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College Talk Blog

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New Student Loan Interest Rate Hurts Recovery

Posted on July 13, 2013 at 9:38 PM Comments comments (41)
In the midst of our emergence from the worst economic downturn in nearly 100 years, why is it necessary for Congress to raise student loan interest rates significantly above what it actually costs to borrow the money? This policy hurts our recovery particularly for students graduating from college into what is being called a "jobless recovery". Graduating college students saddled with extra debt take even longer to arrive at the point where they can buy cars and homes, marry and start a family.
Doubling student loan interest rates puts an extra burden on one of the populations in our country least able to manage it. Students and their families need to know that the government will pocket 4% of the new 6.8% rate. Some countries loan money to students to finance college on an interest free basis. Families need to look at the records of their legislators on this issue as the decide how they will vote. Our country and families need legislators more likely to care about the progress of their constituents and the future of our country. The two are synonymous.
Families in the US have largely toughed the recession out. They have tightened their belts without complaining. You can see the tightened belts in what is and what is not in the baskets of many shoppers at the supermarket. It is also evident in the anxiety of parents over college costs. It is time for Congress to rise above party and politics and serve the people who elected them. As students graduate from college, they will have ten years of unnecessarily larger student loan payments as a souvenir of what this Congress did to them.

How Students Can Get Even with Congress

Posted on July 7, 2013 at 4:28 PM Comments comments (95)
It has not escaped student and parent consciousness that Congress is paying more attention to internal political battles than the people who elect them. Last week those we elected chose not to act to prevent the doubling of student loan interest rates for undergraduate students at a cost of an additional $4,000 or more in student loan interest per student.  This is troubling on three fronts.
  • The first is the impact of doubled interest rates on the ability of students to repay their loans and move on with their lives, buy homes and have children of their own.
  • The second is the depletion of parent home equity and retirement accounts as they help them... and
  • the third is the general lack of proactive action for our country in terms of producing large numbers of well-educated citizens to move research, commerce and technology in our country forward.
Students and their families can get even by realizing that it is not business as usual in the financing of their futures. To do well in spite of Congress (and vote accordingly) is the best revenge. They can get even with Congress by paying attention to which legislators have been helpful to them and voting the others out of office.
Students and their families can take steps to purchase a quality higher education that does not come at the expense of their financial well-being by:
  • being true consumers and choosing quality colleges at the best prices
  • aggressively seeking not only low prices at colleges but scholarship offers
  • systematically applying for college scholarships before senior year of high school and continuing that practice through college
  • looking for great summer jobs and paid internships over the summer
  • borrowing as little as possible and paying the interest while the student is in college
  • taking full advantage of college job placement services while in college 
  • paying at least $100 per month extra when the student goes into repayment
These steps will help families have lower student loan debt levels so that students can move forward. When students who have graduated begin to marry and start a family, they can rid themselves of the necessity to participate in government student loan programs by purchasing prepaid college plans for the next generation in their families freeing themselves forever from the whims of Congress when it comes to student loans.

Declaration of Independence from Student Loan Debt

Posted on July 4, 2013 at 12:48 PM Comments comments (15)
In the US, where we desperately need graduates in a variety of scientific and technical fields such that we have to import talent from other countries, Congress has allowed student loan interest rates to double as of Monday, July 1, 2013. Interest rates  for future student loans provided by the government through the William T. Ford Direct Student Loan Program increased this week from 3.4% to 6.8%. Most consumers are unaware that the goverment will pocket an anticipated profit of 4% of the interest charged.
Student loans are a safety net that is necessary for many. Students need to plan carefully to avoid borrowing more than they can realistically repay.
As we celebrate our nation's birthday, resolve to declare independence from future college debt in your family by using the following strategies:
  • approach college choice as an informed consumer and do not over-pay for a college degree
  • resolve as a family to set up tuition savings accounts for all future family members so that the current generation will be the last generation of student loan borrowers
  • apply for scholarships as a regular activity before and during college
  • calculate anticipated salary after graduation and anticipated monthly loan repayments and do not borrow beyond the anticipated ability to repay
  • plan to take full advantage of loan cancellation and forgiveness programs afforded to college grads who work in certain jobs
  • agree as a family how much to borrow and who will borrow
  • to the extent possible, have all or most loan activity be in the name of the student
  • do not borrow against parent 401k, home equity or any parent retirement next egg to pay for college
  • plan to repay the loans early as a family (parents and students jointly)
  • plan to make at least interest payments while the student is in college
  • set up an automatic debit to repay loans after graduation to take advantage of interest rate reductions for auto debits
  • devote most of student summer income to debt repayment
  • plan to live at home or very modestly immediately after graduation to repay the remaining balance of student loanndebt within 24-48 months of graduation
Copyright © 2013 Rambo Research and Consulting LLC. All rights reserved.

July 1 interest rate increase is significant

Posted on June 15, 2013 at 5:13 PM Comments comments (126)
On average, kids graduate from college in the US with $23,000 to $27,000 in student loan debt. They graduate into a slow but improving economy where pay is often lower than their expectations. Their student loan payments take a healthy bite out of already low paychecks.
Student loans are an important resource for students allowing students from all socioeconomic groups access to post high school education. At the current 3.4% interest rate, the subsidized student loan is a good deal. The unsubsidized loan for undergraduates at 6.8% is a little steep.  So is the 6.8% interest charged to parents and to grad students for Direct Plus loans.
With subsidized loan interest rising to the same 6.8% interest level of unsubsidized loans on July 1, the interest on all student loans will be the same-too high. There are those who say it is not a big deal because the monthly payment for a student only rises $38.32.  But over the 10 year repayment timeframe, the student is paying over $4,000 more for his loan.
In a country that needs to increase the number of science, technology, medical and other professionals, we need to find ways to keep interest rates low for students.  The US government will save over sixty million dollars over the next decade due to the conversion from a bank centered student loan program to a government centered program.  Student loan defaults have declined since the government took over the loan program. With these savings, surely we can find a way to support our students at lower cost to them and their families.

Welcome to Chateau Mom and Dad

Posted on May 9, 2013 at 9:22 PM Comments comments (210)
Students are graduating from college with record debt levels. The average amount borrowed for a four year degree now ranges between $24,000 and $28,000. The impact of the debt is that it is carried forward into their 30's which can affect when they will be able to afford a home, save for retirement or start a family. 
Much is being written about parent fears that their new college graduate will move back home to live in the basement after graduation. Rather than fear it, parents can be proactive and welcome it. Parents have more financial experience and can help their young adult child work out a repayment plan that will get student loans off their back within 2-3 years.
Depending upon income, the new grad could even pay modest rent to mom and dad. That would mean by the age of 24 most young adults could move forward with no debt and be able to pay the costs of living on their own and saving for a home and retirement. The rent that they paid to Chateau Mom and Dad could be entered into an education savings plan for their future children which would mean the next generation may not need to spend time in the basement after graduation.
Copyright © 2013 Rambo Research and Consulting LLC. All rights reserved.