The credit crunch is taking a toll on student loans. And while the government promises borrowers it can make more federal loans available, some experts say it won’t be able to cover all the funds if the credit crisis lasts, reports the St. Paul Pioneer Press. Here’s what you need to do to avoid problems with your loan applications:

Why you should gauge your debt

When you’re busy with school, it doesn’t take much to lose track of your debt. Get a quick reality check early in your education with Bright Ideas: Gauge Your Debt – a lender-neutral brochure that helps you stay focused on your future financial goals.

Read the paper lately? The current hubbub about sub-prime mortgages is hard to miss. But what you may not know is that this unrest is trickling down to the student loan industry, as well, reports Business Week. Along with recent legislation, the mortgage crisis is likely to affect both new and existing student loans.

Lenders aren’t the only ones that scrutinize your credit report. So who else looks at your credit report and what are they looking for?

This year, the Department of Education is making the online FAFSA process easier by providing real-time PINs for students and parents. Instead of having a waiting period to confirm an applicant’s Social Security number with the Social Security Administration, you can use the PIN right away to sign your FAFSA. If the Social Security number doesn’t come through, the PIN is disabled and applicants receive their student aid report (SAR) in the mail, requesting the necessary information.

You can learn more about FAFSA and PIN updates for 2008-2009 here. You can also request your FAFSA PIN here.

The economic hardship deferment (EHD) program will continue until fall 2008, following a Department of Education announcement on November 1. The Department of Education will make its final decision on the status of EHD next fall. For now, eligible medical residents and other borrowers with high debt and low to moderate income can enter deferment until fall 2008. The reinstated EHD program also qualifies more students for deferment.

You can find out more about the latest EHD developments from American Medical News.

For many students, this academic year marks the first year they are virtually on their own when picking a lender. With schools and financial aid offices staying out of the selecting process, this new-found independence can be both freeing and daunting. No matter where you stand on the changes that arrived this fall, doing your own legwork when picking a lender has its ups and downs. So speak up on what you’ve learned and how you’ve fared. Maybe your fellow students will learn something from your experience.

When you’re counting every penny, credit card offers can be tempting. And credit card companies know this well. While you probably already got your first flood of credit card offers back when you were a freshman, you’re still a target for credit card companies.

Many schools closed their doors to credit card offers, but credit card companies still use events like concerts and free giveaways to lure students, according to a report on News 10 Now (New York). So while you may have already developed immunity to these enticing yet dangerous offers, remember, credit is not income. It’s an expense. Every dollar you spend in credit cards will need to be paid back, with interest.

Want to end credit card offers? You can get rid of junk mail here.

If you have student debt and worry about how it will affect such things as applying for a mortgage, you have less to fret about than you may think. Here are some things to keep in mind:

• Lenders don’t just look at your debt, they look at your income.

• Lenders also view student loan debt more favorably than credit card debt.

• Another thing to consider is your down payment – the more you put down, the less of a risk you are to lenders.

• Mortgage lenders often try to get you to consolidate your student loan debt to a 30-year term to minimize your student loan payments. While this can help you qualify for a larger home mortgage, it can also add thousands of dollars to your student loan costs.

Find out more on how your student loans play into the home mortgage equation.

I’m getting married, so now our two credit scores are merged.

U.S. News & World Report just released its 2007 rankings of the best schools. The report is not without controversy: critics say some schools pour too much time, money and energy into getting a high ranking. Many schools are also boycotting the rankings and won’t divulge their information to the magazine.

Where do you stand? Was grad school ranking important to you when you were selecting a school? Or do you think schools’ focus is better spent improving other areas of their programs?

Remember when your dad would give you piggyback rides? Dad may have extended the favor by also letting you piggyback on his credit score. For many college students, it’s a way to start their own credit history and qualify for loans. Well, piggybacking is no longer allowed. According to the St. Paul Pioneer Press (“Getting College Credit,” Aug. 15, 2007), Fair Isaac Corporation (FICO), the credit guru that determines credit score standards, is changing the rules.

While potential borrowers will no longer be able to use someone else’s history, FICO is introducing new methods of gauging the credit score of those who have no history. While not the traditional credit score system, the new method will include such things as your cell phone payment history, how often you dip into overdraft protection, and even DVD club payment history (so you may want to ask yourself if you’ve been nice to Netflix).

Around 1 a.m. on July 20, 2007, the Senate passed the Higher Education Access Act (s. 1762), the budget reconciliation bill that will cut lender subsidies by about $19 billion. The new bill passed by a vote of 78 to 18. The Senate approval clears the way for the Senate and House to start negotiating for a single solution on this legislation. Right now, the House bill puts more student loan subsidy savings into borrower benefits while the Senate bill directs more of the savings to increasing grant aid.

You can read more detailed coverage of this new bill here.

We at the Ramen Report appreciate your comments on our article regarding the looming student loan changes. As with any legislation, there will be winners and losers. With this bill, the graduate students will lose. Are there any graduate school Financial Aid Officers who would like to share their knowledge regarding the proposed changes?

Think school is expensive now? Well, in as little as a few months, student loans could get a lot more expensive, thanks to new congressional legislation that will hit graduate students the hardest. Here are the basics:

The gist: The government pays subsidies to lenders, which allows lenders to give you borrower discounts. This bill will cut that subsidy by .55%.

What this means for you: Without the money from the government, lenders are going to cut borrower benefits, meaning you will pay more for your loans. Although .55% may not seem like a big number, for a student who has $100,000 in loans that they plan to repay over 25 years, it means paying an additional $22,785 for that loan.

