America is awash in debt. The consumer-driven economy is driving consumers into bankruptcy, the average household owes more than 10,000 in high-interest credit card debt spanning six or more credit cards, and the Goverment recently announced that our national savings rate was negative. (Not that the Government has room to talk; the Government is exceeding its income so much that the new exciting goal in Washington is just to cut the deficit in half by the end of the decade.)
Amidst this sea of splurge-spending that has seen consumers trade their home equity in to pay off credit cards only to max-out those same cards in the same calendar year, there is a curious reluctance on the part of the American populace to borrow money for higher education through the Stafford loan program. In fact, the same students who eagerly sign up for card after card just to get free tacky t-shirts they’ll never wear complain about the amount of student loan debt that they’ll have when they graduate.
If only all of America’s financial troubles were linked to student loans! These loans aren’t as bad as parents and students seem to believe. In fact, they’re among the best deals available today. Here’s why.
Attractive Rates
For the last decade, interest rates on Stafford loans have been exceptionally low, getting down to as little as 3% or less during some years. The Stafford loan rate has traditionally been variable, fluctuating based on the prime rate; by law, however, the rate has been capped at less than 9%. That means that even in a bad year, the gross interest rate paid on those funds is a lot better than the rate on most credit cards (which average around 17% and can go upwards of 25%).
Moreover, even those attractive rates only apply to the unsubsidized portion of Stafford loan debt while a student is in school (defined as enrolled half-time in a degree-seeking status). Depending on a family’s financial situation — and the terms are pretty generous here, too — a portion of the money for which students are eligible may be subsidized. The Government pays the interest for the subsidized portion of the loans while students are enrolled.
The amount that you can borrow is capped by school year (Fr., So., Jr., Sr., and Graduate) as well as a student’s dependent status with regards to his or her parents, but for a quick example, let’s assume that you are a graduate student who borrows the maximum annual amount of 18,500 and qualify for the maximum subsidized amount of 8,500. Your interest rate is 8.5%, but while you’re in school, you only pay that 8.5% on the 10,000 in unsubsidized loans.
That means the effective interest rate for the entire 18,500 is only about 4.6% while the borrower is in school.
Attractive Terms
In addition to being relatively cheap versus other forms of borrowing, Stafford loans offer extremely attractive terms. No payments at all are required while the borrower is in school, although students may choose to pay the unsubsidized portion of their interest to reduce payments later on. When he or she does leave school and repayment begins, there are several payment options, including a graduated pay scale that assumes a low initial income growing over time or an extended term that gives up to 30 years to pay off the debt.
And if the borrower decides to return to school? The loan can be deferred again as in-school status. Try telling a mortgage company that you won’t be living in your house for a few months so you’d like to defer the mortgage!
Consolidation
At the moment, consolidating student loans remains a very powerful option for borrowers. When loans are consolidated, they shift from a variable interest rate to a fixed rate calculated as a weighted average. The average is based on the rates of each loan consolidated — and someone who consolidated once could borrow more and then consolidate again. (Consolidation loans can also be deferred if the borrower returns to school.)
Consolidation was particularly valuable in the early part of the decade when interest rates bottomed out, giving students a chance to lock in a fixed rate of 3% or less for the life of the consolidated loan. These days, with interest rates edging up, the locked-in rate would probably be between 5% and 6%.
Tax Advantages
The last of the four key strengths of student loans is their tax treatment. Interest paid towards student loans is tax-deductible up to a certain cap. While it does phase out based on household income, the phase-out levels are fairly high and most likely don’t affect many recent graduates (especially married couples).
What about grants?
In their eagerness to shun loans, Americans clamor about grant programs, particularly the Pell program. Grants are basically free money; the funds are given based on certain criteria but generally do not have to be repaid. Don’t get me wrong, either: if someone offers you a grant, take it.
That being said, education is an investment in your own future. Sure, the nation has a vested interest in having an educated population, but that interest is only met if its citizens succeed in the courses that they take and actually get educated.
Grants are fine as part of the mix, perhaps, but anyone who is planning to attend a college or university should go into it confident that he or she will make enough money when it’s all over to be able to repay money borrowed to finance the costs of education. I understand that there are exceptions — some of the arts, in particular, never pay well — and these are areas where grants make sense (though even here, I favor merit-based scholarships).
Too often, people are going to college without the slightest idea of why they are there and failing to learn anything at all. If they do that with borrowed money, fine; if they do it with tax pounds given in the form of grants, perhaps not so fine. Either way, grant money rarely covers the entire cost of education. That takes us back to Stafford loans.
Changes are coming (but it’s still a good deal)
One little-noticed aspect of the recently passed Deficit Reduction Act is a provision that changes Stafford loans from variable rates to a fixed rate of a little under 7%. The Government likes this change because it makes loan interest predictable. In the long term, students will like it as interest rates get higher.
