The 2 Main Reasons You May Not Have Paid Off Your Student loans Yet

May 23, 2013 by / Leave a Comment

There are likely lots of reasons why you have not yet been able to get rid of that student loan debt. It can seem like a daunting task even if you are like Jeff and tracking loan repayments each month. Even if you’re making payments on time every month, you may not be making as much progress in paying off your student loan as you would like.

You’re Not Alone

Of the students that go to college and graduate, two thirds have debt. The average student graduates with $27,000 in student loan debt. This average comes from students who graduate from not-for-profit schools. For-profit schools often don’t release their data to the public, but it is generally known that their tuition (and, therefore, student debt) is higher.

You’re also not alone if you are struggling to make your payments on a regular basis. More than five million people with student loans have at least one past due, according to the New York Federal Reserve.

Collectively, the student loan debt has passed $1,000,000,000,000. If you don’t feel like following all of those zeros, that number reads one trillion dollars. The student loan debt has passed auto loan debt and credit card debt.

 

Are you on the right payment plan?

There are many options for repaying federal student loans. Make sure you are making the most of your monthly payments by being on the best plan for your situation. Here is a list of payment plan options from the Department of Education.

  • Standard Repayment Plan – This ten-year plan has a fixed payment of at least $50 every month. This plan has the least amount of interest compared to all of the other plans.
  • Graduated Repayment Plan – This ten-year plan has payments that start low and gradually increase.
  • Extended Repayment Plan – Payments can be either fixed or graduated. Plan is increased to 25 years. You will pay much more interest on this plan.
  • Income-Based Repayment Plan – Payments will be 15% of income and will change as your income changes. Plan can go up to 25 years. You must have a financial hardship to be applicable.
  • Pay As You Earn Repayment Plan – Payments will be 10% of income and will change as your income changes. You must have a financial hardship to be applicable. Outstanding balance can be forgiven after 20 years of qualified payments if not paid in full.
  • Income-Contingent Repayment Plan – Payments are calculated based on income. Any outstanding balance after 25 years of qualified monthly payments can be forgiven.
  • Income-Sensitive Repayment Plan – This is a ten-year plan that is based on annual income. The lender will determine the monthly payment.

If your loan is private, you will have to discuss options with your lender. There will most likely be less flexibility with payment options on a private loan than with federal loans.

 

Are you paying as much as you could be?

If you are only paying the minimum amount every month and still have some cash left over at the end of the month, that money should be put towards your student loan.

Are you spending too much on socializing? Can you get rid of that gym membership? If you do not have extra cash at the end of the month and would like to dedicate yourself to paying off your student loans, consider making adjustments to your budget.

This is a guest post from Jon who blogs at www.PayMyStudentLoans.com where he talks about paying off student loans as fast as possible by being frugal but not sacrificing the finer things in life.        

 

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How to Payoff your Nelnet Student Loan

October 29, 2010 by / 22 Comments

Well, it’s time again to do one of my favorite things: Write up a post on making a final debt payment.  I did one for when I finally paid off my last credit card here and now I can do one for my Nelnet Student Loan.  (I’m talking strictly the steps needed to take to pay off the loan.  If you want to know How to Pay off debt, check out this post)

This loan and I have kind of had a rough history.  When I first had to start paying back my student loans, I thought I only had 2, and didn’t know about this one until I got a missed payment note in the mail.  Whoops! I remembered taking it out, but I had figured that it had been lumped in with my other loans.  Unfortunately it wasn’t, and that is one thing that really bothers me about student loans.  Many students have payee’s coming out their hind parts, and consolidation isnt always the right move.  It wasn’t for me because I was planning on paying them off in a few years, and once I did that, it wouldn’t matter.  I also had some very low interest rates on my student debt, and some were subsidized as well.  I would rather just pay 1 person, but that’s just me.

With this loan specifically, I’ve gotten questions on it before regarding the payoff schedule.  In short, a reader wanted to know what nelnet did if extra was paid on the loan.  Short answer: They moved your next due date forward to get their (interest) money.  He also asked me what happens when you pay off the loan.  Here’s what I did to to pay it off.  (I tried calling, but was told to go online)

First, you need to log in to your nelnet account.  You should already know how to do this if you’ve been making payments to your loan thus far.  Once you’re logged in, go to the My account tab, and you should see this:

