Why You Shouldn’t Panic About Your Federal Student Loans

21 May

From WiseBread New Graduate Help Center: Reyna Gobel, Student Loans Expert

girl surprised by letter

Photo By WiseBread

Dear Not-Yet-In-Trouble Federal Student Loan Borrower,

You might have heard that the Department of Education will be sending out letters to millions of student loans borrowers. The letters target borrowers whose grace periods are ending, as well as borrowers who exhibit signs of trouble that could lead to defaulting on their loans. If you haven’t started repayment yet but are fretting about how you’re going to possibly repay all that money — stop worrying.

I’m writing you this letter to not only give you important details about student loan repayment, but also to help you be aware of potential issues well before trouble starts.

I Defaulted — Here’s How to Avoid My Mistakes

I defaulted on a federal student loan simply because I didn’t know it existed. I had over a dozen student loans from different lenders; I forgot about one loan and went into default. It’s easy to do, but it’s also easy to avoid. Just log in to the National Student Loan Data System. You’ll see all your federal student loans on this site, along with contact information. Either arrange to pay each individually, or consolidate them into one loan. This is also a great time to get a free credit report – it can alert you to any problems you might have, like having missed a loan or bill payment.

Then, know yourself. If you can’t keep track of each individual loan, you really need to consolidate them into one loan to streamline payments (ask your loan servicer about consolidation options). Once consolidated, you can still choose a plan where payments are based on income, such as Pay as You Earn. And if you’re interested in the public service loan forgiveness program, know that it’s only available through loans originated by or consolidated with Federal Direct Loans.

Realize That Even With the Pay as You Earn Plan, You Might Have Payment Problems

The income-based Pay as You Earn repayment plan bases payments on your income and family size, but it doesn’t fully consider your expenses if your circumstances change. For example, at some point, you may have to help support a sick parent or child. You could also have bought a home when your income was higher. After a pay cut, a majority of your income could go towards your mortgage.

If you experience a financial setback, you have three options:

  • Call your servicer and see if your Pay as You Earn payment amount can be adjusted. You have to supply your income annually, and you may have forgotten to do so this year, causing your payments to set based a higher income level.
  • Ask for a deferment or forbearance, which are temporary payment breaks. Taking a break should only be done if the situation isn’t permanent. Always take a deferment when possible over a forbearance when any of your student loans are subsidized. The government pays the interest on subsidized student loans during periods of deferment.
  • If your income is lower because you took family leave for six months, you may not want to change your plan. However, for long-term pay cuts where your income-based repayment is too high for your budget, you should ask your servicer to also calculate payment options and see which payment option offers the lowest monthly payment.

Don’t Feel Embarrassed If You Don’t Know Something About Student Loans

I wrote two editions of a 240-page book on student loans, and I still don’t know everything about them. I read articles and play with the student loan repayment calculators every day. There’s always something new to learn. For instance, the public service loan forgiveness employer verification form wasn’t created until after the first edition was released. Now, thanks to that form, you can find out if you qualify for the public service loan forgiveness program right away and register for it right after you start working or after you’ve already started repayment — the choice is up to you. Never be afraid to ask your servicer questions about any of these programs.

Talk to Your Friends Who Are or Will Be in Repayment Soon

I’m not the only person who has experience with and advice about student loans. Talking to your friends can help you figure out repayment options and possibly pick better ones based on their choices and experiences. Just remember, they might have different circumstances than you, such as income level, children, or other debt that impacted their choices. Therefore, you shouldn’t copy their decisions. But you’ll be more informed and learn questions to ask your servicer. Plus, they may have missed payments, recovered, and now have advice about that. Learn from others’ student loan mistakes and victories.

The Most Important Part of This Letter?

The help you get doesn’t end here. You can tweet me anytime — @ReynaGobel — and ask questions. My articles will be posted here every week. You can ask me questions in my CollegeWeekLive web chats or get more helpful advice in my book CliffsNotes Graduation Debt.

Finally, remember you never want to receive a “dear troubled borrower” letter. The second you think you might miss a payment, talk to your servicer about options for a payment break or new repayment plan. With federal student loans, that one call will likely save your credit.