In the short term, though, this shift is bad news for borrowers who have enjoyed exceptionally low rates. My advice to borrowers? Consolidate now and lock in a fixed rate that will still be a bit lower than the new rate. Once the changes take effect in July 2006, consolidation will just create one account number without impacting interest rates.
Yet even with these changes, the Stafford loan program remains an exceptionally good deal for Americans. Sure, there’s a case to be made that debt is never a good thing, but in the United States, we all too willingly embrace debt. And as far as debts go, Stafford loans are among the best debts one could have: the rates are low, the interest is tax-deductible, and the terms are generous. If the choice comes down to a Stafford loan or a credit card, ditch the lousy t-shirt and borrow from the Government.
Long live the Stafford!
Student loans in Canada are provided by a joint Federal and Provincial program with the amount of and eligibility for a loan different between the Provinces and so depends upon the Province you are a resident of (your Province or territory of residence is decided by where you have lived for the last 12 months consecutively whilst NOT a student). You may, however, attend any educational establishment in the country provided both the establishment and the program of your choice are listed by the assistance office in your province.
There are several different types of funding for post secondary education that include grants and bursaries (which you wouldnt have to pay back) but there are 2 main types of student loan the Federal and Provincial programs. Whichever type of loan you wish to apply for it all has to be started off by applying to the ProvincialTerritorial Assistance office for the Province you are officially a resident of.
The main attraction of a student loan is that although they are REAL loans that do have to be repaid, they are interest free while you remain enrolled in an eligible education program. Once you graduateleave education the repayment terms are set (normally low interest and you agree the repayment term) and you begin to pay them back. Banks and other lending establishments are no longer involved in offering new loans as all funding is provided by the federal or provincial governments.
Quebec, Northwest Territories and Nunavut are NOT involved in the Canada Student Loans program and have their own systems. If you are a resident of one of these 3 provinces or Territories then you need to contact the particular office for that Province.
To start the ball rolling with the application for a loan there are several processes that you should consider. Your eligibility is the most important both you (the applicant) and the course you wish to undertake must meet the criteria laid down.
The applicant: The main factor of eligibility is whether you are intending to be a full or part time student. If you are a part time student (20 59% of full course load) you may only apply for federal assistance though you would apply through the provincialterritorial assistance office.
A full time student (60% + of a full course load) may apply through the same offices but will be considered for both Federal and Provincial support (depending upon the province in question) though this would have to repay both the loans. The difference between the Provinces and Territories is prevalent here as these provinces: Alberta, British Columbia, Manitoba, New Brunswick, Newfoundland and Labrador, Nova Scotia, Prince Edward Island and the Yukon all would entail paying the loans back separately. If you are from Ontario or Saskatchewan then you would make one payment back to the NSLSC which would cover the total amount borrowed from both the federal and provincial programs.
The course you wish to enroll on must be listed on the Master List of Designated educational Institutions it is strongly advised that you ensure the establishment you wish to attend is recognized by your provincial provider and the course choices meet the necessary requirements before you commit to it. This also applies if you wish to attend an overseas establishment.
Your personal financial status will determine the amount of assistance you will be offered with the Federal loan system covering up to 60% of the total you are assessed as needing and the provincial system contributing up to the remaining 40%. Your needs are assessed by the provincial office when you apply as they handle the initial application and will forward you the loan documents. Once the Provincial or territorial Student Assistance office has received and processed your application, it will establish the amount of loan you are entitled to apply for and carry out credit checks. Once approved, your Canada Student Loan will be administered by the National Student Loans Service Centre (NSLSC) through to its termination (full repayment).
This agency is responsible for all loans supplied since 1st August 2000 and has two distinct sections. The Public Institutions Division (looking after anyone attending a course at a Public facility such as a University or Community college) and the Private Institutions Division (for those who are receiving instruction at a privately funded facility like a technical college or trade school).
With tuition costs rising across the country, it has become increasingly necessary for college students to take on debt in an effort to get their degree. But student loan repayments are often difficult for students to make, especially considering that early on graduates incomes are typically quite a bit lower then their ultimate earning potential. Due to these circumstances, Student Loan Consolidation is a valuable option for many recent college grads to pursue.
How Student Loan Consolidation Works
Student Loan consolidation works like most consolidation programs. A single lender takes on the various loans you have accumulated, like Stafford, Perkins, HEAL, NSL, and private loans. While the terms and repayment conditions vary among these many different lenders, a single loan consolidation company will pay off all these loans and offer you a single, typically longer term, loan. What this means practically, is that instead of having to pay off one loan in 3 years, another in 5, and another in 10, or having one loans interest rate be fixed and another variable, all your loans are compiled under a single system. You can then negotiate with your loan consolidation lender, about the terms of the loan. Typically, students opt for a repayment plan of 10 to 30 years. Obviously, the longer the term of the loan, the lower your monthly payment will be.
