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The www.FedPrimeRate.com Personal Finance Blog and Magazine

Sunday, May 22, 2005

Just When I Thought My Student Loan Debt Horror Story Was Bad...

Student Loan Debt Horror Story
A couple, trying to do their best to put their child through college, co-signed for a $40,000 student loan. Now that financial hard times have forced them into bankruptcy, they find themselves begging the collection agency that is trying to collect on the student loan debt to give them easier payment terms. The collection agency's response: Can't help you! Now they owe an additional $30,000 in interest and fees. Talk about being kicked while you're down. 

Most debt can't stick with you forever, but a change in United States Federal Law back in 1998 made it impossible for student loan debt to be erased in bankruptcy court. So if you need another reason why you should consolidate your student loan(s) now while the interest rates are still low, here it is: if you end up in financial dire straits and not able to make payments on your student loan(s), the collection agencies can come after you forever. They can, and they will too.


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Tuesday, May 17, 2005

Congress Getting Ready To Take the Consolidation Dolly and Go Home!

Well, leave it to Congress to take a good thing and ruin it!

Congress is right now considering whether they should take away the fixed rate consolidation option that was part of the historic Higher Education Act of 1986. Congress wants to take away the low rate consolidation option claiming that they are, "protecting taxpayers from the rising cost of subsidizing the program." Hmmm...Protecting taxpayers by making it far more expensive for low income students to pay back their student loans? Once again folks, as with the bankruptcy bill recently passed: Congress is out of touch with reality, and the average, hard working American will suffer because of it. Without the option to consolidate student loans at a low rates, students will end up paying many thousands more in interest charges over the life of their loans.

So if you plan of consolidating, do yourself a favor: contact your Congressman and tell him/her to vote no to these proposed changes. Remember: it's your Congress!


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Monday, May 16, 2005

Graduating This Year? Here's A Great Graduation Present: Free Money!

Here's some big and important news for students who are graduating this year. There's a small windows of opportunity to save a ton of money long term by locking in a low fixed interest rate on federal student loans. Interest rates are set to rise significantly after June 30, 2005, so graduates have a relatively short six weeks(!) to consolidate their your student loans and take advantage of today's unbelievably low interest rates.

Graduates who consolidate their student loans can lock in an interest rate as low as 2.77%--a number that will most likely be lower than the rate of inflation--which basically translates to free money! And the rate that is locked in before July 1, 2005 is permanent for the life of the loan! Pretty exciting stuff: these are the lowest student loan consolidation rates in history!

If you are not acquainted with the methodology involved with consolidating your student loans, head over to your school's financial aid office for guidance. Also, don't procrastinate! You need to get the paperwork in now in order to give it time for processing.

After July 1, 2005, rates will jump as much as 2 percentage points, and that will translate to big money over the life of a student loan.

Did you graduate a long time ago? Well, don't feel left out! People who left college a long time ago can also benefit from today's low rates. If you graduated in e.g. 1990 you can still consolidate now and lock in a very low fixed rate for the life of the repayment period.


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Tuesday, May 03, 2005

Student Loan Default: Pay Back Those Student Loans or Else The Government Will Come After Your Social Security Benefits!

If you ever needed a good reason to start making payments on those student loans you've been neglecting, here it is:

James Lockhart has been told that he must repay the over $80,000 he owes in student loans, even though Lockhart is now past retirement age and his student loan debt is over 10 years old.

Student loan deadbeats: get out your checkbooks, fast!

Looks like Lockhart should have consolidated his student loans a long time ago. Now he has to contend with the most powerful government on the planet coming after his social security benefits. Yikes!

I sympathize with Lockhart but the bottom line is he should have made at least some effort to make payments on his student loans, just like the rest of us. If you want a free graduate school education, you'll have to move to England (and become a British citizen!)

I really wasn't surprised about this story. After the whole bankruptcy bill nonsense, I think the federal government is on a "get all the deadbeats" run this year. And the banks, credit card companies and other major lending institutions are all smiles about it.

Don't get me wrong: I'm not trying to come off as self-righteous here. In fact, I was the quintessential student loan deadbeat about decade ago. But I cleaned up my act, and I think Mr. Lockhart should as well. A part-time job for Lockhart? Maybe. He's old, has a heart condition and diabetes. But he was unemployed after 1981 and didn't work much after that. Hmmmm...All that education and not working for decades? Not a strong case, Mr. Lockhart!

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Sunday, May 01, 2005

My Student Loan Debt Horror Story

Student Loan Debt Horror StoryI have a very personal story to share with all you people out there with student loan debt. I am sharing this story in the hope that as many people as possible can learn from my mistakes. This is a true story that happened to me back in 1999.

I had been out of school for quite a while. I was working at a big law firm in New York City making a decent living, paying my bills and some of my debt. I had (foolishly) incurred a lot of credit card debt in my youth and I was really paying for it. I also had about $11,000 in student loan debt from a Federal Subsidized Stafford Loan I had taken out when I was in school. I wasn't paying my student loan debt. In fact, I completely ignored my student loan debt, throwing all the threatening letters I received into the trash! My thinking was, "what could they do to me? If I ignore the debt the government will step in a pay it off. Besides, those monthly payments are way too high!" There was a moderate amount of guilt associated with my actions, but it's hard to feel sorry for the richest government that has ever existed on the earth.

So I was moving along with my life, happy to be slowly improving my credit rating by paying of my old credit card debt. I got a raise at work and started investing a large chunk of my paycheck into my employer's 401K plan. Yeah, things were OK and getting better. It was at this point in my life that I opened a business checking account because I had big plans of quitting my job and starting my own business. I started making small deposits to this account every week or so and soon I had over $1000 in that business account. And that's when it happened.

One day, I was performing a routine balance check on my business bank account and found that my bank account was completely empty! Shock? Horror? No, it was more than that. I nearly fainted! I immediately got on the phone with the bank to get an explanation. They informed me that my money was legally withdrawn from my account by a law firm representing the government in student loan default matters. I got the phone number for that law firm and called. They told me that they had obtained a "judgment" against me in court 3 or 4 years prior, and that they had every legal right to seize any and all money in my bank accounts. Wow. That's some serious power, eh?

So, all those threatening letters I was throwing away: I really shouldn't have done that! If I had responded to those letters, I would have been able to avoid the nightmare that I have just described. If I had contributed a little less to my 401K and made payments on my student loan, I would have avoided having my bank account emptied. And to add insult to injury, because my business bank account was empty, the bank assessed some very large and nasty fees due to lack of funds.

Hey! Learn from my mistakes! Consolidate your student loan debt and do it now while interest rates are still low. If I had consolidated my student loans years ago, I would have been able to secure a fantastic interest rate, which would have made my monthly payments far more manageable and I would have been much more inclined to keep up with my student loan payments.

The market for money for the average consumer is the best it's been for many years. Take advantage and get a great consolidation interest rate for all your student loans. The economy will be strong again soon, and that means higher interest rates. If you don't consolidate your student loan debt now you'll probably regret it. I am not saying to go for the first student loan consolidation offer that comes your way. You should shop around for the best consolidation deal, just as you would shop around for the best mortgage or credit card deal. Nowadays, there are a plethora of organizations out there that specialize in buying student loan debt (it's obviously a very profitable thing to do these days.) All that competition is great for you, the consumer, so let the consolidation companies fight for your business. Don't settle for anything but the very best deal.

Thanks for reading. Comments are always welcome.

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