Month: June 2009


INCOME-BASED REPAYMENT & PUBLIC SERVICE LOAN FORGIVENESS


A couple weeks ago I wrote about upcoming student loan changes (to take effect on July 1st). One of the important changes that will become available is Income-Based Repayment (IBR), an option that may provide financial relief to over a million federal student loan borrowers (according to estimates by The Project on Student Debt).

What is the new IBR?
A new repayment option for federal student loans. IBR payments will take into consideration factors impacting payment affordability (i.e., family size, income, and state of residence). All Stafford, Grad PLUS, and Federal Consolidation Loans will be eligible for IBR (Loans in default, Parent PLUS Loans, and Consolidation Loans that repaid a Parent PLUS Loan WILL NOT be eligible for IBR).

Calculation of IBR Payments.
While your lender will perform the actual calculations, several calculators exist to assist you in estimating the benefits of IBR. Ultimately, if your payment (given the factors mentioned above – i.e., family size and income) would be lower than a standard repayment (10-year repayment plan), then you will be eligible for IBR. The following calculator is provided by the Department of Education. After the initial determination of eligibility, your payment can be adjusted annually (up or down) based upon changes in family size and income, however, your payment will never exceed the standard monthly payment amount (10-year plan) unless you choose to switch to a different repayment plan. As with any repayment option, it is there to serve you in addressing your repayment needs – you can always switch to a different plan if your needs change or if another option is/becomes more suitable.

PROS/CONS.
(+) IBR may allow you to pay less than other repayment options allowing more monthly discretionary income, adding flexibility to your budget.
() Be careful – while smaller payments can provide short-term relief, lower payments can also result in a longer repayment period and higher interest costs.

(+) If you repay for 25 years and meet certain other requirements, the remaining balance will be cancelled.
() 25 years is a long time! This could, however, be a potential scenario for an individual with a high level of debt in a 'low-paying' career field.

(+) Public Service Loan Forgiveness after 10 years (not 25). If you work in public service and opt for IBR, your remaining debt (if any) would be cancelled if: (a) Your 120 payments were made in the IBR program. (b) Available only if your payments were made through the Direct Loan program (an option available to you even if you have already consolidated prior with another lender – you can “reconsolidate” with the Dept of Ed (Direct Loan Program) if you'd like). More information is available at the Dept of Ed website.
() If there is a negative to this program it's news to me, please share.

IBRINFO.ORG.
More information on Income-Based Repayment is available on the IBR Info Website – http://www.ibrinfo.org … The site also lists webinar and other free 'events' providing opportunities to learn more about IBR and public loan forgiveness.

GAP INSURANCE


GAP (Guaranteed Auto Protection) Insurance — is a term commonly used to represent the coverage 'gap' between the amount you owe for your car and what your car is actually worth. Even if you carry full coverage (comprehensive and collision), in the event of an accident, insurance will only cover the market value of your vehicle. The market value of a vehicle in many instances is less than the amount owed [for a number of potential reasons]: vehicle depreciation; little or no down payment made; extended term loans; rolling negative equity into a purchase; leasing a vehicle; borrowing more than the purchase price (rolling tax, title, and loan fees into the loan), etc. This negative equity scenario is often referred to as being “upside down” in a loan. In this situation, you will ultimately be responsible for the loan deficiency. Unfortunately, in this difficult economy, these types of upside down situations are very common. According to Edmunds, 1 in 5 cars financed in February 2009 included debt from a prior vehicle. The amount of that negative equity rolled over? $4,676!


Not all insurance companies will offer Gap Insurance. Not all situations will warrant having Gap Insurance. If you will never be in a negative equity situation, you will never have a need for gap protection. Before buying gap protection, make sure you're not already covered … lease companies commonly include gap coverage in the lease agreement for their own protection. Some auto insurance policies will also include gap protection as part of their standard coverage. So read the policy and ask questions first!

Gap Insurance can be purchased as an additional coverage on your existing policy or can be purchased as a separate policy with a different company. You should price this insurance the same way you would any other insurance product to find the best deal for your situation. Gap coverage is available in most, but not all states (not available in CT, LA, NY, VA, and WA).

