Paying for College Blog

What Are Students and FA Directors Saying About Sallie Mae's Smart Option Loan? (Update)

Sallie Mae recently announced a new repayment structure for their new private (or alternative) loan product, Smart Option.  In short, students would be required to make interest-only payments while in school and their repayment terms once out of school would range from 5-15 years.  I thought it would be interesting to see what students and financial aid administrators on college campuses are saying about it:

Two Approaches Being Considered for FAFSA Simplification

The Chronicle of Higher Education is reporting that the Department of Education in consultation with Treasury are considering two paths to FAFSA simplification:

Plan A:  Move to two factor aid formula:  adjusted gross income and family size.  "At its broadest, the plan would abolish the Fafsa and distribute aid strictly on the basis of adjusted gross income and family size, or another simple set of factors."

Ability To Pay Full Price Increases Odds for College Admission

NY Times is reporting on the trend toward colleges admitting more students who can pay full freight.  Here are some excerpts:

• “If you are a student of means or ability, or both, there has never been a better year,” said Robert A. Sevier, an enrollment consultant to colleges.

Recent Case Over Misapplied Student Loan Payments Opens Door for Possible Class Action Lawsuit

Here are the details of the case from the New York Law Journal:

• Hofstra law graduate consolidated $52,925 loans in 2006. 

• "His suit claims the defendants determined how much of a payment is applied to the loan's principal (instead of the amount applied to interest) based on the date the payment is received as opposed to the due date of the payment."
  • "Thus, if a payment is received on any day other than the due date -- including before the due date -- it will not be applied to principal correctly," Judge Greisa wrote.

Credit Lines Cut For 16% of U.S. Population; Almost 2/3 Had No Negative Credit Event To Cause It

The Wall Street Journal is reporting that Fair Isaac (creator of FICO score) has released research indicating that 16% of US population was impacted by reduced credit lines in the April through October 2008 time frame.  The average reduction was $2,200 and almost 2/3 (11%) who saw their line reduced "late payments, collections accounts or public records in their credit reports that would have typically triggered a line reduction."

In a sign of deleveraging by the consumer, a Fair Isaac representative indicated:

"For a good part of the population, their credit activity behaviors are retrenching a bit," says Fair Isaac's vice president of global scoring solutions Tom Quinn. "What we're seeing is less inquiries for credit, less opening of new credit and more people paying down balances on existing accounts."

In another surprising finding from the research:

• "About 6% of consumers saw their scores jump by 40 points or more (about 4% saw their scores drop by 40 points or more)."

Advice From Financial Planner on 529 Plans

Here are excerpts from interview on Marketplace with Bill Parish, financial planner:

• The College Savings Foundation says assets in 529 plans dropped 21% in the fourth quarter of last year as compared to 4Q 2007
  • The CSF study also indicated that 2/3 of assets held in 529s are in age-based portfolios, which "rebalance the assets by asset class as they age, becoming more conservatively invested as the investor gets closer to the time for redeeming the shares."
    • BE SURE YOU KNOW HOW THESE FUNDS ADJUST THEIR ASSET MIX AS CHILDREN GET CLOSER TO COLLEGE AGE.  
      • As Mr. Parish mentioned in the call, "The reason people are out of balance, the real inside story, is that the investment industry makes about three times, in general, in fees on anything you're in that's stock-based verses fixed income.

Financial Aid Directors: In Their Own Words

Here is the weekly round-up:

• University of Virginia:  Accompanying the prospective class of 2013’s increased international diversity could be increased financial diversity, Financial Aid Director Yvonne Hubbard said. She noted that, given the current economic situation, she expects a “spike in the number of students on financial aid for the next couple of years,” which will level out as the economy improves.

How About A Warning Label For Student Loans?

With the recent release of data on rising student loan default rates from the Department of Education , I was struck by the lengthy list of negative consequences of defaulting on a federal student loan (many of which also apply to private loans too).  It might make sense to plaster this information anywhere student loans are marketed to make it clear to all borrowers how grave the consequences can be.  It would seem to also make sense to add this to list:  Student loans are generally not dischargeable in bankruptcy.  This appears on page 18 of the Entrance Counseling on the Direct Loan site (borrowers are required to complete this process prior to receiving their federal loan):  

FFELP Origination Data Shows Dramatic Consolidation in FY08

Thanks to Ed Gleason for pointing me in the direction of this new FY08 data on the top 100 originators put out by the Department of Education last month.  It provides a fascinating look at how much consolidation has occurred in the past year, with the top 10 originators in FY08 garnering 71.9% of total FFELP volume, up from 55.1% in 2007. 

Here are the Top 10 FY08 FFELP Originators with the annual change in loan volumes (for purposes of the analysis, I combined Wells/Wachovia and PNC/National City to reflect acquisitions that occurred late in 2008):

How Can I Pay Off My Student Loans? Let Me Count The Ways

ApoIogies to Browning.  I couldn't help myself after seeing a few stories that seemed a bit unusual.  After all this talk of defaults today, I thought I would look for examples of what it takes to pay down student loan balances these days: