We have some serious problems in the country surrounding college education. We have some of the best universities in the world, so the issue is not quality. The issue is price. The cost of college is soaring, and aggregate student debt will exceed $1 trillion!

President Obama is trying to address the student loan crisis with some sensible reforms, but the bigger long-term issue has to do with the cost of a college education.

Steven Goodman addresses the problem and proposes a solution.

Since loans now comprise 70% of financial aid packages, the growing tuition burden falls squarely on student-borrowers who may have saved for college but who still can’t meet the high cost of attendance. Two-thirds of American undergraduates are in debt. This year, student loan debt will grow to more than a trillion dollars, outpacing credit card debt for the first time. As hundreds of thousands of high school seniors prepare their college applications, and their parents compile documents required for financial aid, Congress needs to seriously consider legislation that will rein in future tuition increases.

There are many reasons for the dramatic rise in tuition, including demand for better student residences, cutting-edge laboratories, IT improvements, cuts in state subsidies and administrative growth. Regardless of which factors are most significant, the fact remains that there has simply not been enough external pressure to force universities to contain costs. Ironically, the accessibility of student loans, while admirable at first glance, has contributed to tuition growth. And while President Obama’s recent proposal to cap student loan repayments depending on income is a step in the right direction, it doesn’t address the bigger problem of runaway tuition in the first place.

This is where government needs to firmly step in. The federal government contributes billions of dollars to research and development on campus and allows universities to function as tax-exempt institutions. Self-policing of college costs has not worked; government needs to tie its support of higher education to college costs.

Read the entire article as it presents a sensible argument.

Credit counseling, also called “debt counseling,” is a service provided by organizations that offer professional counseling for consumers in need of assistance in the areas of debt repayment, debt management, and money management. Credit counseling is also a requirement that must be met prior to filing chapter 7 or chapter 13. The types of debt that credit counseling agencies may assist you with include credit cards, personal loans, home loans, car loans and student loans. Credit counseling agencies also assist with utility bill repayment and tax debt.

Getting Started with a Credit Counseling Agency

Credit counseling agencies will require certain documentation to begin the process, so it is important to organize your records before visiting an agency. The credit counseling agency will ask for credit card statements, copies of utility bills, mortgage payment statements or your rental amount/lease. The agency will also expect you to bring a record of spending or a budget that should  include household expenses and any miscellaneous expenses. This documentation is needed in order for the credit counselor to create a realistic budget and debt repayment plan.

Benefits of Credit Counseling

A major benefit to credit counseling is that the credit counselor will handle all lenders, collection agencies, and credit card companies for you. This helps to eliminate the stress associated with collection agency and creditor phone calls. Your credit counselor will negotiate a repayment plan that may significantly lower your monthly payments and interest rates.

You may opt to send monthly payments to the credit counseling agency (by check) or you may authorize a monthly electronic funds transfer from your bank account. Depending on the credit counseling agency, they may offer an option called “debt management system.” If you opt for a debt management system, you will pay the credit counseling agency a lump sum. Out of that lump sum, payments will be made on your behalf. This system can be used as a safeguard against skipped or late payments, which can save money on interest, fees, and any penalties associated with the debt.

An additional benefit to credit counseling is, it can educate you on how to better manage your finances and it will eventually help to minimize or prevent future debt.

Disadvantages of Credit Counseling and Protecting Yourself

While there are advantages to credit counseling, there are also disadvantages. Credit counseling could have a negative effect on your credit, initially. In some cases lenders, specifically mortgage lenders, may not want to extend credit to an individual that may be in the process of completing a credit counseling program. Fortunately, credit-counseling notations will be dropped from your credit report, roughly one month after the credit counseling program is complete.

