TAX REFUND? Be Sure to "Pay Yourself" First!

By popular demand, we are repeating an article from March 2011.

So you received a tax refund check – Lucky You! Getting a lump sum of money is fun. Sometimes I think that dreaming of all the ways you could spend it are the biggest part of the fun – a well deserved vacation, a shopping spree, down payment toward a car……you can spend days dreaming and planning. However, before you make your final decision, think about “paying” yourself first! Seriously, would you like to would you like to make 47% on an investment? Sounds like a ponzi scheme or something but the savings are real and you can turn part of your tax refund into some serious money for yourself.

If you follow this Blog, then you know that I am a huge proponent of making small additional payments to “chip” away you student loan debt. However, paying larger sums toward your student loan will also help, significantly – even if it is only a one-time payment! Let’s look at two scenarios, to see how making a lump sum payment can benefit you. Each of these will be based on a $20, 000 loan debt, at 6.8% interest, with standard 10 year repayment plan.

Scenario 1: Payment of $1,000
No Extra Payments                                             With Extra Payments
Monthly Payment $230.16                                   Monthly Payment $1,230.16
10 years Pay-off time                                           7 years 8 months Pay-off time
$7,619.28 Interest Paid                                       $6,149.15 Interest Paid

Advantages of Additional Payments:
2 years 4 months Time Saved $1,470.13 Total Interest Savings

Balance Schedule for Scenario 1:
Year ---No Extra Pymt                        With Extra Pymt
2012 ---$18,553.54                             $18,553.54
2013 =-$17,005.60                              $17,005.60
2014 -=$15,349.06                              $15,349.06
2015 --.$13,576.29                              $12,524.12
2016 =-$11,679.15                              $  9,489.03
2017 =-$  9,648.90                              $  6,240.99
2018 =-$  7,476.21                              $  2,765.07
2019 =  $  5,151.09                             $         0.00
2020 = .$  2,662.83                             $         0.00
2021 =. $         0.00                             $        0.00

Scenario 2: Making $500 additional Payment
No Extra Payments                                                 With Extra Payments
$230.16 Monthly Payment                                       $730.16 Monthly Payment
Pay-off time 10 years                                               Pay-off time 8.75 years
$7,619.28 Interest Paid                                           $6,733.53 Interest Paid

Advantages of Additional Payments:
1 year 4 months Time Saved $885.75 Total Interest Savings

Balance Schedule for Scenario 2:
Year =-No Extra Pymnt                          With Extra Payments
2012 =-$18,553.54                                 $18,553.54
2013 =-$17,005.60                                 $17,005.60
2014 =-$15,349.06                                 $15,349.06
2015 =-$13,576.29                                 $13,050.21
2016 =-$11,679.15                                 $10,584.09
2017 =-$  9,648.90                                 $  7,944.95
2018 =-$  7,476.21                                 $  5,120.64
2019 =-$  5,151.09                                 $  2,098.19
2020 =-$  2,662.83                                 $         0.00
2021 =-$         0.00                                 $        0.00

If you would like to see how different amounts of “lump” sum payments can help you clear those loans faster, visit http://www.mortgagecalculatorsplus.com/calc-additionalpayment.php .

PAY YOURSELF FIRST – You Deserve It! It is tempting to splurge and spend your tax refund check on something fun or frivolous – I am not talking about using your whole refund to pay toward your student loans. I am a believer in having your cake and eating it too. However, if you will take just a small amount and pay toward your student loan debt, you can significantly shorten your repayment period. Think of all of the ways you could spend the money you currently have to pay on your student loan monthly payments once they are GONE! Now that’s something fun to dream about!

A Temporary Window of Opportunity is Closing Soon: Do You Need to Take Action Now?

When President Obama signed the Health Care and Education Reconciliation Act of 2010 (HCERA), Public Law 111-152, on March 30, 2010, the bill included temporary changes to the conditions under which a borrower may consolidate loans into a Federal Direct Consolidation Loan. These changes apply only to a Direct Consolidation Loan that is made based on an application received by the U.S. Department of Education on or after July 1, 2010 and before July 1, 2011.

