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Student Loans

Weighing student loan interest deduction Wednesday, March 27, 2013

I currently hold a student loan at 6.75 percent to the tune of $75,000. I'm making $1,500 a month payments on this debt so it will be gone in 59 payments with $13,000 interest paid. I have the opportunity to have a family member loan me the $75,000 and I'll pay them back at 4 percent, reducing my payments to 55 months and cutting my interest paid to $7,100.

I'm wondering whether it is smarter to keep the debt at 6.75 percent to enjoy the (small) tax deduction of paying interest on a student loan (it was $2,000 for 2011), or to have it paid off, lose the tax deduction and save nearly $6,000 on interest?

In 2012, you can deduct up to $2,500 in interest you paid on a qualified student loan. Among other things, your modified adjusted gross income, or MAGI, cannot exceed $75,000 for unmarried taxpayers and $150,000 for married taxpayers filing jointly. The deduction is reduced proportionately for MAGI in excess of $60,000 for single filers and $120,000 for married joint filers.

A qualified loan is a loan you use to pay for qualified education expenses such as tuition and standard room and board. The loan cannot be from a family member. The student loan interest deduction, or SLID, is an adjustment to gross income, which means you can deduct it even if you do not itemize deductions. The SLID is not scheduled to expire.

To determine if the 4 percent loan is more beneficial than the after-tax deducted 6.75 percent loan, you need to look at your AGI as well as your tax rate. If you're paying $18,000 a year toward the loan, I'm thinking you probably have good income. If you're approaching the thresholds for deductibility and your income continues to grow, then you may not qualify for the SLID.

Ignoring that fact, your after-tax interest rate on the deductible student loan is a function of your marginal tax rate. In order to be under the deduction thresholds, your top marginal tax rate cannot exceed 25 percent. This means you save 25 percent of the 6.75 percent interest rate that you paid, or 1.6875 percent. Therefore, your after-tax rate on the student loan is just more than 5 percent (6.75 minus 1.6875). That means even after the deduction, you're better off with the family loan.

Posted by at 13:51:07

Student loan co-signer rights questioned Friday, March 22, 2013

I am the co-signer on a family member's student loan. Under the terms of the contract I could have been released as co-signer after 24 months of interest and principal payments. Unfortunately, before the end of the second year, the borrower changed the loan to interest only. I was never notified of this change by neither him nor the lender. Is that a breach of contract by the lender?

Unless you negotiated that provision in the contract, it's unlikely that the loan agreement stipulated that the co-signer would have to approve any changes made in the terms by the primary borrower. That's a tougher standard than just being notified about any change. It's possible that you would have had to negotiate a notification clause upfront, too.

I suggest that you review your loan documents and then possibly consult an attorney. If you don't have copies of the loan documents, you'll probably have to get them from the borrower. The lender typically is under no obligation to provide them to you.

It's too bad the primary borrower didn't contact you about considering the change to interest only so close to the date when you could have been released as co-signer. It is possible that you might have been willing to help him pay the difference in loan payments to hit the 24-month goal, securing your release.

Try to stay aware whether the primary borrower is keeping up on the interest-only payments as well as when the payments convert back to principal and interest. You should ask the primary borrower to provide you with copies of the loan payment confirmations.

Posted by at 12:27:39

How can we pay off big student financial loan pers Thursday, March 14, 2013

My husband has $250,000 in student loans and credit card debt. He is having to pay the bare minimum and deferring them. I ran the figures and realized that if we have been to maintain spending the least, we would spend $2,600 per month until eventually 2045! But, if we are frugal for three decades we will get rid of the larger financial loans ($170,000 involving six p.c and 8.5 %), and pay off the remainder along with the month to month least for an additional seven several years.

We also desire to build some financial savings and open a managed financial commitment account. We would choose to buy a tiny condominium (we live in New york city) inside the next five decades and possess a infant.

