College Debt – how to avoid it, and how to get out of it

Because most college students are using loans to finance their college education, the debt level of recent graduates is rising rapidly. On average, students graduate owing $12,000-$16,000 in student loans and another $2,000 in credit card debt. Is this the price you have to pay for higher education, or can you avoid college debt in the first place?

The secret to avoiding college debt is to plan wisely and take advantage of the many opportunities to reduce college costs before and during your college years.

Planning ahead
You can avoid college debt by making wise high school decisions:

Take advanced placement classes
Take all the advanced placement classes you can in high school--every AP exam you pass means one less class you need to take in college.

Keep your grades up
Scholarships can be competitive, and even the grades you make early in your high school years can mean the difference in winning or losing. Don't make the mistake of thinking you can save the hard work for your junior and senior years!

Stay involved
Scholarships also may depend on community and school involvement.

Search for scholarships and grants
Scholarships and grants are the best money source for college because it is money that doesn't have to be repaid. To find out about grants and scholarships, visit your high school career counselor and the Financial Aid Office of your intended college. You can also search the internet for scholarships and grants.

Investigate public service options
The United States Military, National Health Service Corps, and Americorps will give you money for your education in exchange for your signing up for a “tour of duty.” The time commitment ranges from 10-12 months to 8 years.

Living wisely
The chances to make wise decisions and avoid debt continue into your college years.

Start out in a community college
Most towns and cities have two-year community colleges where you can take your basic courses at less cost than at a four-year college or university. Just investigate to make sure your community college credits will transfer.

Take advantage of Work-Study programs
If you qualify for the federal work-study program, take advantage of it! You will have an on-campus job, possibly in your field of study.

Or work for the school
Many colleges give discounted or free tuition to employees and their family members. There are lots of non-teaching jobs on campus that you can apply for.

Live frugally
Live at home or get a roommate. Avoid expensive spring break trips. Buy used textbooks, and sell your books at the end of the semester.

I already have a loan. Now what?
If you have a federal student loan, it is possible to have your loan debt discharged (canceled) or reduced, under certain specific circumstances:

You die or become totally and permanently disabled
Your school closed before you could complete your program
You work in certain designated public school service professions (such as teaching in a low-income school)
You file for bankruptcy (only if the bankruptcy court rules that repayment would cause undue hardship.)
As you can see, there are many steps to avoiding or relieving college debt. To best manage your debt it is wise to implement a combination of the strategies listed above that work best for you.

This article is distributed by NextStudent. At NextStudent, we believe that getting an education is the best investment you can make, and we're dedicated to
helping you pursue your education dreams by making college funding as easy as possible. We invite you to learn more about how to avoid college debt at www.NextStudent.com .

Financial Aid - when should I apply for?

Many different types of financial aid are available to you in the form of scholarships, grants, and loans. With billions of dollars at stake, it is important to begin the search process early and to apply on time. Follow these guidelines for applying for financial aid:

Three to four years before you plan to begin college…

-Review your high school coursework and activities. Colleges will look for challenging coursework, a good grade point average, and extracurricular activities such as sports, volunteer work, and community involvement.
-Take the Preliminary Scholastic Aptitude Test (PSAT) to prepare for the standardized tests (SAT and ACT) that you’ll take later. If you do well on the PSAT, you may be eligible to receive a National Merit Scholarship.

Two years before you plan to begin college…

-Begin researching your financial aid options by talking to your career counselor and researching grants and scholarships through books and the internet
-Start planning to take the SAT and/or ACT exams, depending on what is required by your college.
-During your college visits, meet with a Financial Aid Officer to find out what types of aid are available.

