07.02.08 | Private Loans vs. Parent Plus Loans

Posted in FAFSA, Private Student Loans, Student Loans by Kristin Morris

So, your child wants to go to that private University costing $45,000 per year and you’re wondering how on earth you’re going to pay for it.

They have worked hard thru High School, received a merit scholarship, have taken their PSAT, SAT, & ACT exams to prepare themselves and are excited about this new chapter in their young adult lives.

You on the other hand are a little less excited, and not because empty nest syndrome has set in prematurely. How am I going to pay for this you are thinking to yourself? It is the million dollar question. I just hope the million dollar question doesn’t cost me a million when my son is of age in 18 years.

Here are a few things to consider. FFELP Parent Plus loans are currently fixed at 8.5% which is really high in relation to private student loans, which many can get in the mid 6% range with good credit these days. The fed funds rate has dropped precipitously over the past several months which have spurred these lower private interest rates and has swung the pendulum in favor of private loans for many.

Both loans can be repaid after the student graduates, which are nice benefits, but you are only delaying the inevitable while interest continues to capitalize. If you can at least afford to make interest only payments while the student is in school it would certainly be in your best interest.

Another thing parents often ask me is who is responsible for the payment on these loans when the student graduates? The parent plus loan is linked to the parent’s social security number, so the parent is responsible for that one. The private student loans are generally in the students name with the parent listed as a co-signer. This would be the student’s responsibility and after 36-48 months of on-time payments you can get your named removed as a co-signer.

The parent plus loan also holds a tax benefit. You can write off the interest provided you do not earn more than $70,000 if you are single and $140,000 for joint filing. On a side note many parents with a joint income exceeding $140K are actually looking at home equity loans. Interest rates are so low on equity loans currently and they can write off the interest at the end of the year.

As you can see you have a few options, but only you know what is right for you. Happy spending.

06.13.08 | 529 College Savings Plan – Part II

Posted in Financial Aid by Kristin Morris

Last month I blogged about the 529 college savings plan and received some excellent questions that I felt would be beneficial to share with everyone (along with the answers of course).

I pretty much just gave a snapshot overview of what a 529 plan was , but I’m going to get down to the nuts and bolts of it for you today.

Q: David, you are obviously very smart on financial matters and I would appreciate more details about the 529 plan if you get a chance. I live in Vermont; do I have a good plan here? If not, can I get into another state plan?

A: You’re right, I am a financial master, and semi-good looking too. To answer your question Vermont is a Top 5 plan based on performance over the past 3 years. They even offer a tax credit to the residents of the great state of Vermont. Your state’s 529 plan is certainly solid, however, it is perfectly within your province to open a 529 plan in another state if you’d like. Just because you live in Vermont doesn’t mean you can not open a 529 plan in Oregon. Also, your child would not then be required to attend a school in Oregon either as many assume – this would simply mean your 529 account was located in that state.

Q: What are some of the main differences between state plans?

A: One of the biggest differences between plans is who is running the plan. For example in Massachusetts you have but one option, Fidelity. In Nebraska it’s the Union Bank and Trust Company of Lincoln, Nebraska, and in Indiana it’s JP Morgan.*

Another thing to keep in mind is what types of fees are involved with each plan. Are there monthly/yearly maintenance fees, program management fees, or start-up fees? Obviously the higher the fees the less desirable the plan, unless of course that plan is performing at a very high level to overcome said fees.

Q: Is their a contribution minimum? I can only afford to put $50 per month away?

A: These differ greatly from plan to plan and for residents vs. non-residents. For example in Kansas the minimum contribution is $1,000, but only $250 for a Kansas residence. Each subsequent contribution is $50 per month, but just $25 for Kansas residence. In Louisiana it’s just $10 total to open an account while in Illinois, Nebraska, & Utah there are no minimum payments at all! Keep in mind that some states also offer lower contribution minimums if you set up ACH.

Other things to keep in mind are state tax deductions. For example, residents of Arkansas have a deductible in computing Arkansas taxable income up to $5,000 ($10,000 for married taxpayers) when they contribute to their state 529 plan.

Also, about half of the state 529 plans offer rewards programs as well. For example, Massachusetts has partnered up with American Express and offers rewards points that go directly into your child’s 529 plan.

I hope this information is helpful! If you still have further questions or just want to tell me how fabulous I am, fire away! I love to hear that I am a financial mastermind, look out Bernanke – I have some thoughts on this countries monetary policy too.  Happy Saving.

*This information was accurate as of June 13, 2008 – but is subject to change.

04.22.08 | ~ Free Money – Scholarship Style ~

Posted in Scholarships by Kristin Morris

HELP WANTED 3

HELP WANTED!

Are you a struggling student trying to make ends meet? Do you need money for school? Would you like the opportunity to win a $1,000 scholarship per month and a $10,000 scholarship in October no strings attached??? If you meet this needy criteria you’re search is over. We are the perfect fit for you.

The perfect candidate will also enjoy sleeping late, going to parties, playing video games, exercising their mind, and most importantly receiving free money!

Guaranteed: Someone is going to walk away with $1,000 per month and $10,000 in October just for signing up. Sign up takes all of thirty seconds. I wish I knew about this site when I was going to school.

How to register: go to www.scholarshippoints.com click on Login/Register. That’s it.

Now here is the coolest part. You can accrue points like a lottery to increase your chances of winning the monthly scholarship awards! You can take surveys, post blogs, do a scavenger hunt on the website; the list goes on and on. You can also elect to do none of the above and just register once and be done with it. It’s completely up to you.

We all want something for nothing, and some of us will get it.  Will you be one of them?

11.28.07 | Stafford Loans = Your $$$$

Posted in Student Loan Links by Kristin Morris

For prospective or current college students, it is important to know the 2 different types of the Stafford loan. It is not news that if you are going to take out a loan, you should be well educated about the loan, for obvious reasons….but equally as important is realizing what these loans mean for your financial future. Remember it’s your Education and your money…two things that have extreme importance in todays world. Ok so here goes: Subsidized Stafford loan means that no interest accrues on this loan while you are in school at least part time. Interest starts accrueing on it 6 months after you graduate, or withdraw from school…or 6 months after you drop below part time. The goverment puts limits on how much you can borrow, because they are the ones paying the interest for you to the lenders.

Unsubsidized Stafford loan are a bit different. They accrue interest from the moment it is disbursed. You, the borrower, have the option to pay the interest monthly, or let the interest accrue and be capitilized. For a 3500 Unsub Stafford loan, with a rate of 6.8% – this will accrue about $20 per month in interest. So $20 a month for four years will add about $1000 to your original loan balance by the time you graduate….and this will increase if you have the interest capitlized.

So here is the big picture….

Four years of school…you take out as much Sub as you can….you also take out some Unsub to help cover tuition costs….so you have $17125 in subsidized Stafford, and 10,500 in unsubsidized Stafford

Scenario # 1 (you paid the interest monthly for 4 years)

Total loan debt: $27,625

Monthly Payment: $ 318/ month for 10 years

Total Interest Paid: $10,535

Scenario # 2 (you did not pay your interest)

Total loan debt: $29,605

Monthly Payment: #341/ month for 10 years

Total Interest paid: $11,315

As you can see, it is wiser to pay the interest monthly, if you can afford it. If you cannot afford it, thats ok…you can make up for it later by paying not taking the full 10 years to pay the loan. Federal loans have no prepayment penalties. So the sooner you pay them off, the less you will end up paying in interest. Got Questions or Comments…..

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