[Web Special] Live Q&A with Beth Kobliner

New Student Loan Rules with Beth Kobliner

(07/01/2009)

12:57

The Takeaway: Hey, folks - Adam from The Takeaway here. We'll be starting in just a few minutes, but feel free to submit your questions for Beth now, and we'll get them queued up.

1:00	bethkobliner: Hi everyone!

1:01	bethkobliner: Brad, thanks for your question!

1:01	[Comment From Brad ] What do they mean by public service? Is it just the Peace Corps?

1:01	bethkobliner: Here's the deal. Public service could mean, in certain circumstances, social worker, teacher, legal aid lawyer, etc.

1:02	bethkobliner: Public service also includes the military, law enforcement, even some sort of non-profit work.

1:02	bethkobliner: To get all the information you need on this go to a fantastic website: www.finaid.org.

1:03	[Comment From Lisa ] My loans are through Sallie Mae, can I still qualify?

1:03	bethkobliner: Absolutely!

1:03	[Comment From Brad ] (follow-up) Thanks. So if I have the right type of job, I just have to stay in it for ten years?

1:04	bethkobliner: I find it distressing that there hasn't been publicity for this income based repayment plans! Sallie Mae is one of the few sites that has at least some info on them. What you need to do is first check out ibrinfo.org to get a sense of how much you will save with this plan.

1:05	bethkobliner: Then you can compare that to other offerings. Finaid.org offers you a way to compare all your choices.

1:05

[Comment From John B. ]
I am married filing my taxes jointly. I owe $80,000 in student loans and I am 42 years old. My payoff date is scheduled for when I am 65. I currently pay $450 per month on an automatic draft. I make $92,000 per year and my wife makes about $40,000 per year. Can I take advantage of the new rules in any way?

1:06	bethkobliner: Hey Brad. Getting back to you and your do-goody ways:-) Yes, you have to stay in that public service job for 10 years. BUT HERE IS SOMETHING REALLY IMPORTANT:

1:06	bethkobliner: If anyone out there is eager to do public service and get 10-year forgiveness, you must do it through the government's Direct Loan program.

1:08

bethkobliner: Briefly, this Direct loan program is offered by 25% of colleges. If you got your federal loans from a bank (Staffords, etc.) you can CONSOLIDATE your loans through the Direct Loan program and then qualify for that 10-year do-gooders bonus. Go to loan consolidation.ed.gov. This is complicated so I hope this clarifies!

1:09	bethkobliner: Okay, now onto John B's question.

1:10	bethkobliner: The best thing for you to do is go to IBRinfo.org and plug in the numbers. This is a great calculator set up by the Project on Student Debt--a terrific group.

1:10	bethkobliner: One small point though:

1:11	bethkobliner: A crazy loophole makes this new income based repayment program less beneficial for married couples where both partners are in debt. Not sure if your wife has loans. The good news is that this bad loophole should be stopped up by November.

1:12	bethkobliner: any more questions?

1:12	[Comment From Elise from Detroit ] Bottom line: are you a bad parent if you make your kid go to the cheaper state school instead of the more prestigious private college? i honestly don't know how to weigh this decision.

1:12	bethkobliner: Absolutely not!

1:13

[Comment From Teddy S. ]
I have been out of school for about three years and was making my payments on time until recently. (Still owe about $30,000 in student loans plus another $10,000 in private loans.) Now I'm still working but underemployed. (They cut my hours and base salary.) Can I still get this plan? Would it help me? I'm earning about $30,000 a year now. Thanks for any advice!

1:13	bethkobliner: These days, public colleges like Suny Binghamton, U of Michigan, etc. are considered "Public Ivies."

1:14	bethkobliner: That said, I believe, personally, that it's always good to have a really top student apply to really top private college and see if they can get aid. Places like Harvard and Yale give very generous aid packages.

1:14	bethkobliner: Hi Teddy S.

1:15	bethkobliner: I feel your pain. And you're not alone. So first off, to be clear, income based repayment will help you only on your federal student loans (Staffords, Perkins, etc.)

1:15	bethkobliner: There is an excellent chance that this plan will help you a lot!

1:16	bethkobliner: The general rule of thumb is that income based repayment is generally better for you if your student loan total is larger than one year's salary.

