Early 2010 saw many changes in the area of student loans. President Obama signed into act legislation that would increase the access US citizens have to higher education and make repayment of any financing received easier. Perhaps one of the biggest changes is the removal of subsidies toward private lenders taking education loans. The federal government is, instead, looking to provide student loans directly.
FEDERAL STUDENT LOAN PROGRAM
The US Federal Student Loan Program is available to any US citizen, regardless of income. The program was enacted to help the millions of Americans that would otherwise be unable to attend college, university, or trade school. In addition to the Federal Loan Program overall, there are additional federal grants, loans, and awards for which you may be eligible. Talk to the financial aid department of your university for more information.
INCOME-BASED REPAYMENT
Anyone who has a federal student loan can apply for income-based repayment, commonly referred to as IBR or Income-Contingent Repayment (ICR). IBR has been available since July 2009, so it is still relatively new. It means that your loan payments will stay affordable relative to your income. IBR payments are less than ten percent of your income (or 15 percent of discretionary income) and can be as low as $0. You are eligible for IBR for any federal student loan, be it for graduate school or undergraduate studies, new or old, and from any lender.
STUDENT LOAN FORGIVENESS
Under IBR, if you make your payments on-time for 25 years, your federal student loan debt will be forgiven. Have a job in government or a non-profit? If so, your debt may be forgiven after 10 years. The program is called Public Service Loan Forgiveness (PSLF) and includes all jobs in all forms of government, including hospitals, schools, universities, etc., and includes non-profit organizations, requires that you participate in IBR, and have a Direct federal student loan. If you do not have a Direct federal loan, you can always consolidate or reconsolidate into a Direct loan.
WHAT HAS CHANGED
Under the new legislation, IBR will be even more generous for borrowers who take out their first federal loan on or after 1 July 2014. There will be a lower payment cap and student loan forgiveness after just 20 years. In addition, the maximum Pell Grant will also increase under the new legislation, although changes will not go into effect until 2013.
Source
Wednesday, July 28, 2010
Thursday, July 15, 2010
Student debt already a crisis
There is increasing evidence that Canada's student loan program is a train wreck waiting to happen. We noted last Sunday that post-secondary students across the country owe more than $13 billion in outstanding loans.
Many are in over their heads. One out of five students who attend a public university cannot repay what he has borrowed.
The situation is even worse at private career colleges. There, 40 per cent of students will default on their debts. At some vocational schools in B.C., loan delinquencies exceed 75 per cent.
These are well beyond the default rates for business loans and residential mortgages. Part of the problem is easy money. Students with limited resources can borrow huge sums, virtually no questions asked.
For example, kids whose family income is $25,000 can borrow $40,000 for a four-year degree program. Pretty much all they need is proof of enrolment and a clean credit history.
Yet what chance do they have of paying it back? The Canada Student Loan program charges interest at the prime lending rate plus five per cent. A loan that size adds up to monthly payments of $360 for 15 years.
Of course, if the education that students receive is worth what they paid, perhaps they can make good on their debts. Yet is it?
The staggering default rates at private vocational schools would certainly suggest otherwise. But even at public colleges, there is room for serious doubt.
Tuition rates at Canadian universities have grown at double the cost of living for at least 30 years. In just the past decade, fees for a four-year arts or science degree in B.C. have more than doubled, from $8,800 to $20,000.
Add in room and board, books and other charges, and an undergraduate degree costs about $60,000. Professional colleges like law and medicine charge $90,000 or more.
It's possible these increases have been used to improve the quality of instruction. Yet there's limited evidence for that. Between 1987 and 2006, the number of full-time students at Canadian universities grew 57 per cent while the number of full-time professors grew only 20 per cent.
That's why so many courses nowadays are taught by graduate students or teaching assistants, rather than faculty. It's why class sizes have ballooned and multiple-choice exams have replaced written essays. Students are paying more but getting less.
Universities are able to charge the limit because they know kids can borrow the money -- not necessarily that they can repay it. The huge run-up in tuition rates has been matched, step for step, by burgeoning student debt.
The situation resembles what happened with mortgages in the U.S. There, for a while, house prices soared because buyers got easy credit.
