Monday, February 15, 2010


Declaring bankruptcy is the last resort for flailing loan recipients and should be avoided at all costs. A major “severe hardship” obstacle must be cleared to even obtain a hearing on a bankruptcy. If you’ve been kidnapped by Bigfoot or beamed up to an alien mother ship, you still may not qualify for bankruptcy. It’s the third rail of personal finance—don’t touch it or you’ll be scarred for life.

If there is no other way out and you’ve consulted an attorney and a financial advisor, then you may have no alternative but to declare bankruptcy—only if you have no choice.

Note that a great deal of misinformation is available, especially with Internet hucksters and other scam artists who promise that bankruptcy will wipe your slate clean if you do business with them— probably for a hefty fee. That’s just not so. Some debts, including student loans, cannot be simply “wiped clean.” They will haunt you for life under bankruptcy. As soon as you regain financial solvency the lender has every right to go after you for their money. And they will, using your IRS tax returns as evidence you’re making money again. That’s public information and easily available to your lender.

Plus, your bankruptcy hurts in other ways. It will

• stay on your credit report for up to ten years,
• render it nearly impossible to get additional credit, and
• impact your ability to get a job.

Tuesday, February 9, 2010


Here’s another term you should become familiar with if you’re having trouble paying off your student loans. Like deferment, forbearance is a mechanism designed to help if you need to either temporarily lower or postpone your student loan payments.

Forbearance is really for those folks who want to pay their loans but can’t and who were unable to get a deferment on their loans. The application process isn’t as onerous as the one for deferments, and the bureaucratic headaches that always seem to accompany deferments and loan discharges aren’t as prevalent with forbearances. Again, however, it is completely up to the lending institution to determine whether you are awarded forbearance.

If you are approved, be prepared to continue paying interest on your loan. If you can’t, the lender will simply add it to the ongoing loan bill and it will cost you even more money.

Forbearance is the loan holder’s way of saying “We feel your pain.” As long as you make a good faith effort to stay in contact with your lending institution and make your financial situation known to them, getting a forbearance shouldn’t be a major problem. Note that the forbearance is temporary, usually awarded in 12-month stretches for no longer than 3 years.

Start by contacting your lender and asking for the right paperwork. Fill it out, send it back, and follow up. Write down the name of your contact and file it away. Ask for that person whenever you feel like you’re getting the runaround from the lender.

Sunday, February 7, 2010

More Tips on Student Loan Payments

Let’s talk about some more tips on repaying your student loans. All are designed to help you get to the Holy Grail of student loan debt—the day you make your last student loan payment. Put some of these ideas to work and see if that day doesn’t come sooner than you think.

Don’t wait for a bill to come from your lender every month. Go ahead and send a check regardless of whether you receive a bill or not. It’s habit forming and therapeutic, in the sense that you’re cutting your debt down to size. People who wait for the bill to come are taking, in my opinion, a passive approach to student loan debt. By taking charge and cutting a check no matter what, you’re taking command over your own fiscal situation. And that’s a habit that will pay off over the course of your ifetime.

Know all the repayment options available from your lender. Make sure that the repayment option fits your current financial situation. If you’re f lush with cash, go ahead and pay more than you owe. If not, work with your lender to accommodate a financial dry spell with a different loan repayment plan. Like anything else, when it comes to debt, knowledge is power.

Keep your lender in the loop. If you move, get married, or even change your phone number, let your lender know. Direct contact is the easiest and best way to solve any problems that arise. But you have to know who to reach. And the lender has to know how to reach you.

Take a break before starting graduate school. If you’re planning on going straight to graduate school but don’t have the money to pay the bills, try taking a year or two off and go into the corporate world to earn some money. After that, you’ll have earned enough to defray any further student loan costs. Bonus: By taking time off between schools and spending some time working for a living, you’ll gain a greater appreciation of what you want to do with your life—and what you might want to study when you return to grad school.