1:16	bethkobliner: Go to ibrinfo.org and check it out~

1:16	[Comment From Stacey ] I'm wondering about making job decisions based on the public service loan forgiveness. Should we feel confident that this law will still be on the books by the time the ten years is up?

1:17	bethkobliner: I meant "!"

1:17	bethkobliner: Wow, great question! You earned your degree:-)

1:18	bethkobliner: You know, it's hard to say. There have been stories in the NYTimes about states pulling back on promises like this.

1:19	bethkobliner: I do think, though, that if you're entering college now and you graduate in 4 years, this plan will most likely be around. I would think the Obama administration wouldn't like that happen.

1:19	bethkobliner: It's a good question though and one I'd have to research more thoroughly in terms of precedents...

1:19	[Comment From alahamgordo ] I'm just sick of my loans. Can't I just go bankrupt and get rid of them?

1:20	bethkobliner: that said, if it were I, I would assume 10-year forgiveness will stay in place, it would be really, really hard to dismantle federally and go for it.

1:20	bethkobliner: Hi Alahamgordo

1:21	bethkobliner: OKay, I know you're sick of your loans. Most people are. But the law does NOT allow you to discharge student loans in bankruptcy.

1:22	bethkobliner: any other questions?

1:22	[Comment From Elise from Detroit ] the diamond industry used to say that you should spend two months salary on your engagement ring. is there some equivalent formula for how much debt you should take on in paying for your kid's education?

1:22	bethkobliner: Hmmmmm. I've never heard of one.

1:22	[Comment From MJ ] are there any specific things you should do if you pieced together your aid from multiple loans?

1:23	bethkobliner: Personally, I believe that you shouldn't raid your 401k or retirement funds to pay for your kids college. (I know my dad borrowed against his however...)

1:23	bethkobliner: But Elise, I do think that you and your child have to weigh the pros and cons.

1:24	bethkobliner: For someone, going to a name-brand, Ivy League school may seem "worth it" -- and going into lots of debt to do so may feel like an okay thing to do.

1:24	The Takeaway: Elise has a follow-on question:

1:24	[Comment From elise from detroit ] How do you decide how much debt should be in your name and how much in your child's name?

1:24	bethkobliner: If you plan to take out any loans for your kids Elise, I strongly recommend the gov't PLUS loans.

1:25	bethkobliner: Elise, first and foremost you need to apply for financial aid through your child's school. Many people qualify who don't assume they will.

1:25	bethkobliner: Then the school determines how they make up your "need." That's usually with student loans (Staffords, Perkins) which have the lowest rates.

1:25	bethkobliner: the school may offer some grant money, which doesn't need to be paid back.

1:26	bethkobliner: And beyond that, Elise, you'll have to borrow. Again, the PLUS loans offer good rates for parents--I think they are about 8% now. That's much better than private loans.

1:26	bethkobliner: I'm going to answer MJ now.

1:27	bethkobliner: Like a lot of people MJ, you have loans from multiple places.

1:28

bethkobliner: The first thing you should do is know what you have. Separate your federal loans (Staffords, Perkins, GRADPlus if you're a grad student) from your private loans. The private loans, which are NOT federally subsidized are often in the 11% to 15% range. So your goal will be to pay those off as fast as possible because you want to get rid of them as fast as possible.

1:29	bethkobliner: So with your federal loans, you may decide to go for the income based repayment plan. That reduces your monthly payment on the lower rate federal loans and you can use that extra cash to pay off the higher rate loans more quickly. Make sense?

1:29	bethkobliner: next question

1:29	[Comment From Chelsea ] I’m curious if this new plan could be an incentive for newly unemployed folks to take on a college degree or graduate level degree. Is it wise in this economy even under this new plan to incur student loan debt?

1:30	bethkobliner: The trend is that because of this dismal job environment for young people, many are already going to grad school as a "safe haven."

1:31	bethkobliner: I would say that if you planned to go to grad school or to college anyway, this income based repayment plan will most certainly make repayment easier for you. And that's good news.

1:31	bethkobliner: But you're right. The average college senior leaves school with $23,000 in debt.

1:32	bethkobliner: Piling more on is something to consider carefully.

1:32	bethkobliner: Next question please.

