01.21.14 | Setting the (Education Loan) Record Straight

Posted in Student Loans by David Levy

Student Loan Debt at GraduationWhile average education loan debt at graduation continues to increase every year, the percentage of students graduating with student loan debt is also growing. How many students and their families are borrowing to finance a college degree and how much are they borrowing?

Mark Kantrowitz, Senior Vice-President and Publisher of Edvisors.com, recently analyzed data from the 2011-2012 National Postsecondary Student Aid Study (NPSAS). Among the observations in his student aid policy analysis report, Debt at Graduation:

  • The burden of paying for college has shifted from federal and state governments to families.
  • As a result, students are shifting their enrollment to lower-cost colleges and/or graduating with more debt.
  • Education loan debt is common for most students. For example, more than two-thirds of Bachelor’s degree recipients graduated with federal and private student loan debt. Of those who applied for federal student aid, nearly ninety percent of Bachelor’s degree recipients graduated with student loan debt in 2011-12. An even greater percentage of graduate and professional school students graduate with student loan debt.
  • The average student loan debt at graduation among Bachelor’s degree recipients who graduated in 2011-2012 with student loan debt was $29,384. (The average student loan indebtedness is $20,265 if one calculates the average for all Bachelor’s degree recipients, including those who graduated with no debt.)
  • Oftentimes, the amount of debt parents borrow to help their children pay for school is excluded from cumulative undergraduate education loan debt statistics. Kantrowitz has calculated the total education debt at undergraduate graduation to include Federal Parent PLUS loans. The average total education loan debt at graduation (including parent borrowing) for Bachelor’s degree recipients who graduated with debt was $35,432. Considering all Bachelor’s degree recipients including those who graduated with no debt, the total education loan indebtedness was $24,510.
  • Debt at graduation for graduate and professional students has increased more dramatically than for undergraduate students. “For example, the average debt at graduation for law school graduates increased from $93,336 in 2007-08 to $135,527 in 2011-12 ($11,048 per year) and the debt at graduation for medical school graduates increased from $127,017 to $180,109 ($13,273 per year),” Kantrowitz wrote.
  • These increases in total graduate education loan indebtedness might be attributed to the introduction of the Federal Grad PLUS loan in 2006 and the limited availability of gift aid to graduate and professional school students.
  • Surprisingly, most undergraduates do not graduate with six-figure student loan debt. In fact, less than one percent of undergraduate students graduate with debt exceeding $100, 000. (Unless undergraduate students borrow from non-federal student loan programs, it is impossible for them to graduate with six-figure student loan debt).
  • Six-figure student loan debt is more common for graduate and professional students. Six-figure student loan debt is most common among law school and medical school graduates where nearly 60% and 70%, respectively, of these students graduate with six-figure student loan debt (including both undergraduate and graduate loans). These figures are up sharply from four years ago, when about a third and half of law school and medical school students graduated with six-figure student loan debt.

Kantrowitz suggests that undergraduate and graduate students should borrow no more for their entire education than their expected annual starting salary at graduation. If total student loan debt is less than annual income, the student will be able to repay his or her loans in 10 years or less.

Otherwise, students will find their major lifecycle decisions such as marriage, car and home purchases, raising children and saving for retirement may be adversely affected.

David-Levy-EdvisorsDavid Levy is Associate Editor of the Edvisors Network. David brings 30 years of experience as Director of Financial Aid at some of the nation’s leading colleges, including the Scripps College, California Institute of Technology and Occidental College. He is respected by students, parents and financial aid professionals nationwide because of his extensive outreach and volunteer activities, his extensive knowledge of financial aid and his leadership in helping to simplify the aid application process.

08.12.13 | Top Twelve Tips for Repaying Student Loans

Posted in Repayment, Student Loans by Mark Kantrowitz
  1. Get organized. Make a list of all your federal and private student loans, the amount owed, and due dates. To find information about your federal student loans, log into the National Student Loan Data System at NSLDS.ed.gov. You can also request a free copy of your credit report by visiting annualcreditreport.com or calling 1-877-322-8228. (Read the FTC’s warning about copycat free credit report sites that aren’t really free.)
  2. Keep your student loan lender informed of any changes in your name, address, telephone number, email address or marital status.
  3. Sign up for auto-debit on your student loan. You’ll be less likely to miss a payment and, in many cases, you may get a slight interest rate reduction on your loan.
  4. (more…)

08.02.13 | The Usual Mistrust or a Preview of More Bipartisanship?

