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Reducing College Expenses
The Dollar Stretcher
by Gary Foreman
gary @stretcher.com

Are student loans the next financial bubble we’ll face? Could be. The statistics are staggering.

Tuition and fees have have increased nearly 130% in the last twenty years (source IRS & College Board data).

According to the College Board’s Trends in College Pricingtotal costs (including tuition, fees, room and board) in the 2011/12 school year were $17,131 for students attending four-year public colleges and universities in-state and $29,657 out-of-state. For students at private schools the tab was $38,589. Plus students will spend another $4k for textbooks, supplies, transportation and other expenses.

Those higher costs are causing students to borrow more to finance their education. Total student loans are expected to top $1 trillion (yes, with a “T”) before 2012 is over. There are already more student loans outstanding than all the credit card debt combined.

And, it’s not just student loans. Undergrads are running up their credit cards, too. Over 20% had balances exceeding $3k. (Source: Sallie Mae, How Undergraduate Students Use Credit Cards, 2009)

So I spoke with Derek Haake, the founder of Compushift.com. Derek received a degree from The University of Texas at Arlington, then an MBA and JD from the University of Akron. He started Campus Shift looking for a better way to save on textbooks while in college. Along with helping students find the least expensive source for their books, Campus Shift also provides discount deals on food, concerts, campus activities, and clothing.

Given his expertise in the things that students buy I asked Derek about some of the ways that college students can reduce expenses.

Q: After tuition, what are the biggest expense categories for college students?

Derek: After tuition, the biggest expense is a student’s living expenses, but these can be managed by proper planning. The second biggest expense for the new student is their purchasing things that they really do not need – such as the biggest and best meal plan on campus. From there, entertainment expenses and spending money are probably equal to or right at the same cost for most students as textbooks.

Q: Which categories offer the greatest chance for savings for a student?

Derek: Smart living – i.e. living off campus, renting a house with classmates, and buying things from the University that you need / will use are probably the places where you can save the most money. Also, using the fact that they are a college student can save them on their daily expenses. Flash that student ID wherever you go and receive your student discounts and be sure to stay up to date on any campus deals.

Q: Is it generally cheaper for students to live on campus or off?

Derek: In most cases off campus is cheaper. First of all, a student can share rent with other classmates of a house or apartment, which can be a fraction of the cost of living in the dorms. Living in a house can also greatly reduce the cost, as many times rental prices of a home are less than that of an apartment. With the current economy, house rental prices are surprisingly inexpensive in a lot of communities. Finally, a student, if they want a meal package for on campus, they usually can still get one, even if they live off campus, but, buying groceries – buying non-perishables and other things that will get used and not “luxury items”, will save them substantially.

Q: What expense tends to be the most surprising to students?

Derek: Textbooks are one of those costs that a lot of students, especially those that are first-time college students in a family are surprising. Outside of college, students don’t have to buy books, and the $1000 per year that the average student spends can be a major surprise to a lot of students. Living expenses in a college town generally can be managed, and most people have an idea of how much these expenses will be, but these costs add up quickly.

Q: Paying for a college degree is a major expense. How can students increase the odds of finding jobs that will pay enough to make the expense worthwhile?

Derek: Students can look at fields that are hiring – especially hiring new graduates. Fields like medicine, engineering and business often will have high placement rates. Your other hard sciences will always be in demand at some level, but students should anticipate going to graduate school before they are able to truly find a job that will become a career for them.

Keep on Stretching those collegiate Dollars!
Gary

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Gary Foreman is a former purchasing manager who currently edits The
Dollar Stretcher website . You can follow Gary on Twitter . For more on the danger in student loans. Source: Reducing College Expenses

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Federal student loans are by far the most cost effective way of borrowing the funds needed for school. Although there are a variety of different loan options for paying for a college education, federal student loans offer unique advantages, flexible repayments terms, and are the most cost effective loan options for students on an already tight budget.