As soon as possible after January 1 of the year in which you start college…

-Contact the Financial Aid Offices at the colleges of your choice for deadlines and additional documents they require
-Complete the Free Application for Federal Student Aid (FAFSA). Available at www.fafsa.ed.gov, this form is your key to most financial aid, and to all Federal and state grants and loans. When you complete your FAFSA, be sure to list all the schools you’re interested in attending (up to six), even if you haven’t yet been accepted. Be sure to keep copies of all of the forms you submit.
-Fill out your tax returns as early as possible so you have accurate tax information for your FAFSA
-Complete the CSS Financial Aid Profile if it is required by your college
-Find out which financial aid applications your college choices require and when the forms are due.
-Send midyear transcripts to the schools to which you have applied.
-About four weeks after you submit your FAFSA, you will receive a Student Aid Report (SAR) that contains federal financial aid information. Submit the SAR and, if requested, your tax forms to the Financial Aid Office. Contact each office to make certain that your application is complete. Find out what else you need to do to establish and maintain your eligibility for financial aid.

This article is distributed by NextStudent. At NextStudent, we believe that getting an education is the best investment you can make, and we're dedicated to
helping you pursue your education dreams by making college funding as easy as possible. We invite you to learn more about financial aid at http://www.NextStudent.com .

PLUS Loans – it's never too late to subsidize your child’s education cost

Rising. Soaring. Skyrocketing. These are the words that seem to begin every article about college tuition costs – and they are words guaranteed to make every parent cringe. According to the College Board, costs for the 2004-2005 school year at four-year private colleges are up 6%, while costs at four-year public colleges are up 10.5%. Scary? Yes. Impossible to handle? No!

The good news is that there is more financial aid available than ever before. One of the most interesting financial aid options is the Parent Loan for Undergraduate Students, or PLUS Loan.

What is a PLUS Loan?
PLUS Loans are federal loans taken out by parents to help pay their children’s college costs. PLUS Loans offer several advantages:

• Interest rates are adjusted each year, but are consistently kept low. For the 2004-2005 school year, the interest rate is 4.17%. It is capped to never exceed 9%.
• Financial need is not a determining factor in receiving a PLUS Loan.
• No collateral is required.
• There is no penalty for early repayment.
• Loans can be consolidated.
• If you are eligible, up to $2000 in interest may be tax-deductible under the Hope Education Tax Credit.

Who is eligible for a PLUS Loan?
If you are a parent with dependent students attending college at least part-time, you are eligible to receive a PLUS Loan. You do need to have a good credit history. The following credit issues will reduce your chances of getting a PLUS Loan:

• Bankruptcies
• Defaulted loans
• Payments overdue by 90 days or more
• High debt-to-income ratio

If you are turned down for a PLUS Loan because of poor credit history, you can find someone to co-sign the loan with you and then apply again.

How much can I borrow with a PLUS Loan?
You can borrow up to the total cost of undergraduate education expenses, minus other financial aid already received. Expenses can include tuition, room and board, supplies, lab expenses, and travel.

How do I apply for a PLUS Loan?
You can apply for a PLUS Loan through the Federal Family Education Loan (FFEL) Program or through the William D. Ford Federal Direct Loan (Direct Loan) Program. FFEL loans come from private lenders or loan servicers, such as your bank. PLUS Loan applications are available from your school or your lender. To apply for an FFEL PLUS Loan, you complete the application and then submit it to your school. The school completes its portion of the application and sends it to the lender for approval.

Direct loans come from the U.S. Department of Education’s Direct Loan Servicing Center. To apply for a Direct PLUS Loan, you complete a Direct PLUS Loan application and promissory note and submit it to your school’s financial aid office. This form is available from your school’s Financial Aid Office.

You can take out one loan per enrollment period for each eligible student in your family.

PLUS Loans do require an application fee of up 4% of the principal of the loan. These fees are deducted from the loan principal, so no up-front money is required. The fee includes a 3% origination fee charged by the federal government and a guarantee fee of up to 1% charged by the guarantee agency. However, most guarantors waive the guarantee fee.

How are PLUS Loan funds disbursed?
Funds are sent directly to the school’s financial aid office for scheduled payments over the course of the academic year. As with other federal loans, there are usually at least two disbursements, one for each school term.

The funds are first applied to tuition, fees, room and board, and other school charges. If any money remains, you can receive it as a check or you can put it in your student’s school account. This remaining money must be used for education expenses.