Another disadvantage to credit counseling is the potential for fraud. This means that in some cases a credit counseling agency could turn out to be a scam. Look out for the following red flags:

• -Unrealistic promises (“settle for pennies,” or “this won’t affect your credit report”)
• -Big upfront fees (fees are typically $10-$15 U.S.)
• -Delayed or missing payments
• -No accreditation

To protect yourself against fraudulent credit counseling agencies, it’s best to make sure that the agency is approved by the approved by the U.S. Trustee Program of the United States Department of Justice. Locating an approved agency is simple. Just log onto www.usdoj.gov and follow these steps:

• -Under “Resources” click “DOJ Agencies”
• -Scroll down to “U.S. Trustees Program”
• -Under “Bankruptcy Reform” click “Credit Counseling & Debtor Education”
• -Under “Credit Counseling for Consumers” click “Approved Credit Counseling Agencies”

The search function allows the user to browse through approved agencies by state. Please follow the link below, which should take you directly to the search page http://www.usdoj.gov/ust/eo/bapcpa/ccde/cc_approved.htm.

Millions of college students around the world graduated this year and they have more on their minds than finding a job. Most college students graduated with a mountain of debt and no means to pay it. Even if these graduates find a job right out of college, depending on the amount of debt, payments can range anywhere from $100 a month to more than $1,000 a month.

According to a recent news article, one student loan servicing center suggested that a recent graduate, working in an entry-level position for a Web company, pay $900 a month towards his $82,000 federal student loan balance. Of course, this is nearly impossible to manage on an entry-level salary – or even a mid-level salary for that matter, so what can borrowers do to delay or minimize payments? According to author and personal finance columnist Gail MarksJarvis, if you have federal loans, you can make use of new government rules that give people a break on student loan payments they cannot afford.

If you owe more on your loans than you earn annually, you are likely a candidate for some relief. Under the relatively new “income-based repayment plan,” you get relief if the regular payments you would have to make over 10 years will exceed about 15 percent of your discretionary income. That’s calculated based on a formula related to the U.S. poverty line. Besides income, the calculation involves the size of your family. Simply put, most borrowers will pay less than 10 percent of their adjusted gross income.

To find out if you qualify for the income-based repayment plan and to calculate your payment, visit the official Federal Student Aid website at: http://studentaid.ed.gov/PORTALSWebApp/students/english/IBRPlan.jsp.

A recent CNBC report casts a negative shadow over the deal that, at the 11th hour, prevented the U.S. from defaulting on its debt. The report mentions that the U.S. debt crisis appears to have been resolved temporarily, but politicians and economists are still warning that the deal won’t resolve all of the country’s economic ills. The report, based on statements made by Anthony Doyle, director of investment specialists at M&G Investments, even suggests that the country is headed for another recession.

Doyle points out that “when US GDP growth falls below 2 percent, it usually means that a recession is not far away, and combined with yesterday’s much weaker than expected ISM report and an unemployment rate at 9.2 percent, it suggests that the U.S. Federal Reserve won’t be in any rush to hike interest rates this year.”

The U.S. economy grew by just 1.6 percent in the second quarter of 2011, according to official figures released last week. Investors have also been spooked this week by Institute of Supply Management (ISM) data showing that its manufacturing index read 50.9 in July, barely above the 50 mark that separates expansion from contraction, and new orders contracted for the first time in two years.

The last U.S. recession lasted 18 months, the longest since World War II, according to the National Bureau of Economic Research. The respected research body said the last recession began in 2007, and the recovery did not start until June 2009.

President Obama signed the new debt bill, which limits student loan cuts (among others), a day after it cleared the House of Representatives by a 269-161 margin, and shortly after it passed the Senate by 74-26 votes overnight. The emergency bill increases the nation’s $14.3 trillion cap on borrowing.

We’ve been highlighting some of the troubling news stories about for-profit college scams, and we’ve welcomed the notion of new rules governing the industry.

The new rules from the Obama administration are out, but they’ve been scaled back a bit from the initial proposed rules.

The Obama administration on Thursday issued a series of highly anticipated regulations aimed at cracking down on for-profit colleges and other career training programs that leave students saddled with unmanageable debts and contribute to an unequal share of federal student loan defaults.

The final rules issued by the Department of Education, however, are significantly less stringent than a draft version released last year, giving college programs an additional three years to come in line before possibly losing access to lucrative federal student aid dollars. The changes come after an unprecedented lobbying and campaign finance offensive over the past year by the for-profit college industry, which derives a vast majority of revenues from federal student loan and grant programs and has sought to protect that income by gaining influence in Washington.

Education Secretary Arne Duncan said the changes came after discussion with “lots and lots of different folks,” not just the industry, and he pointed out that the colleges were not unanimous in their suggestions for changes.