Posted in Financial Aid, News, Stafford Loan, Student Loans by David Levy

Federal Student Loan Compromise

This content was updated on 7/9 to reflect the passage of the Smarter Solutions for Students Act

With bipartisan support, on July 31, 2013, the House of Representatives passed H.R. 1911, the Smarter Solutions for Students Act (also known as the Bipartisan Student Loan Certainty Act, as amended by the Senate), by a vote of 392 to 31.

President Obama  signed the legislation into law on August 9, 2013.

Under the new law, interest rates on new loans each July 1 will be based on the last 10-year Treasury auction in the previous May. The specific interest rates will be as follows:

  • Undergraduate Students (Subsidized and Unsubsidized Federal Stafford Loans): 10-year Treasury + 2.05% with an 8.25% cap
  • Graduate and Professional School Students ( Federal Stafford Loans): 10-year Treasury + 3.6% with a 9.5% cap
  • Parents and Graduate/Professional School Students (Federal Parent and Federal Grad PLUS Loans): 10-year Treasury + 4.6% with a 10.5% cap

Based on the current 10-year Treasury rate, this will yield interest rates of 3.86%, 5.41% and 6.41%, respectively, for new loans this year, made after July 1, 2013. (more…)

07.25.13 | Doubling Interest Rates: The Devil is in the Details

Last night, the Senate passed a bill to address the doubling of the interest rate on new subsidized Federal Stafford loans.

The Congressional Budget Office (CBO) estimated that the legislation will save the federal government $715 million over ten years, which would be applied to deficit reduction. Many feared that the multi-partisan Senate deal would fall apart because the CBO found that an earlier version would cost $22 billion over ten years.

Under the Senate-approved legislation, interest rates on new loans each July 1 would be based on the last 10-year Treasury auction in the previous May. The specific interest rates would be as follows:

  • Undergraduate Students (Subsidized and Unsubsidized Federal Stafford Loans): 10-year Treasury + 2.05% with an 8.25% cap
  • Graduate and Professional School Students ( Federal Stafford Loans and Federal Grad PLUS Loans): 10-year Treasury + 3.6% with a 9.5% cap
  • Parents (Federal Parent PLUS Loan): 10-year Treasury + 4.6% with a 10.5% cap

Based on the current 10-year Treasury rate, this would yield interest rates of 3.9%, 5.4% and 6.4%, respectively, for new loans this year, made after July 1, 2013.

According to Mark Kantrowitz, publisher of Edvisors, “This is still an interest rate increase masquerading as a decrease. Interest rates are at historically low levels and have nowhere to go but up. We can expect interest rates to start increasing by about 1.5% per year in 2015.” These federal educational loan rates are expected to climb as the economy improves and it becomes more expensive for the government to borrow money. Thus, interest rates on new loans will probably exceed the current 6.8% rate in 2017 and certainly by 2020. “So, while students enrolling in college now will save money on their student loans, their younger siblings will pay a lot more. A few years from now students and parents will be demanding a return to fixed 6.8% interest rates.”
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07.24.13 | 5 Ways to Cover College Costs

Paying for CollegeWhether you’re a soon-to-be freshman or second semester senior, it is never easy to figure out how to cover the costs of college. With tuition and hidden fees of private colleges averaging out to about $40,000 per year, many of you are still wondering how your family is expected to pay for $35,000 of your education, even after having received your Student Aid Report (SAR) three months ago. To help you out in your pursuit of a college degree, here are 5 ideas for paying for college when Federal aid comes up short.

Befriend the Financial Aid Office

If you are disappointed by the amount of financial aid that you receive, try talking to your financial aid office. Many colleges have an appeal process for financial aid, so get on a first-name basis with someone in the financial aid office and see what else can be done.

Search for Scholarships

There are millions of dollars in scholarships that go unclaimed every year, so why not spend a few days this summer searching and applying for as many scholarships as you can find? On average, you will win 1 out of every 10 scholarships that you apply for, so don’t get discouraged. For starters, try visiting our recommended scholarship search website, or try winning scholarships through the ScholarshipPoints program. (more…)

07.19.13 | College Costs Out of Control

Today, 20% of adults owe money on student loans, and 57% are worried about repaying these loans. Many have expressed concern about the recent legislation which increased the interest rate of subsidized loans to 6.8%, but the problem is not the cost of student loans. As stated by Mark Kantrowitz in a recent article published by MarketWatch, this will not double loan payments, but rather, will lead to about a 17% increase in monthly payments.

