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Taxes on Loans Updates

Posted On: 2005-10-28
Length: 31:04

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Happy Friday everyone, it's October 28, 2005 episode 102 of the Financial Aid Podcast, my name is Chris Penn and I'll be hosting today as I do everyday. We've got a great show for you today, some alarming new facts actually about interest rates and offsets and fees, well really a whole bunch of reasons why if you haven't already consolidated your student loans this would be the time to do it. We're going to cover that with some scholarship updates and of course some the best of Podsafe music, some great new stuff of the Podsafe Music Network. So let's dig in with the news right away. If you don't keep track of 91day T bill interest rates, and I can understand why you wouldn't because it's definitely not the most exciting thing in the world, in fact it's pretty close to very dull. But it is important, if you don't keep track of the rates-this has been a very unusual month for 91 day T bill. If you don't know what the 91 day T bill is, this is the 13 week Treasury bill. It's a short term investment that-it's like a zero coupon bond, if you're familiar with that, if not, that's okay too. You basically buy these things from the U.S. Treasury; they're ways that the U.S. Treasury finances debt. You buy essentially a chunk of debt if the T bill rate is 99.2% then you're buying a T bill for $992 and then in 91 days you redeem it for a full $1000, so you make eight bucks on the transaction. The T bill rate, the 91 day T bill rate is significant because it is the rate in which student loans are set at based on the price of the 91 day T bill for the last auction in May of every calendar year to take affect on July 1 of every calendar year. This past year the T bill went up about 1.93% putting at 3% even. That was the last auction in May; I believe it was May 31, 2005. What that means is that on July 1, 2005 a couple months ago, student loan rates basically went up about 2% so they went from last year's all time lows of 2.77% to 4.7% this year for Stafford Loans in repayment. 3.37% last year in repayment, sorry the 2.77% was in grace period in school, the 3.37% was for loans that were in repayment and then the 5.3% this year for Stafford Loans that are in repayment, considerably more expensive. However, based on the projections of the 91 day T bill, it looks like next year we maybe shaping up for even bigger increases. October started out basically with the T bill floating at 3.5% give or take hundredth or a thousandth of a point. We're finishing out at 3.9%, this is a very large increase. The T bill has traditionally been going up usually three and one hundredths' of a point each week, give or take, that rate is accelerated to almost four one hundredths' of a point. By the time it-if it continues at this pace, it's been picking up. This is a 26 weeks moving average by the way, if it continues at this pace, the T bill, next May for the last auction in May which will be in May 29, 2006 would be around 5.147% making your student loans; Stafford Loans in repayment 7.45%, almost 7.5%. That is a huge jump over 5.3% this year, that's what 2.2%? That is enormous. Are there any indications that the T bill rates are going to go down rather than the consistent climb that they've been on since about two years ago? Unfortunately, not so much. If anything the rate of increase has been climbing as oppose to declining. The short version of this very mathematical rant is that if you haven't consolidated student loans, this is the time to do it, especially if you are in your grace period; especially if you've graduated this past spring. You need to get those loans consolidated, lock those suckers in to the current rates now before you are looking at another 2.2% increase next year. When you consolidate your loans, if you're new to the podcast, and you haven't heard me talk about this before, when you consolidate student loans, you are basically locking in the interest rate at the time of consolidation. That becomes a fixed rate loan instead of a variable rate loan. Which if rates are low or reasonable low as they are now it's a good idea, it's a good thing. Not only do you get to have a fixed amount that you pay each month for budgeting purposes but you also lock in that rate and insulate yourself from additional rate changes. That's aspect one of the fun in consolidation. Aspect number two, we talked yesterday about the additional loan tax essentially for college graduates who want to consolidate their loans.

