Why student loan delinquency rates are rising

Student loan delinquencies rates are up, way up. According to New York Federal Reserve data 90 day delinquencies have risen 2.5 percent to 11 percent since Q1, 2012. These non-payment rates keep rising in to the tens of billions of dollars despite several types of payment plans offered by federal student loan servicers. Among these plans are the income-contingent repayment plan and the income-based repayment plan, both of which reduce the monthly cost of paying back student debt to a manageable amount. So why do grads keep defaulting?  

Complicated applications

As evident in the following payment programs chart, of the three kinds of income linked payment plans, two have to be applied for on an annual basis. Documentation needed includes a tax return, proof of income and an application form. For the borrowers who forget to remember line X, on document Y, written in font Z, that can mean thousands of dollars of extra interest due to a late payment. Even rocket scientists make errors, it would be wise to assume grads will too. 

Insufficient mediation

If a graduate has a complaint against a financial institution that services a Department of Education loan, that loan is mediated by none other than the Department of Education. The potential for conflict of interest is recognizable. The complaint process is further stifled by poor federal disclosure requirements if required at all.  For example, notification of payment plan expiration is not required to be sent by certified mail, and student loan servicers are not necessarily required to prove they even send such notification. 

Negative amortization

The rise in student loan delinquency is also due to negative amortization. This is when the balance of a loan increases, often indefinitely, because the amount of a monthly payment is less than the amount needed to cover the cost of interest. Even though the federal employees, loan officers and others will incessantly repeat the mantra of working with student loan servicers to implement an affordable payment plan, the loan is really not affordable when it is negatively amortizing. Snowballing debt is not a good way to hit the ground running when professional life is only beginning.

Failed investment

Investments that fail lower individual net worth. Naturally, a healthy thing to do would be take the loss and find alternative solutions; in colloquial terminology, suck it up and move on. This is the advice given by some of the same people who would quite possibly consider short selling their home or defaulting on their mortgages because the value of their real estate is less than the amount of the mortgage. Home owners got bailed out to the tune of $22 billion dollars in mortgage relief per Reuters, student loan borrowers have the benefit of no such program.

Federal protection

Federal student loans are usually not subject to typical rules of bankruptcy relief. The Department of Education and their loans are also subject to immunity from the Fair Debt Collection Practices Act. In effect this makes the government above the same law that many Americans attempt to follow. Apparently, the fiscal solvency of the student loan program is jeopardized by loan forgiveness, yet the federal national debt is set to expire in less than two months and has surpassed $16 trillion dollars; an amount in the vicinity of a 1:1 federal debt-to-income ratio.

A problem with student loans is they were originally encouraged via relatively easy availability to fuel the economic need for an educated workforce. That workforce has been experiencing high unemployment and the labor force participation rate had dropped to the lowest level in decades. This means the same need for educated people that federal programs were intended to meet is not there. Even though the promissory notes for these loans were signed under penalty of perjury, there is a flip side to the coin. Namely, a federal intent of educational benefit that's conditions are no longer completely valid.  

Ways to finance college costs

Paying for college is something that can be facilitated by a few practical and thoughtful steps. The opportunity cost of going to college can be in the tens of thousands of dollars, not to mention the actual expenses associated with enrolling in college programs. Despite these education costs and expenses, there are ways to lower both the opportunity cost and the expenses of college education significantly. This article will outline some of those methods.

College savings plans

Depending on how far into the game you are, your parents may have set up a college savings plan such as the 529 college savings plan for you when you were a child. If you don't plan on attending college for several more years it may be a good idea to look into this type of plan as they are completely tax free in terms of deductions and withdrawal so long as the money is used for designated college expenses.

Living with family

Residence is one of the biggest expenses at college. A typical college year can last 8 months and include room and board and dining expenses in excess of $8000/yr. After 4 years that's a lot of money. While living at home doesn't include the complete college experience, it might be worth  not incurring tens of thousands of dollars of student loan debt to miss out on dorm and near campus life depending on how intent you are on paying for college.