“What we really wanted to do was give people a chance to reform … this was not about ‘gotcha,’” Duncan said. “We tried to be very thoughtful, very reasonable and give people every opportunity to succeed, but be very clear where we wouldn’t permit ongoing failure.”

The intense lobbying campaign helped the industry, as the rules are weaker. You can check the article for the details. Lobbyist hacks like Lanny Davis did their job.

That said, this is a decent first step. It’s appropriate that the schools have a time frame to remedy problems, and this should help weed out the worst abuses.

Meanwhile, 10 states have opened a joint probe to look into the marketing practices of for-profit colleges, so we might yet see some interesting developments in this area.

The key here is you have to do your research before enrolling in one of these schools and taking on a mound of student debt.

For the 2007-2008 academic year, 65.6 percent of al undergraduates received some form of financial aid. Of the 65.6 percent, nearly 40 percent received student loans. Although students may receive grants, which do not have to be paid back, they might not be enough to cover tuition costs, books, housing, and day-to-day living expenses. Student loan programs, such as the William D. Ford Federal Direct Loan Program, can help fill the gap.

Direct Loans are low-interest loans for students and parents. Direct Subsidized Loans for undergraduates with a first disbursement date between July 1, 2010 and June 30, 2011 have an interest rate of 4.5 percent. For graduate students Direct Subsidized Loans (no interest payments until after the grace period ends) have an interest rate of 6.8 percent and Direct Unsubsidized Loans (interest must be paid while enrolled) for all students have an interest rate of 6.8 percent. Direct Plus Loans have an interest rate of 7.9 percent.

Although the U.S. Department of Education is the Direct Loan Lender, the loan servicer is usually a private entity that is responsible for collecting, monitoring, and reporting loan payments. One such entity is American Education Services (AES) which was established by the Pennsylvania Higher Education Assistance Agency (PHEAA) to guarantee and service student loans for millions of borrowers across the U.S.

Direct Loans have loan limits and the limit depends on the year of study and whether the student is a graduate, undergraduate, dependent or independent. Direct Loan limits are as follows:

Dependent Student
1st-year undergraduate: $5,500 (maximum $3,500 subsidized)
2nd-year undergraduate: $6,500 (maximum $4,500 subsidized)
3rd- and 4th-year undergraduate: $7,500 (maximum $5,500 subsidized)

Independent Student
1st-year undergraduate: $9,500 (maximum $3,500 subsidized)
2nd-year undergraduate: $10,500 (maximum $4,500 subsidized)
3rd- and 4th-year undergraduate: $12,500 (maximum $5,500 subsidized)

Graduate Student
$20,500 (maximum $8,500 subsidized)
*All graduate and professional students are considered independent

To apply for a Direct Loan, you must fill out the Free Application for Federal Student Aid (FAFSA). To complete your application, use FAFSA on the Web. Once your application has been processed, you will receive an award package that contains information about which grants and loans you will receive and the amounts. Direct Loans are awarded as part of this package. Direct Loans are not based on credit or employment history, so unless you are independently wealthy, you are almost guaranteed approval.

For more information about the Direct Loan Program, please visit the official Department of Education Federal Student Aid website at www.direct.ed.gov.

The federal government offers many options for financing your education from Federal Pell Grants and the Monetary Award Program (MAP) to PLUS Loans, Stafford Loans, and Federal Perkins Loans. Pell Grants and MAP awards do not have to be repaid, but student loans do.

Stafford Loans are low-interest student loans guaranteed by the government. Perkins Loans are campus-based loans with a fixed 5% interest rate, and a nine month grace period. Perkins loans are also guaranteed by the federal government. PLUS Loans (Parent Loans for Undergraduate Student) are granted to students based on the parents creditworthiness.

To cover the costs of tuition and education related expenses, most students will have to take out a number of loans from multiple lenders. The amounts, repayment terms, and repayment schedules will vary. Students may find that repaying several different lenders is not only taxing, but the payments may be too high after graduation and beyond. Fortunately, relief is possible through student loan consolidation.