Why Consolidate?
Consolidating your student loans offers you the opportunity to stretch out your payments, so as to take advantage of your future earning power. It is quite reasonable for students to believe that they will earn more as their careers progress, and by stretching out the length of their repayments, they wont have to pay the most on their loan while their income is at its lowest point. Another benefit of student loan consolidation programs is that they take a lot of the confusion and problems out of student loan repayment. For recent graduates who have loans from a variety of public and private lenders, keeping up with the unique terms and conditions of every loan can often be a bit of a nuisance. For these reasons consolidation is a very popular option. But that does not mean that it is not without its costs.
Why Not Consolidate?
Loan consolidation of any variety, is so appealing for lenders because they can charge relatively high consolidation fees. While student loan consolidation is regulated better than most forms, loan consolidation companies still manage to add quite a bit to the principle of the loan (that you will ultimately have to pay back) in the form of fees. One way to avoid this is to insist that you be offered the opportunity to pay for ALL consolidation fees upfront. By doing this, you can ensure that you will at least be made aware of the quantity of charges being imposed upon you. Another problem with loan consolidation is that by extending the terms of your loans (say from 5 to 15 years) you dramatically increase the amount of interest you pay on your loans. Your interest payments on your loans accumulate over time. This means that the longer you take to pay your loan back, the more interest will accumulate. Many students fail to notice this, as they only focus on the interest rate, and not the total amount of interest that will be paid over the life of the loan.
Student loan consolidation is a valuable tool for students who want to defer their repayments until they earn more or for those who find the nuisance of maintaining many of their individual loans to be too troublesome. It is important for recent graduates to consider, however, that these benefits, despite what lenders may lead you to believe, do not come without negative tradeoffs. By being aware of both the positives and negatives of student loan consolidation, you can make more educated decisions about the whether student loan consolidation is the right solution for you.
Students are often neglected with regards to getting any credit benefits from various lending or credit sources who are otherwise ready to offer credit to businessmen and other working professionals. But the students of today are the next generation and are our future. So its important to encourage and support them with the best available financial and credit opportunities so they can grow in their own fields and provide the best output for our country.
As such, student credit cards provide one mechanism for young people to establish credit as well as provide a financial back stop for education and living expenses while attending school. The cost of living today continues to rise, and the amount of money needed to finance an education, particularly secondary education and college education, is outpacing the rate of inflation by a considerable amount. Many parents cannot bear the entire financial burden of the academic costs for their children. Student credit cards provided by a variety of different banks, lending institutions and credit card companies provide significant opportunities for students to establish and build a credit history at an early age. Provided, of course, that the credit card is used with care and caution.
Choosing a Student Credit Card
Before selecting a student credit card, or all types of credit cards for college students or young people for that matter, most suitable to your needs, you must first carefully read the fine print, otherwise known as the terms and conditions of the offer. As tedious as this might sound, it is very important to fully understand the terms of credit by which you will be bound. These include the applicable interest rates, exclusions, fees, restrictions, penalties as well as any bonus, reward or rebate offer stipulations that the card offer terms and conditions will outline. If you are unsure about any of the details or obligations, be sure to contact the card issuer directly for clarification.
All credit card applicants, especially student credit card applicants, absolutely must be mindful of the terms and conditions of any card offer before filling out and applying for a card offer.
Ideal Choices for Student Credit Cards
The best possible choice for a student is to find a card offer with the lowest available APR. Generally speaking, students are more of a credit risk for credit card issuers so they assign a higher ongoing rate of interest, or APR, on student credit cards to offset the increased risk of default by students. Several student credit card offers provide a 0% APR on purchases and cash advances for the first 6 months of card membership, providing some much needed financing that some students might require for books, school supplies, lab fees, etc. Be aware, however, that the interest rates on these offers jumps up significantly when the introductory offer ends. So be sure to have that card balance paid off by the end of the introductory term.
Appling for a student credit card is very simple and can easily be applied for online, making the prospect of researching and comparing various student credit cards pretty easy.
Just as the term itself suggests, student credit cards are credit cards meant exclusively for students, many of whom are yet to earn a documented income with employment. Credit card issuers are mindful of students and their credit challenges so they make accommodations for students when building student credit card offers specifically. Typically, the only constraint when applying for a student credit card is the age of the student, and as mandated by the law of the country, which is typically 18 years old and above at the time of application. In many ways, a student credit card is very similar to traditional, run-of-the-mill credit cards. But the major difference, is the standard APR, or interest rate, levied for card purchases, which is relatively higher than a traditional credit card APR.