 

Reyna Gobel is a writer, author, public speaker, and student loans expert.  Her financial advice appears on Wise Bread’s New Graduates Help Center, in her video course How to Repay Federal Student Loans, in CollegeWeekLive newsletters and keynotes speeches, and in her audiobook How Smart Students Pay for School, now in its second edition. Be sure to check out her website for more helpful information on repaying your student loans.

Lifestyle Inflation

18 May

Raysha Duncan, Financial Aid Administrator

hot air balloon; text overlay: Beware Lifestyle Inflation

You’ve graduated. Hooray!

You’ve landed a dream job. Hooray!

And best of all…that dream job comes with more money than you’ve ever had before and now you get to plot out how you’re going to spend all of your riches. You can finally get that car you’ve been eyeing (and ditch your old beater car). You can update your ENTIRE wardrobe because you can’t wear sweats/yoga pants to a real job every day. You can finally buy all organic food and eat out at great restaurants more often. You can get a great apartment with an extra bedroom…because why not? You’ve got money now!

But wait…If you do all of these things, then you’re quickly going to run out of money. And what’s the point of having a regular, decent income if you don’t actually have any money at the end of the month?

It’s important to remember that just because you can afford all of these things doesn’t mean you should actually buy all of them. You want to avoid the deathly trap of lifestyle inflation. Lifestyle inflation occurs when you’re making more than you were before and you spend accordingly (i.e. more money earned equals more money spent). But wait…that doesn’t sound too bad, right? Again though, it isn’t bad (and it may even be fun) until you find yourself living paycheck to paycheck just like you did in college.

If you’re making bank right out of college, invest some of it! Save for a big goal! Don’t starting spending like crazy because now you can buy all the stuff you ever wanted and didn’t even know you wanted. You’ll run out of money fast if you’re not careful.

So…how do you avoid spending every last dime of your new income?

Set a BIG Savings Goal

Now that you’ve graduated college you have more freedom to decide what to do with your time and since you’ve scored your dream job, you have money to play with. What’s something big you want to spend your money on? Some common things would include a house, a wedding, a vacation overseas, your dream car. Some uncommon options could include retiring early or starting your own business. Whatever your goal, own it! Save for it.

Spend Below Your Means

Don’t blow your money on pointless purchases. You don’t have to eat like a college student anymore, but you also don’t need to eat like a King. Maybe you can just have one roommate instead of three. Keep your spending low so that you have room to save your big goal.

Budget

This is what it all comes back to. You need to have a plan for spending your money. If you don’t have a plan for where your money is going every month then you’ll quickly run out of money before the month is up.

 

Do you have any tips for avoiding lifestyle inflation? Let us know in the comments below!

Purdue Graduation Weekend!

14 May

Congratulations to all our Boilermakers who are graduating this weekend!graduation cap

Frugal Living Tips I Learned in College

11 May

close up dollar bills

Raysha Duncan, Financial Aid Administrator

There is a lot of information out there about how to live frugally, how to retire early, how to DIY this or that or this AND that, and multiple success stories of people escaping debt. It can get overwhelming, and a little hard to translate to college life since most of the sources out there are addressing “life after college.” Here are some tips to make it a little bit easier now rather than later!

Buy your books used

Whether that’s in the bookstore or online or wherever, you will most likely not use that textbook again. This is one of the easiest places to cut costs. However, there can be exceptions; I was an English major and most of my “textbooks” were novels and professors always wanted a specific version of a text, so sometimes it was more convenient to just buy it new, have the right page numbers, and gain a new novel for my shelf in the process. You may also have a newer version of a text written by the professor or a school-specific book and there’s usually no way around buying those new. But most of us find that used books are an accessible option each year for helping reduce costs!

It’s okay to say “no” to friends sometimes

There’s a lot of pressure in college to keep up with a lot of things: school, work, friendships, your finances, applying for jobs after college, keeping up with your family, your weekly TV, etc. That can get really overwhelming really fast! And it can get especially overwhelming if you’re worried about money. And add friends who constantly want to go out and do things…it can be a recipe for financial disaster! Let your friends know that you’re not trying to be a ‘Debbie Downer’, but you’re just really focusing on being smart with your money right now and that means limiting how much you spend. Be sure to always offer a less expensive (or free!) alternative such as a movie night in your residence hall or baking cookies together. Spending time together is often way more fun than spending money together.