1:32	[Comment From Jennifer ] I have federal and private loans. I'm still in college so I am not sure if I qualify for this program yet since I do not have a real stable income. The interest is accruing fast on the private loans, is there anything I can do with my loans now to save money in the future?

1:32	bethkobliner: jennifer--this is a tough one.

1:33	bethkobliner: First, to be clear, the income based repayment plan kicks in 6 months after you graduate and start paying back your loans.

1:33	bethkobliner: Loans like Staffords do not require you to pay them while you are in school.

1:34

bethkobliner: My suggestion is to make sure you max out on your federal loans first (I'm sure you are). Then if your only resort are private loans, there isn't all that much you can do. Obviously, some sort of scholarship or grant program is ideal and there are resources to research those type of programs. Unless your parents are willing to take on a PLUS loan to help, the sad reality is that you're stuck with these private loans.

1:35	bethkobliner: I don't to be all doom and gloom. But the reality is that many people graduating from college are likely to spend the next 20 years or so paying back loans.

1:35	bethkobliner: sorry for typos--I'm typing too fast!

1:36	bethkobliner: Next question please.

1:36	The Takeaway: We've got a couple about consolidation:

1:36	[Comment From Bobby ] I just graduated and my parents tell me I should consolidate my loans (about $15,000). What's the advantage of that? Can I do that and also take advantage of this new payment plan?

1:36	[Comment From Molly ] are any places consolidating federal loans -- or just the federal government? (last year, during economic crash, every private bank stopped consolidating)

1:36	bethkobliner: Hi Molly and Bobby.

1:37	bethkobliner: So Bobby, your parents may be thinking about when they graduated and got an advantage to consolidate. That may not benefit you all that much. That's because a few years ago, the federal government changed the rules of the game and switched from variable rate loans to fixed.

1:38	bethkobliner: So you probably have mostly fixed rate Stafford loans at 6.8% and consolidating them won't bring down your rate. However, if you have older loans

1:39	bethkobliner: that you took out before July 1, 2006

1:39	bethkobliner: you actually may be able to lock in a rate as low as 1.8% on your Staffords for these old loans. Definitely check with your servicer. Be persistent. Go to finaid.org for help.

1:40	bethkobliner: Hi Molly. Onto your question!

1:41	bethkobliner: You're right. That in the bad economic climate many banks pulled out of the consolidating business. But depending on when you got your loans, consolidating may not be advantageous to you.

1:41	bethkobliner: (I hope I spelled advantageous right...)

1:42	bethkobliner: Basically, if you want to consolidate, you can do it through loanconsolidation.ed.gov.

1:42	bethkobliner: any other questions?

1:42

[Comment From BethB ]
My daughter just graduated with over $100,000 of debt,, split between Federal and private student loans. She was able to get a $30,000/year job and technically doesn't need to start repaying until December. Would you recommend she put any lump sum she can (graduation gifts of about $10,000) toward her private loans now or should she wait to start repayment in December?

1:42	bethkobliner: or has my spelling turned everyone off????

1:42	bethkobliner: Hi Beth B.

1:43	The Takeaway: [advantageous was spelled exactly correctly. -Adam]

1:43	bethkobliner: Oh. That's an interesting question.

1:44	bethkobliner: Are the private loans offering a lower rate if she starts repaying now?

1:44	bethkobliner: If so, then that's what she should do.

1:45	bethkobliner: She may want to check out the income based repayment program at ibrinfo.org to see if it will benefit her!

1:46	bethkobliner: more questions anyone?

1:46	[Comment From BethB ] I'd have to double check that

1:46

[Comment From Mary van D ]
Hi Beth - thanks for being here. I've tried the calculator and it didn't work out for me right now (my business is seasonal) but could reduce my payments starting in around November. Right now my payments are managable, but only just. Is there any hope for me? Thank you :^)

1:46	bethkobliner: Yes Mary D. There is hope!

1:47	bethkobliner: The important thing is to do what you've done. Go on ibrinfo.org and then compare all your options on finaid.org.

1:47	bethkobliner: These are both independent outfits, by the way. I think it's sad that the banks who profit from this loan business are not offering better information.

1:48	bethkobliner: You should see if extended repayment helps out for you. The good news is you can change your repayment plans as your income changes. Good luck!