Student loan consolidation is the refinancing of multiple student loans guaranteed by the federal government. The Higher Education Act (HEA) provides for a loan consolidation program under the Direct Loan Program and the Federal Family Education Loan (FFEL) Program. Under these programs, the student’s loans are paid off and a new consolidated loan is created. The loan consolidation program is a good option because:

-It simplifies the loan repayment process by combining all of the student’s Federal student loans into one loan, meaning there’s only one place to pay each month
-The interest rate will be lower than one or all of the original loans
-The monthly payments are typically lower, possibly 50% lower than the original monthly payments
-The amount of time to repay the loan will be extended beyond the original time period
-Consolidation may act as a safeguard against default

Applying for student loan consolidation is easy. Before applying, use an online calculator to estimate what your new monthly payments would be under one of four repayment plans including:

-Standard Repayment Plan
-Graduated Repayment Plan
-Extended Repayment Plan
-Income Contingent Repayment Plan (ICR)

Under the Standard Repayment Plan, you will pay a fixed amount each month and your payments will be no less than $50 a month for 10-30 years, based on total debt. Under the Graduated Repayment Plan, your minimum payment amount will equal the amount of interest accrued monthly. Payments will start out on the low end, then gradually increase every two years for 10-30 years.

The Extended Repayment Plan is for students with student loan debt that exceeds $30,000. Under this plan, you will have a maximum of 25 years to repay the loan and you can choose a fixed rate payment option (same amount each month) or a graduated monthly payment option, as discussed above. Under the Income Contingent Repayment Plan (ICR), monthly payments are based on several factors including yearly income, Direct Loan Balance, and family size. Payments will be spread out over a time period not to exceed 25 years.

To apply for student loan consolidation, gather the following documents:

-Your monthly billing statement
-Your annual statement or quarterly interest statement
-Your coupon book
-Website of your lender or servicer
-Your school’s financial aid office information (if you are currently in school)

Once you have all of the information listed here, visit the Federal Student Aid Programs Student Loan Consolidation Website to apply.

Some Democrats and Republicans are trying to scuttle attempts by the Obama administration to impose new rules on for-profit colleges to prevent abuses against students to rack up huge debt for dubious degrees.

The Department of Education is tired of federally subsidized student loans going to shady for-profit colleges that have poor track records of getting the students who do graduates good work — often leaving them stuck with mountains of debt. To curb this phenomenon, the agency has been moving along with a new regulation they call the “Gainful Employment” rule.

Under “Gainful Employment” rules, for profit schools would have to show that their students can find work without getting stuck with unreasonable debt in order to qualify for federal loans.

But behind the scenes, a bipartisan bloc of House members see things differently. They say the rule would reach too far and clamp down on institutions that do a decent job of educating and preparing students. But they want to tie the Department of Education’s hands completely, and block the funds they’d need to implement the rules at all.

Fortunately, many members of Congress are with the administration on this, and Obama could veto any bill with this language.

Colleges and universities are frequently faced with the daunting task of assessing and implementing tuition increases based on the skyrocketing costs associated with operating an institution of higher education. Each year, most colleges and universities have no choice but to increase tuition from several hundred dollars up to $1,000 or more. For students, the difficult, and in some cases, nearly impossible task of paying for tuition, books, fees, and living expenses, cannot be tackled without help.

Fortunately, the federal government has a number of programs in place to help students finance some or all of their education. These programs, typically a combination of grants, which do not have to be repaid, and loans, which do have to be repaid, have been successful at helping more than 55 percent of all students meet their tuition costs. One such program is the Federal Pell Program.

Federal Pell Program

The Federal Pell Grant Program is the largest grant program offered by the federal government. In 1973, the program had 176,000 recipients. Today, more than 5.3 million students receive Pell Grants.

The Pell Grant Program is administered by the U.S. Department of Education and the U.S. Congress sets the maximum award amount. Over the past 15 years or so, the amount of Pell Grant award funds utilized has nearly tripled. In 1995, the amount of funds utilized totaled $5.5 billion and in 2008, this number reached $14.2 billion.

In the earlier years of the program, the Pell Grant award was a maximum of $1,515 per student per academic year. For the 2009-2010 award year, the maximum award amount was $5,350 and for the 2010-2011 award year, the maximum award amount is $5,550 per student. 

