Private student loans waste money

As a personal finance columnist, there are some things that make me pull my hair out. I try not to think about them, because I have less and less hair these days and people are noticing.

On the list are payday loan shops that gouge the down and out, credit card banks that slap 35 percent penalty interest rates on people who skip a single payment, and brokers who make fat commissions by locking clients into overpriced variable annuities.

The devil should keep a hot spot ready for the guy who invented the nasty software that banks use to handle bounced checks. When you overdraw your account, the program sees that you bounce several little checks instead of one big one. Each bounce can cost you a $30-plus bank fee.

This week, I lost another clump of hair. It seems that many college and trade school students are taking out pricey private student loans when they're eligible for cheaper federal student loans. That's like throwing money out the window.Federally backed student loans, called Stafford loans, charge 6.8 percent interest. Students who show financial need may qualify for a subsidized Stafford and pay no interest while in school, and only 5.6 percent later. The loans are guaranteed by Uncle Sam, so the lenders require no credit checks.

By contrast, anything goes in the private student loan market, where you can pay interest of 18 percent or higher. Private loans carry an added risk: Their rates are variable, going up and down with an index, often the prime rate. If rates rise, so will your interest payment.

Stafford loans also offer more mercy if you have trouble repaying. There are forbearance programs and the new "income-based repayment" program that make payments affordable. You won't get those with most private loans.

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Don’t Let Your Student Loans Get the Best of You

Student loans can really put a damper on your new life after college. This is especially true if you are like many students and owe at least $15,000 for loans. If you do not take steps to pay off your student loans sooner than later, you could be paying for the loans for ten to twenty years. In that time, you will be paying back a lot of interest even if you received fair interest rates at the time you took out your student loans.

Make smart choices about your student loans even before you graduate college. It is often a good idea to avoid private student loans which often include origination fees, higher interest rates and variable rates. You end up paying back too much money on even the smallest of loans. Many private lenders add the origination fee onto your total balance which means you have an even higher amount on which you must pay interest.

If you have the option of deferring your interest on a loan while in college, decline that offer. It might seem like a good idea to hold off on paying interest until after you graduate college, but it is not. The interest that you accumulate during those four years can be compounded and added to your total balance. You do not want to find that you are making interest payments on top of interest. If you work a few hours each week so that you can pay your interest on a quarterly basis, it will be worth your time.

Make payments on your principal balance a few times each year. You will not be making regular monthly payments on your loan while you are in college. This does not mean that you cannot make any payments at all. Save a few dollars from your job each week in order to pay a couple hundred dollars on your student loan once or twice during the school year. Make certain that you state that the payment should be applied to your principal balance, not to the interest on the loan.

It is possible that you might receive financial aid in excess of your tuition and related expenses. If this occurs, you might want to consider applying some of that money to the balance of your current student loans. Once again, you will be taking the opportunity to pay off your balance sooner. Do not forget to state that the money you are paying is to be applied to the principal rather than interest.

Consider making your student loan payments and interest payments during the grace period. You will usually have six months after graduation in which you do not need to worry about student loan payments. If you have a job lined up upon graduation, you might want to ignore this grace period. Start making payments on your outstanding student loan. The sooner you start to make payments, the sooner your loans can be paid off.

You can defer student loan payments a couple times throughout the duration of your repayment period. You can take these options if you are experiencing financial, health or other hardships. You should only apply for a forbearance or deferment if there is no possible way for your to maintain regular payments. Your interest will accumulate during these time periods and you will be extending the duration of your loan.

Put extra money on your student loans when you make your regular payments. Anytime that you are able to pay more than the amount due on your loans, make that extra payment. You should apply it to the principal in order to see your balance decrease faster. You can pay off your loan in a shorter amount of time and will end up paying less interest. If you are fortunate enough to earn an excellent income, pay extra on your loans each month.

Use money that you do not receive on a regular basis to pay on your student loans. For example, consider applying all or some of your tax return each year to your student loan. You might even use money that you receive as gifts to pay more of your principal balance for your student loans. Even the smallest amounts can make a big difference when you are working to unload the burden of student loan debt.

