Student Loans, Student Loan Consolidation, Private Student Loans and More

Spring may be the time when a young man’s fancy turns to thoughts of love, but it’s also the time that most people start thinking about their taxes. Taxes are due April 15th this year and this is the time to collect your tax and financial information.

Tax information is hidden in a lot of places. If you work, you should receive a W-2 form from your employer, which will show the amount of money you’ve made; the taxes that have been withheld from your paycheck; any non-taxable income, like retirement savings and medical expense accounts; and other taxable benefits, like extra life insurance coverage.

Your bank should also issue a statement showing how much (if any) interest you’ve accrued on your accounts. If you have mortgage, your mortgage company should issue a statement showing how much mortgage interest you paid during the previous year.

More likely, however, if you’re a student or a recent graduate, you probably don’t have enough “deductions” to itemize your taxes. Even though you don’t itemize, don’t forget to take your student loan interest deduction. The deduction applies only to the interest you’ve paid on student loans - not the loan itself, but you’re eligible to take it (along with the Hope Credit) even if you file the short tax form each year.

Your educational institution should provide a statement showing how much you’ve paid in tuition and fees, and your student loan holders should supply you with information on how much interest you paid during the year. Look for these forms in the mail and set them aside so you’ll have them when you prepare your tax return.

The Hope Credit and student loan interest deductions do have income limitations of $55,000 for single filers and $110,000 for married filers, and you’re only eligible to take the deduction for yourself if you are not a dependent on someone else’s return, so consult the IRS regulations on this deduction before assuming that you can write off all of your interest.

Student loan repayment can have a significant effect on a student’s decision to attend a particular university, study a certain major or accept a specific job. According to a Princeton University study, as little as $10,000 of additional debt can affect a graduate’s decision to take a job in the public service sector.

The lower pay scale of these positions means that many students who would otherwise accept public service jobs shy away, for fear of not being able to manage their student loan debt. Additionally, research shows that students who graduate with no debt are three times more likely to pursue advanced degrees than students who exit their undergraduate studies with student loans.

With the changes adopted by Congress earlier this year when it passed the College Cost Reduction Act, many students are now considering careers in lower-paying sectors because the Act contains provisions that allow for income-based repayment schedules and student loan forgiveness for graduates who take jobs in the public sector. The student loan forgiveness provisions are meant to encourage graduates to take jobs as police officers, teachers in certain areas, rural health care providers, public defenders and other government jobs.

Additionally, graduates can also consider taking lower paying jobs in the private sector, knowing that their student loan payments will take into account their post-graduation income. For some professionals, this reduces the stress of finding a job that pays adequately to cover their student loan obligations.

I have blogged about student loan consolidation in the past on other websites, and will continue to do so because it’s one financial move that makes a lot of sense! Student loans taken out prior to July 1, 2006 come with a variable interest rate. Variable interest rates don’t always work in the borrower’s favor and many borrowers find that the uncertainty of a changing interest rate makes it difficult to plan ahead.

Additionally, without consolidated student loans, you’ll be making individual payments on each student loan you’ve taken out. Over the course of a four-year degree, that can add up to a significant number of payments. Aside from keeping track of several payment due dates and amounts, you will probably pay a higher interest rate than you would if you consolidated your college loans.

Student loan consolidation makes a lot of sense; no matter what angle you look at it from with perhaps one notable exception. If you have Perkins loans, you probably won’t want to consolidate those loans. This type of student loan is made to low-income students who have a fixed interest rate already. Further, they have certain payback benefits/features that would be lost if these student loans were consolidated.

The majority of students, however, have unsubsidized Federal student loans. These college loans are prime candidates for consolidation, regardless of when they were made. Student loans made after July 1, 2006 have a fixed interest rate at 6.8 percent. Parent loans have a higher fixed interest rate thanks to an uncorrected goof by Congress.

College loan consolidation will relieve you of making multiple payments, and paying multiple interest rates. With consolidated student loans, you can also stretch out the payment terms. If your original ten-year term means that you’ll be making hefty loan payments, a consolidation loan will allow you to stretch out the payments to twelve, fifteen or even twenty years. This is a great deal, especially for graduate students and for those students who aren’t making much straight out of college.

You can also consolidate your student loans any time you want to. You don’t need to wait until your education loans are in repayment. You can consolidate them while you’re still in school. The only time you’ll have difficulty consolidating your college loans is if your loans are in default. Since consolidation can help you avoid default, look into student loan consolidation options sooner rather than later.

The number of universities that plan to replace student loans with grants is growing. Last week, Haverford College announced that it would join the ranks of universities such as Harvard, Swarthmore and the University of Pennsylvania that intend to phase out student loans as part of a student’s financial aid package.

The move toward no-student loan educations is not without the proverbial catch. Universities who are moving toward non-student loan financial aid are generally doing so for only the lowest-income students. Students with higher family incomes can still expect to see college loans as part of their aid packages. 

The University of Pennsylvania plans to offer the no-student loan deals to entering students whose family incomes are less than $100,000. The new approach will be introduced for the entering class in 2009.  For families whose income exceeds $100,000, the university plans to reduce need-based college loans by 10 percent.

Haverford will also offer the student loan-free financial aid package to the entering class of 2008-09. As of now, Bryn Mawr has no plans to dump student loans.

If you’re just preparing to go off to college, you’re going to become very familiar with the financial aid process. Just about nothing gets done until you fill out the Free Application For Federal Student Aid (FAFSA). Even if you think you will not qualify for Federal Aid, it’s still wise to fill out the FAFSA form. Why? Many federal aid programs require college students to have completed a FAFSA form. Being turned down for Federal aid opens up some doors for aid from other sources that you probably don’t know about.

The FAFSA form today is a far cry from what the it used to look like. You can fill out the form online, which cuts down on the processing time. One thing you should not do is wait until the last minute to fill out your FAFSA form. The form is comprehensive and takes a fair amount of time to fill out completely. Although it’s long, you should still take the time to do it. The FAFSA form does requires that you document some of the information you include in the form. If you’re late submitting your FAFSA, answer questions incorrectly or omit parts of the form, you could be closed out of the financial aid process for that semseter.

The Department of Education (DoE) uses only the first FAFSA you submit to them. If you submit mulitple versions, only the first FAFSA will be used and subsequent submissions will be deleted. This is why it’s so important that you ensure your FAFSA application is fully completed and all information is correct. If you make an error on your FAFSA, you may resubmit corrections online at; FAFSA.ed.gov. You’ll need to apply for a PIN before you can fill out your FAFSA information. If you have a PIN but lost it, you can also request a duplicate PIN from the Department of Education at; PIN.ed.gov .

As part of the financial aid process, your FAFSA will be submitted to as many as six colleges you designate on the application. Each university has been assigned a special code for their college and you will need to enter the correct code for each college on the FAFSA form. Once your FAFSA has been processed, you’ll then receive a Student Aid Report (SAR) in the mail. Once that is received, check it carefully and make sure there are no errors. Keep your copy of your SAR and make sure not to lose it. If your SAR is fully complete and accurate, you’ll see your Expected Family Contribution (EFC) in the upper right-hand corner of the SAR document. Your college will use your EFC to determine how much federal aid you will receive for the year.

Although the FAFSA process is time consuming and requires you to follow the directions carefully. The process is not impossible and will result in the appropriate distribution of financial aid for you and your family.  Take the time to fill it out, it will be worth it in the end.