The award amount is based on a student’s need analysis and status (full or part-time). This means that awards are dependent upon:

-The Student’s expected family contribution or EFC
-The cost of tuition
-Whether the student will be attending school for an entire academic year or less
-Whether the student will be attending school full-time or part-time

Each year, this need-based award helps millions of low-income individuals pay tuition costs. It is important to keep in mind that “low-income” means an individual whose family’s taxable income for the preceding year did not exceed 150 percent of the poverty level amount. Poverty level amounts effective through 2010 are as follows:

If your income meets the requirements, Federal Pell money is guaranteed.

Merit Scholarships

A large number of states and schools offer merit scholarships. State and school-sponsored merit scholarships are programs that require students to maintain at least a B average. There are also a number of merit scholarship opportunities offered through community groups, corporations, and foundations. Fastweb.com to search through a wide variety of scholarship opportunities.

Federal Student Loans

Federal loans are available through the Federal Direct Loan Program and the Federal Family Education Loan Program (FFELP). Under the Federal Direct Loan Program, the institution acts as the lender and the federal government supplies the funds. The types of loans available through the Federal Direct Loan Program and the FFELP include:

-Low-interest Subsidized Stafford Loans
-Low-interest Unsubsidized Stafford Loans
-Parent Loans for Undergraduate Students (PLUS)

Subsidized Stafford Loans are based on financial and Unsubsidized Stafford Loans are not based on financial need. The government pays the interest on subsidized loans until the student graduates and the student pays the interest on unsubsidized Loans from the date of origination. Amounts may vary for both types of loans. For dependent students, the amount that can be borrowed during each school year ranges from $2,625-$5,500. For independent students, the amount ranges from $6,625-$10,500. Repayment begins after the student graduates, however, if the student is unable to begin repaying the loan, deferment and forbearance options are readily available. A number of cancellation and deferment options exist for teachers and other eligible positions as well.

Under the Parent Loans for Undergraduate Students (PLUS) program, parents will have to complete a loan application. In general, parents must pass a credit check in order to be approved for a PLUS Loan. If the parents credit is not acceptable, a co-signer may be required. The co-signer must have excellent credit. If parents cannot produce a co-signer with pristine credit, some lenders may waive the credit check.

Parents must prove that extenuating circumstances exist in order to waive the credit check. Parents can borrow up to the total amount of the student’s education costs, minus any financial aid that the student has received. PLUS loans have annually adjusted variable interest rates and interest begins to accrue on the day the loan is disbursed. Loan repayment begins within 60 days after the loan has been fully disbursed.

The Federal Perkins Loan program is available to students with great financial need as determined by the U.S. Department of Education. Under the Federal Perkins Loan program, the school acts as the lender but it also uses partial funds from the federal government. Federal Perkins Loans are available to graduate and undergraduate students. Students can borrow up to $4,000 annually towards undergraduate tuition costs and up to $6,000 annually for graduate tuition costs.

For more information about federal student loan programs visit the U.S. Department of Education Federal Student Aid website at www.fafsa.ed.gov.

Private Loans

In some cases, students may not qualify for enough federal financial aid to cover all tuition costs. In these cases, the only other option may be to apply for alternative funding such as a private loan. Private loans are offered by private lenders and there are no federal forms to fill out. However, the requirements for obtaining a federal loan are strict.

The parent’s employment, credit history, assets, etc., will be considered when evaluating the loan application. Depending on the parent’s financial information and history, the interest rates may be low or high. Two major benefits of private loans include: no annual limit and parents may defer payment of the loan until the student graduates.

Private loans may be obtained from just about any major financial institution. The best private student loans will have interest rates of London Interbank Offered Rate (LIBOR) + 2.0% or PRIME – 0.50% with no fees. It is important to keep in mind that these rates are available to borrowers with great credit or borrowers with good credit plus a creditworthy cosigner.

How to Apply for Financial Aid

No matter what your income level, all students should apply for financial aid. To apply for financial aid, you must submit a Free Application for Financial Aid (FAFSA), either electronically online or by mail. Applying online is fast and easy. Just visit the official FAFSA website to get started.