As you can see, after I made the big payment at the beginning of this month, it pushed my due date into 2014.   I don’t want this stupid little thing hanging over my head (and accruing interest) until then.  I want to pay it off.  Above the box, you’ll see I’ve circled the “click here” to obtain your 10 day payoff quote.  Once you do that, it will take you to another page that will tell you how much you  need to pay them in the next 10 days for them to consider the loan paid in full.  It takes into account interest that has accrued on the loan that is outstanding, estimated interest over the 10 day period (I’m assuming this was more relevant when people paid bills by paper check and snail mail) and the current principal balance on the loan.  Here’s what mine looks like:

So, I can happily say that I submitted the online payment on 10.21, and it has cleared the bank.  Since this is the first student loan that I’ve ever paid off (but  not the last, rrrrgh) I was curious as to what would happen next.  Would I get a letter from the servicer saying that it has been paid off ?  (Not sure, but I don’t think so)  Would my credit report score improve? (not sure on that either) Would I have not sent the right amount and owe them something ridiculous like 32 cents?  (not at all).   After the payment clearing the account, here’s what my “My Account” section looks like:

I now have a $0 amount outstanding – it’s awesome!  Here’s another shot of the group summary.  This is what you’ll want to see when you’ve sent them the final payment.  Notice on the “status” it says PIF by borrower, Paid In Full.  Not sure why it still shows me needing to make a 38 dollar payment, though.  Here’s the shot:

There is the process to pay off your student loans.  Make sure to keep your focus and you’ll be here in no time!  Good luck, and if you have any questions, contact me or leave them in the comments.  I’d be happy to answer them.

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Reader Question: Nelnet Student Loans

September 8, 2010 by / 13 Comments

I just recieved this question from Tim who writes over at The Econ Man:

Hello. I just ran across your blog and in reading this post, thought that maybe you would be able to help with a question I had about paying off loans early, and specifically nelnet loans. With nelnet, I’ve never seen the option to apply extra payments “towards principle.” I contacted them and they told me if I wanted to apply the extra toward the principle, I would have to mail in a check with those special instructions. I’m just not sure what happens if I pay extra without specifically telling them to apply it toward the principle. Do you know? I see that you’re paying off a nelnet loan and you don’t owe payments until April 2012. What happens when you finish paying off your loan? Is the loan paid off immediately, or does the original loan amortization schedule still play out?Have you paid any other nelnet loans in full? this simple thing really confuses me and it’s prevented me from paying extra on any of my nelnet loans.

Thanks,

Tim

As Tim mentions in the article, I do have a student loan from nelnet, and it’s currently my debt repayment target, because it’s the next lowest balance.   (I paid off my credit cards first, even though some of them had higher balances than this loan).  I mentioned last time that I made my first snowball payment to them (the amount was around $1,000) and then noted that I don’t have a payment due until April of 2012.  That means that they have tentatively applied my extra payments as “prepayments” of the balance due, and not applied the extra payment to the principal.  They pitch this as something helpful, but in reality it’s not.  Sure, if I lost my jobs I wouldnt have to pay them until April 2012, but I’d lose so much progress that I’ve made.

Nelnet actually does apply your prepayments to the principal, as you can see in the table below.  Most of the student loans that I have work in the following way:  You’ll pay them some amount (be it your regular payment or otherwise) and they will take that amount and pay off the interest that is currently owed on the note and will apply the rest to principal.

To explain an example from the table, my  normal payment is $50.  On June 7, 2010, I paid them $50, and there was $18.31 worth of interest on the note at that time.  Subtract the $18.31 from my $50 payment, and you’re left with $31.69, which they then applied to principal.  Similarly with my snowball payment of $1,000 on August 2, there was 15.17 worth of interest on the loan, and once that was paid, they put the rest towards principal.

08/02/2010 EDPay $1,000.00 $0.00 $15.17 $984.83
07/06/2010 EDPay $40.00 $0.00 $16.42 $23.58
06/07/2010 EDPay $50.00 $0.00 $18.31 $31.69
05/06/2010 EDPay $50.00 $0.00 $17.35 $32.65
04/06/2010 EDPay $60.00 $0.00 $15.83 $44.17

The way they (can) make back the interest that they lost is by telling you that you don’t  need to make a payment until April, 2012.  If you do this, all the interest that you didn’t have to pay now will accrue back onto the note if you don’t make a payment.  However, if you kept making payments, you’d pay off the note early.

Once you get close to having the balance almost paid for, you can request what they call a payoff quote (to find this for nelnet, click on “My Account” and above the payment info should be a link).  A payoff quote is basically a quote that says the current principal balance, the interest accrued currently, and estimated interest for the period that the quote is good for.  For example, nelnet will give you a payoff quote that is good for 10 days.  If you send them the money in the next ten days, your loan is paid in full.  Mine looks like this:

Current Principal Outstanding Interest 10 Days Interest Total Payoff Through 9/13/2010
$2,033.40 $12.11 $3.79 $2,049.30*

So if I paid Nelnet $2,049.30 before September 13, my loan would be paid off (unfortunately I don’t have the resources at this time to do that).  Once this is done, the amortization schedule does not continue to play out.  You’ve excised the company from your life (if you only have 1 loan through them, like me) and you don’t owe them another red cent.  You can safely completely forget they ever even existed and move on to your next debt.