Pack your lunch

This is for those who live off-campus or are commuting. You’ll quickly spend a lot of money on convenience food if you don’t watch out. Packing a lunch (or breakfast or dinner, depending on your schedule) can easily save you $3-$10 each day. Plus, didn’t you go grocery shopping this week? You don’t want to waste the food in your fridge. And along these lines…you should try to break your expensive coffee habit. Making up a to-go mug of coffee at home can save you a whole bunch of money every day! And some coffee shops may even offer discounts for using your own mug, so if you need a second cup of joe in the middle of the day, you can save a little that way too.

Just take the bus

It can save you time and money. It’s really not that scary. It is also better for the environment and helps avoid the stress of parking on campus!

 

What are some of your favorite spending tips you’ve learned in college? Share with us in the comments below!

Mother’s Day Celebration Ideas

7 May

Purdue Student & Peer Counselor

field of dandelions; text overlay: Happy Mother's Day

So you’ve made it through another semester and can’t wait to start your epic Summer of 2015! Before you start planning your legendary road trips and summer escapades, it’s important to remember that Mother’s Day is just around the corner. Yup, May 10th to be exact! With the bustle of the Spring semester behind you, now is a good time to plan on how to make this Mother’s Day epic too!

It’s not always easy to find the perfect way to celebrate your mother or your mother-figure and how much you appreciate them in your life. Most of us struggle each year to find a unique but simple gift that speaks to both our heart’s voice as well as to our wallet’s endurance. Here are a few unique ideas that won’t break the smart budgeting you have been doing all semester!

Make your own flower bouquet!

Ever go to buy a bouquet of flowers for Mother’s Day and wish you could switch out some flowers for others or rearrange them to fit your mother’s personality? Well, you can and your mom will love that you chose flowers that fit who she is!

Super crafts!

Sometimes just taking your mom out to dinner, setting up a nice brunch, or having a movie night is a great way to celebrate your mom. Some great ways to set the mood for these gifts with style can be in homemade gifts!

Trip Down Memory Lane!

What better way to say, “Mom, you’ve made a difference” than to show that you remember every moment in which your mom impacted your life! You can do just this by trading stories with your mother, sitting down and going over photo albums and family videos, or even by showing an interest in getting to know your mother more as the amazing person she is!

Involve Everyone!

Hey, maybe it’s not just you who your mom has impacted! Set up a surprise Mother’s Day Party for the entire family, and even those who took her as their mom-figure in their lives. Celebrate the connections your mother has with everyone around her, and remind her how much she has mattered!

Everyone’s mom is unique, so sometimes it is just a matter of fitting ideas to who your mom is to you. No matter what you do, it still makes Mother’s Day truly special when you take the time to say in your own way, “Today is My Mother’s Day!”

Do you have any special ways you celebrate your mother on Mother’s Day? Share in the comments below!

Unpaid Internships – How to Save

4 May

Raysha Duncan, Financial Aid Administrator & Purdue Alumna

A lot of colleges at Purdue University emphasis the importance of internships, graduating with working experience, and how the experience will help sell YOU Uncle_Sam_(pointing_finger)even more to future employers. Unpaid internships pay very little, are a growing trend in today’s economic environment, and can be one of the toughest truths to face about finding a killer internship. Not everyone will be able to find their dream internship and get paid for it.

It’s important to know when starting an unpaid internship that “unpaid interns cannot do any work that contributes to a company’s operations”; these internships are meant to be educational for the intern and are not meant to provide free labor for businesses. Financially, there are a lot of things to take into consideration when pursuing an internship: pay, cost of living, cost of transportation, potential moving costs, subletting your current place, validity of the internship… The list goes on and on. Looking at a huge list of to-dos can seem overwhelming and can make you question whether or not the internship is even worth it. But, luckily, if you give yourself enough time to plan ahead, finding the right internship is a breeze.

The simplest solution to your internship dilemma would be to find a local, or fairly local, company that is flexible enough and willing to fit the internship within your schedule. In this case, you won’t have to search for new housing or sublet your old housing or anything of that nature. This is an ideal internship situation from a financial standpoint. You may not be able to find your dream internship this way (commuting to New York City every week from West Lafayette Indiana is kind of impossible) but, you could still get a great internship, gain experience, and start to learn the ways of your trade, all while saving some money.