Borrower Eligibility Under the HCERA Temporary Consolidation Authority
If a borrower's Consolidation Loan Application and Promissory Note is received by the U. S. Department of Education before July 1, 2011, the borrower may consolidate a loan that has not yet entered repayment status, including a loan that is in an in-school status, if the borrower meets the following requirements:
1. The borrower has one or more loans from two or more of the following categories: (i) FFEL Program loans that are held by an eligible lender; (ii) FFEL Program loans that have been purchased by the Department ("PUT" Loans); and (iii) Direct Loan Program Loans.
2. The borrower has not yet entered repayment on one or more of the loans in any of the categories in #1.
3. The borrower is not consolidating any loans other than loans from the categories listed in #1.

Interest Rate Calculation for Loans made under the Temporary Consolidation Authority
For any Direct Consolidation Loan made to a borrower under the temporary consolidation authority, the interest rate will be calculated as follows:
1. Unless the borrower is consolidating certain loans that have a variable interest rate (see below), the interest rate on the Direct Consolidation Loan is the lesser of (a) the weighted average of the interest rates on the loans being consolidated, or (b) 8.25% (that is, the interest rate is calculated in the same manner as the interest rate for a regular consolidation loan, but without the rounding up to the nearest higher one-eighth of one percent).
2. If one or more of the loans a borrower consolidates is a Federal Stafford Loan (subsidized or unsubsidized), a Direct Subsidized Loan, or a Direct Unsubsidized Loan with a variable interest rate that is lower during the in-school, grace, and deferment periods, the interest rate on the Direct Consolidation Loan is the lesser of (a) the weighted average of the interest rates on the loans being consolidated, rounded to the nearest higher one-eighth of one percent, or (b) 8.25% (that is, the interest rate is calculated in the same manner as the interest rate for a regular consolidation loan).

Factors for Borrowers to Consider Before Consolidating
Because a Direct Consolidation Loan enters repayment on the date the loan is made, there are important factors a borrower needs to consider before deciding to consolidate loans into a Direct Consolidation Loan under this temporary authority.

Grace Period: There is no grace period on a Direct Consolidation Loan made under the temporary authority. The 6 month grace period is a unique feature of the Federal Student Loan Program, designed to allow borrowers to become established in their new careers before they begin repayment on their student loans. As with an in-school deferment, the interest is paid on the borrower’s subsidized loans while they are in grace. This can amount to a significant savings.

If a borrower consolidates while still in school on at least a half-time basis and before the loan has entered the grace period, the borrower will not receive a grace period on that loan after the borrower ceases to be enrolled on at least a half-time basis. However, the borrower will be eligible for an in-school deferment on the Direct Consolidation Loan while enrolled at least half-time at an eligible institution. (Note: If the borrower’s loans enter grace before June 30th, and wants to wait to consolidate until the end of the grace period by completing Item 17 in section C1 of the Direct Consolidation Loan Application and Promissory Note. Another word of caution, borrowers who delay applying until their loans enter the grace period and whose application is received by the Department before the July 1, 2011 deadline may receive the modified interest rate associated with the temporary authority, provided that they are not consolidating certain variable interest rate loans, as explained above.) Contact Direct Loans for information regarding the effects of consolidation on your student loans. Call 1-800-557-7392 or on-line @ http://loanconsolidation.ed.gov/ .

PLUS Loans: Borrowers with Federal PLUS Loans or Direct PLUS Loans that were first disbursed on or after July 1, 2008, are eligible to defer repayment of these loans for a 6-month period that begins on the date the borrower (or the dependent student on whose behalf the borrower obtained the loan) ceases to be enrolled at least half-time. Parent PLUS borrowers are also eligible to defer repayment while the dependent student is enrolled in school on at least a half-time basis.

If a PLUS borrower consolidates a PLUS loan while the borrower (or the dependent student) is still enrolled in school at least half-time, or during the 6-month post-enrollment deferment period, the borrower will lose eligibility for these deferments. Again, for detailed information on Consolidating and its effects on your personal loans, contact Direct Loans. Call 1-800-557-7392 or on-line @ http://loanconsolidation.ed.gov/ .

Personal Financial Decisions Require Research, Analysis and Thoughtful Decisions
You have probably already received mail concerning your student loans and the June 30th deadline for this one-time opportunity. There are many benefits to consolidating, including: lower payments, combining multiple servicers & payments into one location/payment, and the return of deferment or forbearance rights on older loans that may have exhausted these options. However, as we all know, there are no perfect solutions that will work for everyone. As with any personal financial decision, make sure that you evaluate and weigh all of the facts before you make a decision.

