Chipping Student Loans Away through Shopping

New Year’s is just around the corner, and it looks like I’ll get to celebrate fulfilling one of my 2011 resolutions: pay off one of my graduate school student loans! In three years, I chipped away a $15,550 student loan balance, which now stands at just over $200. I’ll use some Christmas money to finish it off, and should ring in the New Year with one less student loan to deal with (but 2 smaller ones to go).

Besides making payments on the loan during deferment, I used two shopping tools to help me work on that loan: UPromise and ThankYou points.

I’ve covered the UPromise program before, but to summarize, it’s primarily based on a shopping portal that gives cash back to users. The cash back balance can then be applied against a Sallie Mae student loan account, transferred to a 529 education savings account, or redeemed for cash. The cash back rate is often not as high as that from Discover’s ShopDiscover or Chase’s Ultimate Rewards Mall, but every so often I come across retailers that are not partners with either of these two but are in the UPromise portal.

Not that credit cards don’t help with student loans. Over the last two years, Citi’s ThankYou points program has been vital to erasing my student loan balance. I have the CitiForward credit card, which offers 5 Thank You points per dollar spent on books, movies, music, and, most importantly, restaurants, and 1 point on everything else. These points can then be redeemed for gift cards and cash, but also cheques to pay student loan or mortgage balances! Until September 2011, to get a $100 cheque, you needed 12,700 points, but since then the requirement has dropped to 10,000 points. There was no official announcement about this change, so I don’t know how long it will last – if you’re sitting on any ThankYou points and have a student loan or a mortgage, now might be the best time to redeem them.

Now, 12,500 ThankYou points trade for $125 in Student Loan Rebates. In April, 12,700 points were required for $100.

Admittedly, at 10,000 points for $100, this is the same redemption rate as for, say, a Banana Republic or a Macy’s gift card. However, I’ve found that it’s a lot easier to spend money shopping than it is to put money aside to pay off my student loan more quickly, so I prefer redeeming ThankYou points for student loan payments since it’s a way to force myself to pay down the loan with money that never made it to my hands in the first place. Besides, the redemption rate for student loans and mortgage payments is much better than for cash: $100 in cash costs 16,000 ThankYou points.

To redeem ThankYou points for student loan or mortgage payments, all you have to do is call the ThankYou network (1800-THANKYOU) and give them your lending company’s name. They will then mail you the cheque, which you can send to your lending institution along with a note with any special instructions on how to apply the payment (e.g., post everything to the loan with the highest interest rate or to the one with the smallest balance). For UPromise, even though the payments post automatically, you can also call Sallie Mae to request a change to how any payment is applied.

With less than two weeks of 2011 left, if you are also aiming to making a big chip on your student loan or mortgage balance, now might be a great time to ramp up the online purchases you make through UPromise or to redeem your ThankYou points for loan payments. The fact that now you only need 10,000 ThankYou points for a $100 cheque not only sweetens the deal but may also be the push you need – it’s not clear how long this new rate will stick around.

And if it’s too late for 2011, here’s an easy 2012 resolution for you: set up and remember to use UPromise or the ThankYou network to get rid of your student loans next year. Good luck, and have fun watching your loan balance disappear!

Three Tips for Filing FAFSA

If you are returning to school this year as a graduate student, filing the FAFSA this time around might be slightly different from when you did it for college.  Here are a few tips to maximize your financial aid.

  1. File as soon as possible – While FAFSA requires information from your 2009 tax return and schools will request a copy of your tax return for verification, you DO NOT need to have filed your taxes to submit your FAFSA application.  Simply check the box that says “will file” on the application and correct your FAFSA later once you have filed your 2009 return.  Continue reading

When Grace Runs Out

For many of you who graduated college or any other tertiary institution this past spring, your monthly fixed costs are about to hike up.  As the 6-month grace period on your federal Stafford loans (subsidized and unsubsidized) comes to an end, it is time to revisit your payment strategies.  Here are some points to consider as you prepare yourself to tackle that debt:

  • Unemployment: If you are unemployed, call your lender immediately (before your first payment is due) and ask for deferment.  Generally, lenders will defer your loans twice, for one year each, if you are unemployed, but your loans, including subsidized ones, will accrue interest throughout the deferment period.  Once you do get a job, start paying back your student loans immediately to avoid unnecessary interest costs.
  • Consolidation: While most student loan providers have suspended consolidation offers in recent years, you can still consolidate your loans through the Department of Education’s Federal Direct Consolidation Loans program.  This program allows you to consolidate several loan types, including Stafford, Perkins, and PLUS, regardless of whether the loans are from the same lender or not.  You can choose to consolidate all of your loans or only some of them, and the interest rate of the consolidated loan will be the weighted average of the interest rates of the loans in the consolidation (The Federal Direct program’s website includes an online calculator that estimates your monthly payment and interest rate if you consolidate your loans).

