Student Loans... what you need to know

If you hold a Perkins Loan and you read that loan agreement (and you did because they forced you to read the fine print in an exit interview before they would let you graduate) you would know that in periods of financial hardship the government pays the interest for you. All you have to do is apply for it. Same goes with Federal Subsidized Stafford Loans. But these loans then get bought and sold to third parties who will try to make up their own rules so know your rights and call the Ombudsman if you need help. Did I say Rosebud? No, the Ombudsman. Just go here: www.ombudsman.ed.gov/

No company is consolidating or refinancing loans since there is no profit to be made with such low interest rates since late 2008. Therefore the government has stepped in and anyone can consolidate a loan even if you only have one loan with the reason being "these terms are not suitable for me." You may be able to get your interest rate lowered this way. Of course you have to be in repayment and no longer in school on those loans for this to work. Exception: "Borrowers whose consolidation applications are received on or after July 1, 2010 and before July 1, 2011 may qualify to consolidate loans that are in an in-school status into a Direct Consolidation Loan."
If your loan is in default you can still consolidate under the Income Contingent Option which is the best option anyway (OK, second best, really.)

Go to: http://www.direct.ed.gov/student.html which links you to here: https://www.dl.ed.gov/borrower/BorrowerWelcomePage.jsp

Repayment Options:

Standard Repayment

Cheapest over time but may be impossible in that time frame unless you make a massive income or have a trust fund.

Extended Repayment

This is a new one. According to the Direct Loan site:

To be eligible for the extended plan, you must have more than $30,000 in Direct Loan debt and you must not have an outstanding balance on a Direct Loan as of October 7, 1998. Under the extended plan you have 25 years for repayment and two payment options: fixed or graduated. Fixed payments are the same amount each month, as with the standard plan, while graduated payments start low and increase every two years, as with the graduated plan below.

Graduated Plan

Smaller payments that increase every 2 years. You will pay more in interest this way.
It will take you more time to repay. No payment can exceed three times the first payment.

Income Contingent

Uses your income to calculate your payment based on federal income guidelines based on your AGI, family size, spouse, discretionary income, etc. and *. The goal is to not cause you financial hardship by such large loan payments you may have in the previous options. After 25 years of payments the government writes off your loans but you will pay the taxes on this as if it is income in that year. They have their own calculation for this that really makes no sense. Interest will accumulated on your loans, and will be added to the loan balance (capitalized) each year. "However, capitalization will not exceed 10 percent of the original amount you owed when you entered repayment. Interest will continue to accumulate but will no longer be capitalized." This means the interest you pay on your interest can only get so big, then you will stop paying interest on your interest.

Income-based Repayment

This is a new plan started by the Obama administration during the recent bank crisis when he realized the student loan crisis was larger than the mortgage crisis but to admit this would cause a national meltdown or err, cost the government more money in bailouts. The Administration also realized that all the options available were starving out the population or causing massive defaults and that the only way out was to add the 25 year clause to the last two options. Note this also allows you to go back to school!

Your payment will most likely be the lowest under this plan because A) you have to have at least a partial financial hardship and it is based on your income during this period and B) it is based on state income guidlines rather than federal.

Example A) in California the poverty line is under $34,000 and but under Federal the poverty line is is say under $18,000. The minimum wage is higher in CA than the Federal because it costs much more to survive there then say Texas or Washington where they don't have state taxes and outrageous rent.

Example B) under income contingent even though you have financial hardship and are unemployed your payment may be calculated and come up with the same figure as you were paying before you did all that paperwork and were under the graduated plan. This makes no point really, but that is how outdated the federal AGI standards are.

So go with the income-based plan if you can because in 25 years your loans are also forgiven with the same clause saying the balance will be added to your taxes as income on which you will be taxed in that year. (Of course they haven't really come out and said this because they don't want everyone to chose this option.) They use the term "may" in case we no longer tax our people at that time. Highly unlikely! If you carry a large loan balance this plan will allow you to eat, even if you have a job because remember, in California or or New York what is considered poverty is of course much higher.... Yay!



