April 2010 Archives

We've talked before about Income Based Repayment. Since then, you've had a few questions about how the program works, so I wanted to revisit some of them.

First, a refresher course: Income Based Repayment uses your adjusted gross income, family size and state of residence to calculate your monthly payment on certain federal student loans. IBR is a federal program, so private student loans don't qualify. And to eligible, the loan can't be in default. Also, remember that the Health Care and Education Reconciliation Act that we talked about last week includes some changes to the program, but that won't happen until 2014.

Now, let's dive in to some of your questions....

If I no longer qualify, do I have to leave IBR?
If your income rises, and you no longer have a financial hardship that makes you eligible for Partial Financial Hardship (PFH) payments under an income-based repayment schedule, you can still repay under IBR. There are added benefits to the program, like loan forgiveness after a certain period of time, which you can still take advantage of even if your payments are no longer based on your income.

What happens to my payment if I no longer qualify for PFH payments?
When you no longer qualify for PFH payments, your required monthly payment reverts back to a standard 10-year repayment schedule that is based on the amount of your eligible loans that were outstanding when you began repaying under IBR. Because the principal balance on your loans may have increased while you were making PFH payments (see the next question for more info), your actual repayment period may be longer than 10 years.

Will my interest be capitalized?
If your payment is no longer based on your income, the interest that you've accrued will be capitalized (added to the principal balance, which means it will accrue interest of its own). Before you decide on IBR, it's best to compare the total amount of interest you'd end up paying with IBR versus a standard repayment plan.

What about the debt that's forgiven after 25 years?
You know that any remaining debt after 25 years of payments in IBR is forgiven. One thing folks have been wondering about, though, is paying taxes on the forgiven amount. Yes, any forgiven debt is treated as taxable income.

This has a couple of readers worried. After all, the amount forgiven could be pretty significant. Just remember that if there is a forgiven amount, it will happen quite some time from now. So the amount you'll have to pay taxes on may not seem as scary when you think about the net present value of the tax you'd have to pay.

Are there special steps married borrowers need to take in order to qualify?
IBR payments are calculated using a borrower's adjusted gross income. In order for one spouse to calculate the IBR payment using his/her own AGI, the married borrowers must file taxes as "married filing separately." This situation is a tough one because you're weighing the repayment option with possible tax benefits from filing as a married couple. It might be wise to speak with a tax advisor before making your decision about IBR. Also, if you live in a community property state, you might want to check into whether your spouse's income would be considered.

Do you have any other questions about IBR? Let us know what you're wondering!

Editor's note: Over the next couple weeks we'll be talking about repaying your student loans — from types of plans to repayment strategies. Make sure to let us know if you have specific questions through comments!

Repayment is on its way, college seniors. You'll be entering this new phase of your financial life in a few short months. If you need to learn about your options, we're here to help.

Repayment plans for federal loans

If you've taken out federal student loans, there are a few different types of repayment plans:

• Standard — All federal loans are set up on this plan by default. It's arranged so that each monthly payment is the same and that the loan will be paid off within 10 years. Monthly payments must be a minimum of $50. With this option, you pay the least amount of interest over the life of the loan.


• Extended — With this plan, you'll stretch your payments out longer than the standard 10 years, up to a 25-year maximum. Payments may be the same amount each month, or they can start out lower and increase over time. This option may fit your budget better, if you can't make the standard monthly payment based on 10-year repayment, but you may pay more interest over the life of the loan.


• Graduated — This plan lets you start out with lower monthly payments that gradually increase over time. It's different than extended repayment, in that you're still paying off the loan within a 10-year timeframe, but starting with lower monthly payments may better fit your budget right out of college. Again, with this plan you may end up paying more interest over the life of the loan.


• Income-sensitive — With this payment plan, your monthly payment will be adjusted each year based on your expected gross income from all sources. On this plan, you'll still repay your loan over a 10-year timeframe and you may pay more interest over the life of the loan, but it may be a better fit for your post-college budget to begin with lower monthly payments. You'll need to request this option annually. Each year you will need to decide if it still meets your repayment needs.


• Income-based — This option caps your monthly payments at a percentage of your discretionary income (based on income and family size). The monthly payment amount is adjusted each year based on these factors. This repayment options is available to federal loan borrowers, excluding PLUS loans for parents and Federal Consolidation Loans that include PLUS loans for parents. Your repayment period can exceed 10 years under this plain, and it may cost you more interest over the life of the loan.