Understanding the basics of federal student loans and how they work can assist student borrowers in their loan application process. Federal student loans are loans that are offered directly from the government with no intermediary financial institution. Federal student loans are also called Direct Loans and usually have much lower interest rates than private loans issued from a bank or other financial institutions. Since federal loans are government issued, their interest rates and terms are set by Congress and are issued at a fixed rate. When applying for federal aid, the prospective borrower must complete and submit a FAFSA (Federal Application for Student Aid) in order to be eligible to receive any student loans.

Once the student borrower has been approved for a federal loan, there are a variety of different loan options available to them. These loan options include Stafford loans, PLUS loans, and Perkins loans. Stafford loans are issued to undergraduate, professional, and graduate students who are enrolled at least half-time in a post-secondary educational institution. They may either be subsidized requiring financial need or unsubsidized and requiring no financial need on the part of the borrower. Stafford loans have annual loan limits that vary based on the criteria of the applying student. Dependent students, independent students, and graduate students all receive various loan amounts however the interest rate for all Stafford loans is fixed at 6.8% for unsubsidized loans.

PLUS loans are available to parents of students applying for aid and also to graduate students (Grad PLUS). These loans are available regardless of need but they do require a credit check for approval. The credit check must show that there have been no delinquencies in the past 90 days as well as no bankruptcies in the last five years. These credit requirements can also be met by a co-signer and all families are required to complete a FAFSA form. There are origination fees for all PLUS loans of up to 4% as well as a standard fixed interest rate of 7.9%. Loan forgiveness is available through the PLUS loan program.

Perkins loans are offered through the issuing educational establishment and are repaid to the school by the government. These low interest loans are available to families that have exhibited extreme financial need. Perkins loans are available to both graduate and undergraduate students alike. The current interest rate is fixed at 5% and there are no additional origination fees or charges.

Discussing federal loans with the school’s financial aid office is an effective way for students to determine what the best loan options are for their individual financial situations. All students interested in receiving federal funding for school should fill out a FAFSA form by the deadline for the school year in which they will need funding.

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Forgiveness student loans are available for students who have either chosen to go into the public service professions or have chosen to work in under served areas as a medical or legal professional. These loans are forgiven after a set amount of time and after a minimum amount of payments have been met. Forgiveness loans allow the borrower to have the entire balance of their loan erased with no amount owing. Certain professions are eligible to take advantage of this incentive loan program. Understanding the details and facts about student loan forgiveness can help student borrowers make considerations when deciding on a career path.

Only student borrowers who are receiving a direct loan are eligible for loan forgiveness; however it is possible to qualify by consolidating into the direct loan program. Qualifying for a forgiveness loan through the direct loan program requires that the borrower not default on their existing loan as well as make 120 monthly payments after October 1, 2007. In this way no loans are eligible for forgiveness until after October 2017. This forgiveness program created by Congress is called the Public Service Loan Forgiveness program. The exact loans which can be forgiven under this program include subsidized and unsubsidized Stafford loans, federal direct PLUS loans, and federal direct consolidation loans.

There are many public service professions that will qualify for loan forgiveness. Some of these professions include emergency management, public safety, public education, military service, law enforcement, school library services and several other sub categories. In addition, professionals who are employed by an organization that meets the PSLF program requirements will also qualify for loan forgiveness. These organizations include government organizations, non-profit, tax exempt organizations under section 501(c)(3) of the IRS code and private non-profit organization that is not a labor union or partisan political organization.

In addition to forgiveness loans offered through the direct loan program, other loan forgiveness opportunities exist through volunteer work. Some of the volunteer work that can qualify for loan forgiveness includes work with AmeriCorps where an individual can serve for 12 months and receive up to a total of $7400 in stipends as well as $4725 for use towards a student loan. Peace Corps volunteers can apply for deferment of their federal loans as well as partial cancellation of their Perkins loans. The Army National Guard is another organization which offers loan forgiveness in their loan repayment program which reimburses up to $10,000.