The bubble eventually burst when mortgage holders could no longer afford the huge monthly payments. The housing market collapsed, taking with it a large chunk of the banking sector.
The only reason Canada's student loan program hasn't gone the same route is that the amounts are not as large and the federal government quietly writes off the losses. But the personal damage inflicted is just as severe. Young people begin their lives hopelessly in debt, or worse, effectively bankrupt. And high tuition rates are being propped up by reckless lending policies.
We need a student financial assistance program, recognizing that even with part-time work and family support, post-secondary education is beyond the reach of too many young people.
No one should be denied an education because his or her parents lack money. But student loans in their present form have made education less affordable, not more.
With tuition rates now in the stratosphere, it's time to rethink post-secondary financing. And the place to start is on campus. By one means or another, we need to ensure that students get value for their money.
Source
Many are in over their heads. One out of five students who attend a public university cannot repay what he has borrowed.
The situation is even worse at private career colleges. There, 40 per cent of students will default on their debts. At some vocational schools in B.C., loan delinquencies exceed 75 per cent.
These are well beyond the default rates for business loans and residential mortgages. Part of the problem is easy money. Students with limited resources can borrow huge sums, virtually no questions asked.
For example, kids whose family income is $25,000 can borrow $40,000 for a four-year degree program. Pretty much all they need is proof of enrolment and a clean credit history.
Yet what chance do they have of paying it back? The Canada Student Loan program charges interest at the prime lending rate plus five per cent. A loan that size adds up to monthly payments of $360 for 15 years.
Of course, if the education that students receive is worth what they paid, perhaps they can make good on their debts. Yet is it?
The staggering default rates at private vocational schools would certainly suggest otherwise. But even at public colleges, there is room for serious doubt.
Tuition rates at Canadian universities have grown at double the cost of living for at least 30 years. In just the past decade, fees for a four-year arts or science degree in B.C. have more than doubled, from $8,800 to $20,000.
Add in room and board, books and other charges, and an undergraduate degree costs about $60,000. Professional colleges like law and medicine charge $90,000 or more.
It's possible these increases have been used to improve the quality of instruction. Yet there's limited evidence for that. Between 1987 and 2006, the number of full-time students at Canadian universities grew 57 per cent while the number of full-time professors grew only 20 per cent.
That's why so many courses nowadays are taught by graduate students or teaching assistants, rather than faculty. It's why class sizes have ballooned and multiple-choice exams have replaced written essays. Students are paying more but getting less.
Universities are able to charge the limit because they know kids can borrow the money -- not necessarily that they can repay it. The huge run-up in tuition rates has been matched, step for step, by burgeoning student debt.
The situation resembles what happened with mortgages in the U.S. There, for a while, house prices soared because buyers got easy credit.
The bubble eventually burst when mortgage holders could no longer afford the huge monthly payments. The housing market collapsed, taking with it a large chunk of the banking sector.
The only reason Canada's student loan program hasn't gone the same route is that the amounts are not as large and the federal government quietly writes off the losses. But the personal damage inflicted is just as severe. Young people begin their lives hopelessly in debt, or worse, effectively bankrupt. And high tuition rates are being propped up by reckless lending policies.
We need a student financial assistance program, recognizing that even with part-time work and family support, post-secondary education is beyond the reach of too many young people.
No one should be denied an education because his or her parents lack money. But student loans in their present form have made education less affordable, not more.
With tuition rates now in the stratosphere, it's time to rethink post-secondary financing. And the place to start is on campus. By one means or another, we need to ensure that students get value for their money.
Source
Monday, June 28, 2010
Money Matters: Student Loan Modification
SIOUX FALLS, SD - The average student loan debt for a graduating senior is just under $24,000. With jobs scarce and good paying jobs even more limited, paying back those loans can be a challenge.
Mark Olson graduated from college three years ago with $24,000 in student loan debt.
"I started paying on them and it was obviously a big weight to carry, kind of struggle the money I had to pay right out of college with my first job," Olson said.
The nearly $300 a month in payments limited his lifestyle. But when he got a job as a credit counselor, Olson learned a way to reduce his payments through the Income Based Repayment Program.
"It allows people to take student loans and put into a program that is income-based and they can look at reducing that payment," Anita Nesiba, a certified student loan counselor with Consumer Credit Counseling Service, said.