Once you have submitted your application, the federal government will determine your Expected Family Contribution (EFC). In simple terms, the EFC is the out-of-pocket money the family (parents and children) must pay for school. If the EFC cannot cover the costs of attending school, financial aid will help bridge the gap.

How the Federal Government Determines Need

The federal government computes the EFC through a formula that takes the students and parent’s available income and assets into consideration. The available income is the total income minus several different allowances. The federal government’s formula for calculating financial aid stipulates that the following percentages of income and assets be used for college expenses in any single year:

-35 percent of a student’s assets
-50 percent of a student’s income
-2.6 to 5.6 percent of a parent’s assets
-22 to 47 percent of a parent’s income

It is important to note that the percentage contributions for parents vary depending on their economic status and age. Lower-income families and older parents are expected to contribute less and higher-income families with younger parents are expected to contribute more. Once the EFC has been determined, your information will be forwarded to the school or schools you have applied to in order to compute the amount of money you will need to cover tuition and other costs. You will receive an award amount that may include a combination of monies from grants and loans. You have the option to accept or reject the loans.

Even during tough economic times, colleges and universities have the means to tap into funds that have been reserved for a “rainy day.” Take Ohio State University, for example. Faced with the possibility of decreased enrollment due to lack of financial aid to many students, Ohio State University tapped into the school’s emergency fund back in 2008 to move roughly $1 million into a program that provides students with emergency short-term loans. The loan amounts ranged from $100 up to $1,000. OSU took it’s mission to help young people pursue their dreams and earn a degree a step further by guaranteeing that tuition would not be raised midway through the 2008-2009 school year. The university went on to promise that if tuition rose for the 2009-2010 school year, financial aid would increase in lockstep.

Ohio State University is not alone in its quest to provide financially strapped students with emergency University backed loans. Universities currently loan more than $1.5 billion out of the $66 billion in new federal student loans, to students. As of 2006, more than 157 participated in School as Lender (SAL) programs. Among the more than 157 participating SAL schools are:

• Akron University
• Bowling Green State University
• Chicago School of Professional Psychology
• Des Moines University
• DeVry University
• Emory University
• Loyola University of Chicago
• New York Institute of Technology
• Nova Southeastern University
• Palmer College of Chiropractic
• Parker College of Chiropractic
• Southern Methodist University
• St. Louis University
• Touro College
• Tufts University
• University of Arizona
• University of Illinois
• University of Nebraska
• University of Phoenix
• Walden University
• Widener University in Pennsylvania

While roughly a third of schools use institutional funds to finance student loans, other schools partner with a commercial or nonprofit lending institution to establish a line of credit. Once the line of credit is established, the schools offer loans directly to graduate, law, and medical students, often placing themselves on the list of lenders the school recommends. The schools hold the loans for a certain period of time, typically two to three months after the money has been fully disbursed to the students/borrowers. During that time, the school collects interest, plus the government subsidies provided to lenders in the federally guaranteed student-loan program. The schools then sell the portfolio back to the banks for the agreed-upon premium.

 Status of the School as Lender Program

While many universities have money for loans from funds taken directly from their own savings, universities that have partnered with a commercial or nonprofit lending institution to establish a line of credit might be in trouble. For starters, schools acting as lenders are constantly being scrutinized in order to help protect students and borrowers against unscrupulous practices. And although $1.5 billion is a small slice of the more than $66 billion in new federal student loans, the federal government doesn’t want the SAL program to undercut federal student loan programs. Schools operating as lenders in the Federal Family Education Loan Program (FFELP) should keep in mind that current federal regulations require guarantors to conduct reviews of certain schools that act as lenders. According to federal regulations 34CFR 682.401(c), guarantors must conduct program reviews of lenders that meet at least one of the following criteria:

• The volume of FFELP loans made or held by the lender and guaranteed by the guarantor equaled at least 2 percent of the total loans guaranteed by that guarantor in the preceding year.
• The lender is one of the 10-largest lenders of loans guaranteed by that guarantor in that year.
• The lender’s FFELP volume was at least $10 million in the most-recent fiscal year.

Currently, SAL programs are still in place, but according to Part B, Section 436 of the Federal Family Education Loan Program (FFELP), the Senate amendment terminates authority for the school as lender program, effective June 30, 2012.