Request a deferment. If you do attend graduate school, request a deferment from your lender from any undergraduate student loans. As long as you are in grad school, you won’t be receiving any bills for your student loan from your undergraduate days. But work closely with your lender to make sure you filed all the proper paperwork to gain that deferment. Note that it’s much easier to defer government loans than it is private loans. Again, if you are in graduate school at least try to make interest payments on your undergraduate student loan. That will defray the total cost of the loan and help you develop good repayment habits.

Use gift money. Remember the scene in The Graduate when people came up to Dustin Hoffman and offered congratulations and encouragement for his graduating from college? If you looked closely, you’d have noticed them giving him an envelope or two in the process, containing hefty checks, no doubt. If you are similarly rewarded with a bonus from relatives and friends for graduation, or received a signing bonus to work for a firm right out college, use it to prepay your student loan.

Tuesday, February 2, 2010

The Life Stages of Your Student Loan

Life Stages is a very popular term these days, articularly onWall Street, the industry that I hail from. There, the term is meantto encompass the various eras or stages of your life from a financialpoint of view—going to college, finding your first job, getting married, buying your first home, having kids—right on down the line to retirement.

The idea is that you should identify the various stages of your life and develop a financial plan to deal with them. At least that’s what Wall Street firms hope you will do. That way they can collect the hefty fees from all those big financial moves you’re making.

From a student loan standpoint, a life stages view is just as useful, although not as sinister as the kind you see in the financial services sector. In a student loan life cycle, you start the ball rolling by researching your loan options, applying for one (or more), accepting a loan, going to school and graduating, and then the last part of the cycle—paying off your loan—begins. All told, the life
stages thing can last up to 15 years or so, from the time you start looking for a loan to when you actually pay it off

The Early Phase—The Research Cycle

• You, along with your parents or guardian, begin researching financial aid options.
• You’re accepted at school.
• You begin the process of discovering what you can pay for on your own (with savings) and with nonloan financial aid (scholarships, grants, tuition breaks).
• The gap left between what you have to pay for and what you can afford to pay for is the amount of estimated money you’ll need in student loans.
• You begin the process of researching student loans.
• You identify the loan you want and complete and submit your application.
• Your lender approves your loan.

The Middle Phase

• A check is cut by the lending institution and delivered to your home or straight to your school’s financial office.
• The school takes what it needs to cover your tuition, room and board, and other expenses, and returns the remaining amount to you.
• The lending institution sends its first disclosure statement to your home (likely your parents’ home). This is particularly true for federal PLUS loans.
• The lender notifies the credit bureau that the loan has been transacted.
• You attend school, during which time you are not obligated to make any student loan payments.

The Last Phase

• You complete your education, hopefully with a cap-andgown affair upon graduation. Or you leave school early.
• You enter your grace period when you have, on average, from six to nine months before your first loan payment is due.
• Your lending institution, during this grace period, sends you a repayment disclosure statement detailing your loan obligations and the timetable for repaying them.
• When the grace period ends, you receive your first bill, usually a monthly one.
• You begin paying your student loans.
• If all goes well, you pay each month—or even prepay—until your loan is paid off.
• Your lending institution confirms that your loan obligation has been fulfilled.
• Your lending institution sends confirmation to credit bureaus that the loan has been retired.

Friday, January 29, 2010

Terminology in Student Loan

Stumped by the terminology used by lenders? Don’t be. Here is a list of the most common student loan terms and what they mean:

Borrower. In this case, you. The individual who is responsible for repaying a loan.

Capitalization. The interest that builds up over time and is added to your principal (otherwise known as “capitalized” inter-est). Be careful about capitalization, it can hike the total cost of your loan.

Consolidation. To merge some or all of your student loans into one über loan, with one interest rate and one payment per month.

Default. What happens if you fail to repay your loan. Usually a precursor to a bad credit rating and, consequently, financial troubles in obtaining further loans to buy a home or a car or go back to school again.