One of the main qualifications in most of the loan forgiveness programs is that the professional must be employed full time. This means that the individual must be employed full time in one or more jobs for a yearly average of 30 hours per week. The period of employment also does not have to be with the same employer and paid vacation days are not considered when considering the average hours worked.

Paying for college can create an extreme financial burden and loan cancellation and forgiveness programs provide some relief from this excessive debt. Many families are taking advantage of these incentive programs by making career changes into the public service fields. Having a comprehensive understanding of the loan forgiveness options available can assist students considering career paths to take these programs into consideration before selecting a major.  If you have student loans, see if you qualify.

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Student debt and the subject of bankruptcy have quite a bit of misinformation surrounding them. Many people faced with financial hardship assume that a bankruptcy filing will eradicate all of their debt including student loan debt however this is not always the case. In addition, many debtors are under the impression that they can never discharge any of their student loan debt in a bankruptcy when in fact there are instances where this is possible. Understanding the details involved regarding student loan debt can offer clarification around an otherwise confusing topic.

When considering a bankruptcy filing for overwhelming student loan debt, it is possible to discharge some or all of the debt depending on your financial situation. You must prove to the courts that you are experiencing ‘undue hardship’ and that repaying your student loan is a virtual impossibility because of your financial situation. Different courts may make different determinations based on the presiding judge however a common test to determine undue hardship is the Brunner test. This test requires that the borrower demonstrates that he or she cannot maintain a minimal standard of living based on their current income and expenses. In addition, the debtor must also demonstrate that their financial condition is likely to persist throughout the time of their loan repayment. Lastly, the debtor must demonstrate that they have made good faith efforts to repay their student loans.   (Brunner v. New York State Higher Educ. Servs. Corp., 831 F. 2d 395 (2d Cir. 1987)

Proving undue hardship in a court of law is not very straightforward as there are several determining factors that the court may use to make a ruling. Because there are so many variables involved, many bankruptcy lawyers suggest that their clients not include their student loan debts into their bankruptcy filing. This is why many people assume they cannot discharge student loan debts during a bankruptcy filing. However the truth is that it isn’t impossible just very difficult and the outcome is not guaranteed.

If a debtor has already completed a bankruptcy filing and chose not to include their student loan debts the first time, they can go back and reopen the case at no additional cost. For more information about this, Chapter 7 of NCLC’s Student Loan Law manual contains a vast amount of information about discharging student loan debt during a bankruptcy filing. Additionally, filing a Chapter 13 bankruptcy may offer some relief for the debtor due to its ability to reorganize and restructure their student loan debt.  Within a Chapter 13 bankruptcy plan, the borrower adheres to a specific repayment schedule that is established under the plan. This offers the advantage of a three to five year payment plan during which time your payments are not determined by your loan holder. After the repayment plan is over, you may request that the remainder of your loan be discharged if you continue to experience undue financial hardship.

Discharging student loan debt is difficult but it can be done under certain circumstances. Exploring these options with a bankruptcy attorney can help you decide if this is the best option for your particular financial situation.

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Many students are grappling with student loan debt without any concept of how to lessen their debt burdens. It can be easily overwhelming for a new graduate with multiple student loans to make their payments on time and maintain a positive credit rating. However it is not only students that are bearing the crux of this burden but parents as well. In fact the student loan debt burden is increasing and many analysts predict a meltdown similar to the real estate housing market crash of 2008.

Although the overall economy is showing positive signs of improvement, there has been an increase in bankruptcy filings. Bankruptcy lawyers are seeing an increase in clients who are trying to absolve themselves of mounting student loan debts. Many filers have debt well into the thousands and are simply looking for a way out. The increase in filings related to student loan debt has bankruptcy lawyers and financial analysts alike wondering if this will be the cause of the next financial implosion. William E. Brewer Jr., president of the National Association of Consumer Bankruptcy Attorneys stated “Take it from those of us on the frontlines of economic distress in America, this could very well be the next debt bomb for the U.S. economy.”

