com)

529 plan - Definition

2007-07-19T23:36:00.000-07:00

A 529 plan is a tax-advantaged investment vehicle in the United States designed to encourage saving for the future higher education expenses of a designated beneficiary. It is named after section 529 of the Internal Revenue Code. The detailed behavior of 529 plans are determined by state legislation, and while most plans allow investors from out of state, there can be significant state tax advantages and other benefits, such as matching grant and scholarship opportunities, protection from creditors and exemption from state financial aid calculations, for investors who invest in 529 plans within their state of residence.

There are two types of 529 plans: prepaid and savings.

* Prepaid plans allow one to purchase tuition credits, at today's rates, to be used in the future. Therefore, performance is based upon tuition inflation.
* Savings plans are different in that all growth is based upon market performance of the underlying investments, which typically consist of mutual funds. Most 529 savings plans offer a variety of age-based asset allocation options where the underlying investments become more conservative as the beneficiary gets closer to college-age. They also offer risk-based asset allocation options where the underlying investments maintain the same equity-to-fixed-income ratio regardless of the age of the beneficiary. Many savings plans also offer a stable value or guaranteed option designed to protect an investor's principal while providing for some investment growth, while others offer investments in certificates of deposit.

Prepaid plans may be administered by states or higher education institutions. Savings plans may only be administered by states. Although states administer savings plans, record-keeping and administrative services for many savings plans are usually delegated to a mutual fund company or other financial services company.

With the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA), 529 plans gained their current prominence and tax advantages. Before EGTRRA, distributions from 529 plans for qualified higher education expenses were taxed at the beneficiary's federal income tax rate. After EGTRRA, distributions from 529 plans for qualified higher education expenses are exempt from federal income tax. The 529 plan provisions of EGTRRA, originally set to expire in 2010 due to a sunset provision, were made permanent by the Pension Protection Act of 2006.

Advantages

* All money grows federal and state income-tax free.
* The account holder retains control of the assets within the program regardless of beneficiary's age.
* The beneficiary can be changed at any time to another member of the beneficiary's family.
* Many states exempt withdrawals from state income-tax for qualified higher education expenses.
* Money can be used virtually everywhere—over 8,000 schools in the U.S. and over 800 foreign schools.
* Money can be used to pay for tuition, fees, room, board, books, supplies and required equipment.
* High maximum contribution limits.
* Contributions are exempt from gift and estate taxes if certain criteria are met. Account owners can make a lump sum contribution of up to $60,000 per beneficiary or $120,000 if married filing jointly and avoid incurring a taxable gift on this amount by electing to use five years of the annual gift tax exclusion all in one year. After using this provision, the annual exclusion cannot be used again for the same beneficiary until the five-year period has passed. Should a donor die within those five years, a pro-rata amount of the gift will revert back to their estate and be treated as a taxable gift. After the five-year waiting period, 529 plan assets are not part of the taxable estate of either the owner or the beneficiary.
* Assets within 529 plans are often protected from bankruptcy within the state offering the plan.
* Most plans have very low minimum monthly contribution limits making them attractive to all families regardless of income level.
* Each state offers a no-fee, low cost option that can be opened by contacting the plan directly.

The income tax advantages have contributed significantly to their popularity as a college savings tool.

While states administer various plans, one does not have to enroll in your state-of-residence's plans. It pays to compare when enrolling. In some cases, out-of-state plans may offer better fund choices and lower overall management costs for those funds than your own state that may more than offset any extra benefits that your own state's plan offers residents.

529 plans are often a wise investment for families with young children, even if it is not certain the children will go to college. If the children do not seek higher education, after they reach adulthood it is typically possible to withdraw the money without triggering withdrawal penalties, although taxes will be due on any investment gains in the plan.

Disadvantages
An article in Slate magazine showed the high fees associated with these plans make them less effective saving tools than more traditional funds: http://www.slate.com/id/2070062/. (The article referenced here is nearly five years old and does not adequately describe recent improvements to 529 plans, including a reduction in fees and expenses, the addition of investment options to many plans and the additional benefits that states are developing for participants in these plans.)

While the number and types of 529 plans is growing, not all investment vehicles are available in 529 form. For instance, Muslim investors do not yet have 529 plans that invest according to Islamic banking principles (see article below "Valuing Children, Knowledge and Money"). Gradually, other types of socially responsible investing options are becoming available, such as the plans now available in California and Washington D.C..
(Wikipedia)

Tutorial: Intro to 529s

2007-07-19T23:34:00.000-07:00

What is a 529 plan?

It's an education savings plan operated by a state or educational institution designed to help families set aside funds for future college costs. As long as the plan satisfies a few basic requirements, the federal tax law provides special tax benefits to you, the plan participant (Section 529 of the Internal Revenue Code).

529 plans are usually categorized as either prepaid or savings, although some have elements of both. Every state now has at least one 529 plan available. It's up to each state to decide whether it will offer a 529 plan (or possibly more than one), and what it will look like. Educational institutions can offer a 529 prepaid plan but not a 529 savings plan (the private-college Independent 529 Plan is the only institution-sponsored 529 plan thus far).
(savingforcollege.com)

Advice: 529s: Best savings plan gets better

2007-07-19T23:28:00.000-07:00

By Penelope Wang, Money Magazine senior writer
July 19 2007

NEW YORK (Money Magazine) -- For years, consternation over expiring tax breaks, questionable financial aid treatment and high fees cast a long shadow over 529 plans, the once and future king of college savings accounts.

Not anymore. Consider these recent developments:

* Over the past year Congress has made tax-free withdrawals from these accounts permanent (they had been slated to end in 2010).
* Clarification of the financial aid rules has put to rest concerns that the plans can hurt eligibility for grants and low-cost loans (they may help).
* And many 529 providers have cleaned up their acts, slashing expenses and upgrading their investments.

The alternatives to 529s, meanwhile, are looking grim. Custodial accounts? Sunk by the latest hike in the kiddie tax. Coverdell Education Savings Accounts? An impending drop in contribution limits to just $500 a year will barely allow you to fund your kid's pizza budget.

The upshot: You'd now be a fool to save for college any other way but in a 529 plan.

Faced with such a clear choice, parents (and grandparents) have been pouring money into these plans lately - a record $5.2 billion flowed in during the first quarter of this year alone.

You will certainly need every penny you can sock away. With college costs in recent years climbing at a 6% annual rate, four years of tuition, room and board at a public school will run you $125,000 by 2022; for a private college, you'll need closer to $300,000.

The real question then is not whether to save for college in a 529 account but which one to pick. There are some 85 plans available nationwide, with almost every state offering at least one program and some, like West Virginia, offering as many as five.

The number and quality of the investment choices vary, and some of the plans are a whole lot more expensive to buy and own than others. Depending on where you live and which plan you pick, you might qualify for a state income tax deduction on your contribution.

Then again, the rules governing those write-offs may be changing soon. And many of the plan managers could change over the next few years as well, since some 60% of state contracts with their current 529 providers are set to expire by 2010.

Confusing? Well, yes. But it's nothing you can't handle by adhering to a few simple guidelines.
Rule 1: Look first at your own state plan

All 529 savings plans provide the same federal tax benefits: Your investment earnings grow free of income tax. Your withdrawals, as long as you use them to pay higher education bills, are untaxed as well.

What you don't get is an up-front federal tax deduction - think of these accounts as the college saver's counterpart to Roth IRAs.

But 32 states and the District of Columbia have stepped in where the feds have not, offering residents a write-off on state income taxes for at least a portion of their 529 contributions.

And three states - Kansas, Maine and Pennsylvania - even allow residents to deduct their contributions to out-of-state plans as well.

If you live in a high-tax state that offers a big deduction for 529 contributions, your best 529 plan is one in your own backyard - that is, as long as the plan also has reasonable expenses and offers solid investment choices (see rules 2 and 3).

In New York State or Michigan, for example, a married couple filing jointly can write off contributions of up to $10,000 ($5,000 for single taxpayers). And in Colorado, New Mexico, South Carolina and West Virginia, your contributions are fully deductible no matter how much you put in. (To see how much you can save in state taxes, check the calculator at archimedes.com.)

We selected 22 plans as top choices on this basis, in addition to another 5 whose strong management and low fees make them top choices not only for their own state's citizens, but for anyone whose in-state plan doesn't merit a star.

Outside those states your tax break may be modest - or your state may not offer a deduction or even impose an income tax at all. In that case, expand your search to include out-of-state plans.

One caveat: The rules governing state deductions for 529 plans could be changing soon because of a pending Supreme Court case that may bar states from giving tax breaks to their own 529s but not to out-of-state plans. (The case, Davis v. Kentucky, involves the tax treatment of municipal bonds, but 529 plans are likely to fall under the same rules.) A decision isn't expected for several months. But if the court does rule against special tax treatment, states may respond either by allowing residents to deduct contributions to any state's plan or by dropping their write-offs altogether.

For now, however, there's no reason not to grab the tax break for as long as it may be available.

Rule 2: Keep your expenses low
High management, marketing and administrative fees can cancel out the tax savings on 529 accounts and drag down your returns. For years the plans got a bad rap for charging too much, but growing competition lately has pushed many providers to lower their fees, says Joe Hurley, head of Savingforcollege .com, which supplied the data for our 529 survey.

For example, TIAA-CREF recently reduced fees on its Michigan plan from 0.60% to 0.45%. Last year Vanguard cut costs on its Nevada 529 to as little as 0.5%, while Fidelity began offering low-cost index funds in several plans, like those in California and Massachusetts.

But many 529 plans still charge you far more than you'd pay if you bought the same fund directly from the fund company. That's particularly true of plans sold through brokers.

The expenses for Missouri's MOST 529 Advisor plan, for example, range as high as 3.45%, or nearly three times the cost for a typical retail stock fund.

You will typically find the lowest costs among direct-sold 529s, such as Utah's Education Savings Plan, with expenses of 0.38% or less.

Try to limit your choices to in-state plans that charge less than 1% or national plans with expenses below 0.7%.

Rule 3: Pick funds that match your style
In addition to lowering their fees over the past year, 529 plans have been overhauling their menus of stock and bond funds by adding index portfolios as well as actively managed options.

For example, Colorado's Scholar Choice plan now allows investors access to star manager Bill Miller, who has beaten the S&P 500 in 15 of the past 16 years.

Still, most families favor age-based portfolios, which work much like target-date retirement funds in a 401(k). You select a mix of funds that gradually adjusts its allocation from stocks to fixed-income assets as your child nears college.

"Unless you are confident that you will make regular asset-allocation moves yourself, an agebased fund is the best option," says Michael Steiner, a financial adviser in Chatham, N.J.

Today many 529s offer three or four age-based mixes that range from aggressive to conservative; pick the one that suits your tolerance for risk.

A moderate investment allocation for an eight-year-old, for example, might be a 60-40 mix of stocks and bonds. If you decide to manage your own portfolio, remember that you can make an investment change only once a year.

Rule 4: Perform an annual checkup
A parent's duties are never done. Once you have signed up for a 529, you should review your account at least once a year to make sure your investments are on track.

And watch out for changes in your state's provider. If your plan does switch, look closely to make sure the expenses are still reasonable and the fund choices are solid. If you decide to stay in the plan, your account will be automatically shifted to a similar offering at the new fund group unless you request otherwise.

If you don't like the change or decide to move for other reasons, it's easy to switch to a different 529 in your state or another one. You are allowed one rollover a year. Just fill out a form. Most 529s will process the transaction within a week.

Rule 5: Plan you exit strategy
Making a withdrawal from your 529 is just as easy. By filling out a form, you can even arrange for the money to be sent directly to your child's college - a move that can simplify your tax records.

Be aware that under IRS rules, the payment of expenses and the withdrawal of 529 funds must take place within the same calendar year to qualify for tax-free treatment. In other words, you can't use money you withdraw in 2007 to pay a tuition bill in 2008.

Keep receipts, in case the IRS asks, to show that you spent the money on qualified education bills, which include tuition, room, board and fees.

Unfortunately, student-loan payments don't qualify. Still, with any luck, by saving in a 529, you may not have big college loans to worry about. Then again, there's always graduate school. Top of page

College Cost Reduction Act passes House

2007-07-19T23:25:00.000-07:00

Jason Nevel (The Western Courier)

The College Cost Reduction Act of 2007 passed its second test last Wednesday when the House of Representatives passed the legislation with a 273-149 vote.

U.S. Rep. Phil Hare, D-Rock Island, hailed the act as the single largest investment in higher education. Hare, along with Western Illinois University graduate Jessie Kallman, discussed how the bill would come at no expense to students. Kallman joined Hare on the conference call to give a student's perspective. Funding for the bill will be allocated from excess federal subsidies to private lenders.

The bill must now be considered by the Senate, which Hare said he believes it will have no problem passing.

However, the bill may be stopped in its tracks after the Senate because in a statement Thursday, the White House said President George W. Bush would veto the act in its current state. The White House said it does not reach out to the most needy students.

The College Cost Reduction Act of 2007 would provide additional funding for the Pell Grant scholarship by $500 per student over the next five years. Illinois students and families would receive $784 million over five years in the form of student loans and Pell Grants.

The bill also includes a provision to cut the interest rate on subsidized loans from 6.8 percent to 3.4 percent.

Kallman, who received her degree in political science and is going for a master's degree in sociology, said she owes $28,000 in student loans despite receiving scholarships. She also added that books, rent and other expenses are factors in her debt.

Don't Save for College!

2007-07-19T23:24:00.000-07:00

By John Rosevear July 19, 2007

If you think being a good parent means providing your kids with a college education, you're not alone. But I'm going to tell you why I think you should think twice before you start saving for those tuition payments years down the road.

Sure, saving for your kids' college education is important. You've undoubtedly read articles and books on the subject. There's even a whole section of our website devoted to college savings, where we walk through the pros and cons of Coverdell ESAs and 529s and all the other ways to fund Junior's years among the ivy-covered walls. And here I am saying that most people shouldn't be doing it.

But bear with me. Before you wander off saying, "Hey, this guy's out of touch," let me tell you this: I've got three kids under 10, and if they follow the standard schedules, there will be two years when they'll all be in college at the same time.

I've given this one a lot of thought, believe me. So what's the scoop?

The scoop
Here it is: You shouldn't save for your kids' college education until you've funded your own retirement accounts. And for those of us who haven't yet maxed out our retirement savings options, those -- along with all the other parts of getting our financial houses in order -- should take priority over saving for college. Since that's most of us ... well, you get the picture.

But why? Simple. You can get loans for college, but you can't get loans for retirement.

College lending has come a long way in recent years, with companies like First Marblehead (NYSE: FMD) and Sallie Mae (NYSE: SLM) at the vanguard of the revolution in private educational financing. But aside from a reverse mortgage, which requires free and clear home ownership and has substantial drawbacks, there really isn't any way to fund your retirement with loans.