Another solution would be to start planning now for next year. This is necessary from a financial standpoint, especially if you know that your dream internship will not pay well. Saving is the most important step in preparing for an internship. Work a lot now and save what you earn in order to afford your dream internship. While flipping burgers or ringing up customers may not be what you want to do for the rest of your life, you can earn money while doing it and you can pick up extra shifts to score some spare cash.

houseYou’ll also want to figure out your housing situation. If you’re renting now and your lease is continuing while you’re away, are you allowed to sublease? If you are, you should want to start advertising as soon as possible so you can line up your own housing near your internship. Also, if you have classmates who will be interning near the same location sharing a place can make rent more affordable and save you more money. You may have to start cutting corners during the school year to save, but it will all be worth it when you finally get to your dream company and start gaining real word experience.

A third solution would be to find an internship near your hometown. You’ll be home with your parents, but so what? You could live rent-free, have lessened commuting expenses, and still gain experience in a new position. However, finding an internship could be difficult to impossible depending on where you are from.

Lastly, there are virtual internships which are becoming increasingly popular and possible in today’s technological work force. These types of internships allow you to work from anywhere; you never have to set foot in the real office. Virtual internships allow students to work for a company from wherever. Because of advancements in technology, virtual internships are becoming more common and more practical.

Gaining experience in the work force and in your area of study is really important especially if you want real world working experience when you graduate with your degree, but it shouldn’t Walletstrain your wallet, either. Planning ahead, like with most things, can help save you a lot of stress and also a lot of money.

The process of even finding an internship can be difficult. Luckily, Purdue has a lot of great resources to help students as they search for internships.

The Purdue Center for Career Opportunities has a list of different categories of internships.  The CCO is also a great resource in preparing for career fairs, writing resumes, and practicing interviewing skills.

Interns for Indiana works to provide students with opportunities in high-tech areas located in Indiana.

Purdue offers jobs and internship opportunities to students here on campus.

Good luck on your internship search!

College Seniors Week 4: Prepping for “Grown-Up” Life

30 Apr

Raysha Duncan, Financial Aid Administrator & Purdue Alumna

open road; text overlay: Prepping for "Grown-Up" Life

Does the idea of becoming a real, certified grown-up human being scare anybody? I know it scared me. I felt like once I graduated college I had to start doing (and knowing) a bunch of things that just don’t sound that fun. Even though I made it through college, paid off a car loan and now own that own car, lived on my own for a year, got engaged, and pay for my own things…I didn’t always feel like I was entering the grown-up stage of my life. And everywhere I looked there were constant reminders that “being an adult means making adult decisions.” So, after obsessively reading these lists, I condensed them down into a number of things everyone should be prepared for:

Watch the News

As depressing as the world can be sometimes, you no longer have the excuse of papers and exams interfering with staying informed. You don’t have to be tuned in to CNN and Fox News every second your home and have NPR on…but at least skim the headlines every day and read what interests you. A side effect of staying informed may be mild depression, but give it time, you’ll get used to the adult world soon enough. Staying informed on your local news will also keep you up-to-date on important things like food festivals and technology in the local schools.

…and Watch What You Eat

This doesn’t mean stop eating Doritos or pizza…just maybe stop eating them SO often. Balance your fruits and veggies and make sure to start taking a vitamin. Try to move around regularly too, 30 minutes a day is recommended. But, now is the time to start adapting better health habits: drink water, cut out pop, don’t eat as much sugar, etc. You don’t have to go all Jillian Michaels with a super intense workout regime, just start making small lifestyle adjustments.

Learn to Budget

Grown-up life comes with grown-up bills and you don’t want to fall behind on those. Creating a budget, and sticking to it, is a great way to make sure you know where all of your money is going. You can download some really cool apps on your smartphone to help keep track of you money on the go too.

Stick to a Schedule

Once you get a job after college you’ll be expected to show up EVERY day. You can’t skip because it’s raining, snowing, or you stayed out too long last night. You’ll be away from your home for at least 8 hours every day with no time to nap or do laundry in the middle of the day. You’ll have to learn to prioritize your spare time to get everything done that you need to outside of work and to make time for free time on the weekend. I know, scheduling free time sounds awful, but it’s necessary when you’ve got a lot on your plate.