The fact that Olson has two young children really made a difference.
"Fortunately for me, my payment ended up being zero for now and they evaluate my income every year," Olson said.
Plus, Olson works for a non-profit, which qualifies him for government student loan forgiveness after 10 years of payments.
"As long as you're working for a non-for-profit, you can count those payments if they are in the direct loan repayment from October of 2007," Nesiba said.
Student loan debt forgiveness after 120 payments also applies to people working full time for government, tribes or schools. For Olson, his payment modification and knowing there's an end in sight is helping him plan for the future.
"My wife and I are able to save money for other expenses and save for emergencies and pay out of pocket instead of taking on more debt to cover them," Olson said.
There's no getting out of government student loan payments, even through bankruptcy. If you don't work out an income-based repayment plan, and don't pay, your wages may be garnished, your tax return taken or eventually money can even be taken out of your social security checks.
Source
Mark Olson graduated from college three years ago with $24,000 in student loan debt.
"I started paying on them and it was obviously a big weight to carry, kind of struggle the money I had to pay right out of college with my first job," Olson said.
The nearly $300 a month in payments limited his lifestyle. But when he got a job as a credit counselor, Olson learned a way to reduce his payments through the Income Based Repayment Program.
"It allows people to take student loans and put into a program that is income-based and they can look at reducing that payment," Anita Nesiba, a certified student loan counselor with Consumer Credit Counseling Service, said.
The fact that Olson has two young children really made a difference.
"Fortunately for me, my payment ended up being zero for now and they evaluate my income every year," Olson said.
Plus, Olson works for a non-profit, which qualifies him for government student loan forgiveness after 10 years of payments.
"As long as you're working for a non-for-profit, you can count those payments if they are in the direct loan repayment from October of 2007," Nesiba said.
Student loan debt forgiveness after 120 payments also applies to people working full time for government, tribes or schools. For Olson, his payment modification and knowing there's an end in sight is helping him plan for the future.
"My wife and I are able to save money for other expenses and save for emergencies and pay out of pocket instead of taking on more debt to cover them," Olson said.
There's no getting out of government student loan payments, even through bankruptcy. If you don't work out an income-based repayment plan, and don't pay, your wages may be garnished, your tax return taken or eventually money can even be taken out of your social security checks.
Source
Tuesday, June 15, 2010
Fitch weighs in on student loan servicers
Fitch Ratings said Wednesday consolidation among student loan servicers will not have a material effect on the performance of securities backed by student loans or their investment ratings.
The ratings agency said industry consolidation is expected because of changes in the recently enacted health care legislation, which included a provision to end the Federal Family Education Loan Program.
Starting July 1, all federal student loans will be provided directly by the federal government through the Direct Loan Program.
Source
The ratings agency said industry consolidation is expected because of changes in the recently enacted health care legislation, which included a provision to end the Federal Family Education Loan Program.
Starting July 1, all federal student loans will be provided directly by the federal government through the Direct Loan Program.
Source
Sunday, March 28, 2010
Student Loan Program
College students can get long-term state loans to pay tuition from this spring semester. Under the ``study-now-pay-later" program, student borrowers will be allowed to pay back their loans after graduating and landing a job. Financially-strapped students welcomed the debut of the credit package, but not without some worries about paying back their debt.
Their main concern is that the interest rate for the loan is set relatively high at 5.8 percent. The rate might go up following possible hikes of the market interest rates, thus bringing heavier burdens to borrowers. Some students described the program as an ``interest time-bomb," which could explode after graduation. Others said the loans will weigh them down until they retire from work.
Excessive debt payment burdens may also lead borrowers to default on their obligations and file for individual bankruptcy. The bad loans then must be shouldered by the government using taxpayers' money. Thus, it is necessary that the authorities make the utmost efforts to make student loans available at a much lower interest rate. They also need to do more to guarantee the success of the program that is designed to help students of poor families study without experiencing financial difficulties.
For this, the government is required to go all-out to tap more financial resources to provide more loans to students at cheaper borrowing costs. Besides, it must provide more financial support to colleges and universities in a move to reduce their dependence on tuition for their school operations.