When do I repay PLUS Loans?
You start paying back PLUS Loans 60 days after the final disbursement of the school year. So, if the final disbursement is made in January, as is typical, repayment generally begins in late February or early March. PLUS Loans are the financial responsibility of the parents, not the student. If the student agrees to make payments on the PLUS Loan but fails to make the payments on time, the parents are held responsible.

What is the difference between PLUS Loans and other student loans?
The other student loan generally available to students is the Stafford Loan. The table below illustrates the similarities and differences between these two loan programs:

PLUS Loan
Federally guaranteed
Made to parents of dependent students
Interest rate is low, but not as low as a Stafford (currently 4.17%)
Repayment begins 60 days after final disbursement for the academic year
Loan borrowing can be up to 100% of college education costs

Stafford Loan
Federally guaranteed
Made to students themselves
Interest rate is lowest available (currently 3.37%
Repayment begins six months after graduation or leaving school
Loan borrowing is capped:
• $2,625 for first-year undergraduates
• $3,500 for second-year undergraduates
• $5,500 for third- and fourth-year undergraduates
Loan can be needs-based and requires a FAFSA
Interest charges do not begin until repayment begins, after graduation


This article is distributed by NextStudent. At NextStudent, we believe that getting an education is the best investment you can make, and we're dedicated to helping you pursue your education dreams by making college funding as easy as possible. We invite you to learn more about PLUS Loans at http://www.NextStudent.com.

Why student loans are better than credit cards

You need some more money for college expenses this semester. Do you whip out a credit card to pay for your books, or do you apply for a federal or private loan? Well, consider the options –

-With a federal loan, your interest rate will be low (around 5%) and your payments will be deferred until 6-9 months after graduation.
-With a private loan, the interest rate will be slightly higher than with a federal loan but will still be lower than average. In addition, you will only need to make interest payments until after graduation.
-With a credit card, on the other hand, the interest rate can be as high as 21%. Interest begins accruing almost immediately, and you need to begin paying off the bill the next month.

This is not to say that credit cards do not have a place in your college life. It is good to have one national card (Visa, MasterCard, Discover) on hand to help you build a positive credit history and to provide security in emergencies. When you decide to apply for a card, compare annual fees, interest rates, and introductory offers. And to keep yourself out of debt, try to—

-Pay your balance each month to avoid interest charges
-Pay your bill on time to avoid late charges
-Avoid cash advances, which come with large finance charges and interest that begins accruing immediately.

This article is distributed by NextStudent. At NextStudent, we believe that getting an education is the best investment you can make, and we're dedicated to helping you pursue your education dreams by making college funding as easy as possible. We invite you to learn more on how Student loans are better than credit cards at http://www.NextStudent.com .

Scholarship Search – How to find free money for college

College students receive billions of dollars in scholarship money every year. How can you get some of this money to fund your college education?

Start looking early
Start looking for scholarships at least by your sophomore or junior year in high school. Some scholarships are even awarded as early as junior high. Where to look? Your first stop should be your high school counseling office, followed by your college financial aid office. Other places to look include

- Civic and community organizations
- Cultural institutions
- Your parents’ place of employment
- Your state Department of Education
- The internet

Keep looking
Keep searching for new scholarships and renewing existing scholarships even after you begin college. Many scholarships need to be renewed annually, and you may qualify for new loans throughout your college years.

Develop your interests
While some scholarships are based on financial need or academic achievement, others are based on particular interests, extracurricular achievements, ethnicity, or religious affiliation.

Meet deadlines
Pay attention to the scholarship requirements – meet them in as creative a way as possible, and always be on time!

Diversify
Apply for every scholarship that you qualify for. Even small scholarships can add up to big money if you win enough of them.

Beware of scams
As you search for scholarships, especially on the internet, look out for scam artists who

- Charge application fees
- Guarantee you will receive a scholarship
- Ask for unnecessary personal information, such as your bank account number

There are plenty of free scholarship search sites on the web, so don’t pay for this service.

This article is distributed by NextStudent. At NextStudent, we believe that getting an education is the best investment you can make, and we're dedicated to helping you pursue your education dreams by making college funding as easy as possible. We invite you to learn more about how to maximize your scholarship search at http://www.NextStudent.com .

