Archive for January, 2009
Watch out for Scholarship Scammers
Jan 30th
Every year, without exception, sophisticated swindlers promising to help families qualify for extra financial aid instead swindle them out of large sums of money.
If you’d guess that such scammers bilk families out of $100 million a year or more, you would be correct.
They do it by preying on families worried about the cost of college; families who know little or nothing about scholarships and financial aid; families who are often easy targets.
The first contact between the scammers and their potential victims is a letter offering expert advice and assistance.
The letter often looks like it comes from a top college or university. Thats not an accident. The font, the grade of paper, and the logo are chosen by the scammers to give the letter an “academic look. Its junk mail alright, and its far more malicious than most, but thats not what it looks like. As a result, instead of throwing the letter away, many families open it. Thats mistake number one.
The letters generally start by appealing to fearby talking about the high cost of college.
Once they have stated the problem…paying for college…they assure you they can provide the solution. They may offer to “teach you the secrets of financial aid”, “locate millions of dollars in unused scholarships”, or otherwise help you take advantage of their special expertise.
The letters are not always the same, but one element is. They invite you to come to a hotel function room or other reasonably large venue to learn more about financial aid and scholarships, at no cost. Sounds like a no-brainer, right? If you think so, think again.
The gathering, whatever it is called, is a well rehearsed sales pitch. The gist…you need money, we can help you get it. And, nowhere do you get the one piece of information you need most…everything of value these people can offer you is available elsewhere, for free.
The initial presentation is followed by an individual meeting with a high pressure salesperson who uses a well-formulated approach…like those of the very worst car salespersons…developed to collect up to $2,000 and a signed contract from families before they have had too much time to think about it.
Don’t be the victim of financial aid con men (and women). There are lots of good websites offering free scholarship searches and financial aid advice. And, high school counselors and college financial aid counselors will gladly give you advice and answer your questions. There is no need to turn elsewhere.
Student Loans – Interest Rates, Now and Future
Jan 28th
Changes in Student Loan Structure
Not too many years ago interest rates on Stafford loans and other programs changed from fixed rate to variable rate. Then, as of July 1, 2006 they changed back to fixed again.
Some lenders make up for what they loose in interest rates by charging fees. In general 3% fees charged on a loan is the same as a point of interest. Therefore, if they keep to the restrictions on the interest rate yet charge you a loan origination fee or loan insurance then they recover what they are missing in interest payments right up front. Some lenders are willing to extend credit and waive the customary fees.
Interest Rate Increases
Though the interest rate changes can be modest, PLUS loans increased from 6.1% to 8.5%, for example. On, say, even as low as $16,000 borrowed, a 2.4% rate difference equals (approximately) a $400 difference in interest charges the first year alone.
You can visit www.bankrate.com/brm/mortgage-calculator.asp to see exactly how much your loan will cost you at a given interest rate.
The Future
Financial advisors have a difficult time trying to determine where interest rates are going. It is a good guess at best. There is really no way to be certain how much your interest rate will vary over time. For students and their parents seeking student loans their only option is to base their choices on what the financial advisors are saying and hope for the best.
Follow The Leaders
You can visit Yahoo Finance or other financial websites to see what the experts are saying about interest rates. It is a difficult guess for them and an impossible guess for the average individual. Therefore the best bet is to stick with the experts and follow their lead.
Looking at the 30-year Treasury bill, for example, shows two things: what the government is offering to sell debt for projected out over 30 years, and what the buyers of that debt are willing to pay. As that rate varies, most other long-term rates, such as student loan rates, will vary similarly (though not always exactly).