Finally, there is one disadvantage a SWFC student or former student will encounter if you decide to consolidate your loans. As you know, SWFC’s Financial Literacy staff monitors the accounts of our loan borrowers and help students if their loans become delinquent. We gather our documentation based on an ID that identifies your loans as originating with SWFC. Once the loans are consolidated, this ID link is removed, so we no longer automatically have access to monitor the status of the consolidated loans. In an effort to help our former students who want to take advantage of student loan consolidation, we have established a special process to assist SWFC borrowers with their consolidated student loans. If you have questions regarding consolidation and your student loans, please contact us @ helpwithloans@swfc.edu and we will be happy to help you gather the information you need to make an informed decision regarding consolidation and your student loans.

Names can be confusing – especially when it comes to student loans.

A Rose is a Rose is a Rose … Names can be confusing – especially when it comes to student loans. You thought you paid that loan yet you are still getting late notices! What’s going on???

The student loan industry is still undergoing monumental changes that can be confusing for student loan borrowers. Even though Direct Loans became the single source for student loans as of July 1, 2010, life is not necessarily simpler. Direct Loans is now using several private companies to service their student loan portfolio. You may think of Direct Loans as your lender but they probably will not be the company servicing your loans. As of December 2010, in addition to the original Direct Loan Servicing, there are now four additional servicers who are handling student loan accounts for the Direct Loan Program. They are:
· DOE/Great Lakes
· DOE/NelNet
· DOE/Sallie Mae
· FedLoans (also known as PHEAA or AES)

It is important to understand that these DOE servicers are separate companies from their FFELP counterparts, with separate mailing addresses and phone numbers. They all also service loans under the FFEL loan program so you may have other student loans handled by Great Lakes, NelNet, Sallie Mae or PHEAA (AES). You may have the phone number for this servicer programmed into your speed dial. However, as separate companies, the DOE/servicer will have separate phone numbers and mailing addresses. Now that I have probably confused you, let’s review a few situations and see if we can help make your student loan life a little easier.

First Scenario – you thought you had a handle on who had your student loans; now, you called your servicer and they no longer have your loans. Yikes! Where are they? What’s going on? There was a large volume of FFELP loans that were sold to DOE in October 2010. This resulted in a lot of loan movement for borrowers. The good news is that this was the final loan sale authorized under the PUT program. However, as other loans were sold under the PUT program over the last few years, borrowers often went from one FFELP servicer to two or more DOE/servicers. Something simple became very bewildering. The DOE (Department of Education) has recognized the confusion created by this program and they are in the process of re-sorting their DOE/Servicer accounts to group all of a borrower’s DOE accounts to one DOE/Servicer. This may result in some additional, initial confusion as the loans are sorted and reassigned, but the DOE assures us that this process should be complete by mid-January and all borrowers with Direct or DOE held loans will have their loans serviced by one servicer. Happy New Year!

Second Scenario - you thought you were paying those loans and yet you keep getting a late notice or calls about delinquent loan payments. There are two possible answers to this scenario. The quickest and easiest explanation is that you have a loan or loans that were recently sold to another servicing company. Contact the company at the phone number referenced in the letter to see what is going on. You should be able to resolve this fairly quickly. The slightly trickier and more common problem occurs when you have loans serviced by both the FFELP servicer and the DOE servicer. For example, you have loans with Sallie Mae and you are making payments; however, you are getting letters from DOE/Sallie Mae saying you are delinquent. You must remember that, even though the names are similar, your loans are being serviced by two different companies. To resolve the current situation, call DOE/Sallie Mae and get a solution in place (payment, adjusted payment plan, deferment or forbearance). Our Tip for Future Contact: If you have the dual servicer situation, make it a habit to always contact the DOE/servicer first. This is based on a provision regarding federal payments, “lockboxes” etc. It can be confusing, but if you will simply get into the habit of contacting the DOE/servicer, you may still resolve your dual serviced student loans with one phone call. The customer service representatives from the DOE side are allowed to discuss both sets of accounts with you; however, the customer service representatives from the FFEL side are not allowed to discuss the DOE accounts with you. So… if you contact your FFELP servicer first, unless you ask to be transferred to the DOE/Servicer, you will have to call back to resolve those accounts.