Repayment plans for private student loans
If you've taken out private student loans, check with your lender about your repayment options. If you have a private student loan from Wells Fargo, head to our website or give us a call to talk through your options. Be sure to stay in contact if you think you're going to have trouble repaying your loan.

Consolidation options
Consolidating your loans lets you combine multiple loans into one new loan with one monthly payment. If you have more than one private student loan (whether they're from Wells Fargo or other lenders), you can simplify repayment by consolidating. Again, you may pay more over the life of the loan with this option.

If you'd like more details about any of these repayment plans, click here. And don't forget, if you have a specific question about repayment, please ask us!

It's Earth Day, and we're probably all thinking a little bit more about being green on a personal level. But do you ever give much thought to green practices within your school?

Just how green is your campus, anyway?

The Princeton Review offers a "green honor roll" of schools that receive their highest score based on their environmental practices, policies and course offerings. The Sierra Club also ranks colleges based on how "eco-enlightened" they are.

Do you know how your college would compare to these "green" schools?

According to a survey by The Princeton Review, today, two-thirds of university applicants say that a school's environmental report card would influence whether they'd enroll.

Does it matter to you whether or not your school is "green"? Would it influence your decision to go there?

You know that changes to health care in the U.S. have been in the headlines lately. President Barack Obama signed the Health Care and Education Reconciliation Act (HCERA) into law on March 30.

What you might not have heard is that same legislation also included some changes in the world of paying for college, especially when it comes to federal student loans.

Some changes will happen very soon and others will take a few years to come to fruition. So, how does this impact how you finance college? Let's talk it through:

• "Free" money first. You still want to look for any money that doesn't have to be repaid, like scholarships and grants before you turn to borrowing. The HCERA gives this a boost. It invests money in the Federal Pell Grant program. Starting in 2013 and going through 2017, the maximum award will increase at the same rate as the Consumer Price Index. Check out this fact sheet for more information about Pell Grants.


• Your federal loan lender. Right now, students receive their federal student loans — like Stafford or PLUS loans — through one of two different programs. One goes directly from the government through the school (Direct Student Loan Program) and the other uses private originators like banks (Federal Family Education Loan Program). The same types of loans are in each program, they're just delivered a bit differently. Well, starting on July 1, 2010, those loans will only be made through the Direct Student Loan program. Some schools already use this program exclusively, so for some students there won't be a change. Other schools will be transitioning to the Direct Student Loan program and communicating with their students throughout the process. Those students may be required to take some additional steps when they secure financing for the fall, like signing a new Master Promissory Note. Especially this year, make sure to ask questions during the process if you're unsure of next steps. Your financial aid office is there to help you!


• Repayment options. Part of this law includes changes to the Income Based Repayment program. Check out our previous discussion of that program here. Starting in 2014, this repayment option will cap a borrower's payment on their qualifying federal student loans at 10% of their adjusted gross income — right now it's at 15%. The HCERA also reduces the number of years a borrower must make payments under IBR before their loan is forgiven to 20 years down from 25. Keep in mind that this change only applies to loans taken out on or after July 1, 2014. If you took out loans before that date, they're subject to the current IBR requirements. Stay tuned for more on IBR, we'll be talking about it again in a couple weeks.

One other thing to know: If you've relied on private student loans in the past (the ones based on credit), know that those are still an option if you need more money or don't qualify for federal student loans. Banks and other private lenders will continue to offer this source of funding. As always, remember to choose your lowest cost financing options before going this route. And if you need a private student loan, consider a cosigner.

Now that you have a bit more information about some of the changes included in the HCERA, do you have questions? Ask away!

Earlier this month, we talked about taking steps to become a bit more financially savvy. Well that same day President Obama made the official proclamation for a financial literacy focus this month.

The President asked that, during April, Americans recommit to teaching ourselves and our children about the basics of financial education. Especially in tough economic times, it's important to arm yourself (and your family) with the financial know-how you need to succeed.

Well, we've got some opportunities for you to take action and — specifically for those readers who are parents with younger children in the house — to pass financial literacy on to the next generation!

Next week, head to one of Wells Fargo's museums on April 22 (in addition to being Earth Day it's also Take Our Children to Work Day). They'll be handing out materials from the Hands on Banking® program. They're even going to have lessons from the program right there in the museum or in a store close by.

What's that? You aren't close to a Wells Fargo museum?

Well, there's another designated day coming up to focus on learning about money. April 27 is Teach Children to Save Day. Check with your local Wells Fargo store to see if there is an event you and your child can attend. Or ask for help talking with your child about saving. The bankers have a number of resources, plus tons of financial knowledge to share!