Many of the bankruptcy filings are from parents who have taken out loans for their children and find themselves simply overwhelmed with debt. This can be a troubling predicament as middle aged parents should be lowering their debt to income ratio as they seek to prepare for retirement. The amount of parent loans for student loan assistance has increased 75 percent since the school year of 2005-2006. On average parents owe $34,000 in student loan debt which increases to $50,000 over a ten year period. Students graduating from a four year university graduate with an average debt of $25,250 which will also increase over the standard ten year period.

The student loan crisis has definitely escalated in recent years and bankruptcy offers little reprieve. Due to new laws enacted by Congress, it is virtually impossible to be absolved from student loan debt regardless of a person’s financial situation. A common solution many students resort to is the deferment option. However deferring ones student loans is not an indefinite possibility and does not offer a long term solution. Debt management companies may be able to assist student loan debtors who are seeking some type of debt relief. An established debt management company can negotiate directly with creditors on a client’s behalf.

Student loan debt is rapidly escalating and may become a new financial crisis for many Americans who are unable to repay their debts. Parents are at a distinct disadvantage as their time for repayment is even less due to age and other financial responsibilities such as a home mortgage and car payment. The best option for students and parents alike struggling with debt is to seek the services of a competent credit counseling agency or debt management company. This option may allow debtors to come up with creative solutions such as debt consolidations and refinancing.

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For student loan borrowers who have defaulted on their loans due to non-payment, it can be a very harrowing experience. Student loan collectors employ the same debt collection practices as other creditors and debtors can receive constant collection calls as creditors seek to collect on the monies owed. In addition, debtors may find that their tax refunds and wages are garnished due to non-payment of their student loan debt. A solution to a student loan default is a loan consolidation or rehabilitation. Finding out the pros and cons of student loan consolidation and rehabilitation can help borrowers decide whether or not this option is suitable for them.

There are two main options for borrowers who have defaulted on a federal student loan and these are rehabilitation and consolidation. These two options can help the borrower to get back on track with payments and bring their loan current. Once this has taken place, they can then proceed to resume all payments or defer the loan if needed. Both consolidation and rehabilitation allow the borrower to avoid having their wages garnished as well as allowing them to keep any tax refunds owed to them during their repayment period.

Loan rehabilitation is an excellent option for student loan borrowers who have defaulted on their loans. In order to qualify for this repayment program, the borrower must make nine monthly payments within twenty days of the due date during a set period of ten consecutive months. This means that as long as the debtor makes nine payments in a ten month period, they will be eligible for loan rehabilitation. During the rehabilitation process, the guarantor must find a buyer for the loan while it is being rehabilitated. Once the process is complete, and you have made at least nine payments, your loan will be turned over to a traditional lender. Rehabilitation allows you to qualify for Federal Student Aid after six months of payments; however nine payments are needed to bring the loan out of default.

Consolidating a student loan is another option for defaulters seeking to bring their loans current. Consolidating your defaulted student loan allows you to avoid wage garnishments, collection calls and letters and other disruptive collection practices. After consolidation, the borrower will then be eligible for new loans and grants and even deferments. They will also be able to have the default removed from their credit report in most cases.

A borrower seeking to consolidate their student loan should do so using a government consolidation program also known as Direct loans. Attempting to use a private lender to consolidate student loans can become complicated as the borrower will lose their rights under the federal loans programs. These rights include forbearance, deferment, cancellation, and affordable repayment. A Direct Consolidation program allows the borrower to make three consecutive monthly payments or select a plan under The Income Based Repayment plan (IBR) or the Income Contingent Repayment Plan (ICRP).  Selecting either of these options can help to bring the loan out of default so the borrower can resume payments or apply for forbearance or deferment.

Understanding the advantages of student loan consolidation and rehabilitation can assist student loan borrowers who have experienced default find a workable solution towards repayment.

Articles on www.debtplan.org have been acquired from a variety of sources.  No content on this site should be considered financial or legal advice