December 2011 Personal Finance Newsletter
December 20, 2011 by Jean Keener, CFP, CRPC, CFDS · Leave a Comment
The December personal finance newsletter is now available. It includes information on a new student loan repayment program going into effect in January 2012, gift tax strategies, and tips on keeping your online accounts secure. Plus, for those that enjoy history, there’s some perspective on stock market cycles and the effect of being in and out of the market at particular times. Please click here to read the newsletter. Happy holidays!
Should You Consolidate Student Loans Now?
July 8, 2009 by Jean Keener, CFP, CRPC, CFDS · Leave a Comment
If you have a federal Stafford Loan or PLUS Loan issued on or after July 1, 1998 and before July 1, 2006, consider yourself lucky. Beginning July 1, 2009, the interest rates on these variable-rate loans are set to drop to the lowest rates in the history of the federal student loan program. These new rates will be in effect through June 30, 2010, after which they will reset again.
Just how low are these rates? Well, starting July 1st, the new interest rate on Stafford Loans in repayment status is 2.48%, down from 4.21%; the new interest rate on in-school, grace period, or deferment status Stafford Loans is 1.88%, down from 3.61%; and the new interest rate on PLUS Loans is 3.28%, down from 5.01%. Remember, you are only entitled to these rates if you have a federal Stafford or PLUS Loan that was issued on or after July 1, 1998 and before July 1, 2006.
Consolidation
If you have more than one of these variable-rate federal student loans, you can convert your variable interest rate to a fixed interest rate by consolidating your loans under the federal government’s loan consolidation program. The interest rate on a consolidation loan is a fixed rate that’s equal to the weighted average of the current applicable interest rates on the loans being consolidated, rounded up to the nearest 1/8th of a point (and capped at 8.25%). Lowering your interest rate can potentially save you hundreds or thousands of dollars over the life of the loan.
For example, suppose you have three separate variable rate Stafford Loans that you’re currently repaying. If you consolidate them, your new fixed interest rate for the life of the loan would be 2.5% (2.48% rounded up to the nearest 1/8th of a point). Let’s assume your balance is $20,000. Over the course of 10 years, your monthly payment on a $20,000 loan at 2.5% would be $189, and the total amount of interest you would pay over that 10 years would be $2,625. By contrast, if you had a $20,000 balance at a 6.8% interest rate (the current fixed rate for unsubsidized Stafford Loans), your monthly payment would be $230 and the total amount of interest you would pay over the life of the loan would be $7,619–a savings of $4,994 in interest. Over an extended 20-year repayment term, the savings would be even greater.
There are some things to keep in mind about loan consolidation:
- You can only consolidate your loans once, so if you did so previously, you can’t do so again
- You can’t add private student loans into a federal consolidation loan
- If you’re still in school, you can’t consolidate your loans until you graduate
If you are eligible to consolidate your loans, you’ll need to go through the Federal Direct Loan Consolidation program. For more information, visit www.loanconsolidation.ed.gov.
Loans issued on or after July 1, 2006
If you have a Stafford or PLUS Loan issued on or after July 1, 2006, you aren’t eligible for these new low rates. Instead, your loan will have a fixed interest rate for the life of the loan–the exact rate will depend on the type of loan you have. For unsubsidized Stafford Loans (”unsubsidized” means the federal government does not pay the interest while you are in school, during grace periods, or during deferment periods), the interest rate is 6.8%. For PLUS Loans, the interest rate is 8.5%. And for subsidized Stafford Loans (”subsidized” means the federal government does pay the interest while you are in school, during grace periods, and during deferment periods), the interest rates are as follows:
- 5.6% for loans first disbursed on or after July 1, 2009, and before July 1, 2010
- 4.5% for loans first disbursed on or after July 1, 2010, and before July 1, 2011
- 3.4% for loans first disbursed on or after July 1, 2011, and before July 1, 2012
Summary
The following table highlights the interest rates on different types of federal student loans.
| Stafford Loan: subsidized | Stafford Loan: unsubsidized | PLUS Loan | |
| Issued on or after July 1, 1998, and before July 1, 2006 |
|
same as subsidized Stafford Loan | 3.28% (down from 5.01%) |
| Issued on or after July 1, 2006 | 6.8% fixed |
|
8.5% fixed |
New help for college funding
December 3, 2008 by Jean Keener, CFP, CRPC, CFDS · Leave a Comment
Student loans staged a disappearing act in 2008, as the credit crisis drove some lenders out of the student loan market and forced others to become more selective. But the Higher Education Opportunity Act, which became law in August, contains several provisions that will help families and students better manage the high cost of college. These will be phased in during 2009 and in future years. Some highlights:
- Individuals who have worked for at least ten years in certain public service occupations (e.g., teachers, nurses, law enforcement officers, firefighters) may qualify to have their federal student loan debt forgiven (up to $10,000)
- Colleges will be encouraged to control price increases, and textbook publishers will be required to provide complete retail price information and sell unbundled versions of textbooks to help control costs
- The maximum Pell Grant will increase from $5,800 to $9,000 per academic year, and will be available year-round
- The federal student aid application (FAFSA) will be streamlined, making it easier to apply for financial aid
Expanded education benefits for the military
August 1, 2009, marks the debut of a new GI bill, which has been hailed as the first major expansion of education benefits for the military since World War II. Active duty servicemembers (including members of the Guard and Reserve) may be eligible for the new program. Education benefits will be payable for up to 36 months, and will cover tuition costs and fees. Eligible veterans may also receive a monthly stipend for books and supplies, and a monthly housing allowance. In some cases, benefits may even be transferable to spouses and dependent children. You can find more information on the Department of Veterans Affair’s website, www.gibill.va.gov.