Private Student Loans – dispelling the myths
If savings, grants, scholarships, and federal loans don’t cover the cost of your education, it’s time to turn to private loans. But young college students can’t qualify for a private loan, can they? Wrong! This article addresses this and other myths about student loans that you may run into.

I don’t have any collateral, so I can’t get a private loan.
Private loans are usually unsecured, which means no collateral is required. On the downside, this may also mean a higher interest rate.

I don’t have a good credit history (or no credit history at all)
Since the government doesn’t back private loans, your credit history is a consideration in being approved for a loan. If your credit history is bad or non-existent, you may be subject to a higher interest rate. And remember, you can always get a co-signer. Pay your loan off on time, and soon you will have a good credit history!

I have enough funds for tuition and fees, so I can’t get a private loan
In addition to paying tuition and fees, funds from private loans can be used to cover living expenses, supplies, computers, and other everyday living needs.

I can’t afford to make payments on a loan while I am still in school
For most loans, your principal and interest payments can be deferred while you are enrolled in school. Another option is to make interest payments while you are in school but defer paying off the principal. Your interest payments might even be tax-deductible!

I missed the deadline for applying for financial aid this year
You can apply for private student loans any time – there is no deadline. Depending on the financial institution you choose, you can be pre-approved in minutes and have the money (which will be sent directly to you) within a matter of days.

I don’t have a bank to apply through
Private loans are offered by thousands of banks, credit unions, and other financial institutions. Just search the internet for “private student loans” and you will find many places to apply to.

If you need the additional funds provided by private loans, don’t let myths and misconceptions keep you from applying!

This article is distributed by NextStudent. At NextStudent, we believe that getting an education is the best investment you can make, and we're dedicated to helping you pursue your education dreams by making college funding as easy as possible. We invite you to learn more about Private Student Loans at http://www.NextStudent.com .

Parent Loans or Student Loans – what is going to be best for my child?

At least 20% of college students need some type of loan to help pay for their college education. Such a statistic can lead to students graduating with an unmanageable debt load. An alternative is for parents to help out by taking out loans themselves. But which is the better option – student loans or parent loans? Each has distinct advantages and uses.

Federal student loans
Federal student loans have the lowest interest rates and best repayment options. If you need to take out loans and you qualify for federal loans, this is your best choice. Just be sure to accept only the funds you need, even if you are offered much more. Parents can always help their children pay off these loans once repayment begins after graduation.

Federal parent loans
PLUS Loans (Parent Loan for Undergraduate Students) are another loan option that comes with low interest rates. If you are a parent with dependent students attending college at least part-time and you have a good credit history, you are eligible to receive a PLUS Loan. These loans are not needs-based. You can borrow up to the total cost of undergraduate education expenses, minus other financial aid already received. Unlike federal student loans, payment is not deferred until after graduation; instead, your first loan payment will be due about 60 days after the loan is disbursed. Also unlike federal student loans, PLUS Loans require an application fee.

Private loans
Both students and parents can take out private loans to cover funding gaps. Terms are basically the same for these loans, although students may be able to have their repayment deferred until after graduation. Another consideration is that students may wish to take out small loans to begin to establish a credit history. You may need to cosign for private student loans.

Other options
Parents do have some additional options for college funding, such as home equity loans. These often have rates as good as private loans.

So which type of loan should I get?
This really comes down to a personal decision. Ask yourself these questions as you are trying to decide:

- What level of debt do you feel is manageable for your child to graduate with?
- How important is it to you that your child takes responsibility for paying student loans?
- Will you and your child work out a repayment plan to repay PLUS Loans and other parent loans?

This article is distributed by NextStudent. At NextStudent, we believe that getting an education is the best investment you can make, and we're dedicated to helping you pursue your education dreams by making college funding as easy as possible. We invite you to learn more about Parent Loans or Student Loans at http://www.NextStudent.com .

College Savings Plans – are they the best choice for my child?