And it's because I've spent...$103.94 at Target®.

It took a lot out of me to swipe my card considering my recent lack of frivolous spending. Yes, now that my 40-day ban on shopping for stuff is over, the floodgates of unadulterated spending have opened

Well, not really. Having restricted my unnecessary spending for a while, I'm finding that purchases I would've made without a second thought a few months ago are now giving me pause.

Take my first purchase without limits: It included a trash can, some cloth napkins, rechargeable batteries, breakfast sandwiches (on sale, I might add) and a few other necessary household items. It's not that I didn't look at a number of "wants&" as I strolled through the aisles. Accent pillows, Wii games, and camping supplies were scoped out. But the strong desire to buy them was gone — okay, fine, severely diminished.

There's clearly something about developing a new routine that works! Forty days is all it took for me to retrain my brain...and my pocketbook.

When you're trying a new way of adjusting your financial routine, give it a while to get used to it! So, if you've just started adhering to a budget or earmarking money for savings, know that developing those good financial habits may take some time.

It certainly wasn't easy for me at first, but with time I think I've developed a better spending mentality. I'm so glad I stuck with it.

Have you been struggling to get into a budgeting or saving routine? Tell us about it!

When I went to college, Pell Grants and scholarships paved a lot of the way for me. I sometimes wish I'd kept the paperwork, just so I could remember exactly how much I depended on them to pay my way.

I definitely know that by my senior year, the Pell Grant covered my entire tuition payment. I just had to handle my books and living costs. Not bad.

So it leaves me shocked when I hear stories like this one on NPR that talk about how much Pell Grant money gets left on the table. By some estimates, up to two million eligible students are passing up Pell Grants, which, unlike student loans, don't have to be paid back.

Of course, in order to be awarded a Pell Grant, you do have to fill out the Free Application for Federal Student Aid (FAFSA). Some students cite the FAFSA as too "daunting" to complete. Remember that Pell Grants are available to low-income students, and you can get hundreds — maybe thousands — of dollars for college, so don't let a little paperwork get in your way.

If completing the FAFSA proves challenging, get yourself to your school's financial aid office for help. It's a small investment of time for what could be a really big return.

Those of you who may find the FAFSA daunting, what in particular is holding you back? And readers who have filled out the form and secured some "free money" for college, please share your experience and how much of an impact it's made!

We've talked before about banking on your cell phone. Mobile banking lets you set up text alerts and do things like check the balance on your account.

But what about getting alerts sent to your cell phone for activity on your credit card? I'm happy to say that for consumer Wells Fargo® Visa® Credit Cards, Rapid Alerts is now available to do just that!

The reason I'm so excited is because I participated in the 2009 pilot for the program, and have learned how valuable it is to get these alerts first-hand. It's a convenient and easy way to monitor activity on your account, and for me, it's as close to real time as you can get.

For example, I have recurring payments on my credit card account for my kid's meals at the school cafeteria, monthly daycare fees and swim class fees. Whenever a charge comes through, I'll get an alert on my phone to let me know. Pretty awesome!

I can see when authorized charges are hitting my account, but I also have the security of knowing that if unauthorized charges are made, I'll get a Rapid Alert!

There was also an unexpected benefit when I lost my credit card. Since my account number was being shut down and replaced with a new one, those recurring charges started getting declined. Because of Rapid Alerts, I found out about the declines right away and was able to contact my kid's school and give them the correct account number to charge going forward.

I can't say enough about how cool this feature is. And it's free with a Wells Fargo Credit Card! Wells Fargo credit card customers can learn more and sign up online. If you're already using Rapid Alerts, tell us about it!

Now that you're done fooling, it's time to focus on a more serious April event: National Financial Literacy Month!

OK, so thinking about finances might not be quite as fun as scheming ways to dupe your friends, but it certainly is important. So important, actually, that there's a whole month dedicated to learning about your finances.

During April why not take a little time to think about what areas of your finances you'd like to learn more about?

Don't know where to start? Get a grasp on some basics through the Hands on Banking® program. There are sections for young adults and adults where you can learn about everything from savings and credit cards to mortgages and investing. (Plus, for you parents with younger children, there are kids and teens sections with age appropriate information. Not to mention the wonderful community on Stagecoach Island!)

Even if you're feeling particularly financially savvy, make April the month that you dive deeper into one topic. Head to the library for a book on the subject, or enlist the help of a banker or financial advisor.

Is there anything specific we can help you learn about this month? We want to help! Let us know what's on your mind when it comes to student loans or your finances in general.