Per DL site: *Monthly discretionary income equals your AGI minus the poverty level for your state of residence and family size, divided by 12. For the current poverty level, see the Poverty Guidelines Chart, which is issued annually by the U.S. Department of Health and Human Services.


If you hold a PLUS loan that means your parents love you and took out the loan for you so technically they have to pay it back if you don't so you have less options. You have parents that love and support you so get over it! (For your options go to the DL site. You may be spoiled rotten but you still have options.)


If you insist on staying with Sallie Mae or some other multi-million loan sucking machine you should know that they can't force you to pay more than you can afford to pay under something called Title IV. Mention this and they will start stammering and act confused.


Well, I hope this helps!

How to not get Scammed!

1) Use your brain and common sense.
2) Do your research
3) Use referrals
4) Use methods of payment with fraud protection
5) Get it in writing
6) Read the return policies
7) Read the description fully and examine the item before you buy

Example A) A man calls asking for money for the local police department who is sposoring a program for seat belt safety in schools. (You think he is for real because he as a CB radio as background noise.) Take his number and tell him you have to call him back. You then call the local police department and they confirm that they will never call and ask you for money and that they sponsor no non-profits.

This is a real scam out there and the CA number on your Visa forwards to a number in New Jersey. It is difficult to prosecute across state lines but your best bet is the fraud protection on your Visa. Capital One for instance has a zero deductible on fraud protection unlike HSBC which has a $50 deductible for out of state transactions.
This is a real scam that has happened to me and a handful of people I know.

You can also contact the Attorney General in your state for further assistance and to report a claim. You are very likely not the only victim.

Example B) You buy insurance and are unhappy with their decision on your claim or they refuse to pay. You can report them to the Insurance Commissioner of the state you live in. And by the way, even if you don't put a beneficiary on file all life insurance must pay out to a beneficiary upon your death (provided you have made all of your payments before your death and the policy is still active) and it is their job to locate one. You also checked the credit rating of the insurance company before you bought the policy. You are also smart and know that each state has a back up plan for insurance and there is something called re-insurance which guarantees insurance policies along with the state insurance fund that insurance companies must pay into in order to sell insurance in each state. (For some reason insurance agents aren't allowed to tell you this.) Beyond that insurance companies must have 3-4 times the assets to back up each policy that they write.

Example C) If a bank promises you a rate of return with zero downside as in you don't have to keep your money for any period of time but will get say 10% interest (APR) without any risk of losing money it is a ponzie scheme! Even if your uncle has invested here and got 10% back, stay away. Duh!

Example D) You bought the stupid maintenance guarantee on that sewing machine and it breaks down. You have your receipt and the store is still in business 3 years later (lucky you!) but the policy has changed at the store regarding their guarantees. They still have to honor your original contract and fix your machine. In fact depending on your agreement they may have to give you a free rental but they won't honor this unless you have all the proof and it hasn't disintegrated in time because you were smart knowing the ink would fade on the receipt and photocopied that shit! In fact you were so smart you file the photo copy of the receipt with the manual.

Example E) A cute guy tells you you are beautiful and asks you to buy magazines in a mall or door-to-door. This is a scam, don't do it! You will never receive the magazines. Whatever you do don't pay in cash.

Example F) A guy flags you down saying he has a huge deal on speakers, that he is a delivery guy and got an extra shipment and even shows you the speakers and a FedEx receipt. Don't buy these as inside the plastic speakers is nothing!!!!

Example G) You have over-paid your student loans when you can and now can't make payments on your loans and despite a financial hardship application the loan company tells you you owe late fees and they never received any application. They also try to make their own rules instead of following federal law which states you only apply every year, not every 6 months! They also want you to pay the interest for you during that time but you know the law and the federal government pays that interest per your loan agreement! But you were smart and kept a copy of that app, certified those letters sent and filed a complaint with the Ombudsman in Washington DC that governs student loan complaints. Even your smart lawyer aunt told you not to bother and that no one has ever won a case against a student loan company. But you prevailed! And besides no late fees since you had over-paid for years you actually get to defer your loans interest-free for two whole years! Bite it, Campus Partners!

to be continued...