Congress proposed on Tuesday in the senate I believe to recover an additional $6 billion from college graduates essentially to pay for debt relief for hurricanes and for other national priorities. I love that phrase, other national priorities. Like fixing Tom Delay's porch on his house I guess. The fee was not clear but in another article-I'm trying to find the link to it, I really don't know what I did with it but, the fee is going to be a 1% offset fee to be assessed to lenders at the time of consolidation. Now, what's interesting is this, congress is saying, "Oh yeah. Well we don't want to penalize the students; we're going to stick it to the lenders. We're going to stick the fee to the lenders." We're going to stick it to the banks, the big banks they can afford it. Do these guys not live in reality? When congress sticks a fee to any company, what does the company do? Well it passes it on to its customers, case and point, next time you go travel by airplane look at the ticket price and look at all the fees in there. Congress said let's make airports security management-but you know what? Airlines are big billion dollar companies, they'll be fine, they'll enjoy the fee, hey what do you know there's your September 11 security fee on every ticket you buy. Hey, there's your fuel tax fee on every ticket you buy, the fees get passed down. So ultimately by congress saying yes, we'll stick it to those greedy banks, they can absorb it. They are not going to absorb it; they will pass it down to the students. They'll pass it down to the borrowers and in a lot of ways you really can't necessarily blame them if you were running a student loan company and you suddenly had a 1% fee attached to every loan you processed. Then yes, you might say you know what? We're going to have to pass that one down, so the 1% offset fee; my guess is when you consolidate your loans it will probably be done very similar to the way a lot of people handle the closing costs on their mortgages. Which is to say take that 1% fee, which you may as well call it a tax, which is what it really is; take the additional 1% tax on your student loans and fold into the consolidation, so if you have $34,000 in student loans, when you consolidate, if this proposal goes through; and this is a big if, hopefully students and graduates around the country will tell Congress to tell them where to put their fee. When you consolidate that $300 one time of set fee will probably be rolled into your loan balance and that's actually convenient for the student or for the borrower because you don't have to come up with $300 to consolidate your loans. It's bad financial aid in the long term because Now you will be paying interest on that extra $300. How much interest? Well if you have $30,000 in student loans, and you have this extra $300 fee tacked in, if you run it by using today's fixed rates not the projectory rates but the fixed rates, you're talking about an extra $3 a month.

Now that may not sound like a whole heck of a lot, $3 a month but certainly not $3,000 a month, but think about it, this is a 25 year loan term; if you have $30,000 in student loans you would be consolidating for 25 years. Not taking into account borrower benefits or discounts or anything like that, you've got 25 times 12 that's 300, so a 300 months payment term times $3.a month and now you're talking $900. The $300 fee that Congress assessed to you and $300 tax Congress has levied on you-you would take three times over. Now you're starting to talk really serious money-it spread over 25 years, but it's not money that you should have to pay to satisfy a government that is spending far out of control. If you are interested at all in preventing Congress in levying a gigantic tax on you, as a college graduate or a soon to be college graduate, please let your Congress representatives know. Go to www.thehouse.gov or www.senate.gov and let them know that they really shouldn't try and balance the budget on people who are college students. For two reasons, college students tend to not have a lot of money and two, college students are essentially the people who are going to be running the country in 20 years so these people who are currently in office don't want to have eaten alive by the next generation, they should probably give some thought to how they treat them. That is the news for today, a lot of math, a lot of numbers but very important stuff because if action is not taken, Congress will continue to try to essentially mortgage the future to pay for it today and that's bad. Like I said, whenever I talk about politics on the show, there are Republicans and Democrats who are fronting these kinds of proposal so it's not anyone parties fault. I shouldn't say it's not their fault; you can't assign blame to just one party. There are people on the take on both sides of the aisle so whoever your electoral representative are let them know that basically they're screwing up and they're jobs such as they are, will be on the line in the next election cycle, if they don't figure things out. All right, let's move onto something a little more positive, some new Podsafe music from Podsafe Music Network, Carrie Petite with "Dream on."

(music)