Deferment. A delay of payments on your student loan. To gain a deferment, a lender may make you prove “eligibility” criteria like being sick or unemployed.

Discharge. A release from your obligation to repay your loan permanently.

Fees. Additional expenses tacked to your total loan amount due, or subtracted from the amount of money you receive with your loan funds.

Forbearance. A time period when you can skate on your loan payments because of extenuating conditions and you do not qualify for a deferment.

Grace period. A six- or nine-month period after you leave school and have to start making regular payments on your student loans.

Interest. The fee you pay for the privilege of borrowing money from your lending institution (it’s their profit margin). Interest is based on a percentage of your total loan.

Principal. The total amount you owe on your student loan.

Sunday, January 24, 2010

The Players in Student Loan

Who takes center stage on student loans? Well, you are on one side and a public or private lending institution is on the other. Who are these other players and what roles do they play in the loan process? Let’s take a look.

Federal government. Yes, Uncle Sam, under the official guise of the U.S. Department of Education, runs the federal student loan programs. The federal government can be either a lender or a guarantor, which is an institution that guarantees your loan.

Borrower. You, basically, unless your mom, dad, grandmother, or grandfather have signed off on your student loan. The borrower is the person who gets the student loan and is obligated to pay it off.

Lender. The institution that cuts you the check for your student loan. A lender can be the government, a bank, a credit union, or another financial institution. Here’s a list of potential lenders:

• Bank
• Savings and loan association
• School
• Credit union
• Pension fund
• Insurance company
• Consumer finance company
• Federal government

Your school. Don’t forget old almamater. Your school can identify financial aid options, figure out how much you need, help you get the loan, and administer it. They’re also on the back end when you have to pay the loan when you leave.

The guarantor. Usually a federal agency that guarantees to your lending institution that you’ll actually pay back the money you borrowed. If you don’t pay off the loan, the guarantor has to.

The credit bureau. The private agency that keeps tabs on your loan payments and makes your “credit score” available to others interested in your ability to pay back money that you owe. That could be a mortgage company, or a retail store, or an automobile dealer—in short, anyone who is going to make a financial commitment with you.

The collection agency. The agency that will come after you, sent by the guarantor, if you default on your loans and make no arrangements to pay them back. Usually, the collection agency earns about 30 percent of your total outstanding loan if they can get you to pay it back.

The credit counselor. In some cases, you might need professional advice on getting out of student loan debt. A reputable credit counselor can show you how to rearrange or consolidate your loans so you’re not in default. Not all credit counselors are reputable, though

Thursday, January 21, 2010

What is My Credit History?

The term credit history merely refers to how you have managed your credit and debt over a period of time. It looks at how you have financed purchases, as well as how you made your payments on the amounts financed in terms of the amount paid and whether or not the payments were made on time. It is used by lenders to evaluate how you will handle future loans. They look at your past to predict your future.

A bad credit history has become an increasing problem. There are two basic reasons for this. First, it has become very easy to get credit. You are probably inundated every day with solicitations from credit card companies. College students can now easily get credit cards without any work history. Auto dealers advertise that they will sell a car to people with no credit history or a bad credit history. This allows many people to receive credit who cannot handle it well. The inevitable result is a failure to pay the debt on time or at all.

The second reason is that these loose lending practices have caused many people to believe that paying bills on time is not very important. Much of this comes from advertising. Companies, even some dealing with mortgages, say things like, “Bad credit shows that you are only human.” Since credit is often easy to obtain—even with a poor credit history—paying on time does not seem to be very important.

But when it comes time to try to buy a house, a good credit history is a major factor in qualifying for a mortgage. To some lenders, it is the most important factor, even over your income-to-debt ratio. For example, many retirees are able to get loans that their income does not seem to support. This is because they have excellent credit. The lender believes that they will budget properly and repay the loan on time.