The plan
My sense is that a lot of people -- particularly stressed-out parents in their 30s and 40s -- approach savings in a scattershot fashion: a little in the 401(k), a little in an IRA, a little in a 529, a little in next year's vacation fund, with contributions to each of those going up or down depending on the credit card balance and what seems most worrisome at any given moment. But as we all know, saving -- like most anything else -- works better if you have a plan. Here's a prioritized outline you can use to start yours:

1. Pay off any credit card balances. This should be the first step in any savings plan -- those high interest payments will end up crushing anything else you do. See the Fool's Get Out of Debt Seminar for help if your balances are more than you can comfortably pay off in a few months.
2. Set up a rainy-day fund. Put a few months' salary away in a low-volatility investment. It doesn't have to be a piggy bank, but it shouldn't be a biotech stock, either.
3. Contribute enough to your 401(k) to collect your employer's match. That match is free money -- make sure you get it all.
4. Fund your IRA. Whether you choose Roth or traditional, the increased flexibility and wide range of options make the IRA a better place for your next savings dollars than your 401(k). And note that a Roth IRA can serve as a rainy-day fund in a pinch, thanks to rules allowing you to withdraw contributions without penalty.
5. Max out your 401(k). Maxing it out might be unrealistic if your employer's plan has very high limits, but you should be making sizeable contributions -- remember that the power of compounding means that, on average, a dollar contributed today will be worth more at retirement than a dollar contributed next year. Can you contribute 10% of your pretax income?
6. Save for college. Now head on over to the Fool's college savings area for the full scoop on 529 plans, Coverdell ESAs, and all the other aspects of saving for your kids' education.

While none of us want to saddle our kids with debt right out of college, for most of us, the possibility of having to rely on loans for college is a better choice than the possibility of having to rely on Social Security during retirement. And if your college-age kids end up complaining about loans, tell 'em to be thankful that you won't need to move in with them when you turn 70.

If you'd like more help coming up with a plan for retirement investing, check out the Fool's Rule Your Retirement newsletter. It will tell you everything you need to know to set up a simple but effective strategy for your retirement investments -- and you can take a look absolutely free for 30 days.

Fool contributor John Rosevear does not own any of the stocks mentioned. First Marblehead is a Hidden Gems recommendation. The Motley Fool has a disclosure policy.

Families Need Help Navigating Complex College Financing System

2007-07-19T23:20:00.000-07:00

YONKERS, N.Y., July 19 /PRNewswire-USNewswire/ -- As Congress debates legislation to overhaul student loan programs, Consumers Union, the nonprofit publisher of Consumer Reports, released a report finding that many students and parents don't have access to the information they need to determine the best way to pay for college. The report, funded by The Pew Charitable Trusts, offers policy recommendations to help families find the most affordable options for paying for college.

"Financing a house or a car can be confusing, but it's nothing compared with trying to pay for a college education," said Jim Guest, President of Consumers Union. "Families need access to clear and unbiased information to help them make smarter choices about how to pay for school."

The report is particularly timely given recent investigations by the New York Attorney General and others documenting how some financial aid offices have received kickbacks and other gifts from lenders and recommended lenders even if they are not the best choice for students. The U.S. Senate Health Committee issued a report in June concluding that illegal student loan marketing activities are "systemic and cannot be isolated to a few 'problem' lenders or schools."

Consumers Union conducted market research in five metropolitan areas with over 130 students and parents to identify common challenges families face navigating the college financing system. Their research showed that students and parents often could not identify the best-priced loan, or understand how loan repayment obligations can affect their future choices when shown information currently used by colleges and universities, lenders, and the Department of Education. Using feedback from consumers and financial aid experts, Consumers Union developed practical policy recommendations to improve student loan counseling and loan disclosures, including:

-- Requiring colleges to use the same definitions and formats in financial
aid award letters to disclose the cost of attendance, the financial aid
offered, and the costs associated with various types of loans.

-- Requiring lenders to provide -- in plain language -- the rates and
terms of a private educational loan earlier in the application process
so that families can shop around for the best-priced loan.

-- Requiring that students receive annual financial aid counseling before
loan funds are disbursed, rather than just at the beginning and end of
college.

Colleges currently calculate the cost of attending school in different ways, so comparisons are difficult. College financial aid award letters don't always make clear the difference between grants, which don't need to be repaid, and loans, which do. Colleges often miss opportunities to help families minimize loans, secure low-cost financing, or figure out the bottom- line cost of loans.

Private-loan lenders exacerbate these problems by failing to adequately disclose important terms and rates that families need to compare loan options. For example, lenders aren't required to tell students about how high payments on variable interest rate loans can balloon if their interest rate rises. And students and parents often don't get required disclosures until right before they sign for the loan.

Nearly 50 percent of undergraduate private educational loan borrowers fail to exhaust their low-cost federal government loans before turning to more expensive private loans to pay for college. Consumers Union recommends that parents and students tap federal loans first, since nearly everyone qualifies. Families should limit taking out private educational loans since they cost more and have less flexible repayment plans than federal loans. And college should never be financed using credit cards.

"Helping Families Finance College: Improved Consumer Disclosures and Counseling," was made possible through an investment by The Pew Charitable Trusts as part of its efforts to help American families improve their financial security. To review a copy of the report, including the full set of Consumers Union's policy recommendations for helping families make more informed college financing decisions, see: http://www.consumersunion.org/pdf/CU-College.pdf.

Consumers Union, publisher of Consumer Reports, is an independent, nonprofit testing and information organization serving only the consumer. We are a comprehensive source of unbiased advice about products and services, personal finance, health nutrition, and other consumer concerns. Since 1936, our mission has been to test products, inform the public, and protect consumers.

SOURCE Consumers Union

Pay Less on Your Student Loans

2007-07-19T23:18:00.000-07:00

By Dan Caplinger July 19, 2007

Finishing college means you're finally on your own. Unfortunately, it also means you'll have to start paying off your student loans.

Managing your student loan portfolio can be just as challenging as managing an investment portfolio. Many students get several different types of loans throughout their college years, often from different banks using different programs. Each of those loans might have its own set of rules governing when you have to start making payments, when interest starts to accrue, and what interest rate applies. You might even have to write several checks each month just to stay current on your loans.

Prepare to be courted
Banks know that paying off loans is a new experience for most graduates. That's why you can expect to get offers to consolidate all your student loans with a single lender.

There are many reasons why you'll be tempted to consolidate. Consolidation loans give you a chance to make a single payment, making it easier to manage your debt. Many lenders will give you repayment options that let you reduce your monthly payments -- a big incentive when you're trying to make ends meet with an entry-level paycheck.

Lower rates -- maybe
If you look for information about consolidation on the Internet, you'll find a lot of outdated information about lower rates. Several years ago, consolidation could give you a big rate cut on your loans. Now, though, interest rates overall have risen, and you're much less likely to find big savings through low rates.

Many lenders do offer rate discounts for good behavior. For instance, lenders like Sallie Mae (NYSE: SLM), Fifth Third (Nasdaq: FITB), and Bank of America (NYSE: BAC) give qualified borrowers a 0.25% discount if they use automatic payment from their bank accounts. Sallie Mae also gives some borrowers a 1% discount after making 36 on-time payments. If you qualify, KeyCorp (NYSE: KEY) will reduce the total amount you owe by 3.75% if you make your first 36 payments on time.

Earlier this year, the House passed the College Student Relief Act of 2007, which would gradually cut rates on new loans in half. However, the bill would apply only to future loans, not existing ones. Moreover, the Senate has not yet considered the bill, so there's no guarantee it will ever become law.