So in this article would be the issue: Will it seem sensible to dwell frugally and set all of our extra profits toward repaying his student financial loans? Or need to we set some of that money toward savings and investments? I am 26, he is 29, and it's time to start setting up our long term.

Ahead of you pay back down his financial loans, you need to make a cushion for emergencies and feed your apartment-purchase fund. So keep paying out the minimum amount until finally you've got twelve months' truly worth of basic residing expenditures put aside along with a deposit on your own new digs.

At the time you've got your unexpected emergency fund in place, consider an investment plan. I like investing around the long run and believe that the earlier you begin, the greater off you may be. I suggest which you obtain a hugely encouraged monetary planner alternatively of the banker or perhaps a broker to information your monetary program. In my experience, investing isn't about hitting economic household operates. It is about keeping away from mistakes.

Over time, your money will hopefully raise plus your husband will switch his expensive schooling into gainful work. When that comes about, you will have the chance to pay out down his personal debt quicker and fund far more of one's economic and loved ones goals.

I also recommend that you simply remember to place some pounds aside often, maybe from raises or promotions, to permit for a few entertaining. At your age, 3 several years with out some breaks may be greater than both of it is possible to stand. You may very well raise the likelihood of assembly your discounts and financial commitment ambitions when you allocate a modest quantity of cash for actions or items you both equally enjoy.

Great luck!

Posted by at 12:45:24

Can I consolidate student loans? Friday, March 08, 2013

Someone recently told me you could consolidate all student loans, or the government is working on that to happen in the near future. My daughter has federal and private loans in her name. I have a federal parent PLUS Loan and private student loans for her in my name.

Would we be able to consolidate them since they are all for her, so I or she can make one payment a month instead of trying to keep up with six different payments due at different times of the month? I opened up a checking account specifically for this in our names so I can keep better track of it all.

There has been some recent news on changes to student loan programs, but the holy grail you seek of being able to consolidate public, private, student and parent loans into one consolidated student loan currently does not exist.

You want to keep the federal loans separate because these loans have deferment, repayment and consolidation options that aren't available with private student loans. Lenders aren't going to allow you to shift your parent loans to your student because of the increased credit risk.

A strategy of consolidating eligible student loans could reduce the number of outstanding student loans for you and your daughter, but you won't be able to get it down to one loan with one borrower and one lender.


Posted by at 13:29:56

Student-Loan Collection Targeted for Overhaul in C Sunday, December 23, 2012

Congress is considering overhauling the way student loan debt collection is to be executed. This is a $100 billion-a-year program, and the US Student loan system has a very punitive method of imposing collection fees to students in default. There are also measures to make more collections by garnishing wages of debtors.

Representative Tom Petri plans to introduce a bill that would require employers to withhold payments from wages in the same way they do taxes. Payments would be capped at 15 percent of borrowers’ income after basic living expenses were calaculated.

U.S. Representative Tom Petri's (R) bill requires employers to withhold payments directly from borrowers’ paychecks in the same way they do Federal taxes.

Democrats are expressing growing concern about the burden of $1 trillion in outstanding student loans, which now exceed aggregate credit- card debt. Under the system, the government would not have a need to hire private debt-collection companies and charge fees that add as much as 25 percent to borrowers’ loan balances, leaving defaulted former students even deeper in debt and are so punitive that they would illegal in some states.

“This doesn’t mean leaving taxpayers on the hook if a student borrows too much -- everyone would still pay back what they borrow under this system,” Petri said. “It does mean providing much stronger protections against the kind of financial ruin that is all too prevalent in our current system.”

The plan would resemble those in the U.K., Australia and New Zealand. Since the money would be withdrawn automatically and tied to income, borrowers would no longer have to negotiate with collectors and loan-servicing companies, which often offer a confusing array of deferral and forbearance options after a job loss or illness.

Election Issue

In the U.S., borrowers currently must ask to be enrolled in income-based repayment programs and many don’t because they don’t know about them or collections companies don’t tell them.

