Worried about student loan debt?
On May 30, Lynnette Khalfani, author of "Zero Debt for College Grads," answered Boston.com readers' questions on college financing. Here is an edited transcript.
Lynnette_Khalfani: Hi Everyone,
Lynnette_Khalfani: This is Lynnette Khalfani, The Money Coach (http://www.themoneycoach.net). I'm the author of Zero Debt for College Grads: From Student Loans to Financial Freedom (Kaplan Publishing).
Lynnette_Khalfani: Today, I'm going to take your questions about student loans and how to quickly pay off college debt.
Lynnette_Khalfani: With the typical graduate from the class of 2007 leaving school with nearly $20,000 in student loan debt, I know this is a subject that lots of you care about.
Lynnette_Khalfani: So feel free to fire away with your questions.
rjones : I have over $55k in student loans and currently paying $355 per month. What is the best way for me to pay this off in the next ten years
Lynnette_Khalfani: If you have federal student loans, the single fastest way to eliminate that college debt in 10 years is to pick the "Standard Loan Repayment Plan". There are actually four different repayment plans available for borrowers who took out federal loans. The Standard Loan repayment plan allows you to pay off your debt in a decade or less - the shortest time frame offered out of all four plans. Your monthly payments will be larger than if you used one of the other three payment options - which are the extended repayment plan, the graduated repayment plan, and the income sensitive repayment program. But if you pick the standard repayment plan, you'll pay the least amount of money in finance charges and interest. Good luck!
slocket : I have 69k in student Loan debt. Its a very daunting amount. I know I have 20 years or so to pay it off, I probably will consolidate, but I'm not making a lot money and I don't if I'll ever make enougb money to pay it off. Any advice?
Lynnette_Khalfani: If you aren't making a lot of money, you might want to consider two different repayment programs offered to borrowers with federal student loans. The first is the graduated repayment program. With this loan repayment plan, you pay off your student debt in anywhere from 12 to 30 years. The loan term depends on how much you borrowed. In your case, having $69,000 in student loans means you'd qualify for the 30 year maximum repayment period. Your payments must always be at least $25 a month. And this plan works best if you graduated from college with a modest wage, but you expect your income to keep steadily rising. As your wages go up, so do your payments.
Lynnette_Khalfani: Of course, both of these plans have trade-offs. The downside to stretching out your student loan payments over 25 or 30 years is that you'll probably pay two to three times what you originally borrowed, because a lot of finance charges will be tacked on to your loans as you pay them slowly year after year.
Lynnette_Khalfani: Another payment plan available to you is the income contingent, or income sensitive plan. This one allows you to pay off your debts in as long as 25 years, and if you haven't finished paying it off by the, the rest of the debt gets written off -- meaning you don't have to pay anymore. With this repayment plan, your monthly minimum is just $5.
vtbound : My daughter is going to college in Sept., we are looking into loans, can you advise on what type of loan would be the best - loans taken out in her name or the parent's name?
Lynnette_Khalfani: Before seeking a loan for college, make sure you've exhaused all possible other funding sources including: scholarships, grants, work-study, paid internships, and of course, any financial contributions that the family can make. All of this will help to reduce your daughter's need for student loans.
Lynnette_Khalfani: After that, if she still needs money for college, definitely start by applying for a federal student loan. Your daughter will have to fill out something called a FAFSA - the Free Application for Federal Student Aid. It's a long, time-consuming form. But it's worth the effort.
Lynnette_Khalfani: If, after she applies for and receives federal student loans, she still needs additional money to pay for college, then I'd recommend turning to the private loan market.
always seek federal loans first - before taking out a private loan for college.
Also, always borrow money in her name first, before taking out a loan in your
name. Federal loans to students carry lower interest rates. For example the
Sue67 : Is there any way to get rid of all of the fees that gets charged?
Lynnette_Khalfani: Yes, you can negotiate with a lender and ask them point blank to reduce or eliminate their fees. For example, with federal loans, loan origination fees (the fees that lenders charge you just to process the application), are current running from 0% (meaning the lender will waive the fee entirely) to 3%. With private loans, loan origination fees range from 0% to 11%. So if your lender is offering you a student loan with a high interest rate or high fees, you should definitely say: "Is this the best you can offer?" Or say: "Can you waive or substantially reduce your loan origination fee?" Also, let them know if you have a better, more competitive offer from elsewhere.
rjones : how do I go about finding out what type of repayment plan I'm on?
Lynnette_Khalfani: You can contact your lender directly or the loan servicer (which is the company that sends you monthly bills and processes your payments). You can also switch out of one plan to another, so you don't have to feel like you're locked into any one of the four repayment programs.
Christine : do you have any suggestions on how to manage the cost of medical school?
Lynnette_Khalfani: Many med school students are coming out of debt with six-figures worth of debt ... that's like having a mortgage on your back fresh out of school! The best advice I can give you is to use these two strategies:
Lynnette_Khalfani: 1)limit your loans to what you really need to cover tuition, room and board, books, etc. but stay away from borrowing for clothes, entertainment, luxury items, etc.; and
Lynnette_Khalfani: 2) plan to get loans that qualify for loan cancellation or loan forgiveness based on your area of study.
Lynnette_Khalfani: For example, for people in the healthcare field - doctors, nurses, etc. - there are a slew of programs loan repayment initiatives and loan forgiveness programs if you will work in certain areas.
Lynnette_Khalfani: The NIH - the National Institutes of Health will give eligible college grads up to $35,000 a year if you have a PHD or MD and you work or research in the areas of general clinical medicine, pediatrics, fertility, or health disparities. Get more info at www.lrp.nih.gov.
Lynnette_Khalfani: The Nurses Reinvestment Act is a scholarship/loan repayment program under the Department of Health and Human Services. It you work as a nurse in an area where there's a shortage of nurses, the Nursing Education Loan Repayment Program (NELRP) will pay off anywhere from 60% to 85% of your student loans.
Lynnette_Khalfani: Call NELRP toll-free at 866-813-3753. In my book, Zero Debt for College Grads, I list at least a dozen other programs for people in the medical field to get others to pay off your student loan debt. Ditto for other programs, such as law enforcement, teaching, etc.
needhelp : Right now I have about 45,000 in student loans, (
your grace period, which is within six months after you graduate,
you could consolidate your loans and lock in a lower rate. The consolidation
rate during deferment is .60% lower than it is once you go into repayment.
Also, if you can swing it, go ahead and pay extra on your studetn
loans. With federal
JR : How can families with home equity & IRA?s sending honor students to college ever catch a scholarship break?
Lynnette_Khalfani: Your best bet is to save as early as possible and to use programs like 529 Plans, which are state-sponsored college savings vehicles. Wouldn't hurt also to seek out grants, scholarships, etc. based on your child's area of study, career interest, geographic location, gender or even ethnicity.
Rob : How can I consolidate private and federal student loans?
Lynnette_Khalfani: You can't consolidate federal and private loans together. They don't allow it. Right now, here are some of the types of loans that are eligible for federal loan consolidation:
Lynnette_Khalfani: *Stafford Loans (subsidized or unsubsidized)
Lynnette_Khalfani: *Perkins Loans
Lynnette_Khalfani: *PLUS Loans
Lynnette_Khalfani: *Health Professions Student Loans (HPSL)
Lynnette_Khalfani: *Health Education Assistance Loans (HEAL)
Lynnette_Khalfani: *Nursing Student Loan (NSL)
Lynnette_Khalfani: *National Direct Student Loans (NDSL)
Lynnette_Khalfani: *SLS Loan (formerly called ALAS Loans)
Lynnette_Khalfani: *Federal Insured Student Loans (FISL)
Lynnette_Khalfani: For more info, check out the info available from the Department of Education's website at: loanconsolidation.ed.gov. You can also call them at 800-557-7392 for a referral to a loan consolidation lender.
Lynnette_Khalfani: Also, Student Aid Lending (www.studentaidlending.com) gives you info about the pros and cons of consolidation and helps you figure out your payments with consolidated loans.
Michael : My daughter is about to become a college freshman, any suggestions on how to avoid debt in the first place?
Lynnette_Khalfani: The main way to avoid college debt is to be aggressive in seeking out alternative forms of college financing: scholarships, grants, paid internships (unfortunately, with sky-high tuition costs, students don't have the luxury of unpaid/volunteer work these days), and work study.
Lynnette_Khalfani: Tell your
daughter to learn from the example of Shayla Price, a
I am entering a very
expensive graduate program in the fall and I am going to need to seek out
private loans in addition to my federal
Lynnette_Khalfani: Kudos to you on getting accepted into graduate school ... Now comes the hard part: trying to figure out how to pay for everything. I think PLUS Loans are good for graduate students (this is actually the first year they'll be offered to grads like yourself ... in the past they were offered to the parents). I don't like the idea of "preferred" lender lists. I don't have anything against Citibank, but my recommendation would be to shop around. Your goal is to find the lender that will offer you the best interest rate, the lowest fees, and the best overall terms and service. Use the recommendation from your school as a starting point. In other words, do check out Citi's offerings, and if you find that they're more competitive than other lenders, by all means, go with them.