Read the fine print
Before you yield to the temptation to consolidate, understand that you may be giving something up. For instance, many federal loan programs have useful features that you may want to use. If you decide to go back to graduate school, some loans will let you defer making payments. Other loan programs may even forgive all or part of your debt if you agree to work in certain professions, including teaching low-income or disabled students, some legal and medical jobs, or joining the military or the Peace Corps. Those features may not be available if you consolidate.

In addition, there are often tradeoffs you have to make for the convenience and ease of consolidating your loans. Those lower payments may look nice, but they might extend your repayment period from 10 years or less to 20 or 30 years.

Also, look at the interest rates you'll be charged and how they're calculated. Even if the rate is currently lower than what you're paying on your loans, be sure to ask if that rate can ever change. If you have a variable-rate loan, you could end up with the same problems a lot of homeowners are facing with their adjustable-rate mortgages. In general, any reduction in your payment will probably come from lengthening your repayment period.

Don't hurry
Lenders offering consolidation loans may try to persuade you that you have to act quickly, but don't let yourself get bullied into making a major financial decision. Take the time to understand all the pros and cons before you choose what to do. After all, you don't want the first choice you make on your own to be the wrong one.
(The Motley Fool)

News: Bush says he will work with Congress on student loans

2007-07-19T23:10:00.000-07:00

WASHINGTON (Reuters) - The Bush administration said on Wednesday it cannot support a Senate bill that would cut subsidies to college student loan firms and boost student grants, but said it will work with Congress on the issue.

As the Senate debated the bill, the White House issued a statement that said it "cannot support Senate passage of (the bill) in its current form because of serious concerns with some provisions of the bill."

The House of Representatives last week passed a similar bill with deeper cuts to subsidies paid to lenders such as Sallie Mae, Citigroup and Bank of America. The White House threatened to veto the House bill.

LU, LSTC agree to code of conduct regarding student loans

2007-07-19T23:08:00.000-07:00

Lincoln University and Linn State Technical College have joined 16 other Missouri universities and colleges that have agreed to abide by codes of conduct regarding their relationships with the student loan industry.

Nixon says the agreements will help assure students who borrow money to attend the institutions that they will have adequate information and protection when choosing a lender.

Over the last several months, Nixon has been looking into student loan lenders and their relationships with higher education institutions. He has expressed concerns that students may be steered by universities to “preferred lenders” without the students and their families receiving information about how those lists were compiled.

The codes of conduct include required disclosures related to preferred lending lists and a prohibition on steering students to certain lenders.
(newstribune.com)

Public defender peddles pizza to pay college loans

2007-07-19T23:04:00.000-07:00

GLASGOW, Ky. (AP) _ Pizza is a meal that might find its way to a lawyer's table during a late-night session of prep work before a trial. But for Barren County public defender Adam Greenway, it puts meals on the table.

"I never thought I would be 30 years old driving pizzas out after graduating from law school," said Greenway, whose second job is delivering pizza for Papa John's. "But you have got to make ends meet."

Greenway, who works for the Kentucky Department of Public Advocacy, graduated in 2005 from Syracuse University College of Law in New York with a $130,000 student loan.

International human rights law was Greenways first path of choice for his profession, but a law professor turned him on to public defending.

"I loved it," the Pennsylvania native said. "I just loved being in the trenches and digging."

The same professor said Greenway should head to the South to become successful at public defending. And the South is where Greenway and his family headed, relocating to Kentucky in the summer of 2005 upon graduation.

A few months later, the monstrous student loan reared its ugly head and it was time to pay up.

With a salary lingering right around $30,000 per year, a mortgage, three children and a $130,000 student law school loan to pay, Greenway picked up the second job in October 2006.

His student loan payment is $477 each month for the next 20 years.
The typical day for Greenway includes waking up around 6 a.m. and preparing himself and his 6-year-old son for the day. He is in the office by 8 a.m. After an hour of prep work, he spends the rest of the day in court. After that, Greenway makes his way to Papa John's to deliver pizzas three to four nights each week.

"A break would be nice," Greenway said.

His children are the ones that suffer the most, he said.
"My wife's pretty OK with it," he said. "She doesn't like it, but she understands that's what we have to do."

After coming home from the night job, Greenway said spending time with his children is the highlight of his long day.

"We have a routine before bed where I read them a book and we have stories, so that's a great time we spend together," he said. "Just not as often as I like."

In addition to delivering pizzas, Greenway was also the Glasgow High School boys' lacrosse coach this spring.

"That made last spring pretty interesting," he said.

After a hectic day at the office, delivering pizzas can be relaxing. "It's kind of nice to listen to the radio and just drive," he said.

As a pizza deliveryman, Greenway adds $6 per hour to his salary, plus tips.

"Being a lawyer doesn't give me any kind of excuse not to work hard," he said. "It doesn't make me above anybody else just because I'm a lawyer. I could have decided not to be a public defender, not to come to Kentucky and stayed in New York or New Jersey or Pennsylvania and done private practice and done fine. But this is what I really love doing. As long as I still love it, I hope to keep doing it."

Amherst College To Replace Loans With Scholarships

2007-07-19T22:59:00.000-07:00

AMHERST, Mass. (AP) -- Amherst College is replacing student loans in its financial aid packages with scholarships in an effort to allow all students to graduate debt free.

The prestigious liberal arts school announced Thursday that the new program will start in the 2008-2009 academic year.

A school spokeswoman says Amherst is just the third college in the nation to make the move, joining Princeton and Davidson.

Amherst was the first school in the nation to eliminate loans for low-income students in 1999.

Amherst College has about 1,600 students, more than half of whom already receive some sort of financial aid from the school.

Without any form of assistance, it costs nearly $50,000 a year to attend.

(Copyright 2007 by The Associated Press. All Rights Reserved.)

Senate cuts college student lender subsidie

2007-07-19T22:53:00.000-07:00

By Kevin Drawbaugh

WASHINGTON (Reuters) - The U.S. Senate voted on Friday to cut federal subsidies to college student loan firms, such as Sallie Mae, by $18.3 billion, redirect savings to student grants and ease some student loan repayment terms.

The bill, approved by a 78-18 vote, would cut interest rates for student borrowers, provide loan forgiveness for graduates pursuing certain public-service careers, and cap loan repayment installments at 15 percent of monthly income. It also would make more students eligible for loans.

The annual maximum level for Pell grants, a key part of America's complex student financial aid system, would go up in stages to more than $5,000 a year from $4,310 under the bill.

At its present level, a Pell grant covers only about a third of the roughly $13,000 annual total cost of attending a public university full-time as an undergraduate, and even less of the $30,000 annual cost of going to a private school.

College expenses have soared in recent years, with the result that two-thirds of students today get some form of financial aid, such as grants, scholarships and loans.

Democrats promised in the 2006 election campaigns to address voter anxieties about college costs and are now pushing hard for a revamp of the $85-billion student loan industry.

Arguing that the for-profit loan market sometimes serves banks better than students and is riddled with conflicts of interest, Democrats won a victory last week when the House of Representatives passed a reform bill containing lender subsidy cuts even deeper than the Senate bill proposes.

"Education has always been the engine of the American dream. But rising college costs will make that dream fade away unless we act," said Sen. Edward Kennedy, chief sponsor of the Senate bill, during a bitter floor debate that lasted from early Thursday until the wee hours of Friday morning.