Transfer credit from community college

Some community colleges offer courses that can be transferred with relative ease into a University program. If you are planning on enrolling in a university program, looking into the local community college courses and transferability to universities may well be worth it. Additionally, depending on the community college, one may not want to or have to attend university if the program one is interested in can be achieved through community college.

Corporate tuition assistance

If you are lucky, you might be able to land a job with a company that has tuition assistance. Even if it isn't 100 percent assistance or grade based assistance it is worth the time spent filling out the application to try and redeem such valuable job benefits. Additionally, one doesn't always have to be employed by a savvy large corporation to receive such benefits, a small business owner may see such assistance as the perfect tax deduction and might be worth asking for instead of a raise.

Consortium universities

Some universities may be members in a regional tuition consortium allowing students from one state to attend universities in another state at a discount to the normal out of state tuition. After establishing residency which is usually a period of 1 year, those students may qualify for instate tuition. Calling different universities admissions offices is a good place to start in researching this possibility.

Register as in-state not out of state/attend state vs private school

The difference between instate and out of state tuition can be enormous. It might be worth establishing residency before hand in order to qualify for the lower tuition at State schools. Private schools may not honor the in state and out of state guidelines since they are private institutions. Additionally private schools tend to charge much steeper tuition costs. There are many credible state universities that's education program is considered at par with if not better than some top tier private schools.

Buy used text books

Many college and university bookstores offer resale programs for books that are used in consecutive or repeated semesters. This allows new students to buy books from previous students who have resold their books back to the college or university bookstore. After 40 classes of course work, some with 2 or 3 textbooks each the savings on used books can add up. The price of used textbooks can be marked down by 10% or more depending on the condition.

Sell text books online

If the textbooks your class uses are new editions they could be worth something through online retailers. To optimize on this technique, purchase used text books through the book store or online and then resell them to minimize costs. Since textbooks can cost up to and sometimes over $500.00/semester, the potential savings are in the thousands of dollars over a traditional 4 year university program.

Employment during enrollment

Working during school can help pay for costs in addition to making graduating on time a lot tougher. Depending on whether you work full or part time will make a difference on how much you can earn versus how many credits to enroll in. Burn out is possible when working full time and attending a rigorous academic program so be realistic with yourself as well.

Avoid student loans and credit card expenses

Student loans may seem like the easy option at first but depending on the interest rate upon graduation and thereafter, the interest on the loans can multiply the real cost of attending college or university. Avoiding these methods of payment may be impossible, but keeping the future cost in mind is prudent.

Apply for scholarships and grants

Good grades and standardized test scores can mean one very good word, scholarship. While test scores alone don't translate to scholarship they can be a big help. Researching the different types of scholarships and grants available and applying for them properly is key to qualifying for this type of free education. It is worth the time to work for and try for these types of funding.

Paying for college may seem daunting at first and the prospect of debt may not seem appealing at all and that is because it isn't. However, if you decided the opportunity cost of an education is worth it and will pay back more in the future, then the next step is to find ways to minimize these costs and expenses. The tips and methods in this article can help with just that. The more of the tips that are utilized and the more consistently they are applied, the greater the potential savings, affordability and practicality of paying for school can be.

How Owning More Than One Home Affects FAFSA Applications

Owning more than one home affects the Free Application For Federal Student Aid (FAFSA) by increasing net asset value for a family. Since assets are a significant factor in the FAFSA 'application', and the FAFSA review process, reducing the value of these assets can potentially increase the amount of Federal financial aid qualified for. Reducing asset value can be done, but may take financial resourcefulness, and a willingness to convert and/or transfer ownership of those assets to different financial instruments and/or persons.

Home factors weighed in the FAFSA methodology

There is more than one variable of home ownership that can affect the influence of a second home on FAFSA. Each one of these elements may influence the designation of the home as an asset, and the weight of affect the home has on the student aid application. The greater the asset value and/or income from the second home and the closer the connection of ownership is to the FAFSA applicant, the greater the potential reduction in FAFSA qualification(s). The following list comprises aspects of second home ownership that can influence FAFSA.