The government currently sets aside 0.6 percent of the nation's gross domestic product (GDP) for financial support for higher educational institutions. The figure is only half the average 1.2 percent of the 30 countries belonging to the Organization for Economic Cooperation and Development (OECD). And 75 percent of local colleges and universities' budgets come from tuitions paid by students, far higher than the OECD average of 25 percent. Against this backdrop, the nation's higher learning institutions cannot join the ranks of the world's prestigious schools, leaving students stripped of their right to better education.
Together with the loan program, the government plans to place a yearly cap on the increase rate of tuition in order to keep colleges and universities from hiking tuition excessively. According to official statistics, tuition fees skyrocketed by 115.8 percent between 1999 and 2009. We urge colleges and universities to refrain from tuition hikes so that the burden on students and their parents can be eased. Instead, they must make efforts to diversify their sources of income in order to ensure that there are no students who quit their studies due to financial difficulties.
Source
Their main concern is that the interest rate for the loan is set relatively high at 5.8 percent. The rate might go up following possible hikes of the market interest rates, thus bringing heavier burdens to borrowers. Some students described the program as an ``interest time-bomb," which could explode after graduation. Others said the loans will weigh them down until they retire from work.
Excessive debt payment burdens may also lead borrowers to default on their obligations and file for individual bankruptcy. The bad loans then must be shouldered by the government using taxpayers' money. Thus, it is necessary that the authorities make the utmost efforts to make student loans available at a much lower interest rate. They also need to do more to guarantee the success of the program that is designed to help students of poor families study without experiencing financial difficulties.
For this, the government is required to go all-out to tap more financial resources to provide more loans to students at cheaper borrowing costs. Besides, it must provide more financial support to colleges and universities in a move to reduce their dependence on tuition for their school operations.
The government currently sets aside 0.6 percent of the nation's gross domestic product (GDP) for financial support for higher educational institutions. The figure is only half the average 1.2 percent of the 30 countries belonging to the Organization for Economic Cooperation and Development (OECD). And 75 percent of local colleges and universities' budgets come from tuitions paid by students, far higher than the OECD average of 25 percent. Against this backdrop, the nation's higher learning institutions cannot join the ranks of the world's prestigious schools, leaving students stripped of their right to better education.
Together with the loan program, the government plans to place a yearly cap on the increase rate of tuition in order to keep colleges and universities from hiking tuition excessively. According to official statistics, tuition fees skyrocketed by 115.8 percent between 1999 and 2009. We urge colleges and universities to refrain from tuition hikes so that the burden on students and their parents can be eased. Instead, they must make efforts to diversify their sources of income in order to ensure that there are no students who quit their studies due to financial difficulties.
Source
Monday, March 15, 2010
Student Loan Reform: To Help Students Or To Enrich Government?
Sallie Mae just recently made an announcement that in the fourth quarter which just ended Dec 31, 2009 it reached a core earnings basis of $249 million. Chief Executive Albert L. Lord also hoped that earnings in 2011 will be higher than 2010. I guess it is ‘bravo, Sallie Mae’ – while America’s future is struggling to gain higher education, somebody is swimming in profit for it.
In the meantime, Huffington Post Investigative Fund published a very interesting article which is the first of a series of articles regarding the student loan reform. Back in February 2009, Obama announced his plan to overhaul the student loan industry and bring in a student loan reform which seemed like a hopeful relief for students. The plan caused dozens of nonprofit lenders to fear that their business was doomed. But apparently, Huffington Post Investigative Fund has dug deep and found that the same nonprofit lenders are now on the verge of winning a protected position in the higher-education business.The Senate Health, Education, Labor and Pensions (HELP) Committee is considering the Student Aid and Fiscal Responsibility Act which would eliminate the Federal Family Education Loan (FFEL) program. FFEL loans are federally subsidized and make up approximately 80 percent of the student lending industry.
In the 2009-2010 fiscal year, 14.3 million of the 17.5 million student loans were federally subsidized according to the Department of Education. Under Obama’s plan to overhaul the student loan industry, the government would consume the entirety of this industry. In 2009-2010, this is a total of $103 billion.