Resources for Student Loan Management
A student loan borrower’s best source of student loan information remains NSLDS. The website, http://www.nslds.ed.gov/ will provide you with the most current information on all of your student loans and can be easily accessed 24/7 with your PIN. (Our Tip: If you have forgotten your PIN, visit http://www.pin.ed.gov/ and request a duplicate PIN). If you receive any mail from a student loan company, always open the mail and read the information. Trust me, in today’s economy, a company is not going to go to the expense of mailing letters or making phone calls (even “robo” phone calls) without a valid reason. As the borrower who can potentially be negatively impacted by adverse actions on student loans, you cannot afford to ignore any correspondence regarding your student loans. If you do not understand the information, either contact the customer service number listed on the letter or contact your school’s Financial Literacy department for assistance.

Each DOE/Servicer has a website where borrowers can download forms, review their accounts, make payments and request payment relief assistance. If you are a SWFC student or alumni, you can contact our financial literacy department and we will be happy to help locate your servicer’s website and set-up your account for easy management. Just e-mail me, mjoffe@swfc.edu and I will be happy to help.

Here is one final tidbit for your consideration. The Department of Education is reaching out to student loan borrowers and they have added two trendy contact resources for borrowers. Check these out:
www.facebook.com/college.gov
The page features weekly tips, info and links for future, current and former students.
www.youtube.com/collegedotgov This site features more than 60 videos, inspirational videos from peers and advice from current college students.

Where ARE my Student Loans?

Before we see where those peaky loans have gone, let’s take a nostalgic look back: Once upon a time, not so very long ago, a student went to college and used Federal Financial Aid to help pay for their education. The student kept a copy of all of their loan paperwork, all of their loans were with one lender/servicer and, when their Repayment date arrived and the borrower was ready to make a payment, they had their payment coupon booklet in hand, with all of their payment coupons in place. The monthly payment amount was easy to locate, the mailing address was very clear – everything went smoothly. The borrower made regular monthly payments and received a Paid-in-Full statement after the 120th payment. Those were the days!

As many of you already know first-hand and many more of you will soon discover, the life of a student loan holder is not so simple anymore. The student loan industry has entered a brave new world! Over the past two years, many lenders have exited the student loan industry. Some will continue to service their FFELP loans until they are paid in full. However, many lenders choose to sell the FFELP loans and the next thing you know, you are getting letters and e-mail from lenders or servicers you never heard of. What’s a person to do?

It can become even more confusing for borrowers returning to school or who are still enrolled. If you are attending school and using federal student loan monies to fund your education, you have probably recently been contacted by your Financial Aid office asking you to stop in for an appointment. If you fall into this category, please make that appointment now! You will probably be asked to sign a new promissory note. This is necessary because, as of July 1, 2010, the U. S. Department of Education’s Direct Loans is the only source for federal student loans or consolidated federal student loans. For many borrowers, this will just add one more name to their ever growing list of loan servicers.

Now, more than ever, student loan borrowers must take control of their accounts and stay in contact with their lender/servicers. Do you know the answers to these 3 questions?

1. How many student loans do I have?
2. Who is servicing my student loan account(s)?
3. What is my approximate balance on my student loan account(s)?

You should know the answers to each question. Want to check your accuracy? Log onto http://www.nslds.ed.gov/ and see how you did. Were you correct? Any surprises? At this point, if you are still not completely comfortable with your student loan contact information, take a few moments to contact your lender or servicer and get everything straightened out. Even if you scored 100 on the 3 question quiz, follow these few simple guidelines to stay straight with your student loans. Notify your loan’s servicer if you:

· Change your mailing address
· Change E-mail address (Please note: if you no longer check an e-mail address, inactivate the account. If your lender/servicer has the address, they will send E-statements as opposed to “snail mail”. This will not help you if you never check or read mail in that mail box.)
· Change or disconnect your phone
· Change Employers or become unemployed (Remember there is an Unemployment Deferment available for anyone who is not working or is working less than 30 hours per week)

One final piece of advice; be sure to keep your school in the loop too. Lenders do not notify the borrower’s school when loans are bought or sold, so make sure you keep your alma mater updated on the latest changes to your accounts. Your alma mater is also a great source for answers to the latest, confusing correspondence you've received. Your school’s Default Management office still speaks and can translate that foreign language called Financial Aid!

Coming Next Month: The Rates are Falling, The Rates Are Falling …… July 1st means the annual adjustment in variable rate student loans – and they are falling. Is it time to finally consolidate your student loans?

Other Coming Attractions:
A Rose is a Rose is a Rose … Names can be confusing. You thought you paid that loan and now you are still getting late notices! What’s going on???

In-School Consolidation – What’s the Buzz? A look at the pros and cons of this 1 year window for in-school consolidation; it’s not for everyone.