Clean & Do Laundry Regularly

This goes along the same lines as a schedule. Keep your place clean because nobody else is going to do it for you. You can get away with a grimy bathroom in college because you’re a college student, but once you’re an adult you just look lazy and dirty. You’ll need to keep your clothes clean too because that’s expected when you’re a professional and you can’t wear sweats to work when you run out of nice clothes.

Dress Like a Grown-Up

And make sure you look like an adult at work. It’s the only way to gain any respect and move up the ladder.

High School Seniors Week 4: You’ve Picked a College…Now What?!

27 Apr

Raysha Duncan, Financial Aid Administrator & Purdue Alumna

clock; text overlay: You've Picked A College...Now What?!

Get excited! Your future awaits you! Take some time to absorb the good feelings after months of stress and financial aid inquiries and balancing senior activities on top of preparing for college. Then, get down to business.

Enjoy Your Last Month of High School!

You only go to high school once. Enjoy being in the same hallways with the same people for a few more weeks and knowing nearly everybody you’re in class with because unless you’re going to a very small college, that will never happen again. I know my high school has a lot of silly senior traditions, and even if they seem silly, participate! You only get to do them once. Pick out a nice outfit for graduation too. You’ll be taking pictures, and they’ll last forever.

Research Your University

Look into some specifics: Where will you live? Do you need to do/register/pay for anything else before you can officially become a (insert school mascot here)? Know what is expected of you before you enroll. Getting all set up way in advance is a good idea because you’ll have enough to worry about with moving out of your parents’ house and into a dorm without having to find a room last minute. Make sure any and all fees and deposits are paid so this transition from high school to college is as smooth as can be.

Make Sure You’re Happy with the Major You’ve Chosen

Changing majors is a really common occurrence with college students. You’re likely to change your major at least once in your undergraduate career. Take a few moments to sit back and make sure you’re still happy with your choice for your first year of college. Chances are that you’re completely satisfied, but it’s been almost six months since you applied, you could have changed your mind. And, if changing your major sounds like something you’d like to do, get in contact with your university and see what steps need to be taken in order to make the switch and any impacts that could have on any scholarships you received. Don’t jump into it right away though; mull it over before making the call.

College Seniors Week 3: Where Do You Live?

23 Apr

Raysha Duncan, Financial Aid Administrator & Purdue Alumna

Road Map; Text Overlay: Where Do You Live After Graduation?

All you have to do is Google the phrase “housing after college” to instantly become terrified of where you’ll be living after college. According to this article by Jordan Weissman, the percentage of college students who were living with family after college in 2011 was 45%. As if you weren’t worried enough about what’s to come after college, now you have to think about moving back in (or in my case continue to live with…) mom and dad?! Calm down… You may be part of the 55% that doesn’t have to! But either way, here are some things to consider:

…what about your college apartment?

If you’re already locked into a lease until the start of the next school year, then you may be able to stay where you are. You won’t have financial aid to help pay your bills, but you could pick up a part-time position around campus for the summer to make ends meet. If you’re not able to stick around for the summer (you’ve got a job or mom really wants you to come home), then you might want to start looking into a subletter. Lots of freshmen who lived in the dorms take summer classes and they’ll be looking for a place to live especially if your university doesn’t offer dorm housing for the summer. Make sure to check with any roommates first to see if they’re okay with someone else living in your room for three months. And if they’re iffy on it, remind them that Jess from New Girl was a stranger before she moved into her apartment and now they’re all best friends. Advertise in your local newspaper, your campus newspaper, Craigslist, and any community Facebook pages to find a subletter.

…would living with mom & dad be that bad?

This is really a personal decision that you have to face on your own. But, it’s something you should think about because it could save you a lot of money, especially if you’re looking for a job. Weigh the pros and cons and decide if saving money now could benefit you in the long run. If you’re working an interim job right now, moving back home may be a good option if you’re not sure where you’re going to end up living. And, may be you can create a better relationship with your parents before you move out for good.

…where are you planning to move to? Can you afford it now?