College Savings Plans, also called Section 529 plans, are one of the best ways to save for college because they offer:

- Tax advantages
- A variety of investment options
- Flexible contribution options
- Parental control
- Little impact on eligibility for need-based financial aid

Tax advantages

Investments in 529 plans are usually exempt from federal taxes. Earnings are tax-deferred and are not subject to capital gains taxes. Redemptions are also exempt from federal income tax if they are used to pay for tuition, room and board, fees, books, supplies, or equipment.

Most states also offer tax advantages, at least if you enroll in the plan for your own state. In addition, contributions may be deductible on your state income tax.

In addition to these income tax benefits, College Savings plans can be a valuable estate planning tool. The accelerated gift option allows you to average gifts over $11,000 per beneficiary over a five year period with no federal gift tax. This means you can contribute up to $55,000 per beneficiary in one year with no gift tax. Contributions are immediately removed from the donor’s gross taxable estate (and included in the estate of the beneficiary).
Investment options
Most states offer three or more investment options ranging from conservative to aggressive. One is usually an age-based portfolio that invests mainly in stocks while a child is young, then shifts to bonds and money-market funds as college years come closer. 529 plans are managed by experienced investment companies, such as Vanguard, Fidelity, and TIAA-CREF.
Contribution options
Anyone can contribute money on behalf of a beneficiary, allowing friends and relatives to give the gift of education. In addition, the minimum investment amount required to open an account is usually lower than mutual funds require, making section 529 plans affordable for lower income families.

States set their own contribution limits for college savings plans. Most states base their limit on an estimate of the amount of money needed for seven years of post-secondary education. Limits range from $146,000 to $305,000.

In addition, most states allow you to regularly transfer funds from your checking or savings account to your 529 plans. Some states even let you set up payroll deductions.
Parental control
The money in a College Savings Plan is controlled by the account owner, not the child. So if the child decides to not go to college, they do not have access to the funds. Instead, the account owner can get his or her money back (with income taxes and a 10% penalty owed on earnings) or transfer the funds to another family member.
Impact on eligibility for need-based financial aid
College savings plans have a low impact on financial aid eligibility because they are considered an asset of the account owner (usually the parent), rather than the student.
Choosing a plan
Most states have their own College Savings Plans, but you do not have to enroll in the plan in your state. Look first at the plans in your own state, especially if they offer tax advantages. Other factors to consider as you compare state plans are expenses and investing options.
Prepaid tuition plans
Another type of Section 529 plan are the prepaid tuition plans. Prepaid tuition plans are guaranteed to increase in value at the same rate as college tuition. So, if you purchase shares worth one semester of tuition at a state college, those shares will always be worth one semester of tuition, even 10 years later when tuition rates have doubled. These plans offer basically the same tax and contribution benefits as College Saving plans, and they are guaranteed by the government. However, because prepaid tuition plans are considered a resource, they reduce need-based financial aid dollar for dollar. Therefore, families that expect to qualify for need-based financial aid should avoid prepaid tuition plans and invest in college savings plans instead. Another alternative is to roll prepaid tuition plan funds over into the state's 529 college savings plan before college begins.


There are many advantages to college savings plans; however, there are many ways a parent can help a student pay for a college education. Make sure to research as many avenues as possible to make the most informed decision on how to pay for school, and you could end up with the optimal college funding solution.

This article is distributed by NextStudent. At NextStudent, we believe that getting an education is the best investment you can make, and we're dedicated to helping you pursue your education dreams by making college funding as easy as possible. We invite you to learn more about how to get College Savings Plans at http://www.NextStudent.com .

Student Loan Consolidation – How does it Work?
Student loans are a great source of financial aid for students who need help paying for their education. Unfortunately, students often leave college with burdensome debt. In addition, they often have multiple loans from different lenders, meaning they are writing more than one loan repayment check each month. The solution to this problem is loan consolidation.

What is loan consolidation?
Loan consolidation means bundling all your student loans into a single loan with one lender and one repayment plan. You can think of loan consolidation as akin to refinancing a home mortgage. When you consolidate your student loans, the balances of your existing student loans are paid off, with the total balance rolling over into one consolidated loan. The end result is that you have only one student loan to pay on.