Good planning and being responsible will help you to take control of your student loans rather than letting them take control of you.


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Debt Settlement Programs and Credit Card Debt Settlement Basics.

Debt elimination programs and facilities provide the assured means to wipe your debts. Many financial institutions commit for total debt elimination. However, this isn’t true. There’s a certain limit to eliminate debt and creditors don’t allow “total” debt removal unless you file for bankruptcy.

The foremost thing to know about debt elimination programs is that there are hundreds of “debt” companies claiming to be effective, and visiting their portals often present an impression of “being professional”. Such companies claim to be working for you and guarantee debt elimination by 100% or significantly reduce your debts. And these companies claim elimination of all kinds of debts - credit card, student loan, vehicle debts etc. There’s a program available out there and it’s right or perfect for you. People tend to read and believe things. However when they actually avail the facilities, they find out exactly what’s in the program and how effective it can be.

The truth is that these programs fundamentally help to lower your monthly payments since they include a negotiating activity in which you’re representative convinces your creditor to “reduce” the interest amount and allow a new monthly payment plan which is adjusted to suit your monthly earnings and paying capacity. The programs do help to get you out of debt faster than you might otherwise expect. If you have multiple “borrowings” or many loans simultaneously “underway”, it’s recommended to consolidate your debts in order to avail a better interest rate. This could help you to pay substantially less than what you might otherwise end up paying in reality. The longer it takes to pay off your debt, the more you end up paying in terms of interest for the debt. Debt settlement programs cater to this aspect and makes sure you’re outstanding amount is redeemed quicker so you pay less.

A debt elimination plan is a sure way out to erase your debts, but it’s got to be done in the “right” way and with the “right” kind of company. The basic advantages include:
• Reduce your debts without filing for bankruptcy
• Stop harassment phone calls from your creditors
• Prevent collection agencies and recovery agents from hounding you
• Get legal advise if you are sued by your creditors
• Restore and repair your credit

Debt settlement services need to be carefully chosen since different companies offer different facilities, and their efficiency in reducing your debts also wary. A debt elimination program CAN be your answer, your way out, but it’s important to be wary before you actually avail it so you don’t suffer from pitfalls. That’s what this article is all about.

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Students struggling to budget for college years - Debt Consolidation the answer?

The average undergraduate has $2,200 in credit card debt, according to Nellie Mae, the nation's largest maker of student loans. That figure jumps to $5,800 for graduate students. Since so many student credit cards have high annual percentage rates, the longer these students wait to pay the cards off, the worse it gets.

If they just pay the minimum payments it would take a student more than 12 years and $1,115 in interest to pay off a $1,000 balance on a credit card with an 18 percent annual rate. Interest rates increase if students fall behind on the debt, which in turn makes it more unlikely that the student can repay their debt.

It is easy for college student to get caught in the credit card trap. Most college students have credit cards. Creditors set up booths on college campuses to lure students in to fill out applications and most of these card the interest is over 18%.College Students should get themselves a secured card first. With a secured card, they will have to deposit money into the account and then you can charge only what you have deposited into the account. Once you’ve shown you are responsible with a secured card, you can move onto a regular credit card.

Another thing students can do is pay off the balances on the credit card in full at the end of the month. This is a good way to establish and build credit. This will also show the creditors that you are not spending beyond your means and can handle repayment obligations.

Sallie Mae's research suggests more students are paying for educational expenses such as books and school supplies with credit cards. And they're doing so more often. Many of these students don’t know where to turn to for financial help and maybe reaching out to them with financial literacy and budgeting ideas, they will start using credit cards wisely.


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Debt Consolidation Loans Are Getting Harder To Obtain

A lot is being written about debt and the many ways consumers are dealing with the record amount of debt in their daily lives. Today I want to talk about debt consolidation.

Ever since the Real Estate boom got underway in the early 2,000’s that bubble was fueled by artificially low interest rates, lax lending practices, predatory lending practices and skyrocketing housing values that made every homeowner feel a lot wealthier than he really was. Many took to the practice of using their homes as their personal ATM Machine.