Credit Card Use & Credit Score
Student credit cards provide more financial flexibility for young students. But, while it may come in handy when paying the rent, paying tuition, purchasing books, and other necessary items like food and clothing, unbridled card swiping can sometimes lead to financial trouble, especially in the form of poor credit scores and damaged credit histories. To a certain extent, this can be blamed on a lack of education or awareness as young people, often times, will not think too much about the concept of credit scoring or the idea of building a good credit history. As a result of this lack of awareness, they will typically not restrain themselves from using the credit card freely either.
The danger of poor credit scores will not become readily apparent, but will certainly become apparent when the student approaches a bank for credit at a later point in time. Credit profiling or credit scores, as determined by any of the three credit bureaus, represent an individual’s credit life history, and black marks on credit histories, however they are acquired, will make it difficult, at worst, and more expensive, at best, to secure the lowest possible interest rate on the loan or financing. So, consequently, even if one manages to get the home loan or car loan, for instance, the interest rate, in order to accommodate the increased credit risk perceived by the bank, will be higher than normal, and in turn, much more expensive for the borrower. The bottom line is that student credit cards represent a potential risk to future economic standing if the cards are not used judiciously.
Using Student Credit Cards
As previously mentioned, it is clear that uncontrolled use of a student credit card can easily damage an individuals budding credit scoring and credit history profile. But on the flip side, intelligent spending and timely payback can go a long way toward building a solid credit history and credit score. Using the card for necessary purchases that are well within hisher payback capabilities and making the payments well within the due date can improve ones credit rating tremendously.
Credit Bureau Reporting
The rules of credit bureaus are pretty straightforward. The amount of money that an individual borrows will be reflected in his or her credit report and the credit limits that each person can retain will be reflected in the amount of credit that the individual has previously “borrowed” and has paid back on time. Simple, right?
One additional point of interest … the credit card company is supposed to report each transaction that is been done on a particular credit card account to the three major credit bureaus promptly. But this does not happen in every case. More specifically, secure student credit cards or prepaid cards, often times will not report transactions to the major credit bureaus. Therefore, it is the users responsibility to make sure that the credit card transaction history is indeed being reported to the credit bureaus and is being done done in a timely manner. Remember, an unnoticed credit transaction does not do any good to improve your credit history.
Student Credit Card Debt – How To Avoid It And Tips On Managing It
As new students head off to university and college each year they are presented with many challenges. Meeting new friends, encountering new ideas, and managing new responsibilities. Of these, perhaps it is managing money that is the most important. As a new student you’ll find out pretty quick just how hard a weekend bender with the boys hits the pocket-book. So, once your head has cleared you may want to take a look at the following tips that can help any student manage their money and keep their student credit card use under control.
1)Budget
You need to make a budget. If you are not sure how or just not good with money, many businesses such as H&R Block, offer free financial consulting to help you put a budget together. It really isn’t that hard, and does not need to be a huge pain in the ***. You just need to get it sorted out once so you can see where you are spending your money and where you need to spend your money. Most people don’t have a clue where their money is going. Getting a budget organized puts things into a much clearer picture.
2)Plan
Planning is a great way to save money and avoid racking up your student credit card debt. Make it a point to go shopping at regular times (Monday afternoon for example). This gives you a specific time to make sure that you are ready and organized. Before you go to the grocery store, make a list and stick with it. Pay attention to the things that you know you need like shampoo, soap and food, then plan to buy in bulk when you need to restock. Heading out with no set direction will lead you to impulsive spending, getting organized and planning things out will help you stay in control of your credit card use.
3)Buy in Bulk
We noted before that it can be a good idea to buy in bulk. There is no doubt about it warehouse shopping can save a lot of money. Even if you are just a couple of guys sharing an apartment, you can always split large quantities. The key to this is only buying the things you need. Just because you can buy 32 pounds of penut butter for 12.50 doesn’t mean you should. You can however make smart choices and buy staple foods like pasta, rice, flour etc. in bulk. Many household items are also available in larger quantities, and often at significant savings.
4)Use Coupons and rebates
No matter how you feel about them, the truth is that using coupons can save you hundreds of pounds every year. Coupons can be used at grocery stores, retail chains, any store where the item is sold. Some stores offer double coupon days, which is an extra bonus. On average, you could easily save from 5% to 15% simply by presenting a coupon. As a student you get access to many special discounts. Never be shy to ask if a store has a special student discount. In many cases simply asking can save you the tax.
One of the primary goals in managing your money as a student at college or university is to pay attention to your needs and once they are met, use any additional money for fun stuff. It is a very bad idea to use your student credit card as if it were cash.