"Our legislation ... takes the fat from the banks and lenders and gives it back to students," said the Massachusetts Democrat, chairman of the Senate education committee.

The Senate was expected to take up next week a related bill that would crack down on lender misconduct, shorten the standard financial aid application form and set up a pilot program in which lenders would compete for loan business.

After that, the Senate and House would have to agree on a single bill before sending anything to the White House.

The Bush administration has proposed cutting subsidies at levels closer to the Senate bill than the House bill. The White House has said it will work with Congress on the issue.

The industry, led by financial giants such as Sallie Mae and Citigroup, is fighting change, saying the federally guaranteed student loans they handle are efficient and offer students and schools valuable services.

On the Senate bill, Eric Solomon, a spokesman for lending group Nelnet Inc. said, "This legislation will force significant portions of the private sector away from the student loan market ... This will limit choice."

The industry was thrown onto the defensive earlier this year by a scandal in which government investigators, led by New York Attorney General Andrew Cuomo, uncovered kickback schemes and conflicts of interest among many lenders and some schools and student financial aid officers.

Several major lenders and universities have since agreed to adopt a new code of conduct drawn up by Cuomo.

Why A Student Loans Consolidation Will Work For You?

2007-07-05T01:12:00.000-07:00

American Chronicle
Apurva Shree
July 4, 2007

Student loans consolidation has emerged as the answer to the prayers of many students who find themselves mired in debt. Many students have no choice but to take student loans in order to cover the high costs of higher education. In many cases, students are forced to take up multiple loans. Thus by the time many of them graduate, they have also amassed a fair-sized debt along with their degree.

Student federal loan consolidation packages have currently emerged as one of the best ways to tackle debt, as they offer a number of incentives that other companies don't provide. On the whole, student debt consolidation is the best way to make your financial situation more manageable.

Student Loans - Trap Or Necessity?

For many students, taking up a student loan is something that just can't be avoided. It is not uncommon for a student to take a number of different loans from different lenders in order to cover the high cost of education. This often leads to student debt that has to be dealt with multiple payment installments at different interest rates. While this kind of scenario sometimes just can't be avoided, students can definitely regain control over their debt management with the help of a student loan consolidation program.

Opting for loan counseling can often help in gaining perspective on the actual state of your finances. By understanding the options available to you, you will be able to find a debt solution that will suit your needs best and will not be too financially taxing. The most comprehensive way to deal with student debt is student loans consolidation.

Consolidation And Control

When you opt for a student loans consolidation, you are essentially clubbing your outstanding student debts together. This in turn becomes a new loan but it is a loan with a difference. Student debt consolidation financial packages mean that you are dealing with only one lender, which in turn means you only make one set of payments per month.

Student loans consolidation has a number of other benefits as well. These programs offer a number of repayment options which can range from extending your repayment period to deferring your payment. They also provide interest rates which are not only comparatively lower, they are also fixed. This can save students a good deal of money in future.

Student federal loan consolidation is best suited to help students with financial difficulties. This is due to the fact that there is no credit checking or co-signer needed in the case of federal loan consolidations. By opting for student loans consolidation and finding the best financial solution for you, you can stop worrying about your debt and start concentrating on building your future.

Student loans consolidation is the best way to deal with student debt. By choosing the right student debt consolidation program, students can easily tackle their rising student loans. Student federal loan consolidation is the best consolidation option available in the market today.

Being smart about student loans

2007-07-05T00:43:00.000-07:00

By Eileen Ambrose - The Baltimore Sun
July 4, 2007

Americans love to shop. After all, we made “The Price is Right” the longest-running TV game show.

But when it comes to shopping for student loans — a complex product with hundreds of lenders to choose from — we rather would have someone else do the legwork. Now, we’ve learned, that can be a problem.

Colleges for years have compiled lists of recommended lenders to help families navigate a maze of options. An investigation by the New York attorney general’s office, though, uncovered chummy financial relationships between some financial aid officers and lenders promoted on schools’ lists. Suddenly, doubts popped up over whether such lists were compiled with students’ best interests in mind.

The moral of this story: You have to do some of the work yourself if you want to make sure you’re getting a good deal.

“A lot of students and parents want the answer handed to them on a platter. They don’t want to do the work themselves,” says Mark Kantrowitz, publisher of FinAid.org, an online provider of student loan information. “Families need to realize it pays to shop around, and there can be substantial difference in the cost of these loans.”

Now is the time that parents and students seek loans for the upcoming school year. A college’s financial aid office remains a good source for information, but it shouldn’t be your only resource. Web sites have cropped up to make shopping for loans easier, and more are coming online.

But as you prepare to shop, understand that these Web sites, too, might have financial ties to lenders. Already you might be seeing more pitches directly from lenders, which might not make the waters clearer.

If you must borrow for college, start with federal student loans. The interest rate is fixed, and Uncle Sam sometimes will pay the interest while the student is in school.

After that, parents can take out a federal Parent Loan for Undergraduate Students to cover a shortfall for tuition, fees, books and living expenses. Financial aid directors say sometimes parents don’t want to take out a PLUS loan. They might have too much debt or think that young adults should be responsible for college bills.

Kantrowitz says the 8.5 percent fixed rate on PLUS loans is a couple percentage points below the typical variable rates now offered on private loans.

“The private loan market is still the Wild West,” and comparison shopping is difficult, says Robert Shireman, executive director of the Project on Student Debt.

The interest rate you’ll get on a private loan depends on your credit record. Young borrowers are more likely to secure a loan with favorable terms if they have a parent with a good credit history as a co-signer.

A Doctoral Degree or Just Enormous Debt?

2007-07-05T00:33:00.000-07:00

Oxnard, CA, June 30, 2007 --(PR.com)-- According to a study by the National Science Foundation (www.nsf.gov) only 45 percent of the students entering doctoral programs successfully finish and receive their degrees. Many of those students fund their graduate journey with enormous student loans—in some cases, well in excess of $100,000. This is a huge amount, especially for those who get nothing in return. Once dropped out, students have to start paying back the loans for their aborted education.

Adding insult to injury, many of these students get derailed years into the endeavor—after all their coursework is completed and they have only one hurdle—the dissertation—left. Why? The dissertation is an intensely emotional and challenging experience for students, their friends and families, and their advisors. One doctoral student explained, “I get frozen. My goal looks impossible and impractical and I shut down. Managing anxiety, building a thicker skin and learning what you need are important. I needed a whole year just to deal with that. The biggest waste of time is worrying whether I’ll be able to finish as well as sitting outside myself and thinking ‘Why don’t you have any friends? It’s Friday night—why are you at home writing?’ If I could have condensed all those thoughts, I could have been done a year ago.”

From lacking understanding or preparation for the task, to having difficulties managing their motivation, to challenges gaining support and communicating effectively with their faculty, students can face one challenge after another. One faculty member in a doctoral psychology program remarked, “Most of the problems come up with people that just don’t learn basic research. They don’t really know what they’re doing.” A doctoral student in a prestigious linguistics doctoral program shared, “I don’t think any of the writing tasks we did prepared me to write a dissertation. Not at all.”

In response to these challenges, coaches and consultants who have weathered the storm are emerging to help others complete their journey successfully. For example, Graduate Research Coaching, a division of Koepp Research Corporation (http://www.koeppcorp.com), offers comprehensive services to help masters and doctoral students produce their best work. Since 2002, the company has supported more than 200 graduate students from across the United States, Canada, Europe, and China in completing their theses and dissertations and earning their coveted degrees. For these students who get help, their loans become a worthy investment, indeed.