New Podsafe music from Carrie Petite, really great, I love how-there's so much diversity, variety in Podsafe music really terrific. All right let's do a scholarship update. Today's scholarship update, the Women's Clubs of Massachusetts have announced that the General Federation of Women's Clubs of Massachusetts announce their 2005,2006 scholarships available to residents of Massachusetts awards are for high school seniors as well as undergraduates and graduate students and are as follows. Art scholarships up to $800 will be awarded to students who submit three samples of original art work. Deadline for all the awards I'm going to mention, I'm sorry they're varying. The Art scholarship deadline February 1, 2006, Music scholarships $800 awarded for people who are majoring in piano or other instrumental music, music education, music therapy or voice training, personal auditions will be held on Saturday April 8. The application deadline is February 1, that is all in 2006. $600 scholarship for any student who is enrolling in a Teacher Training program certification to teach, March 1, 2006 on that scholarship. College undergraduates majoring in Voice $500 scholarship, personal audition held on Saturday April 8, application deadline February 1. College undergraduates or graduates planning to study abroad for 12 credits summer session semester or year may apply for up to $800 to study abroad. Application deadline is March 1. Majoring in Public Health, $500 scholarship March 1 deadline on that one. Looking to study for Communications Disorder in Speech Therapy, $800 scholarship, deadline of March 1. Several graduate fellowships for $3,000 each will be awarded to women students who have maintained of legal residents of Massachusetts for at least five years studying in the fields of Cancer Research or Nurse Practioner. Finalists for this award will be notified by March 15th to be interviewed on April 1. Application deadline is March 1. If you would like to apply for any of the awards mentioned, you can do so at www.GFWCMA.org of course I'm going to put a link in the show notes to that because that is just a really hard URL to-they probably should have thought about buying something different. The General Federation of Women's Clubs of Massachusetts tons of scholarships all local scholarships if you are a Massachusetts resident, presumably female I guess; so apply through their website. That is today's scholarship update. All right let's move onto another piece of Podsafe music, we're going to do Farewell June is the artist's name and "Irony" is the song title.

(music)

Great new Podsafe music from Farewell June with "Irony." All right, there's actually no mail in the mail bag today which is nice change of pace I guess, although I certainly do welcome your feedback, your comments, and your questions if you have any, e-mail me at financialaidpodcast@gmail.com and in the absence of the mail bag I'm going to talk little bit about the grace periods that are ending. I harp on this a lot, it is to your benefit, it is to your absolute benefit to consolidate your student loans while you are in your grace period. If you graduated on May 1, 2005, this past May your grace period ends on November 1, that's three days and 17 hours left. If you graduated on May 15th of course then it will be November 15th, you have 17 days and change. June 1st graduation, December 1st grace period and 33 days. If you want to consolidate your loans, you want to take advantage of the extra six tenths of a percent interest rate savings that you could only get while consolidating in your grace period, you need to apply now. There's no, ifs, ands or buts, you need to apply now to lock in the grace period rate. If you miss it, you're going to be paying 13% more on your loans over the life of the loan. If you have a $30,000 loan you're basically talking about, let's figure this out here. Time to use the calculator, we're talking about-basically after all is said and done, you're looking at save $150 a month by consolidating while you are in your grace period. Like I said earlier, $30,000 student loan balance, 25 years, $150 a month, is 300 months. $150 times 300, you're talking about saving an additional $45,000 over the period 25 years on repayment. You don't need to an economics major or a math major, you don't even need to be a kindergartener to figure out that not paying that extra money to the government is a good thing. Consolidate those student loans, really that's all I have to say about it. Let's do one last piece of Podsafe music and then I think we're going to call it a show. The last piece today is Stingray, with a song titled "Last Night."

(music)

Well that was really nice instrumental track is what I've got to say. All right, that was Stingray from the Podsafe Music Network with "Last Night." That is going to wrap it up for today's show folks. It has been a numeric show all around. One last reminder, if you haven't done so, consolidate your student loans www.studentloanconsolidator.com , www.todayisave.com either one will get you where you want to go. Reminder of course, if you haven't checked it out, check out our Ipod Nano contest stay tuned, stay subscribed. If your not subscribed get subscribed, it's really easy directions on t, we're giving away an Ipod Nano on December 1, 2005; but you must be entered to win, you can enter to win by applying to any of the student loan network products or by filling out the free form on our website www.financialaidpodcast.com . Show notes always on the same website for today's show. Links to everything we've talked about and if you have questions or comments, e-mail me at financialaidpodcast@gmail.com audio feedback is certainly welcomed if it's appropriate, I will be more than happy to play it on the show. If you are a fellow podcaster feel free to send me your promos, again if appropriate, family friendly and all that wonderful stuff, I will certainly play it. Otherwise stay tuned, stay subscribed, if your not subscribed get subscribed, it's really easy directions on the website and you will never miss a show for good or ill. Otherwise, we'll see you next time. Take care.

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mrlocksmith said:

SO noce

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