Understanding the types of loans offered to you in your financial aid package is key to managing your budget effectively. As you review loan types, it is helpful to ask yourself the following questions: "Who takes out the loan" and "Who pays the interest while I'm in school?"
There are three major types of student loans:
- Perkins Loans
- Stafford Loans
- PLUS Loans – Loan for Parents
The primary difference is that students take out Perkins and Stafford loans themselves, while PLUS loans can only be taken out by parents.
The loans that you borrow yourself are often a better deal because PLUS loans require your parents to begin repayment within sixty days of the final disbursement. With the Perkins and Stafford loans, you don't have to start paying them off until six or nine months after you graduate from school, withdraw, or fall below half-time enrollment status.
The question of whether a loan is subsidized or unsubsidized comes down to who pays the interest while you are in school.
Subsidized Stafford loans are need-based and are the BEST OPTION. The government pays the interest on these loans while you are in school and during the first 6 months after you graduate, withdrawal or fall below part-time. The government also pays the interest during any authorized deferment (i.e. if you apply to have loans deferred due to financial hardship).
Unsubsidized Stafford loans are not need-based, and you are responsible for all of the interest that accrues on the loan, including while you are in school. You may however, choose to pay the interest while you are in school.
While subsidized loans are the preferred choice, you are limited to specific amounts each year.
Tuesday, February 12, 2008
Question: I am a currently a college student and would like to know what is the best approach for tackling my student loan debt?
Question:
My only concern are my student loans. I predict that I will have incurred a debt of $80,000 after completing my Masters. I live a comfortable yet modest lifestyle and do not want to be bogged down with too much debt. I do not want to have student loan debt for the rest of my life.
I have not began a career yet, so at this point I feel like I can't make much of a contribution, which is probably where most people go wrong. Ideally, I would like to have my student loans paid off shortly after graduating; however, I don't know where to start.
I am interested in learning more about managing the money that I do have and also working on decreasing my student loan debt.
Answer:
1st – Get a copy of your credit report to verify that student loan debt is all you have – also verify the amount of Student Loan debt you have accumulated thus far. Request a FREE copy of your report from here: www.annualcreditreport.com
2nd – You have to create a budget to determine how much extra money you have left after expenses. Creating a budget will help you identify where you spend the most money and what categories you can cut back. After you have trimmed your expenses and accounted for every penny we now have feasible amount that can be contribute toward your debt. See other budgeting articles for details on how to create a budget.
3rd – After you have created your budget and determined how much you can start contributing, we can determine a reasonable timeframe for you to be completely out of debt. Starting now is a great ideal and will help you get out of debt quickly.
Many people make the mistake of waiting until after they complete college to start paying off student loan debt since their loans are in deferrment. The power of compounding interest works both ways! Compounding interest can either work in your favor or work against you! If you have $80,000 in loans your required payment based on a 20-year payment schedule and 5% interest rate is approximately $530/mo.
Guess What.......
About $300 of that is interest!!! If you have Subsidized Loans (you are NOT charged for interest during deferrment); therefore, any payments you make while you are in school or during that 6 month period after graduation will be used ENTIRELY to reduce your principal. I can breakdown the numbers even further to show you how beneficial it is to start early; however, I can see your eyes glazing over due to information overload so I will include that in my future post.
The moral of the story is! START EARLY!!!!
If you have any extra money - use it to pay off those loans! Every penny helps and anything you can scratch up can help you on your journey to becoming debt free.
Tax time is here. If you are receiving a refund, this is the perfect opportunity to contribute toward reducing your debt!
My only concern are my student loans. I predict that I will have incurred a debt of $80,000 after completing my Masters. I live a comfortable yet modest lifestyle and do not want to be bogged down with too much debt. I do not want to have student loan debt for the rest of my life.
I have not began a career yet, so at this point I feel like I can't make much of a contribution, which is probably where most people go wrong. Ideally, I would like to have my student loans paid off shortly after graduating; however, I don't know where to start.
I am interested in learning more about managing the money that I do have and also working on decreasing my student loan debt.