As far as paying any Nelnet loans off previously, I have not.  I will soon though, and I’ll let you know exactly how it goes if you like.

In my opinion, handling prepayment needs extra discretion and a clever planning. You can dig up some useful information about payment schedules of different student loans at Loans-advisor.com
Filed Under: Finance  / Tagged: ,

Go to College?

August 9, 2010 by / 4 Comments

A while back, Kevin at Financially poor had an article about the decision on whether or not to go to college.  I’ve been thinking about this since I read The Total Money Makeover about  a week or two ago (yes, it was the first time I read it).  Dave Ramsey make a lot of points in his book, but one that does not get nearly enough press or praise is the one saying people don’t NEED to go to college.   It’s unfortunate that this point gets  little to no press, but I’m not that surprised.

Ever since I was a little kid, all I  heard was “you’re going to college, you’re going to college” and there was to be no questioning the decision.  I can’t really argue with the logic, either.  Both of my parents lives were greatly enhanced by the fact that they went to college, and they wanted the same for me.  Disclaimer: I would like to make it clear that I have no problems with college or attending college, I have a problem with the blind faith that people put into it. That being said, it’s not a cure-all, nor a guaranteed ticket to a better existence.  It can be, but like everything, you need to be careful with it.

Recently in many major news outlets, there have been articles talking to students who have insanely high debt loads because of college.  There is this one from the New York Times talks about a girl who got herself 100k  in the hole from going to college and is continuing to defer her loans (while interest piles up) because she’s in night school.  There’s also this one, also from the Times, about a man who is 400k in student loan debt and aspiring to be a lawyer.  After passing the bar exam, he was denied admission to the New York Bar because of his debt level.  As if this is some sort of competition, there’s this story from the Wall Street Journal about a Doctor in Ohio (who is 41) and owes almost 550k total off of an original debt of 250k.

These sort of debt levels are absurd, and when are parents are saying “you’re going to college, you’re going to college” is this really what they had in mind?  Owing some bank thousands of dollars before you’ve gotten a job?  This is the part of the college decision that I don’t think many people are thinking about.  Are they are taking out loans to give themselves a better future, or are they really sacrificing their future by taking on crushing debt levels?

Many people view student loan debt as “good debt” because it is an investment backed by your potential (in other words, your future earnings).  History and other people tell us that while we may start out at a lower salary, as we continue to advance in our career, our salary will go nowhere but up (sounds like a bubble, doesn’t it?).  Given this seemingly guaranteed future return on this investment, it makes some sense to borrow against it.  Unfortunately, the reality is different.  For some people, a guaranteed salary increase is in the cards (I’m thinking accountants and those lucky enough to get into the federal system) and will make the initial debt load bearable.  For others (I hate to pick on you, theatre/creative writing grads) securing a job is not a given, much less an ever increasing salary, but the same debt load is taken on by each student.

However, there is something fundamentally different about student loan debt than other types of debt.  Student loan debt is very rarely discharged, no matter the circumstances.  In fact, according to the Federal Student Aid Website (here) these are the main reasons that you can qualify for student loan discharge:

Well, that’s nice of them, isn’t it? They are willing to let you off the hook if you’re dead or permanently disabled.  It makes sense, if you think about it.  The is in effect a secured loan, and it’s secured by your ability to work and earn money.  You have to be alive and able to do work and earn an income.  You cant do either of those things if you’re dead.

In my mind, the potential debt level that some take on is not the right thing to do, and could be  stunting the growth of our generation (We won’t know for sure for 10-15 years).  Many live at home (like this kid) and are unable to purchase a home of their own until much later in life than their parents did.  Even at my age (mid twenties), my parents were married with 1 kid and were nearing buying a home of their own (or had already done so).  I’m none of those things, partially because I was in school longer, partially because times have changed, but also partially because my debt level was equal to greater than  my first year’s starting salary!

Is the extremely high (and rising) cost of college worth it?

Would you do something different?

Are the Millenials stunting their growth, or will it not matter because we are transitioning to a more “mobile” society where people wont want to buy homes?

What do you think?  Leave some answers in the comments.

Filed Under: Finance  / Tagged: , , , ,
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