If purchased through a dealer or vendor (these are typically the most costly options), the coverage is typically a one-time charge (a few hundred dollars – often $300 – $500). If purchased through an auto insurance company, it will typically be a small add-on to your monthly premium (that you will continue to pay as long as you have the policy). Before purchasing, make sure the product would cover you in the event of any loss (i.e., natural disaster, theft, etc.) – not just an auto accident. As with any insurance, do your homework first. MSN Money recently wrote an article on gap insurance, “What a car wreck could cost you,” that offers helpful information and advice.

JULY 1 – SCHEDULED STUDENT LOAN CHANGES …


July 1st is always a momentous time for anyone with a student loan … this year will be no different. There will be some important loan changes you should be aware of.

RATE CHANGE ON VARIABLE RATE [STAFFORD] LOANS.

Historically, July 1st marks the time each year when variable interest rates on Federal (Stafford) Loans are reset. This year, the rate will drop to an astonishingly low 2.48% (which you can lock into by consolidating); 1.88% if you graduate this coming academic year and consolidate during your grace period! Before you get too excited, keep in mind this is more likely to impact individuals that have already graduated and have been hiding under a rock and have yet to consolidate their loans … for almost everyone else… remember that the legislation passed on July 1, 2006 locked all Stafford Loans taken out after that date at a fixed 6.8% rate (with some exceptions for undergrads – see next section). Thus, it is only the Stafford Loans [that have not been consolidated] that were taken out prior to 7/1/2006 that are impacted by this rate change.

NOTE. If this rate drop does impact you, you will be wise to wait until AFTER July 1 to consolidate to take advantage of the new, lower rate. The current rate (available rate through June 30) is 4.21%.

“NEW” STAFFORD SUBSIDIZED LOAN RATES FOR UNDERGRADS.

The fixed rate for new subsidized Stafford Loans will drop from 6% to 5.6% for this coming year (7/1/2009 to 6/30/2010). This cut only impacts undergrad students (not grad students) and only subsidized Stafford Loans (not unsubsidized Staffords). Unsubsidized Stafford Loans remain at 6.8%.

PELL GRANT MAX AWARD AVAILABILITY INCREASES.

For 2009-2010, the maximum Pell Grant (Federal Government need-based grants) award has been raised to $5,350 (from $4,731).

INCOME BASED REPAYMENT PLAN.

I'll write about this topic separately in the next week or two … if interested, you can read more about it and public service loan forgiveness at IBRinfo.org.

ADDITIONAL VALUABLE LOAN TOOLS/RESOURCES.

* Calculate your 'weighted' rate (if you have loans with multiple rates)

* Extensive battery of useful student/college calculators

* Federal Loan Info (Limits & Terms, 2009-10)

* Look up your Federal Loans (Need a PIN?)

* Military – New GI Bill (in effect 8/1/09)

DISCOUNT TRAVEL RESOURCES


In this rough economy, everyone is trying to save a buck. Finding the best deals on travel (i.e., airfare, hotels, rental cars, etc.) is something that has become easier for consumers thanks to the internet. Expedia, Hotwire, Orbitz, Priceline, and Travelocity are a few of the more popular travel comparison sites. Numerous other online resources [perhaps less familiar] are available – here are just a sampling for you to peruse …

FREE ONLINE TRAVEL RESOURCES.
* AIRFARE WATCHDOG. Register to receive alerts [as regularly as you'd like] for air deals from your selected airport(s).

* BIDDING FOR TRAVEL. A rookie to online travel bidding? Will help you understand the process and become an 'informed bidder.'

* KAYAK and MOBISSIMO. Searches hundreds of travel sites, providing a larger array of options (Mobissimo includes int'l travel).

* LAST MINUTE TRAVEL. Have some flexibility in your travel dates? Some of the best deals are available to 'last minute' travelers.

* SKYSCANNER and WHICH BUDGET. International discount flights.

* STUDENT UNIVERSE. Discounted travel options for students.

HONORABLE MENTION RESOURCES.
* FARE COMPARE
* SIDE STEP
* TRAVELZOO
* YAPTA

Hopefully you'll find some of my favorite travel resources helpful. I'd also be interested in learning about your favorite travel sites as well.
E-mail me at doctormoneyman@gmail.com.




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