Saturday, January 16, 2010

Your Rights As A Student Loan Borrower

When you accept the conditions of a student loan and sign on the dotted line, then, by law, you become the holder of certain inalienable rights, too. For instance, it’s up to the lender to provide you with the following student loan data:

• The complete amount of the loan
• Your loan’s interest rate
• When you must start repaying the loan
• The effect borrowing will have on your eligibility for other types of financial aid
• A tally of any charges you must repay (loan fees) and information on how those charges are collected
• The annual and total amounts you can borrow
• The maximum repayment periods and the minimum repayment amount
• The straight skinny on default and its consequences
• Information on debt consolidation and/or refinancing

Note, too, that because you are a student loan recipient, the lending institution must give you a grace period before you have to start paying off your debt. Your original loan contract should stipulate the specifics of your grace period. Or contact your lending institution for the information.

You also have the right to a loan repayment schedule provided by your lender, stipulating when your first payment is due, how often you have to pay, and the amount you’ll be paying with each installment. Your lender must also:

• Give you a prespecified time limit to repay your loan
• Allow you to prepay your loan at any time without penalty
• Cancel if you become permanently disabled or kick the bucket
• Provide you with a “graduated” loan payment option where you pay less at the start (because money will likely be tighter when you are 25 than at 35) and pay more later as your income rises
• Provide you with an extended repayment schedule of up to 25 years, but only if you are a Federal Family Education Loan Program (FFELP) borrower whose debt exceeds $30,000.

Monday, January 11, 2010

What is Underwriting and How does It Affect my Loan?

When you apply for a mortgage loan, the success of your application depends on underwriting. Underwriting is the process used to decide whether to accept or reject a loan application. It is also used to qualify a borrower for a loan program. Qualifying for a loan is not an all-or nothing scenario. A borrower may be rejected for the least expensive loan, but approved for a higher-risk, more expensive loan.

There has been a major change in the underwriting process in the past decade. Today, fewer and fewer people do the actual underwriting— instead, it is done by computers. This is called automated underwriting. As the name implies, a machine (rather than a person) does the work, and approves or rejects the application. Somewhat surprisingly, this has been a major benefit to many borrowers. It turns out that it is much tougher to get approved by a person than by a machine. The computer has been programmed in most instances to be much more forgiving for problems with credit, income, and debt than were the human underwriters. And, the computer does not worry about losing its job if it approves too many bad loans.

Regardless of whether a person or computer is actually doing the underwriting, there are three major factors that are considered in the underwriting process:

1. credit history;
2. income-to-debt comparison; and,
3. property value-to-loan comparison (down payment).

Thursday, January 7, 2010

Thinking About Travel Insurance for Honeymoon

One of the best reasons for you to look into buying a travel insurance policy for your honeymoon is so you have peace of mind should anything go wrong on your trip. There are a number of different kinds of travel insurance policies, and the two of you need to decide which ones are right for your trip.

You can buy travel insurance through your travel agent or from an independent insurance agent. Here’s a brief rundown of the kinds of policies you may want to consider:

Trip cancellation. Literally what it sounds like—a policy to protect you should you have to cancel your trip. Different carriers have different ideas of what qualifies as a legit reason for canceling, so make sure you find out ahead of time what’s covered and what isn’t.

Trip interruption. This policy will reimburse your expenses if your trip is altered after it’s already underway. Of course, again you need to see what’s covered (usually illness) and what’s not (usually war or terrorism).

Emergency travel medical insurance. You may want to purchase this additional insurance if your day-to-day health insurance policy won’t cover you, should you fall ill while traveling.

Medical evacuation. This kind of policy covers your care and transportation should you be seriously injured while traveling. Truthfully, this policy can be quite expensive and may only be worth thinking about if you’re planning on taking an “extreme” honeymoon, where injuries will be par for the course.