Answer:
1st – Get a copy of your credit report to verify that student loan debt is all you have – also verify the amount of Student Loan debt you have accumulated thus far. Request a FREE copy of your report from here: www.annualcreditreport.com
2nd – You have to create a budget to determine how much extra money you have left after expenses. Creating a budget will help you identify where you spend the most money and what categories you can cut back. After you have trimmed your expenses and accounted for every penny we now have feasible amount that can be contribute toward your debt. See other budgeting articles for details on how to create a budget.
3rd – After you have created your budget and determined how much you can start contributing, we can determine a reasonable timeframe for you to be completely out of debt. Starting now is a great ideal and will help you get out of debt quickly.
Many people make the mistake of waiting until after they complete college to start paying off student loan debt since their loans are in deferrment. The power of compounding interest works both ways! Compounding interest can either work in your favor or work against you! If you have $80,000 in loans your required payment based on a 20-year payment schedule and 5% interest rate is approximately $530/mo.
Guess What.......
About $300 of that is interest!!! If you have Subsidized Loans (you are NOT charged for interest during deferrment); therefore, any payments you make while you are in school or during that 6 month period after graduation will be used ENTIRELY to reduce your principal. I can breakdown the numbers even further to show you how beneficial it is to start early; however, I can see your eyes glazing over due to information overload so I will include that in my future post.
The moral of the story is! START EARLY!!!!
If you have any extra money - use it to pay off those loans! Every penny helps and anything you can scratch up can help you on your journey to becoming debt free.
Tax time is here. If you are receiving a refund, this is the perfect opportunity to contribute toward reducing your debt!
Friday, February 1, 2008
Question: Email your questions to financial.focus@yahoo.com or leave a comment!
Question: I just started my new job and my new employer will not match my contributions for another year. Should I still contribute to the 401k?
What should I do with my 401K from my old employer?
Since they aren’t matching your contribution it might be wise to put the money into a Roth Individual Retirement Account (IRA) for the time being, you will have a better selection of funds and it will help diversify your retirement monies, as you can withdraw funds from your Roth tax-free during retirement. Since your contributions to a 401K will be ongoing. You will mass a substantial amount of 401K funds that WILL be taxable during retirement. Contributing to a Roth and a 401K will give you the diversity of having tax-free and taxable funds to withdraw from during retirement.
As far as your 401K from your past employer: You can do a 401K rollover into an IRA at a brokerage such as Vanguard or Fidelity in which you can mange the funds yourself. If you don’t feel confident in managing the mutual funds on your own, you can contact a fund company or even your local Bank to have it actively managed. Personally I would roll them over into an IRA at Vanguard and pick a diverse group of funds. The rollover process is really simple and the Vanguard Customer Service team can help you if need be. I rolled over an IRA that I started in college into some Vanguard funds because I wasn’t getting a good return with the Bank and I just picked a few funds and “let it ride”.
If you need help picking funds let me know!
To submit your questions: Email me at financial.focus@yahoo.com
For my fellow bloggers: Feel free to use the comments to post questions or add useful tidbits.
What should I do with my 401K from my old employer?
Since they aren’t matching your contribution it might be wise to put the money into a Roth Individual Retirement Account (IRA) for the time being, you will have a better selection of funds and it will help diversify your retirement monies, as you can withdraw funds from your Roth tax-free during retirement. Since your contributions to a 401K will be ongoing. You will mass a substantial amount of 401K funds that WILL be taxable during retirement. Contributing to a Roth and a 401K will give you the diversity of having tax-free and taxable funds to withdraw from during retirement.
As far as your 401K from your past employer: You can do a 401K rollover into an IRA at a brokerage such as Vanguard or Fidelity in which you can mange the funds yourself. If you don’t feel confident in managing the mutual funds on your own, you can contact a fund company or even your local Bank to have it actively managed. Personally I would roll them over into an IRA at Vanguard and pick a diverse group of funds. The rollover process is really simple and the Vanguard Customer Service team can help you if need be. I rolled over an IRA that I started in college into some Vanguard funds because I wasn’t getting a good return with the Bank and I just picked a few funds and “let it ride”.
