An analogy for college students and Monopoly lovers

I was never a fan of handing over those yellow paper dollars to my opponent because I landed on his piece of property on Illinois Ave. Just like handing over those fake paper dollars in Monopoly, paying off student loans will feel the same way. But in the game of Monopoly, it does feel better when I make an investment by buying a piece of property. And paying off student loans should feel like making an investment in Monopoly. Though at first all you see is money being taken from your bank account, later you will see the results when people start paying you for landing on your square… Or rather when your student loans diminish. There are positives to making those monthly payments. The burden is being relieved.

Photo by Mikael Miettinen

Payment Options for Student Loans

There are 4 options that can all be negotiated with your lender, whether it was a private lender before the law on private student loans changed, or whether your sole lenders are companies backed by the government. After graduation there will be a 6-9 month grace period where graduates will not have to pay off student loans, so they have time to look for a job (so they can afford the payments). Unless the graduate is in forbearance with their lender, which allows more of a grace period, he or she will start paying off loans with an amount that is negotiated with the lender. The minimum is usually about $50. Graduates are able to switch their payments to larger payments monthly. The most important thing is to stay on the same page with the lender.

Payment Option 1: Standard Payment

Graduates who have found a well-paying job soon after graduation will start paying off loans in the form of standard payment. This is the best option because loans will be paid off after 10 years, and it has the best interest rate. While this is the quickest payment option, it is also requires the highest monthly payments.

Payment Option 2: Graduated Payment

Writing a check

This option is for graduates who have found a job that starts off with a decent wage that will steadily increase over time. The loan payments will start off by mirroring the small wage and over the next couple of years for the next 10-30 years the payments will increase like the graduate’s wage.

Payment Option 3: Income-Based Payment

This payment option is set up so that monthly payments will be based off of what the graduate is making in their current income. This is for those who have seasonal jobs, or jobs that fluctuate with seasons. With this option, graduates will have 15 years to pay off their loans.

Payment Option 4: Long-Term Payment

This payment plan has the worst interest rate, because the payer has chosen to pay the least amount per month. This means that by the end of the 30 years it takes to pay off the loan, the loan payer will have paid almost double than they initially borrowed.

If you have questions about any of these options, contact your lender. Or ask your mother, she usually knows.

Did tedious just become easier?

That’s what three members of the Department of Education in September 2009 explained to hundreds of high school counselors who gathered in Baltimore to hear the changes being made to the Free Application for Financial Student Aid. Hey, that applies to us! The Obama Administration announced the changes in June and they have been in effect since the beginning of this month.

Some Facts on the 2010 FAFSA

• The online application, which previously asked for more than 150 questions, now asks 22 fewer questions
• The applicant will be led to 17 less web screens than they would have in 2009
• Applications online for the FAFSA must be submitted by midnight Central Daylight time, June 30, 2010
• Corrections made to the application must be submitted online by midnight Central Daylight Time, September 21, 2010
• The online form is now more organized into categories such as, “student demographics,” “parent demographics,” “basic eligibility” and “dependency status”
• Once an applicant has filled out the application online, it will give an estimate of the student’s Pell Grant, giving them a figure of their eligibility for student loans
• Students who are married or are over 23 can skip over a section of parent finance questions that no longer apply to them
• Low income students no longer have to go through questions of assets that are irrelevant to their situation
• Students who are applying for aid in the spring 2010 quarter are able to upload their IRS tax data directly into the online FAFSA forms
• Full summary of changes on the FAFSA

There are several different ways to pay for college…

Deb: Um, hello. Would you like to look like this?
[holds out a photo]
Napoleon Dynamite: [Napoleon takes the photo and looks at it] This is a girl.
Deb: [Deb continues nervously] Because for a limited time only, Glamour Shots by Deb are 75% off.
Napoleon Dynamite: I already get my hair cut at the Cuttin’ Corral.
Deb: Well, maybe you’d be interested in some home-woven handicrafts?
[Scene continues after Rex Kwon Do TV ad Kip's watching]
Deb: … And here we have some boondoggle key chains. A must-have for this season’s fashion.
Napoleon Dynamite: I already made like infinity of those at scout camp.                                   Deb: I’m trying to earn money for college.

Though making home-woven handicrafts would be quite fun, you don’t have to earn money for college the way Deb chose to. There are other options.