The real problem is the rising cost of college, and decline in government grants. A recent study by Gallup indicates that only 15% of Americans think that it would be reasonable for colleges to charge students more than $20,000 per year. Yet, many schools, such as MIT, Cornell, and Harvard, charge over $50,000 per year, after tuition and living expenses are taken into account. (more…)

07.12.13 | Pros and Cons of Private Student Loan Consolidation

Congratulations on finally finishing college.  While it’s great to be working and living on your own, you now get to pay your own bills (and yes, now you finally understand why your parents always yelled at you for taking more than 10 minutes in the shower).  Amongst these bills, the most pressing may be those student loan repayment letters that start to arrive all too soon after graduation.  With student loan debt averaging out to $23,000 per borrower, you could end up paying $200 per month for the next 15 years!

Fortunately, there is an alternative: college loan consolidation. Student loan consolidation enables you to lower your monthly payments and pay back your loan over a longer period of time. To give you a better idea, let’s explore the pros and cons of consolidating your student loans. (more…)

07.01.13 | 3 Things You Should Know About the Stafford Loan Interest Rate Increase

Posted in News, Stafford Loan, Student Loans by Student Loan Network Staff

As you may have heard, the interest rate on subsidized Stafford loans just increased from 3.4% to 6.8%, effective July 1, 2013. Congress wanted to keep rates down, but the deadline hit before all parties could agree on a course of action. Here’s what you need to know about these changes.

1. It only affects new loans

I’ve received a lot of questions lately about the impact of this rate increase. It seems like graduates everywhere are concerned that their student loan payments will soon be skyrocketing. The good news is, it’s not retroactive — meaning it won’t affect any subsidized loans originated before July 1, 2013. So for borrowers who are currently repaying older loans, don’t worry, you’re in the clear.

However, the new rate will impact loans originated after July 1, 2013. This means any new subsidized loans will have the 6.8% rate. Despite this rate hike, subsidized loans are still a better deal for borrowers because the interest subsidy remains intact.
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06.26.13 | Will Student Loan Interest Rates Double on July 1?

Posted in Financial Aid, News, Stafford Loan by Mark Kantrowitz

If Congress does not act, interest rates on new subsidized Stafford loans will double from 3.4% to 6.8% on July 1, 2013. Previously originated subsidized Stafford loans and all other education loans will not be affected.

Doubling of the interest rates certainly sounds dramatic, but the actual impact on students will be more muted.

Each year, less than a third of undergraduate students receive federal subsidized Stafford loans. The average subsidized Stafford loan is $3,357, based on data from the 2007-08 National Postsecondary Student Aid Study (NPSAS), with average subsidized Stafford loan debt at graduation of $9,008 ($11,329 for Bachelor’s degree recipients). Only 3% of subsidized Stafford loan borrowers graduate with debt equal to the aggregate limit of $23,000.

Assuming a 10-year repayment term, doubling of the interest rate on $3,357 in debt increases the monthly loan payment by less than $7. On $9,008 in debt, the increase is less than $18; on $11,329 the increase is less than $24; and on $23,000 the increase is less than $48.

Doubling the interest rate does not double the monthly payment. Most of the monthly payment goes to principal, not interest. For example, on a 10-year term, increasing the interest rate from 3.4% to 6.8% increases the monthly payment by about one sixth (16.9%).

So while the interest rate increase will increase borrowing costs, it is not a major disaster.

Focusing on the interest rates, on the other hand, is a distraction from the real problem (more…)

05.23.13 | Smarter Solutions for Students Act

Posted in Financial Aid, financial aid tips, News, Stafford Loan, Student Loans by Student Loan Network Staff

As you may recall, last year, Congress voted on whether to raise the subsidized Stafford loan interest rate to 6.8%, or keep it at 3.4%.  Congress decided to prolong the decision for another year and keep the subsidized interest rate at 3.4%.  However, a year has gone by, and it is once again time for Congress to vote.  If Congress fails to come to a consensus by July 1, the interest rate on subsidized loans will automatically double to 6.8%.

In response to this impending decision, several politicians have put forth ideas of what they deem to be the best solution.  On May 1, Senator Elizabeth Warren proposed the Bank on Students Loan Fairness Act, which sought to lower the interest rate on subsidized loans to just under 1%, which she described as the equivalent rate for which banks qualify.
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