If you need help picking funds let me know!
To submit your questions: Email me at financial.focus@yahoo.com
For my fellow bloggers: Feel free to use the comments to post questions or add useful tidbits.
I am changing jobs, what should I do with my 401K from my previous employer?
You have decided to change jobs! Congrats! God has a plan for you and following his will, always leads to great things.
Now that you have made the move you have three choices:
1. Cash-out the 401K and spend it on unnecessary items.
2. Leave the money in your previous employers plan
3. Rollover your 401K into an IRA ***The Best Option! ***
Starting with #1: NEVER CASH-OUT YOUR 401K! This is a NO NO! Do not withdraw money from your retirement! Do I have to repeat that……Do NOT cash-out your retirement fund?
If you withdraw your money in a lump sum from a previous employer’s retirement fund, you must pay taxes on the money you withdraw. On top of those taxes, your employer is required to take a 20% withholding from your lump sum, and if you are under age 59 ½, you may also be forced to pay a 10% penalty tax.
Now do you understand why it is important to NOT cash-out your 401K?
Oh, not to mention you will have to work for the rest of your life and never have the pleasure of retiring and leaving that job that you hate! And if you think Social Security will take care of your retirement…..Guess What….THINK AGAIN!
Your second option is to leave the money in your old company’s retirement fund, which isn’t the greatest ideal. Many 401k plan administrators charge record keeping and other fees to manage your account, regardless of whether you are still with the company. These fees can take a significant bite out of your return, especially if you have accounts maintained at several different employers.
Consolidating all of you old 401K accounts into an IRA is your best option and leads us to #3.
If you decide to roll it over (YAY!!!!), you may have the option of rolling your assets into
either an IRA (Individual Retirement Account) or your new employers plan. To avoid paying taxes and penalties, you should have these assets transferred directly to another
IRA custodian. This rollover will still have to be reported to the I.R.S. One
downside is that your retirement rollover cannot be rolled into a Roth IRA.
Since I am sure you have decided to rollover your 401k instead of choosing options 1 & 2. Stay tuned for information on how to roll the funds into an IRA.
Now that you have made the move you have three choices:
1. Cash-out the 401K and spend it on unnecessary items.
2. Leave the money in your previous employers plan
3. Rollover your 401K into an IRA ***The Best Option! ***
Starting with #1: NEVER CASH-OUT YOUR 401K! This is a NO NO! Do not withdraw money from your retirement! Do I have to repeat that……Do NOT cash-out your retirement fund?
If you withdraw your money in a lump sum from a previous employer’s retirement fund, you must pay taxes on the money you withdraw. On top of those taxes, your employer is required to take a 20% withholding from your lump sum, and if you are under age 59 ½, you may also be forced to pay a 10% penalty tax.
Now do you understand why it is important to NOT cash-out your 401K?
Oh, not to mention you will have to work for the rest of your life and never have the pleasure of retiring and leaving that job that you hate! And if you think Social Security will take care of your retirement…..Guess What….THINK AGAIN!
Your second option is to leave the money in your old company’s retirement fund, which isn’t the greatest ideal. Many 401k plan administrators charge record keeping and other fees to manage your account, regardless of whether you are still with the company. These fees can take a significant bite out of your return, especially if you have accounts maintained at several different employers.
Consolidating all of you old 401K accounts into an IRA is your best option and leads us to #3.
If you decide to roll it over (YAY!!!!), you may have the option of rolling your assets into
either an IRA (Individual Retirement Account) or your new employers plan. To avoid paying taxes and penalties, you should have these assets transferred directly to another
IRA custodian. This rollover will still have to be reported to the I.R.S. One
downside is that your retirement rollover cannot be rolled into a Roth IRA.
Since I am sure you have decided to rollover your 401k instead of choosing options 1 & 2. Stay tuned for information on how to roll the funds into an IRA.
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