Consolidation is a particularly attractive option this year if you have any variable interest loans (in general, Stafford loans disbursed between 1998 and 2006).  The interest rate on these loans changes every year and is based on the 91-day May Treasury-bill rate (2.30% + T-bill rate), which was at a historic low this year, 0.18%.  So if you consolidate all of your variable interest loans this year, you can lock in a rate of 2.48%.  Alternatively, you can consolidate these currently low-interest loans with other student loans you may have.

  • Repayment Plan: By default, lenders set your payment schedule to a “standard repayment plan” with a fixed amount due every month for 10 years, but you can change that at any time.  Two options that have existed for a while are the “graduated” and the “extended” repayment plans.  Under the former, your minimum payment amounts start low and increase every two years for 10-30 years until you pay off your loan.  The latter option, on the other hand, allows you to make your repayment period longer than what you were initially granted, up to 25 years, and can be used in combination with either the standard or the graduated repayment plan.  This extended plan is only available if you have $30,000 or more in student loans.

Now, the new plan people are talking about is the “Income Contingent Repayment (ICR) plan.”  Under this plan, your monthly payment amounts are based on your income and family size, and are generally erased after 25 years of repayment, even if you have not paid off your loan entirely.

Changing your repayment plan may mean you would spend more in interest payments.  However, if you cannot afford the monthly payment on a 10-year plan, having lower payments in your first few years or throughout an extended loan period could offer some relief.  Similarly, having a payment plan that is tailored to your income and family size should make repayment more manageable.  And in either case, paying more in interest in the long run is always a better option than being stretched out and risking having to skip on your monthly payments and incurring fees.

Your grace period is almost over, and if there’s one thing you should remember from your education when dealing with your loans, it is that the more prepared you are, the better your will do, and that procrastination, while tempting, is usually not a good thing.  Study your repayment options, assess how much you can afford in monthly payments, and be prepared when your grace period runs out.

Upromise: One Bad News and Two Redeeming Factors

Last week, I wrote about Upromise, a program that gives members cash back for purchases at certain stores, websites, and restaurants, which can then be transferred to Sallie Mae student loan accounts or 529 Plans.  But here’s an update, straight from my inbox: As of July 1, 2009 (never mind that I only got the email 5 days later!), store purchases at Bed Bath & Beyond are no longer eligible for the program, though the cash back rate for purchases on bedbathandbeyond.com was raised from 1 to 2%.  This is a pity since the 1% cash back given at BB&B stores only sweetened the deal when combined with the store coupons that come in the mail every couple of weeks (20% off an item plus another 1% cash back), but certainly does not negate the other benefits of the program.

For starters, here are two other great things about Upromise besides those mentioned in the previous post: (1) Upromise often lists coupon codes for its member stores, which can be used even if you’re not shopping through its program (e.g., you can buy online through ShopDiscover but use a coupon code you found in the Upromise website); and (2) apparently the cash accumulated through Upromise does not have to be used exclusively for education expenses, despite the program’s professed purpose.  In the small and difficult to find FAQ section, the program notes:

Upromise was created to help families save for college and we strongly encourage members to use the money they’ve earned towards education expenses. However, members may choose to withdraw the money they’ve saved for other purposes if they wish.

Now, besides the fact that you won’t be getting 1% cash back at Bed Bath & Beyond stores anymore, what else is keeping you from signing up for Upromise?

Paying for Education, One Purchase at a Time

If you have student loans to repay to Sallie Mae or are trying to save for education through a 529 Plan, you may want to use Upromise to help you out.  Upromise is a service that gives you cash for certain purchases from grocery stores, restaurants, online retail sites etc., which can then be transferred to your student loan account or 529 Plan – essentially a cash back program under which the cash is redeemed for education expenses.

To be honest, the cash back rates for Upromise are generally lower than most other programs such as ShopDiscover.  However, Upromise covers a much larger number of merchants and combines different programs to generate even more potential rewards.  Discover’s 5% cash back at Target.com and the Apple Store, for example, beats Upromise’s 2% and 1% rates at these online sites, respectively.  Upromise, however, offers 2% cash back on eBay and 1% on several travel sites, such as Orbitz and Travelocity, while Discover has not partnered with those sites as of yet.  Furthermore, Upromise also gives up to 8% cash back on restaurants that belong to the Rewards Network (for a full list visit rewardsnetwork.com) and on in-store purchases at a few places such as Bed Bath & Beyond (1%) and the Sunglass Hut (6%).

Upromise also allows you to add your grocery cards to your account, so that you get cash back on Upromise for certain items on top of your grocery stores’ discounts and/or points.  Participating stores include Safeway, Harris Teeter, and CVS.