Source
In the meantime, Huffington Post Investigative Fund published a very interesting article which is the first of a series of articles regarding the student loan reform. Back in February 2009, Obama announced his plan to overhaul the student loan industry and bring in a student loan reform which seemed like a hopeful relief for students. The plan caused dozens of nonprofit lenders to fear that their business was doomed. But apparently, Huffington Post Investigative Fund has dug deep and found that the same nonprofit lenders are now on the verge of winning a protected position in the higher-education business.The Senate Health, Education, Labor and Pensions (HELP) Committee is considering the Student Aid and Fiscal Responsibility Act which would eliminate the Federal Family Education Loan (FFEL) program. FFEL loans are federally subsidized and make up approximately 80 percent of the student lending industry.
In the 2009-2010 fiscal year, 14.3 million of the 17.5 million student loans were federally subsidized according to the Department of Education. Under Obama’s plan to overhaul the student loan industry, the government would consume the entirety of this industry. In 2009-2010, this is a total of $103 billion.
Source
Sunday, February 28, 2010
The Student Loan Corporation Announces Year-End and Fourth Quarter Earnings
For the quarter ended December 31, 2009, net income was $38.1 million, or $1.90 per share, an increase of $25.8 million compared to net income of $12.3 million, or $0.62 per share, for the fourth quarter of 2008.
"I am extremely proud of The Student Loan Corporation's achievements over the past year despite the difficult market environment. We executed our strategy to secure new long-term structural liquidity while transforming the Company into a more efficient organization. We hope to build on this success as we enter what is anticipated to be another challenging year," said The Student Loan Corporation's Chairman, President and Chief Executive Officer, Michael Reardon.
During 2009, the Company leveraged its portfolio to secure $15.7 billion of long-term structural liquidity. This included $10.4 billion of funding from the U.S. Department of Education sponsored conduit, Straight-A Funding, LLC. The Company also executed four securitizations, including three FFEL Program securitizations which provided $3.9 billion of funding, and a private education loan securitization under the Term Asset-Backed Securities Loan Facility which contributed an additional $1.4 billion of funding.
The Department of Education's Loan Participation Purchase Program (the Participation Program) continued to be a significant source of funding throughout 2009. Since the inception of this program, the Company has funded $5.3 billion of FFEL Program Stafford and PLUS loan disbursements. During the fourth quarter of 2009, the Company completed $0.7 billion of loan sales to the Department of Education through the Loan Purchase Commitment Program (the Purchase Program) bringing cumulative sales to $3.0 billion. These proceeds were used to pay back funding previously received under the Participation Program.
The Company's managed student loan portfolio grew by $0.8 billion (2%) to $42.9 billion during 2009. The managed portfolio includes $28.3 billion of the Company's owned loan assets and $14.6 billion of loans serviced on behalf of securitization trusts or other lenders. Originations for the year ended December 31, 2009 included FFEL Program Stafford and PLUS loan originations of $5.8 billion, up modestly compared with the $5.7 billion originated in 2008. The Company also made new CitiAssist(R) loan commitments of $1.2 billion during 2009, which was 29% lower than 2008 reflecting the Company's refined origination strategy.
Net interest income of $277.6 million for the year ended December 31, 2009 was $53.7 million (16%) lower than 2008. Net interest margin of 0.97% for the year ended December 31, 2009 was 35 basis points lower than the same period of 2008. During 2009, the Company increased structural long-term funding by $15.7 billion. The average funding cost of these new borrowings is higher than that of the shorter-term borrowings which were replaced, which lowered the Company's net interest margin by 43 basis points and net interest income for the year by $123.6 million. Net interest margin was further compressed by the dislocation experienced during the first half of the year between the indices used to calculate a significant amount of the Company's interest revenue (Commercial Paper (CP) and prime) and LIBOR, the index used to determine most of the Company's interest expense. This dislocation decreased net interest income by $29.9 million. The decreases in net interest income were partially offset by higher loan balances, which increased net interest income by $41.6 million as well as by pricing changes on the Company's private education loans which increased net interest income by $20.8 million. Other factors which offset the decreases in net interest income include, among other things, a more stable interest rate environment in 2009 as compared with 2008 and lower amortization of deferred origination and premium costs as a result of a slow down in borrower prepayments.