Whenever the credit card debt got too large and the car payments became too restricting they would go to their Mortgage Lender and do a cash out refinance of their existing Mortgage, taking out an additional $50,000, $100,000 even $250,000 to clear up the debt and perhaps take a nice vacation.

Well with the bursting of the Real Estate bubble that option has been taken off the table. Many, many homeowners are finding themselves owing more to the bank than their homes are worth! Not only that, they have run up their credit cards again with no easy way to pay them off. The old way of debt consolidation is gone forever.

Dave Ramsey preaches of the debt Snowball method, this method attacks the highest interest debt first then when it is paid off you go to the next debt and use all your extra resources to get that paid off and so on down the line. The problem with this method is that it takes discipline and you must sacrifice to be successful.

A relatively new method of debt consolidation that is sweeping the nation are the Software driven Mortgage Acceleration Systems. These programs help people pay off their mortgages and debts in a fraction of the time, without refinancing (which is becoming harder every day), without making extra payments and with little change to their household budget.

Homeowners and even people that have a lot of consumer debt, student loans and car loans can qualify for these programs as long as they earn a little more than they spend. The programs guide people financially like a GPS System guides people to their destination.

Mortgage debt and consumer debt are increasingly taking their toll on the American people. It is everyone's responsibility to become more frugal and start living within their means and to think outside the box to find solutions to eliminate their debts quickly. As Einstein once said: INSANITY is doing the same thing over and over again and expecting different results!.


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Education cuts hit local programs

MONMOUTH — Decisions made Tuesday by the State Board of Education will have long-lasting repercussions locally.

Warren, Mercer and Henderson County Assistant Regional Superintendent of Schools Bob Gound attended the meeting where the state board approved a budget $180 million less than last year's.

"The cuts will be felt by our office and the schools in our region," he said. "At least at this point we know what the budget is going to be. We know where we stand and can start to make plans."

The biggest line item cut comes out of early childhood education — programs aimed at preschool aged children — which was cut by about 33 percent, or $123 million. Earlier this year, the United school board had to eliminate one of its early childhood education classes because of the uncertainty of the funding situation.

"For us locally, $100,000 has to be cut from the early childhood education budget," Gound said. "We're working to craft a budget that's going to allow us to continue to serve the children of the area. We'll have to be creative."

It is still unclear how some cuts made by the State Board of Education Tuesday, such as a 50 percent reduction for truancy prevention services, will be  administered. Each program across the state could see a 50 percent cut — or programs in "trouble" areas could be maintained while other areas see the program cut completely.

However, while it was not official, Gound said he did expect the PASS school to see a 33 percent cut of $26,000, which could lead to service cuts, specifically in the adult education program.

"The last thing we want to do is reduce the number of students able to be served. We'll look at areas we can cut back without eliminating programs," he said.

Other programs that are seeing 33 percent cuts include the principal and teacher mentoring programs. A program to support schools that failed to make Adequate Yearly Progress as part of No Child Left Behind was cut 50 percent.

Thus far, the Regional Office of Education is not looking to eliminate staff.

"We're not ready to make cuts today. I hope that I can say that a month from now," Gound said. "I think we absolutely have to be planning for the future. ... One of the overarching themes (of the State Board of Education meeting) was this year's budget is bad, but next year's budget is worse."

Local school districts will see some immediate ramifications from the cuts in smaller ways, such as the elimination of the textbook loan program that allowed schools to replace textbooks more frequently.

However, new Monmouth-Roseville Superintendent Paul Woehlke said the state's 2011 budget is the one that will really affect local school districts. Because staff members are laid off in March through a process called Reduction In Force, even if there is not money for a program there is little the school can do until then.

"There's not that much we can do to cut staff at this point. Most of the cost of programs is salary and benefits, so there's not a lot we can do to react at this point," Woehlke said.

Taking over this month after serving as the Galesburg school district's finance director, Woehlke said he was optimistic the state would address school funding — until mid-July rolled around.