In the election campaign, President Barack Obama touted the income-based program as a way to make it easier for students to pay back their loans, while unsuccessful challenger Mitt Romney said it encourages students to take on more debt.

Last year, 5 million borrowers were in default -- generally meaning they had failed to make payments for at least 270 days -- on $67 billion in loans, more than twice the amount in 2003. Through the new system, based on experience in the U.K., 98 percent of borrowers could meet their loan payments through automatic payroll withholding, according to Petri’s office.

The Education Department already has the power, without a court order, to seize a part of wages, tax refunds and Social Security payments to collect on student loans. There is no statute of limitation.

Collection Complaints

The bill would all but eliminate the government’s need to hire private debt-collection companies, which have drawn criticism for insisting on stiff payments even when borrowers are eligible for income-based repayment. Those companies’ tactics and commissions were the subject of a Bloomberg News article in March.

Last year, debt-collection companies -- working directly for the Education Department or for state agencies -- received about $1 billion in commissions, Bloomberg News reported. They included Pioneer Credit Recovery, a unit of Newark, Delaware- based SLM Corp. (SLM), the largest U.S. student-loan company known as Sallie Mae.

Such collections, which can follow borrowers into retirement, “can ruin people’ lives,” said Justin Draeger, president of the National Association of Student Financial Aid Administrators, a Washington-based nonprofit group. “The sad part is that borrowers already have an income-based repayment option but they aren’t taking advantage of it.”

Patricia Nash Christel, a spokeswoman for Sallie Mae, declined to comment.

Interest Cap

The legislation would tie the interest charged to Treasury market rates. Currently, students in the most popular program pay as much as 6.8 percent.

In another boon to borrowers, the plan would cap interest owed at 50 percent of a loan’s face value at the time of graduation, giving a break to lower-income borrowers who take longer than the standard 10 years to repay loans. For a student who took out $27,000 in loans, about the national average for a graduate of a four-year program who borrowed, the interest couldn’t exceed $13,500.

Student loans, which can rarely be canceled through bankruptcy, can balloon to several times their original size, after adding interest and collection fees.

Along with facing private debt collectors, students may also be sued by the U.S. Justice Department, which hires private attorneys to pursue debtors who default on decades-old loans, Bloomberg News reported in July.

Loan Subsidies

To offset the cost of capping interest, the bill would eliminate some student-loan subsidies that help low-income families and borrowers.

Low-income borrowers would no longer be excused from accruing interest when they are in college. The bill would also eliminate income-based programs that forgive loans entirely after 20 or 25 years -- and, after 10 years, for those who enter public-service careers, such as teaching or law enforcement. The new system would apply only to new loans.

While Petri’s bill makes sense, the elimination of the low- income subsidies and forgiveness could face opposition from Democrats, said Sandy Baum, a senior fellow at the George Washington University School of Education. Republicans may be concerned that taxpayers won’t be repaid if more borrowers join the income-based program, she said.

With a few weeks left in the current congressional session, the bill will likely be considered early next year, according to Petri’s office.

Posted by at 23:41:11

Student loan Co signer Thursday, March 13, 2008

Student loans There are various types of student loan. One of the most affordable student loan option are federal student loan , which include Stafford loan for students and PLUS loans for parents. Interest rates for these Federal student loans are significantly lower than those of personal loans , credit cards and even home equity loans. These student loans are eligible for consolidation after graduation , providing long term financing flexibility as you continue on to graduate school or join the working world. In case of private student loans is scholarship , grants , work study and/or federal student loans programs don’t cover the entire amount of education related expenses. If you have bad credit , you may still qualify for a Stafford loan or PLUS loan , a qualifying co-signer may still enable you to receive the funds you need to pay for your child’s education. If you have number of private loans , a private loan consolidation may be a prudent move to better manage your education debt.
Posted by Steva at 11:19:26

Student loan consolidation Wednesday, January 23, 2008

I have three student loans. I want to consolidate them. how do I do this and what company should I use?
Posted by Tim at 00:46:39


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