For more information about Graduate Research Coaching: Please visit http://www.koeppcorp.com

Refinance Loan Financial Solutions

2007-07-04T05:21:00.000-07:00

Before finalizing on any particular Refinance loan it is important to have a clear financial objective in mind. This means that you have to learn about everything from when you should refinance to how you can increase the value of your home. All these things will make you more aware and confident to choose the most appropriate loan. Ultimately, the decision is up to you to decide which the best refinance loan option for you.

There are multiple ways with which you can opt for your refinance loan. These are -

Adjustable Rate Mortgage (ARM) to a fixed rate Mortgage

This means that if you have an adjustable rate mortgage (ARM), it may adjust to a rate that is higher than a fixed-rate mortgage. If the situation is unsuitable then it might be an excellent time to consider refinancing to a fixed-rate loan.

It is essential for everyone that before taking any refinance loan to consider the amount of time he or she plans on being in his or her home. If one is just going to be in the said home for a few more years, it may make sense not to refinance out of your ARM. If one is going to stay in there for a long period of time (at least seven years), then it might be a smart move to refinance to a fixed-rate mortgage.

Fixed Rate Mortgage to an ARM

You have to first decide how long you plan on being in your home. Many people move within nine years so it becomes meaningless to pay a higher interest rate for a 30-year fixed-rate mortgage because you're not going to stay in the home that long. Doing so may be costing you more money than you can afford. Consider refinancing to an ARM instead - you'll get a lower rate and lower your monthly mortgage payment.

Easy ways to reduce your monthly payment with a refinance loan -

-You can simply refinance to a lower interest rate. A lower rate generally means a lower monthly payment.

- By changing the term of your mortgage you can reduce your monthly payment. For example, if you take a 20-year mortgage, you can lengthen the term to 40 years.

- Although, if you have a 40-year mortgage and one of your financial goals is long-term savings, you may want to consider shortening your term to 25 or even 20 years. Your payment will be higher, but you will pay much less in interest over the life of the loan, saving you thousands of dollars in the long run.

- You can always refinance to an interest-only loan.

For most people who want to save or reduce monthly payments there is also the option of interest only loan. This kind of refinance loan is very popular, easy to manage and useful. An interest-only loan gives you the option of paying just the interest and as much principal as you want in any given month.

Refinancing to an interest-only loan is a good choice for anyone looking to make his or her money work harder for him or her. Here one can get the opportunity to use the money saved from the refinance loan for another purpose.

-One can pay down high-interest credit card debt -Save it for your children's college tuition. -You can buy a car for your family. -Use it for your home improvement

(Credit: bestsyndication.com)

For New College Grads… the First of July is as Important as the Fourth

2007-07-04T05:16:00.000-07:00

It's Time to Declare Independence from High Student Loan Payments by Refinancing Before July 1.

La Jolla, CA (PRWEB) June 28, 2007 -- As Americans prepare to celebrate the Fourth of July, newly minted college grads with student loan debt need to prepare for the First of July. That's the day when the government recalculates the interest rate for student loans -- this year the rate is expected to rise for the third year in a row.

If new graduates want to declare their independence from high student loan payments, they need to consider refinancing their student loans this week--before the First of July. This year the variable rate will rise from 6.54 percent to 6.62 percent for students just graduating who are still in their grace periods. Six months after leaving school, when loan repayment begins, the rate will adjust upward again to 7.22 percent. Although this is a modest increase, by consolidating before July 1st, grads can save thousands by locking in at a lower fixed interest rate.

When researching student loan consolidation options, the professionals at ScholarPoint recommend considering interest rate discounts and additional borrower benefits as well as convenience and service.

Student loan consolidation is the only way to lock in the rate and ensure future rate hikes do not impact the loans. Consolidation can also lower monthly payments, organize college loans into one easy billing location and improve credit scores. The clock is ticking…

ScholarPoint Financial, Inc. is a national online consumer lending company specializing in student loans and offering a full range of innovative education finance solutions. Loan options for students and their families include PLUS, Stafford, Consolidation and Private Loans. ScholarPoint combines industry-leading borrower benefits, best-in-class service and innovative technology. Unlike many other traditional loan sites, ScholarPoint's technology platform was designed exclusively for its website, integrating the entire process for an online experience that is simple, instant, and complete. http://www.ScholarPoint.com

Government gouging students with loans and high interest rates: critics

2007-07-04T05:14:00.000-07:00

By KAREN PINCHIN
Tuesday, July 3, 2007

TORONTO (CP) - Unreasonably high interest rates attached to federal student loans are leaving students smothered in layers of debt for years after graduation, says a new report that calls for a complete overhaul of the loan program.

Despite promising a review, the federal government has yet to deliver, Julian Benedict, founder of the Coalition for Student Loan Fairness, said Tuesday.

"At this point, that review should have been underway months ago," said Benedict.

"I could never have imagined the level of frustration and the number of people who have been battling, literally for years, the Canada Student Loans people."

The root of the problem is high interest rates, said Benedict, who noted Ottawa borrows money to fund the Canada Student Loans Program at 4.1 per cent, but then lends it to students to the tune of 8.5 to 11 per cent.

"We have some of the highest interest rates on students loans in the developed world," Benedict said.

Last year, about 350,000 college and university students across the country relied on federal loans worth $1.9 billion.

Ann-Marie Zammit-Quayle, who graduated from Hamilton’s McMaster University with a bachelor’s degree in science and biology, said high interest rates contributed to her financial humiliation.

Raised by her father along with her siblings after her mother passed away, the 32-year old said that despite getting top grades and scholarships she couldn’t keep up with her monthly interest payments.

"There’s no way that I can ever get out of this, and I still owe $35,000 on my federal loans because of the interest," said Zammit-Quayle, adding that harassing calls from collection agencies started just months after she graduated.

"They were saying, ’We’re going to come and take everything from you. Can’t you get a loan? Can’t you ask your father for help?’ But he’s not in any position to help me."

Benedict said few borrowers have confidence in the program and it needs to be reformed. The reduction of interest rates and a crackdown on abusive collection agencies are among the recommendations the coalition made in its report.

The federal government has been tight-lipped about what it’s planning, said Benedict.

"The government can make these changes, and most of them we think are pretty moderate, but the question is, are they prepared to do it?" he said.

A spokeswoman for Monte Solberg, the minister responsible for the government’s loan program, says the department is conducting consultations and will continue to do so over the summer.

"The best way to gather information is to have discussions with the people directly involved and that is what we are doing," said communications director Lesley Harmer.

The director general of the loan program, Rosaline Frith, says consultations are going well but the findings won’t be released until a thorough review is conducted.

"We have been doing our work properly. We started by trying to do a diagnostic and understand the issues that we’re facing," she said.

Frith said what they’re hearing from the consultations falls very much in-line with the report’s recommendations, but any conclusions they make will first be released to the government.

However, she says Ottawa can choose not to adopt the findings.

Other recommendations in Tuesday’s report include appointing an ombudsman, the immediate reinstatement of a six-month, interest-free period after graduation as well as loan forgiveness for students who die or are permanently disabled.

Zammit-Quayle said an interest-free period is not enough and that students should be given time to find work before making payments.

"Who has time to look for a job when you’re studying for finals?" she said.

"If you do not have a job in the first six months of graduation you should not be expected to pay anything. Back then, I was babysitting for only $20 a week."

Benedict says his group is also calling for the consolidation of the "patchwork" of federal and provincial bills, simplifying to whom, how much and when the former student is expected to pay off their debt.