Ginin : Hi Lynnette, I graduated from college in 1991. I lost my job in 94 and went into default, thus I currently have a $65K debt. I already consolidated. I'm on the standard loan repayment. But with all the interest and penalties accumulated thru the yrs, I'll never finish. What can I do?
Lynnette_Khalfani: Defaulting on a student loan is very serious business - mainly because by federal law there is no statute of limitations on student loan debt. This means your creditors can literally pursue you to the grave to make you pay off your student loans.
Lynnette_Khalfani: I've heard of cases where people are in retirement and they're social security checks get garnished due to old/delinquent student loan debt.
Lynnette_Khalfani: By contrast, with credit card debt, there are statutes of limitations in every state, usually 7 or 10 years maximum. After that, creditors can't legally come after you, sue you in court, get judgments against you, etc.
Lynnette_Khalfani: The good news is that if you default on a student loan, you can go through a process called "Loan Rehabilitation." In a nutshell, you make a deal with your lender, whereby you show them what you can reasonably afford to pay (based on your income and expenses).
Lynnette_Khalfani: Then you pay a reduced amount that you and the lender agree to. Once you make payments for 9 or 12 straight months (the time depends on what type of loan you had), your loan is considered to have been "cured" and taken out of default status.
Lynnette_Khalfani: The Department of Education will even help you wipe the slate clean with your credit. They'll remove from the big three credit bureaus (TransUnion, Equifax and Experian) any negative information about your past late student loans payments.
acmoney12 : I read your story about how much debt you had. Are you completely out of debt? If so, how long did it take you to payoff your student loan and other debt?
Lynnette_Khalfani: Yes, I have Zero Debt. I had $100,000 in credit card debt ... which took me three years to pay off. I write about how I got into debt, and how I got out of it in my book Zero Debt: The Ultimate Guide to Financial Freedom. I also had $40,000 in student loan debt. It took me 12 years to pay it off -- much of that time, unfortunately, I had my loans on "auto pilot" ... just paying about $186 a month automatically from my checking account even though I could've afforded to pay off more. I now know that was a mistake. So one of the things I caution people about, in my new book, Zero Debt for College Grads, is just consolidating or stretching out your payments one year, then essentially forgetting about the loans and putting them on auto-pilot. That just makes you pay way more money in interest charges than you should.
TrickorTreat : What are the top things I need to be aware of after graduation?
Lynnette_Khalfani: If you're leaving college with student loan debt, you need to be aware of a few things after graduation. First, those college loans were NOT free money -- they definitely have to be repaid, starting anywhere from six to nine months after you leave school. Also, you should realize early on a few lessons that nobody probably taught you while you were in school:
Lynnette_Khalfani: * Everything always costs more than you think it will. (Your apartment, your car, clothes, etc.)
Lynnette_Khalfani: * Even millionairs have a budget (so you should use one too!)
Lynnette_Khalfani: * Your credit standing is as important as your degree (forget about your three digit GPA, the real three-digit number you need to be concerned about is your FICO score -- which ranges from 300 to 850 points)
Lynnette_Khalfani: *Saving money now saves problems later. (You people always think: "I'll get around to that tomorrow" when it comes to their finances ... A better strategy is to start putting away some money, even if it's just a little bit, today for the future. We all have goals and dreams, so start saving now for that business you want to start, that dream vacation you want to take, or even fore retirement -- even if it does seem like lightyears away).
Lynnette_Khalfani: Well, I guess that's it for today. I've enjoyed chatting with you. Hope you got some great ideas about how to minimize, manage and ultimately pay off student loans. For more information on this subject or for other money-management tips, feel free to check out the FREE info and downloads page on my website: http://www.themoneycoach.net. I also have a free personal finance newsletter and blog that I post to regularly.
Lynnette_Khalfani: And needless to say, if you (or your kids) have student loan debt or credit card bills, I'd encourage you to pick up a copy of Zero Debt for College Grads. This just might be the best graduation gift you could give your kid (or yourself!).
Lynnette_Khalfani: Thanks again for participating in this chat session about student loans. I know it's daunting to have so much college debt, but trust me, If I could dig myself out of $100,000 in credit card debt and $40,000 in student loans, you can do it too!Here's hoping you all achieve "Zero Debt" status.
Best, Lynnette Khalfani
The Money Coach http://www.themoneycoach.net