Net interest income of $74.6 million for the fourth quarter ended December 31, 2009 was $27.6 million (59%) higher than the same quarter of 2008. Net interest margin of 1.01% was 29 basis points higher than the same period of 2008. This improvement reflects narrowing of the spreads between CP and LIBOR and prime and LIBOR, higher loan balances, and pricing changes on the Company's private education loans, which increased net interest income by $30.5 million, $14.0 million, and $10.0 million, respectively. Favorable changes in the interest rate environment during the fourth quarter of 2009 as compared to the same period in 2008 also contributed to the increase in net interest income. These increases were partially offset by higher funding costs which decreased net interest income by $33.2 million.
Source
"I am extremely proud of The Student Loan Corporation's achievements over the past year despite the difficult market environment. We executed our strategy to secure new long-term structural liquidity while transforming the Company into a more efficient organization. We hope to build on this success as we enter what is anticipated to be another challenging year," said The Student Loan Corporation's Chairman, President and Chief Executive Officer, Michael Reardon.
During 2009, the Company leveraged its portfolio to secure $15.7 billion of long-term structural liquidity. This included $10.4 billion of funding from the U.S. Department of Education sponsored conduit, Straight-A Funding, LLC. The Company also executed four securitizations, including three FFEL Program securitizations which provided $3.9 billion of funding, and a private education loan securitization under the Term Asset-Backed Securities Loan Facility which contributed an additional $1.4 billion of funding.
The Department of Education's Loan Participation Purchase Program (the Participation Program) continued to be a significant source of funding throughout 2009. Since the inception of this program, the Company has funded $5.3 billion of FFEL Program Stafford and PLUS loan disbursements. During the fourth quarter of 2009, the Company completed $0.7 billion of loan sales to the Department of Education through the Loan Purchase Commitment Program (the Purchase Program) bringing cumulative sales to $3.0 billion. These proceeds were used to pay back funding previously received under the Participation Program.
The Company's managed student loan portfolio grew by $0.8 billion (2%) to $42.9 billion during 2009. The managed portfolio includes $28.3 billion of the Company's owned loan assets and $14.6 billion of loans serviced on behalf of securitization trusts or other lenders. Originations for the year ended December 31, 2009 included FFEL Program Stafford and PLUS loan originations of $5.8 billion, up modestly compared with the $5.7 billion originated in 2008. The Company also made new CitiAssist(R) loan commitments of $1.2 billion during 2009, which was 29% lower than 2008 reflecting the Company's refined origination strategy.
Net interest income of $277.6 million for the year ended December 31, 2009 was $53.7 million (16%) lower than 2008. Net interest margin of 0.97% for the year ended December 31, 2009 was 35 basis points lower than the same period of 2008. During 2009, the Company increased structural long-term funding by $15.7 billion. The average funding cost of these new borrowings is higher than that of the shorter-term borrowings which were replaced, which lowered the Company's net interest margin by 43 basis points and net interest income for the year by $123.6 million. Net interest margin was further compressed by the dislocation experienced during the first half of the year between the indices used to calculate a significant amount of the Company's interest revenue (Commercial Paper (CP) and prime) and LIBOR, the index used to determine most of the Company's interest expense. This dislocation decreased net interest income by $29.9 million. The decreases in net interest income were partially offset by higher loan balances, which increased net interest income by $41.6 million as well as by pricing changes on the Company's private education loans which increased net interest income by $20.8 million. Other factors which offset the decreases in net interest income include, among other things, a more stable interest rate environment in 2009 as compared with 2008 and lower amortization of deferred origination and premium costs as a result of a slow down in borrower prepayments.
Net interest income of $74.6 million for the fourth quarter ended December 31, 2009 was $27.6 million (59%) higher than the same quarter of 2008. Net interest margin of 1.01% was 29 basis points higher than the same period of 2008. This improvement reflects narrowing of the spreads between CP and LIBOR and prime and LIBOR, higher loan balances, and pricing changes on the Company's private education loans, which increased net interest income by $30.5 million, $14.0 million, and $10.0 million, respectively. Favorable changes in the interest rate environment during the fourth quarter of 2009 as compared to the same period in 2008 also contributed to the increase in net interest income. These increases were partially offset by higher funding costs which decreased net interest income by $33.2 million.
Source
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