1:48	The Takeaway: Actually, that raises an interesting point. With the 10/25 year forgiveness program, do private lenders like Sallie Mae stand to lose money?

1:48	bethkobliner: next question please, Adam.

1:48	bethkobliner: Oh, that's a great point Adam.

1:48	bethkobliner: Yes, if you're paying less interest than the private lender does get less interest.

1:49	The Takeaway: We've got two more questions to go, and then we'll wind down.

1:49	[Comment From HudsonHawkProxy ] hi - I did the calculator at Sallie Mae and it says I can either do income-based or normal 30-year. 30-year looks a little cheaper (I think it was $301 vs. $336). Should I just get that?

1:49	bethkobliner: I've been shocked about how such a really good new program that will save probably a million people really big money isn't getting much notice. Except here at the Takeaway!

1:50	bethkobliner: Hudson Hawk. There are two numbers to look at.

1:51	bethkobliner: Although 30-year extended payments may come out cheaper per month, you also should look at total interest you'll be paying. Since the income based says you stop payments after 25 years, it actually may save your money over the long term.

1:51	bethkobliner: If, however, your income will grow a lot, income based repayment may be less beneficial as the years go on.

1:52	bethkobliner: So I would say, look at total interest that you pay under each plan and compare that as well. Annoyingly, you'll have to be vigilant if you get a new job that pays more or a big raise. That would probably be a nice kind of annoying though...

1:52	bethkobliner: Oh, HudsonHawk. If the Sallie Mae calculator doesn't show total cost, check out finaid.org.

1:53	bethkobliner: I want to just welcome Harold and Shirley, my parents, who are observing this--their first online chat!

1:53	The Takeaway: Okay, folks. Final question, from Tammie, and a very on-point comment from Elise.

1:53	bethkobliner: And I'm eating the soup you made mom--it's great!

1:53	[Comment From tammie clark ] how do i know if my loans qualify? i send one check to the government ($110) and one to sallie mae ($306). so some are federal and some are private, right?

1:54	bethkobliner: Hi Tammie. In your case they may both be federal loans.

1:54	bethkobliner: If they are Staffords or Perkins loans or Grad Plus loans, they are federal.

1:55	bethkobliner: My guess is that you are participating in the Direct Loan program which gave you federal loans and that's the $110 amount. Those are eligible for the Income based repayment plans.

1:55	bethkobliner: Sallie Mae offers public and private loans. So you'll need to check. If your loans from Sallie are private loans, those do not qualify.

1:55	bethkobliner: Definitely worth looking into though.

1:56	The Takeaway: And our final comment, from Elise:

1:56	[Comment From elise from detroit ] thanks! this is all really helpful. i wish they could make it clearer for people to sort through. i'm sure there are smarter ways to structure the debt than i have thought of yet.

1:56	bethkobliner: Elise. You're right.

1:56	bethkobliner: There's no reason that this can't be simplified for people.

1:56	bethkobliner: Right now the steps are:

1:57	bethkobliner: go to IBRinfo.org

1:57	bethkobliner: This will indicate what your monthly payment would be under this new plan.

1:57	bethkobliner: Then compare that to your offerings through finaid.org.

1:57	bethkobliner: Is it better than the 10-year standard? extended 30 year? graduated payment?

1:58	bethkobliner: Finally, if you are in public service, go to loanconsolidation.ed.gov to get a sense of whether you can get your loans forgiven in 10 years.

1:58	bethkobliner: Now there's no reason that banks couldn't tell you that:-)

1:59	bethkobliner: Hope that helps....

1:59	bethkobliner: It's been fun chatting with everyone. And it's nice to have a little good news....

1:59	The Takeaway: Some excellent takeaways there -- as always, big thanks to Beth (and her soup-providing parents!) for joining in today, along with all of you.

2:00	bethkobliner: Thank you Adam!!!!!!!

2:00	The Takeaway: We'll have the transcript of this available on the site for anyone who missed it or came in late!

2:00	bethkobliner: bye Harold and Shirley! Thanks for your help paying for college--and teaching me smart ways to pay back my student loans!

2:00	bethkobliner: Bye Adam!

2:02	The Takeaway: Thanks, Beth! Folks, if there's anyone else you'd like to have a live chat with here, by all means send us your ideas at mytake@thetakeaway.org. And thanks!

2:02

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