A number of companies offer travel insurance, and their websites are a great place to educate yourself. Two worth checking out are:

Wednesday, January 6, 2010

Insuring Your Wedding

As I’m sure you’re aware of at this point, weddings can be costly affairs. With the average wedding in the United States setting the average couple back $22,000 or more, there’s a reason you’ll want to insure your event—it makes perfect sense.

Wedding insurance can help you avoid losing any deposits or fully paid-for vendors should certain circumstances prevent you from walking down the aisle on your appointed day. And besides being a smart investment, wedding insurance doesn’t have to cost a huge chunk of change. For just a couple of hundred dollars, you’ll be able to insure your entire wedding. Of course, I’m not an insurance agent and I don’t sell insurance policies. So call yours and ask him or her about what it would take to insure your wedding. It may be the best money you’ll spend on your special day.

For a good overview on what you should look for in a wedding insurance policy, log on to, a company that provides wedding and liability insurance for special events. Even if you don’t buy your policy through Wed Safe, I recommend spending time on the website so you can educate yourself on the importance of wedding insurance and what you need to know as you investigate a policy for your event.

To do list:
❑ Investigate wedding insurance
❑ Buy an insurance policy

You’ll need list:
❑ Wedding logistics (date, location, number of guests)
❑ Wedding budget information

Do Not Put Off Your Insuring Engagement Ring

An engagement ring is undoubtedly an expensive piece of jewelry, and you should treat it as such by insuring it properly. Think your homeowner’s insurance will cover it? Think again. (You do have homeowner’s insurance, right?)

“While homeowner’s insurance covers a lot of things, it doesn’t provide adequate coverage for jewelry,” says Kevin Craiglow, a spokesperson for Nationwide Insurance, who explains that most insurance policies cover all jewelry worth up to $1,000. Unless you’ve got a teeny tiny rock on your left hand, you’re going to need extra coverage.

Craiglow recommends getting a separate jewelry policy, which some companies call an endorsement and others call an insurance rider. Both provide additional coverage for your engagement ring.

Before you can get an endorsement or a rider, you need to know exactly how much your ring is worth so should it be lost or damaged, the insurance company will know its replacement value.“Most reputable jewelers offer appraisals for a small fee,” says Craiglow. In many cases, the jeweler who originally sold your fiancé the ring will have offered to appraise it before it left the shop. In addition to providing a “current and accurate appraisal of the engagement ring,” says Craiglow, insurance companies will also want a description of the ring—carat weight, metal used, and so on—and a photo of it for their files.

Riders or endorsements add only a nominal amount to a current insurance policy and are well worth the expense because they offer both protection and peace of mind.

Tuesday, January 5, 2010

Cancelling Your Student Loans

Want a free ride on your student loan? You practically have to die to do so. Lenders really want their money back and are loath to let you out of your loan obligations. But, in special circumstances, you can cancel your student loan, or at least part of it. You may be able to cancel your student loan if:

You pass away. If that unfortunate occurrence takes place, then your family or financial steward can cancel your student loan.

You are permanently disabled. You can cancel your student loan if you can prove you are unable to work because of an injury or illness that is expected to continue indefinitely or result in your passing away. You’ll need a letter from your physician describing your situation, and you probably won’t get the loan canceled if, as they say in the health care insurance industry, you had a preexisting condition when you took out the loan.

You are a member of the armed forces. God knows that we don’t do enough for our fighting men and women, especially in this day and age. So who wouldn’t approve of a loan cancellation or deferment for former students serving in the U.S. military, the National Oceanic and Atmospheric Corps, or the U.S. Public Health Service.

You teach in poor neighborhoods and communities or provide some community service. If you teach in underserved or poor areas, you may be able to get your student loan either deferred or canceled outright. The same goes for teachers who help the disabled.

You were the subject of a trade school scam. Trade schools are an iffy proposition and lenders know that. Some schools close, some offer diplomas that are fraudulent, and some slam their doors while you’re still in school. If any of those cases apply to you, then you have a good chance of getting all your student loan obligation canceled.

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