He says the stories disgruntled students have been contributing to his group’s online petition has been overwhelming.

"The collection agencies are harassing loan borrowers at work, they’re harassing their families, and there’s no place for these students to go," he said.

Zammit-Quayle says all of her friends, also in their 30s, are still paying off their student debt.

"Lending people who don’t have money is dangerous to begin with, but lending it to students? I feel like the (loan program) just set us up for a fall," she said.

"The fact that there’s so many of us in the same position has to say something."

Maine will pay college graduates to stay

2007-07-04T05:04:00.000-07:00

Law allots tax credits to help cover loans
By David Abel, Globe Staff - July 2, 2007

Maine Governor John E. Baldacci will sign a law today that will provide tax credits to help cover the cost of college loan payments for students who earn degrees in Maine and remain in the state.

Activists say the multimillion-dollar program, passed unanimously last month by Maine's House of Representatives and with little opposition in the Senate, is the first of its kind in the nation. They also said it is only the sixth time in the state's history that an initiative introduced by a citizens' group had been passed by the Legislature.

"I believe in this legislation, and I know that it is the key to opening up opportunity for Maine's students," Baldacci said in a statement. " This is about our generation helping the next one. We're telling our students: If you live, work, and pay taxes in Maine, you're not going to have this student debt hanging around your neck."

The program helps reimburse loans for any resident who earns an associate's or bachelor's degree in Maine and then lives, works, and pays taxes in the state. It also allows employers to make the loan payments and claim the credit.

The tax credits would amount to a maximum of $2,100 per year, or $8,400 total, for a graduate who spent four years at a Maine college.

Over the past year, the activists who support the program collected 73,000 signatures, enough to send the proposal to voters as a referendum in November. But the Legislature bypassed the referendum process and passed the bill in the final days of its 2007 session.

Maine needs the program because more than 50 percent of the nearly 7,000 students who earn associate's or bachelor's degrees there every year leave the state for an extended period, according to Opportunity Maine , the group that launched the initiative.

Many students who earn bachelor's degrees leave the state because they graduate with an average $22,301 in loans, said Andrew Bossie , president of Opportunity Maine.

"We're trying to combat the high cost of student education and student loans," Bossie said. "On top of that, we're trying to address the economic problems of the state. We have a lower income and fewer degree holders than any other New England state."

Maine's House voted 142-to-0 for the measure and its Senate voted 27-to-8 in favor. Those who voted against the bill, all Republicans, cited future costs.

Over the next two years, the program -- which is not retroactive and takes effect in January -- will cost the state's 1.3 million residents an estimated $150,000. But within 10 years, the cost is estimated to exceed $50 million.

Senator Richard Nass , a Republican who is a member of the Joint Standing Committee on Taxation, said he voted against the bill because the state has higher priorities.

"As I look at the state's financial situation, here we are now obligating ourselves to college students at a time when the poorest of the poor are getting kicked off Medicaid," he said. "It was ludicrous to be paying off college loans at the same time we're in trouble with Medicaid."

He added: "I don't share some folks' concern for college students. Many of them are talented and fortunate. They are acquiring for their own benefit, and all of us, the potential to earn a lot of money. They will be able to easily pay off their loans. I don't think we need to provide them money from our treasury."

Supporters of the measure said it would pay for itself. They cited studies that show the program would benefit the state by about $15 million by 2018.

Senator Ethan Strimling , a Portland Democrat, said the program is a good investment

"Maine is losing a lot of young people, and this is a great opportunity to build long-term economic sustainability and keep young minds here," he said. "It hurts our economy in the long term when we loose so many young minds who could be vitalizing our community. This could help stem that tide."

David Abel can be reached at dabel@globe.com.
© Copyright 2007 Globe Newspaper Company.

Student Loan Debt Consolidation And You

2007-07-02T03:03:00.000-07:00

By Asheesh Mani
June 30, 2007 - American Chronicle

Student loan debt consolidation is the most efficient yet most underrated way to deal with the problem of accumulated student debts. Despite the rising costs of higher education and the growing number of students becoming saddled with heavy debts, not many students seem to be aware of the benefits of student debt consolidation.

Student loan debt consolidation is a comprehensive financial package specially designed to help students tackle debt issues. Student loans consolidation offers students the option of combing all of their student loans into one, easy to manage loan. This kind of student debt consolidation can make a huge difference for students looking for a way to ease their financial burden.

Idealism And Realism

Ideally, a student pursuing a degree in higher education should be able to dedicate themselves to academics without having to worry about anything else. Unfortunately, the realism of the situation is that higher education is an expensive affair and continues to grow costlier each year. In order to deal with these high costs, it becomes necessary for a number of students to take out student loans. Over the course of their academic term, many students will wind up taking out more than one loan from more than one lender. The reality of the situation is that on graduating, most students have a sizable student debt.

Dealing With Debt Efficiently

The truth of the matter is that most students see the amount of debt they have amassed and become confused and frustrated. Student debt consolidation can help deal with excessive student debts by combining all outstanding loans into a single loan. In this way, the borrower no longer has to deal with multiple lenders and different interest rates.

Student loan debt consolidation also offers students the opportunity to save money in the long run. This can easily be achieved since the interest rates are fixed at a rate that is usually less than the ordinary rates. Student loans consolidation also offers a number of options regarding repayment. Students can opt for payment deferment or extend their payment period to suit their needs.

Student loans consolidation is possibly the most efficient and the easiest way to deal with debt as it streamlines everything into one loan that is easily handled. Its lowered interest rates and easy payment plans make it an ideal option for students who are struggling with debt. If you are a student and are worried about how you're going to pay your student loans, learn more about the student debt consolidation packages available to you and get your finances in order today.

Students with sizable student debts can avail student loan debt consolidation programs. Student debt consolidation is one of the most effective ways of dealing with financial difficulties and most problems can be handled with efficient student loans consolidation. Visit Student Loans Debt Consolidation for free articles, information and options for college debt relief.

School's Done, How Will You Pay Back Your Student Loans?

2007-06-30T02:18:00.000-07:00

Friday, June 29, 2007 10:02 AM EDT
(Credit: The Sun Chronicle)

(ARA) - Every May and June, thousands of young people march across the stage to accept their diplomas and begin the rest of their lives. But as they embark on this journey called life, many will carry a big burden with them.

A recent study by the National Center for Education Statistics shows that about 50 percent of recent college graduate have student loans, with an average student loan debt of $19,000. Many undergrads, though, have debt exceeding $40,000.

Come December and January, the six-month grace period will be over and those debts will have to be repaid. Afraid you won't be able to afford them, in addition to rent, the mortage, the car and all those other new expenses you've taken on? If so, now would be a good time to start looking into student loan consolidation.

When you choose this option, a new lender arranges to have all your existing loans fully paid off and issues you one new loan. Generally there are no application fees or credit checks required for consolidation loans and by consolidating your loans you can benefit in the following ways:

* Lower monthly payments. By consolidating your federal student loans, you can take advantage of lowering your monthly payments which will give you more money to use for other expenses such as rent or mortgage payments, food and car expenses, utility expenses and credit card payments. Depending on your balances, you might be able to reduce your monthly payments up to 45 percent.

* One payment per month. If you currently have loans with multiple lenders, you know the hassle of having to write several checks per month, each for a different amount and to a different lender. By consolidating, you eliminate the need to make multiple monthly payments. You will only have to write one check or make one payment each month!

* Lock in a low fixed interest rate. Currently, unconsolidated federal student loans may have a variable interest rate which changes each year. By consolidating, you can lock in a fixed interest rate which remains constant through the life of the loan.