Both students and their parents can consolidate loans.

Should I consolidate my loans?
Loan consolidation offers many benefits:

- Locks in a fixed, usually lower, interest rate for the term of your loan, potentially saving you thousands of dollars (depending on the interest rates of your original loans)
- Lowers your monthly payment
- Combines your student loan payments into one monthly bill

In addition, consolidated loans have flexible repayment options and no fees, charges, or prepayment penalties. There are also no credit checks or co-signers required.

You should consider consolidating your loans if the consolidation loan would have a lower interest rate than your current loans, particularly if you are having trouble making you monthly payments. However, if you are close to paying off your existing loans, consolidation may not be worth it.

How will the interest rate for the consolidated loan be?
The interest rate for your consolidated loan is calculated by averaging the interest rate of all the loans being consolidated and then rounding up to the next one-eighth of one percent. The maximum interest rate is 8.25 percent.

To figure your interest rate, visit loanconsolidation.ed.gov for an online calculator that will do the math for you.

How much can I save?
How much you save by consolidating loans depends on what interest rate you get and whether you choose to extend your repayment plan. According to Sallie Mae, the leading provider of student loans in the United States, consolidating student loans can reduce monthly payments by up to 54 percent. However, the only way to reduce your payment this much is to extend your repayment plan. You typically have 10 years to repay student loans, but, depending on the amount you're consolidating, you can extend your repayment plan all the way up to 30 years. Remember that if you choose to extend your repayment term, it will take longer to pay off your overall debt and you'll pay more in interest. There are no preypayment penalties, so you can always choose to pay off the loan early.

Am I eligible to consolidate my loans?
In order to consolidate your loans, you must meet the following criteria:

- You are in your six-month grace period following graduation or you have started repaying your loans
- You have eligible loans totaling over $7,500
- You have more than one lender
- You have not already consolidated your student loans, or since consolidation you have gone back to school and acquired new student loans

The following types of loans can be consolidated:

- Direct Subsidized and Unsubsidized Loans
- Federal Subsidized and Unsubsidized Federal Stafford Loans
- Direct PLUS Loans and Federal PLUS Loans
- Direct Consolidation Loans and Federal Consolidation Loans
- Guaranteed Student Loans
- Federal Insured Student Loans
- Federal Supplemental Loans for Students
- Auxiliary Loans to Assist Students
- Federal Perkins Loans
- National Direct Student Loans
- National Defense Student Loans
- Health Education Assistance Loans
- Health Professions Student Loans
- Loans for Disadvantaged Students
- Nursing Student Loans

Where can I get a consolidation loan?
You can consolidate your loans through any bank or credit union that participates in the Federal Family Education Loan Program, or directly from the U.S. Department of Education. The loan terms and conditions are generally the same, regardless of where you consolidate. You may want to check first with the lenders that hold your current loans.

If all your loans are with one lender, you must consolidate with that lender.

If you decide to consolidate your student loans, remember that you can only do so once unless you go back to school and take out more loans. Therefore, you will want to make sure you get the best deal the first time. The interest rate will be the same from all lenders, but some lenders may offer future rate discounts for prompt payment and a discount for having monthly payments directly debited from your account.

Can my spouse and I consolidate our loans together?
You can consolidate your loans together, but it is not a good idea for a couple reasons:

- Both of you will always be responsible to repay the loan, even if you later separate or divorce
- If you need to defer payment on the loan, both of you will have to meet the deferment criteria

When should I consolidate my loans?
You can consolidate your loans any time during your six-month grace period or after you have started repaying your loans. If you consolidate during your grace period, you may be able to get a lower interest rate. However, since you will lose the rest of the grace period, it is a good idea to wait until the fifth month of the grace period before consolidating. The consolidation process usually takes 30-45 days.

This article is distributed by NextStudent. At NextStudent, we believe that getting an education is the best investment you can make, and we're dedicated to helping you pursue your education dreams by making college funding as easy as possible. We invite you to learn more about how to get Student Loan Consolidation at http://www.NextStudent.com .

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