Yielding Mutual Benefits by Strategically managing Student Loans Debt |
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After a BA in economics in 1994, White managed to finance the degree through scholarships and work-study, running a debt of $6,000 in student loans. Working in a nonprofit housing agency in Philadelphia followed for three years after which she enrolled at Clark Atlanta in 1997, heavily depending on loans for living expenses. By the time she got her MBA her student loans debt rose to $50,000. Without a doubt costs of higher education are skyrocketing. If the last two decades are any indication, the price of two and four-year public and private colleges are exceeding inflation and family income. Last year the average tuition and fees for four-year public colleges increased almost thrice as fast as the national inflation rate. Thus, students of all economic levels are compelled to borrow for financing education. The time is ripe for getting the better of your debt with interest rates for Federal Stafford Loans at an all-time low. The debt incurred for education should be seen as a major investment in oneself. An example of the benefits of investing in education is Fern Williams White, 31, a 1999 graduate of Clark Atlanta University with an MBA in finance. As account associate for an Atlanta financial services firm, her salary has doubled thanks to the degree. White got her student loans bills under control shortly after graduation by consolidating all her Federal Stafford Loans. In place of the five payments to separate lenders her monthly payment is now $391 with a saving of $150 a month. Her consolidated Stafford Loans amount to $280 with a fixed interest rate of 7.375% over 20 years. The remainder goes into a private Cutlasses Loan with a variable interest rate. Today her postgraduate balance is just $46,500 with no regrets about her student loans debt. She is even able to maintain her choice of lifestyle. Getting A Grasp On Your Debt Consolidation, which involves a new loan to pay off old ones, makes sense when you want to reduce large student loans bills. Eligibility requires $7,500 in federal loans. The long-term impact of student loans is important to consider for a preferred lifestyle, new car and your own home. White's advisor, Sterling Lay Lock, a financial planner in Atlanta, can vouch for consolidation improving her credit profile. She and her husband Garlicky, 31 purchased their home in September 2000. In his opinion consolidation helps debt-to-income ratio when under scrutiny of a lending institution. Student loans payments that are too high can prevent them purchasing a home. Most mortgage lenders will decline anyone with a total annual debt of 38% above their annual income. Consolidating loans is merely converting from variable to fixed rate. Right now with low interest rates that can be locked over the life of the loan it is an attractive prospect. Federal law mandates that your new loan features the combined balance of previous loans adjusted to the nearest one-eighth percent with the rate under 8.25%. Take Advantage Of Low Interest Rates For Federal Stafford Loans consolidation is ideal right now. Students in repayment status can avail interest rates for Stafford Loans issued after July 1, 1998 at 4.06% from 5.99%. For earlier ones too, the rates have fallen from 4.26% to 4.86%. Martha Holler of Sallie Mae in Reston Virginia, one of the largest lenders of student loans in the country reveals that that the rates have dropped below the fixed interest rate of 5% on Perkins Loans for the first time. Those yet to consolidate already owe less this year due to falling interest rates and consolidating can protect from future rate increases. Be aware however that though monthly debt load is eased, making only minimum payments can cost more in interest. Therefore pay off your debt before the term ends if possible as student loans consolidation has no prepayment penalty. More details are available from the Federal Direct Consolidation Loans Information Center (http://loanconsolidation.ed.gov); Collegiate Funding Services (www.cfsloans.com); or private lenders Sallie Mae (www.salliemae.com) and Citibank (www.studentloan.com). Loan Management In School Debt burden can be lowered before graduation despite most loans going into deferment while the students are in school. Daniel Brown, 23, a first year student at Washington University Law School in St. Louis, graduated debt-free last year with a BA in English due to an all-inclusive merit scholarship. However he has only $10,000 in scholarship money for law school. He intends to finance the remaining $28,460 tuition with $15,000 in student loans and contribution from parents. $8000 of the loans are subsidized but he has to pay on the interest of the remaining unsubsidized amount while in school or defer and accumulate interest until repayment. A part of the loan money will go into living expenses like car insurance and he plans to live at home to save money. After graduation he expects a debt of $45,000. Currently he pays interest on his student loans and intends to get well-paying summer internships to reduce the amount to be borrowed. Lay Lock's advice is to pay interest while still in school to avoid the amount accruing. For a small windfall $2,500, one should pay $200-300 on student loans. |