* Customize a Payment Plan. By consolidating your student loans, you have the opportunity to choose a payment plan and payment term that fits best with your current income. In some cases you can take up to 30 years to repay and you can change the plan annually without any penalties. In addition, if you decide you would like to repay your loans early, there are no prepayment penalties.

* Maintain your deferment and interest subsidy benefits. By consolidating your loans, you do not give up your deferment options or interest subsidy benefits on any subsidized FFELP or subsidized direct loans that you consolidate.

When Should I Consolidate?

You can do a student loan consolidation during your grace period or during repayment. You might even get to do a consolidation before you graduate. The timing depends on a variety of factors.

* Consolidating during the grace period may get you a lower rate

* You don't want to consolidate too soon after graduation. If you do, you might lose out on some interest subsidies

* If you think interest rates are low, you might lock in the rate

* If you want a lower monthly payment today, you might try to get an extended repayment plan

Want to find out how much money you could save by consolidating? All you need to do is gather all your student loan statements, then click here and fill out a form for a free rate quote.

Copyright © 2007, ARAnet, inc.

Sunshine Act targets student loan industry

2007-06-30T01:03:00.000-07:00

Jessyca Dewey
Issue date: 6/29/07

With college costs on the rise and new questionable practices in the student loan industry recently revealed, the United States Senate Health, Education, Labor and Pensions Committee passed the Higher Education Access Act of 2007 and the Higher Education Amendments of 2007 on June 20.

The bill, which is expected to reach the Senate floor in July, will help to make college more affordable, ensure that financial aid officers do not exploit the student loan system and simplify the Free Application for Federal Financial Aid, according to a prepared statement from Senator Edward M. Kennedy, chairman of the HELP Committee.

"These bi-partisan bills introduced by the committee signal to students that their futures are our top priority," said Kennedy in the statement.

Included in the bill is the Student Loan Sunshine Act which, if passed, will make the dealings of universities and private lenders more transparent to the public. The act would ban lenders from offering gifts or services to university employees worth more than $10 and would require full disclosure of special arrangements between the two parties.

A 50-page report released by Kennedy on June 14 revealed that school officials accepted personal gifts and favors from private loan institutions in exchange for implied, if not explicit, preferential treatment.

Blurring the lines with conflicts of interest, school officials across the nation have accepted gifts, favors and benefits from lenders, according to the report.

"I think that transparency of relationships is very important and the college officials should not have conflicts of interest when offering financial aid advice to students," said Dr. Paul Lingenfelter, president of State Higher Education Executive Officers.

Perhaps one of the most publicized cases is that of Dr. Lawrence Burt, former director of the University of Texas at Austin Office of Student Financial Services. According to the report, Lawrence placed lenders on the preferred lenders list not necessarily due to the competitiveness of the lender's loan terms but instead based on the benefits provided to the staff.

The list of benefits provided to school officials by lenders has included vacations, extravagant meals, family birthday parties and stock options. Although there is little public denial that such practices are unethical, if not illegal, some say that the direct effect on students has been minimal.

"My guess is that the effect on the individual students would be very small and in some cases they might have actually gotten the better deal by going in the direction they were steered by these practices, but that's not the point," said Lingenfelter. "The point is that the institution or the individuals had a private side deal that affected the way they were giving advice or presenting information that the customer had every reason to believe was impartial or objective. The fact that there was this subtle steering going on the side was very inappropriate."

Announcing a settlement June 14 with Johns Hopkins University for similar improper transactions, New York State Attorney General Andrew M. Cuomo has championed the cause, bringing a total of 26 schools to commit to a code of conduct, according to a prepared statement from the attorney general's office.

According to CSUN Interim Director of Financial Aid Lili Vidal, no officials at CSUN have been involved in any such improper conduct.

Outlining the practices that the university officials can and cannot engage in, the CSU will undergo changes specific to the lender list, according to Vidal. The changes will include narrowing the lenders on the list to three, rather than the current 11, and no longer allowing for the university to accept refreshments or meals from lenders for training events.

Although there is a good deal of pressure on schools to eliminate the preferred lenders list, Vidal said CSUN will continue to have a preferred lenders list in order to cut down on research and work students would otherwise have to do on their own.

The criteria the school looks for in a preferred lender includes lender's longevity in the loan business, financial stability, customer service, and borrower's benefits. After a lender is placed on the list, there are no background deals or agreements, said Vidal.

Vidal said that the benefits of the Student Loan Sunshine Act may be both positive and negative for the students.

"I think it's positive for students as far as them learning what [the financial aid office] does and why we do it. Also, it will force students into doing more work for themselves as far as investigating," said Vidal. However, she also said that this will mean less selection offered to the students and that lenders will bypass the schools, marketing directly to students.

The chancellor's office and the California Attorney General's office have conducted several investigations into the financial aid department at CSUN to ensure that the university has not exploited its relationships with lenders and students, according to Vidal. There were no findings of improper conduct at CSUN, said Vidal.

"It is distressing to have people think negatively about you when you've sacrificed a lot trying to make life better for other people but I think it's good that they are looking at providing a more ethical, environment," Vidal said. "There were bad decisions and bad judgments made by some aid directors. No matter what profession you look at, you are going to find people doing the wrong things."

Student Loan Consolidation Companies- Things To Keep In Mind

2007-06-30T00:15:00.000-07:00

Saurabh Jain
June 28, 2007

With the advent of student debt consolidation, a number of student loans consolidation companies have appeared, each one offering a number of payment programs to ease the tension of student debt. While all of them may sound like a dream come true, it is worthwhile to do some research before diving into a student loan consolidation plan.

Student debt consolidation is often a last resort for students who see student loans piling up year after year. Eager to deal with debt issues quickly so they can focus on their course work, many students may blindly sign for the first student loan consolidation program they come across. Before opting for any sort of student debt consolidation, do a background check to see if these student loan consolidation companies are offering you what you really need.

Read The Fine Print

As with any financial program or set up, student loan consolidation companies have their own set of fine print and it is imperative that you read these before signing. When reading through the documentation, look for the kind of interest rates that are being offered and do some calculating. Oftentimes, interest payments can exceed the amount of the actual loan.

Remember that these kinds of student debt consolidation programs can extend for as long as twenty years. The last thing you need is to be saddled with a debt program you are unsatisfied with for two decades. Make sure you are completely clear about what you are signing up for.

Dos And Don'ts For Student Debt Consolidation

There are a number of important tips you can keep in mind when sifting through student loan consolidation companies. Avoid companies that ask for large fees upfront. If there are any initial fees, make sure you know what they are for. Don't let the company rush you. Shop around and compare financial packages before committing to anything.

Before signing, make sure you have a physical checklist of everything covered in the student loan consolidation program. Check with the Better Business Bureau to ascertain whether the company has a track record you are comfortable with. Also, ensure that the company is accredited by the Association of Independent Consumer Credit Counseling Agencies.

With so many student loan consolidation companies, it can be hard to decide which one suits your needs best. By following these simple rules and doing a little research, you will be able to find a company that offers a student debt consolidation plan that works for you. Having the right debt management package can make a world of difference in ensuring a stable and bright financial future.

With more students opting for student debt consolidation to deal with debt issues, the number of student loan consolidation companies have grown as well. These companies offer a number of student loan consolidation packages for students to choose from. Compare different options for student debt consolidation at Student Loans Debt Consolidation and select the one that best meets your requirements.

(Credit: AmericanChronicle.com)