1. Join an on campus group that offers free room & board. A great option for anyone with great leadership abilities who wants to be involved. For example, a Residential Advisor. Look into the benefits of positions on campus that are related to residential life and food services.
2. Attend your campus wide Job Fair: Bring a resume, dress well, and pay for college by working it off through an on or off campus job .
3. The Summer Melt is an opportunity few know about. It’s the time right before fall term when students resign their spots in a university, thus resigning their scholarship money. Writing a letter to your financial aid office asking for more money doesn’t hurt, and usually helps.
4. Write a killer scholarship essay, and use it for multiple scholarship entries. Kill multiple birds with just one sweet stone.
5. Join a free scholarship search service such as Fast web, College Board’s Scholarship Search or Sallie Mae and let them find scholarships for you to apply for.
6. Using Advanced Placement credits towards college means super cheap college credit.
7. Have the government cancel all or part of your educational loans by qualifying for loan forgiveness. To qualify for loan forgiveness you must match the criteria specified by the forgiveness program which can include community service, joining the armed services, and teaching or practicing medicine in certain types of communities.
8. Seek out jobs that pay your college tuition. Three national companies that assist employees towards their education are UPS, FedEx and Home Depot.
9. If you’ve got a knack for writing, or just have things to say that would be useful in any way to others, create a blog and make money through advertisement placed on your website.
10. Host an event (more likely if you are living in a house) and organize a house show with the musicians on campus, or host a Scrabble tournament with incentives. The suggested donation for attending should be posted as anywhere from $1 to $1,000,000.

Save Save Save

1. Accelerate your degree by getting yourself into an accelerated degree program, which cram a semester’s worth of content into a shorter amount of time. In an accelerated degree program, tuition is about half the price of a traditional degree program, while encompassing a greater intensity of work.
2. Bulk up on transfer credits! During the summer, enroll in classes at a community college that will transfer to your university and save you a whole lot of money.
3. Consider transferring into your preferred university after two years, if it is more expensive, while going somewhere else at first. Doing this will allow you to still gain the benefits of your chosen university while also taking away a diploma from the college of preference.
4. Create a budget to calculate the money you spend on coffee, late night fast food runs and other things that are unnecessary. Being able to track your money will help you save and spend responsibly.
5. Keep coupons of local grocery stores and follow weekly sales, avoiding expensive grocers.

The ads look appealing:  happy college students talking about not having to worry about their college tuition, showing off the new laptop they just bought . . . all thanks to private student loans.  But are private student loans as amazing as the ads suggest?

By now, most of us know you can’t trust commercials but private student loans are becoming one of the most popular ways for undergraduates to pay for their schooling.  The combination of reduced family contributions, reduced federal aid, and rising college costs has sent millions of needy students into the hands of lenders.  And, yes, many of them do receive the money they need but the majority doesn’t realize that those loans have a dark side.

Private Student Loans:  Not the Best Option

When we’re talking about private student loans, we’re not talking about the Stafford or the Federal Plus loans you can get through the government.  These loans are available to anyone and have fixed interest rates (currently 6.8%), but they also have maximum borrowing limits based on how far along you are in your college education (basically first years can borrow less than those students nearing graduation).

Private student loans, on the other hand, are different.  For one, they work like regular loans – you need to have your credit approved before the money is handed over.  That means you could get rejected altogether.  If you are approved but you have poor or no credit history, then say hello to sky high interest rates.  And, those interest rates offered at the start are often not fixed rates.  That means the rates can change while you’re paying them back.  Some of the interest rates are as high as 19%.  Can you imagine repaying $48,000 (the average cost of tuition for four years in the U. S.) in college debt at 19% interest?

Plus, most private student loan programs don’t put such strict limits on how much you can borrow.  That means you could easily borrow more than you need – maybe so you can buy that new laptop, iPhone, or wardrobe you wanted – and end up in real financial trouble after your graduate.

The Debt You Keep on Owing

All student loans are difficult to pay off, especially if you don’t land a great job the moment your diploma is in your hand.  With federal loans, however, there are programs available to help you, such as deferments, income-contingent repayment plans, and more.  Those options aren’t available with all private lenders.  If you can’t make your monthly payments, you can quickly ruin your credit which means you’ll have a hard time buying a car or a house later on.

In the past, if things got really bad for former students with private loan debt they could file bankruptcy and sometimes have their debt erased.  That’s not a possibility anymore.  Now private loans are treated just like federal ones in terms of bankruptcy law and that means you need to be nearly destitute before you can climb out from under the debt.

Private loans can be a lifesaver for some students, but only use them once you’ve exhausted all of your other financial aid options.  Otherwise, the bright future you want after graduation may get a lot bleaker.