If you have the means to move to your dream location right now, then by all means go for it! Not everybody has the ability to pack up and chase their dreams, but if you are then get out there and get yourself established so you can start living your dreams. Scout out some companies you’re interested in and figure out what you’re going to do until you can find that dream job. If you can’t afford moving at the moment, but it’s your dream to live somewhere big like New York City or Los Angeles, maybe move back in with mom and dad or get additional roommates to save some dough until you can be on your own. No shame in saving for your dream.

The most important thing to remember is to be realistic. You can’t run off and live in a penthouse in New York City Gossip Girl-style. But, you maybe able to move to Jersey and ride the train into your first job in the city until you move your way up the ladder or land a better gig. And if you end up at home for awhile… So what? So do 45% of college grads.

Let’s Talk Credit Scores

22 Apr

*This blog ran earlier this year, but we decided to post it again for Money Smart Week*

Raysha Duncan, Financial Aid Administrator & Purdue Alumna

Here at MyMoney our goal is financial literacy. We want to teach students and our readers how to be smarter with their money and that makes the topic of credit kind of taboo. You see, credit talks about your relationship with debt: how much of it you have currently, how much you’ve paid off, how good you are at paying back your debt, what kinds of debt you have. We don’t want you to be in debt, but we do want you to be informed. And, since the average college student graduates with at least $20k in student loan debt, you should know how that affects you.

Girl in airport; text overlay: Let's Talk Credit Scores

Here’s the basic breakdown of what makes up a credit score, via wikiHow:

Payment history — 35%. How often do you pay your bills on time? Late payments hurt your score.

Debt usage — 30%. How much debt do you have in relation to your overall limit? Low debt and high limits is what you’re after.

Credit age — 15%. How long have you been establishing your credit? The longer the better.

Account mix — 10%. How many accounts or lines of credit do you have open? The more the better.

Inquiries — 10%. How often do you apply for new credit? Too many inquiries can hurt your score.

These are all taken into consideration and then get applied to a scale, typically between 300 and 850. You want to aim to have at least a good credit score, usually between 700 and 749. Go here for a breakdown of what the different levels of credit scores mean.

Your credit score is important for your future financial and personal prospects. Say one day you want to buy a house; the easiest way to buy a home is to take out a mortgage, and while paying the balance in cash sounds nice, it’s just not feasible for most people. And to get a good rate on that mortgage, you need a good credit score. This is probably all you’ve ever heard on the subject, with the exact same example (because it’s a good example). Now, how do you make sure you have a good credit score? Or better yet, how do you keep from having a bad credit score?

#1 Pay your bills on time

Every single one of them. Every time they are due. While you’re in college you can practice with your cell phone,  utilities, and rent. Then, consider a credit card that you use for only very specific things (gas, perhaps) and pay that off on time, every time the payment is due. Once you’ve graduated, make sure you don’t default on your student loans (i.e. make your payments on time, every time).

#2 Budget your money

But…what does that have to do with credit? Everything. If you’re not budgeting your debts (e.g. car payment, rent, utilities, student loan payment), then you’ll fall behind on your payments and your credit will start creeping downhill. Remember that credit card I mentioned in #1? Don’t use it for unbudgeted expenses (with the exception of it being a serious crisis like emergency roadside assistance that’s not covered by your car insurance, not when you desperately need a latte). Only spend what you have available to spend and can pay off at the end of the month.

#3 Minimize your debt

Take out the minimum amount of student loans you need. Don’t use a credit card on things you don’t need. Save up for a big down payment on your next car purchase so your payments are lower and you’re able to make them on time. Keep it small so that it’s manageable and you can still pay your bills on time. Don’t take on excess debt. You’re in college, live like a college student now so you can live the way you want once you are debuted to the world.

#4 Keep an eye on your credit score

You can check out your credit score for free once a year from each of the three major credit bureaus (Equifax, Experian, and TransUnion). You can check it every three months by using each one once a year or you can check them all at once and compare (they may be slightly different). Watching your credit score will let you in on any changes that happen. Your credit score may go down some if you missed a credit card payment, majorly if you have unpaid medical bills, or drastically if your identity is stolen. On the plus side, if you’re managing your credit wisely you may see it gradually increase over time. And then you can credit yourself with the independence and security it brings!

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