• Home value(s)
• Income from the home
• Documented owners
• Property appreciation
• Location of home

Obviously the more expensive the property is the greater the value of the asset and henceforth, its influence on FAFSA. Additionally, if the real estate is used for rental or lease, an income derived from such may also have bearing on student loan qualification. Similarly, if the home's value has or is expected to appreciate in value, this may be a factor in the FAFSA 'Federal Methodology' depending on how elaborate it actually is.

If the home is not owned by either the FAFSA applicant(s) or the FAFSA applicant(s) parents, then the important of the home on the application is likely reduced. Lastly, if the home is owned abroad in another jurisdiction via international business held trust, it may not qualify as ownership in so far as FAFSA is concerned. Moreover, depending on where the second home is located i.e. either domestically or internationally, its assessed value may vary thereby further factoring in to FAFSA.

Affects of home ownership on FAFSA

If a particular home is considered relevant by the FAFSA process it can cause the 'Expected Family Contribution' (EFC) to rise. In such case, there can be a number of potential repercussions on the student aid application. Generally, the greater the EFC, the less likely FAFSA will be approved and if it is approved, the amount qualified for may decline. Below are some elements of FAFSA that may be affected by ownership of a second home.

• Qualification for financial assistance
• Increase in student financial aid
• Consideration for Federal and State grants
• Access to more educational programs
• Entrance into Federal Work Study

A highly priced home owned either by the student or the student's immediate family could disqualify the applicant from FAFSA approval in so far as the FAFSA process allows. Moreover, if the home becomes less of a consideration either by lowered value or less relevant ownership, this may help the applicant qualify, and be eligible for a larger amount of assistance. This assistance can include both Federal and State grants and/or entrance into Federal Work Study programs in addition to qualification for subsidized and non-subsidized loans. Also, with qualification and increased eligibility, comes the potential to be admitted and enroll in more educational programs.

Techniques to reduce home ownership's influence on FAFSA applications

A family that owns a second home doesn't necessarily have to give up on FAFSA. This is because there are certain financial techniques and strategies that may limit or eliminate the second home as a financial consideration in the 'Federal Methodology' used during the FAFSA review process. If the correct steps are taken, the second home need not be a problem to student loan applicants. It may be helpful to keep in mind some of the financial techniques listed below are quite involved and could take some time to prepare for.

• Transfer ownership to a business
• Sell the home
• Reinvest home proceeds in non-eligible assets
• Temporarily forfeit ownership
• Convert home into a trust owned entity

If a second home is registered as owned by a business, it may not qualify as a personal asset depending on the business structure and/or how the FAFSA process considers business structure in relation to ownership. Also, if the second home becomes too much of a financial obstacle, it could be sold, hence nullifying its influence on FAFSA. However, if the home is sold within the same or previous tax years as the Federal assistance application, it may increase the capital gains of the owner and the Expected Family Contribution in another way. Thus it is more advantageous to sell the home in a tax year that is not considered by FAFSA and then transfer the proceeds to a non-eligible asset such as a retirement account and/or personal assets.

Placing the property into the custody of a flow through trust or business owned trust may reduce the eligible income generated from the property considered in the FAFSA process. Moreover, if the primary trustee of the trust is both the business owner, parent of, or the FAFSA applicant, ownership of the home can be transferred back to the original owner if and when it is no longer an influence on the FAFSA procedure.

If ownership of the second home is temporarily transferred to another party, the home is less likely to be considered an asset in regard to the Federal assistance application. This can be achieved by filing a property transfer affidavit, memorandum of understanding and/or repurchase agreement/contract, in addition to a quit claim deed and forward contract to secure reacquisition at a later point and under no uncertain terms. This last attempt at bypassing the asset ownership can be quite involved and may also require a mortgage assumption.