Now the best feature of Upromise I think is that it allows you to add friends and family to your network.  That is, if they create a Upromise account and add you as a beneficiary, they can use the cash back program to help you pay for your education.  Alternatively, for online shopping, you can simply send them a “guest shopping” link, so that they do not even have to sign up for Upromisem but you can still earn cash on the program whenever anyone shops through that link.  So if your mom usually does the groceries and uses store cards, you may want to have her sign up for Upromise and help you pay off your loans; and if your grandparents are coming to visit, you might to want to send them your Upromise “guest shopping” link so that their trip can help you get some money into your 529 Plan.

Countdown to Lower Student Loan Interest Rates

Last week came with really good news on student loans – the WSJ and USA TODAY both published changes to student loans, including lower interest rates, effective July 1st.  The bulk of these changes are part of the phased-in plan of the College Cost Reduction Act of 2007, which stipulated increases in Pell Grant maxima, lower disbursement fees, and decreases in interest rates on Stafford loans each year until July 1, 2013 to make college more affordable (for the full text of the Act, click here).

Probably of most interest to readers regarding the Act, interest rates on Stafford loans (both subsidized and unsubsidized) will decrease by disbursement year.  Loans disbursed between July 1, 2006 and July 1, 2008 will retain the current 6.8% interest rate and for future disbursements, rates will be as follows:

July 1, 2008 – June 30, 2009: 6.12%

July 1, 2009 – June 30, 2010: 5.44%

July 1, 2010 – June 30, 2011: 4.76%

July 1, 2011 – June 30, 2012: 4.08%

July 1, 2012 – June 30, 2013: 3.40%

But while you may not benefit from this Act because you have a loan issued after July 1, 1998 but before July 1, 2006, the financial crisis is acting in your favor, at least with regards to federal student loans.  These loans issued between 1998 and 2006 have variable interest rates, which are determined by the 91-day May T-Bill rate (T-Bill rate + 1.70% during in-school, grace, and deferment; and T-Bill rate + 2.30% during repayment) and change every year.  This year the T-Bill rate is at a historic low, 0.18%, and the variable interest rate on student loans will fall accordingly to 1.88% during in-school, grace, and deferment period and 2.48% during repayment (currently, 4.21%)!

And what about people who got loans between July 1, 2006 and June 30, 2008, when rates were at their highest?  Before you kick yourself for having locked in that 6.8%, you may want to look into consolidation if you haven’t yet (loans can only be consolidated once in their lifespan).  While most student loan providers do not offer consolidations anymore, you can still consolidate through the Federal Direct Loan Program of the Department of Education and get a fixed 2.48% interest rate for the remainder of your repayment period starting July 1st.  For more information on eligibility and to get an application, visit the Federal Direct Consolidation Loans’ website.

Check out the WSJ and USA TODAY articles to learn more about the changes, and get ready to celebrate your independence (from high student loan interest rates) day on July 1st!

Use the Grace You’ve Got

So you’ve just graduated and the last thing you want to hear about is the debt you’ve accumulated over the last 4 years.  Luckily for you, you likely won’t have to deal with your federal student loans for at least another 5 months or so.  Stafford Loans – subsidized or unsubsidized – give you a 6-month grace period after you graduate, leave school, or drop to less than half-time enrollment before you have to start paying them off, and Perkins Loans have a 9-month grace period.  You might not be so lucky if you went to graduate school and used the GradPLUS loans, however, and neither are your parents if they took out PLUS loans your behalf: the repayment period for PLUS loans starts immediately after you graduate.  In that case, you have probably already received several notifications in the mail.

But even if you don’t have to start paying your student loans for another 6 months or so, you should be thinking about your repayment strategy.  We will break down the pros and cons of different repayment options for you in a future post, but while you are in your grace period, here are three pieces of advice you should consider. 

  1. Subsidized loans.  There is no reason to pay off your subsidized loans right now.  Their interest is subsidized throughout the grace period, up until repayment kicks in.  So, if you have the money  to pay them off and have already decided to do so,  keep it in a savings account earning interest for the next 5 months and only pay off the loans towards the very end of your grace period.
  2. During your grace period.  Do not touch your loans while they are in the grace period (besides paying off unsubsidized loans if you want to, even though you are not required).  You can change your repayment options at any time and you will probably have a better sense of what you can afford and whether you might need to extend your repayment timeline or lower your payments towards the end of the grace period, once you have bought most of your furniture and have worked for a few months.  Also, if you consolidate loans that are still in their grace period with loans that are not, you will actually lose that grace period. 
  3. At end of your grace period.  When your grace period is running out, do not dump all of your savings into your federal student loans.  While you may choose to pay more than the minimum monthly payment, their rates aren’t high enough to warrant emptying your bank accounts.  You need a cushion, including for making future repayments.  Paying a little more in interest is always better than becoming delinquent.  

The bottom line: use the grace period you’ve been given.  If you have a 6 month period until you have to repay your student loans, use it.  And use some of money you make during that period to create a cushion for yourself – it may come in handy.