"Now, with the governor pulling the tax increase off the table until January, legislators will be in election mode. If it's not going to happen in the odd years, I don't know when it's ever going to happen," he said. "We are putting at risk the education of our children and, therefore, their ability to compete in the global economy in the future. And if they're not able to compete as well and maintain their standard of living in the future, who is going to pay for social security, medicaid benefits my generation have earned? Their generation won't be able to maintain standard of living we've enjoyed."


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Wise superintendent presents consolidation plan to supervisors

WISE — Wise County confronting consolidation of its high schools is inevitable, School Superintendent Jeff Perry told the Board of Supervisors on Thursday. It’s just a matter of when and how.

Perry presented the Wise County School Board’s now-and-how $100 million plan to supervisors on Thursday. The other consolidation option, he said, is a failure to plan that will result in a forced, inflexible and difficult consolidation sooner rather than later.

The school board wants to close the existing six high schools and build three modern facilities to merge the student populations of Appalachia with Powell Valley in Big Stone Gap, Pound with J.J. Kelly in Wise, and St. Paul with Coeburn. Sites for the new schools chosen by the school board are behind the existing Powell Valley High School, near Wise and west of Coeburn.

Perry laid out an array of numbers and reasoning behind the school board’s planned consolidation, including potential loss of $3 million or more in state funds within the next budget cycle, ever-declining enrollment, 75 percent of the annual budget committed to wages and benefits, total school operational costs that have increased $18 million over five years from $57 million in 2003 to $75 million last year, and few options to trim costs or raise revenues.

If the $3 million state cut hits as expected, Perry said the options are to make work force reductions, close schools or cut programs. He said the smallest high schools face closure anyway, and without the consolidation plan now before supervisors, their students would attend the old larger schools regardless.

“It’s not a threat,” Perry said, but merely facing the cold, hard facts about consolidation.

Some supervisors disputed Perry’s facts, such as Ronnie Shortt of Pound. Shortt expressed skepticism the three new schools could be built for $100 million and even the $70 million Perry said the county could afford to borrow without raising taxes, even though Perry got the $70 million figure from the supervisors’ own administrative office.

The plan submitted Thursday by Perry recommends requesting proposals from contractors this month, receiving the first round of RFPs and preliminary engineering reports in September, selecting the leading proposals in October, then receiving the second round of proposals in mid-November with detailed plans, including specific costs.

The school division’s consolidation plan would award bids in December, review final designs in February 2010, and begin construction that month or March, with the new schools completed by July and ready for their first students in time for the opening day of school in 2012.

By consolidating six high schools into three new ones, the school division projects an annual operational savings of over $3.24 million that can be applied to debt service. Each new school is projected to cost about $33 million. A 20-year $33 million loan carries an annual debt service of $2.6 million, a $66 million debt would be paid back at $5.2 million a year, and a $100 million commitment would require an annual debt service of $7.9 million, Perry said.

The costs may be eased somewhat by the possibility of snaring some zero-interest federal stimulus bonds, Perry said, and pursuing other grants that contractors have been pointing out to the school division in recent months.

A construction market that has driven costs down from $200 per square foot to $150, if not better, also makes this the time to strike to save costs, he said.

The average enrollment in a Virginia high school is 1,187 students, Perry said. Even with consolidation, the three new schools would be home to fewer than 700 students at two of them and just over 500 students at another.

Perry said the time has come for Wise County to make a difficult decision because there is a need for immediate action and a need to move forward. The county made that decision in the 1950s when it consolidated nine high schools into the existing six schools “and now the mantle of responsibility (to consolidate into even fewer schools) has been laid on our shoulders,” Perry said.

Perry said there is a need to develop a vision and a future for the county to “do what is best for Wise County.”

Skepticism expressed by supervisors over the cost projections was shared by Shortt, Board Chairman Robby Robbins and Big Stone Gap’s Virginia Meador, but Perry said he didn’t pull them out of thin air.

“We have done the homework on this,” he said. “I feel very comfortable about this.”


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