Reasonable approach to student loans

Barack Obama signed into law a measure restoring lower interest rates for student loans, pledging the hard-fought compromise would be just the first step in a broader. “Feels good signing bills. I haven’t done this in a while,” Obama said, alluding to the difficulty he’s faced getting Congress, particularly the Republican-controlled House, to approve his legislative priorities, such as gun control and budget deals.

The rare compromise emerged only after a frenzy of summer negotiations, with lawmakers at odds over how loan rates should be set in the future even while they agreed that a doubling of rates — it kicked in July 1 when Congress failed to act before the deadline — would be bad policy and bad news for students.

Encircled by lawmakers from both parties in the Oval Office, Obama praised Democrats and Republicans alike for agreeing — finally — on what he called a sensible, reasonable approach to student loans even as he cautioned that “our job is not done.” Obama cast the student loan deal as just the first of many measures the U.S. needs to make college affordable as a higher-tech economy makes advanced training and education a necessity for many workers.

Plan would cap rates on loans to undergrads

Under the compromise measure, undergraduate students would pay a rate of 3.85% next year on subsidized and unsubsidized Stafford loans. The plan would cap rates on loans to undergrads at 8.25%, for graduate students at 9.5% and parents at 10.5%.

While this is not the agreement that any of us would have written, and many of us would like to have seen something quite different, I believe we have come a very long way on reaching common ground – Sen. Dick Durbin of Illinois, the Democratic whip in the Senate, said at a press conference Thursday.

Senator Tom Harkin, the Democratic chairman of the committee that oversees federal education programs, also was present in announcing the deal. The Iowa senator had resisted for weeks agreeing to a plan unless it included caps on how high the interest rates on the loans could rise. The agreement, if approved by the full Senate, would tie interest rates on a variety of government-backed loans to 10-year Treasury notes and would lock in surcharges paid to the government for administrative costs.

Borrowing students likely to default on their loans

The Keeping Student Loans Affordable Act, sponsored by Miller, is one of several proposals in Congress to delay or lessen the scheduled increase on student loan interest rates. A similar rate hike was scheduled to occur last summer but was delayed for one year after the issue became a talking point in the presidential campaigns of both President Barack Obama and GOP challenger Mitt Romney.

Miller’s announcement comes on the same day of a USA Today report that borrowing students at 265 U.S. colleges and universities are more likely to default on their loans than full-time freshmen are to complete their studies.

Many students at these colleges will no doubt take out loans, graduate and get good jobs. But the high default rates and lower graduation rates suggest that many will not. Among the “Red Flag” schools are two in Utah, the private for-profit Broadview University and the ITT Technical Institute of Murray. According to the report, Broadview borrowers default their loans at a rate of 19.3 percent, compared with a 19 percent graduation rate at the school.

Borrowers miss out many forms of repayment assistance

Each type of loan consolidation should be entered into only with thoughtful consideration, and the guidance of a trusted and seasoned professionals. When borrowers choose to include federal student loans in a consolidation with other outstanding debt they miss out on the many forms of repayment assistance that are generously made available exclusively for their federal student loans.

You will miss out on generous federal student loan repayment assistance, including income based repayment, deferment and forbearance. Borrowers often don’t realize that since they are not dealing with the collection agency or lender directly, they could have negotiated an even better outcome had they had spoken with their lending company directly.

Moreover, working with a debt consolidation company takes away the greater control a borrower could have had over outstanding debt. In fact, when borrowers put a third party in charge of negotiating their debt repayment, they need to beware that this third party might not have their best interest in mind. Some debt consolidation lenders even offer consolidation to those with defaulted student loans. They’ll negotiate a settlement with the lender, and then charge the defaulted borrower for their services.

The best way to reduce debt is through settlement

Before you start working on a loan consolidation solution, you need to get everything organized. It is not possible to settle an account for a lower sum if you do not know the exact amount of money you owe or if you do not have the data available to show that you are not able to make the payments. Getting organized means that you get as much information as possible together related to your financial situation and the amount of money you owe.

Personal or consolidation loan charge as much as 20 to 30 percent. On top of the interest, the loan will require paying closing costs and other fees, which can add unexpected expenses. Bankruptcy is another potential option, but it is best reserved as a last resort if a settlement is not an option. The reason you should avoid bankruptcy is that it will remain on your credit report for ten years. This can impact your ability to get a new job, take out a mortgage or reach other financial goals.

The best way to reduce your debt if you owe a large sum of money to a creditor is through settlement. Since settlement will result in forgiving the remaining amount of debt, you can begin taking immediate action to rebuild your credit history. Settlement has a temporary impact on your credit score. It does not have the same negative association as a bankruptcy, so it is possible to begin rebuilding the credit score and history immediately after the lump sum is paid and the creditor forgives your account. Getting a creditor and loan consolidation to reduce your debt if you owe a large sum is primarily about negotiation and settling the account.