Don’t like the way that sounds? Well, there’s something you can do about it. Contact your senator or representative. Let them know that an affordable education is not something you are willing to give up.

Applying for a new credit card doesn’t affect my credit score.

Then check if and when your state offers a tax-free week, one week out of the year when retailers don’t charge sales tax.

Along with a storm of graduation cards, you’re probably seeing lender offers to handle your student loans now that you’re heading into repayment. Below are some tips from SmartMoney.com on finding the best offer for you while avoiding the pratfalls.

It won’t affect my credit if I am just co-signing a loan.

The variable interest rate on student loans originated prior to July 1, 2006, will increase by 0.08 percent starting July 1, 2007, the U.S. Department of the Treasury just announced.

Variable interest rates starting on July 1, 2007 will be:

· Stafford (in-school/grace period): 6.62%

· Stafford (in repayment): 7.22%

· PLUS: 8.02%

Rates on federal loans originated on or after July 1, 2006, remain fixed at 6.8% for Stafford, 7.9% for DL PLUS, and 8.5% for FFEL PLUS.

The good news for graduates is that you don’t need to rush into consolidation to lock in a great rate before the rate increase goes into effect — the fixed rate you would get before July 1 is likely going to be the same as the rate a few months later. This is because the rate increase is so slight and because consolidation rounds up to the nearest .125% (one-eighth percent).

Because of this, take your time and figure out if consolidation makes sense in your situation. Two factors to consider are simplicity and savings: use consolidation to enjoy the ease of having all of your federal loans with one lender and as a way to move your loans to a lender with better borrower benefits to reduce the cost of your loans. So shop around and take the time to evaluate consolidation lenders. Find the one that offers you real savings and don’t worry about the new rates deadline.

It probably comes as no surprise to you that today’s students are collecting record debt. But how much debt is too much? According to CNN’s On The Money, many lenders qualify borrowers for loans without considering other expenses, such as car payments and credit card payments, which are taking a sizeable chunk of students’ income these days, leaving the borrower with unmanageable debt.

Okay, so your scholarships and work study don’t quite cover the bill. Despair not! According to the Wall Street Journal (“Student Loans: Navigating the Maze,” May 12, 2007), you have a lot of student loan options to help you out.

Step 1:

Check with your school’s financial aid office. Many schools have negotiated discounted rates with lenders that will save you money.

Step 2:

See what Uncle Sam has to offer. Federal student loans such as the Stafford, Perkins, PLUS or Grad PLUS usually have lower interest and offer a fixed rate.

Paying cash for things doesn’t affect my credit score.

Student loan marketers are really pushing the envelope these days — literally. By now, you’ve probably seen those official-looking envelopes in the mail, the ones marked “FINAL NOTICE” in red ink, urging you to “OPEN IMMEDIATELY”. Worse yet are those made to look like they’re coming from the U.S. government, with words like “Department of Student Loans” to make you think Uncle Sam is responsible for the content. At least one loan marketer even stamps the image of an eagle, that obvious national symbol, on its letters. Gets your attention, doesn’t it?

No matter how official they make it seem, don’t fall for the bald-eagle trick.

These solicitations are not from the president, and they’re not final payment notices. The goal of these deceptive tactics, in many cases, is to get you to consolidate your loans, which may not be the best decision these days. The good news is people are starting to take notice of this sketchy marketing tactic and criticize lenders that try to scare borrowers into responding. And while it hasn’t been done yet, lawsuits might be on the horizon.

I heard I could have different scores because there are different credit bureaus. Is that right?

Think consolidation’s a good idea for your private loans? Think again.

First, private loans can’t be consolidated with federal loans under the federal loan program, meaning you won’t be able to get a lower rate (as you may have in the past with federal consolidation). You can, however, use private consolidation to get one monthly payment but remember that a lower payment now means you’ll pay more in the long run (and probably have a longer repayment term). Keep in mind, too, that private loan consolidation almost always comes with a variable rate, not a fixed rate, so expect your rate to fluctuate from season to season.

…but times and interest rates have changed. Does it still make sense? Will it save you money — or cost you more?

There are lots of myths floating around about consolidation these days, and it’s hard to get the straight story (especially when your mailbox is full of marketing that practically begs you to consolidate). Before you sign over your loans, make sure you have the facts.

I keep getting all these credit card mailings. My credit score is going to decline because of it.

Capitol Hill has been at the center of the student loan debate with the newly elected Congress vowing to cut interest rates in half. Well, they just did — the House passed this legislation with overwhelming support, but doubters claim it does little to solve more serious problems with college funding. While supporters say it’s a meaningful step in the right direction, some argue that the focus should be on more grants for low-income students (who might not otherwise get to college in the first place).

What do you think? Read up and weigh in.

Ignoring debt in the hopes it will go away is not the most effective approach to student loan repayment. (We know plenty of people who’ve tried the wishful thinking method; it doesn’t work.)

Being proactive and knowing your options, though, is a pretty good strategy.

So you have six figures of debt staring you in the face, and a 30-year repayment term hanging over your head. Well, if you get creative, and pay off a little each month, you could end up cutting that burden in half.

I just received my quarterly interest statement from T.H.E. I am surprised there was so much interest accrued. Can I make a one-time payment to avoid interest capitalization?

It’s early. You were up all night studying for today’s big exam. No amount of rubbing your eyes can eliminate your yearn to jump back into bed. You haphazardly shower, dress, and grab your bag for another day of school and study. The only thing getting you through your morning is the thought of a nice, warm cup of caffeinated heaven. Skim mocha latte, grande cappuccino, tall dark roast with two sugars or whatever your favorite may be.

Your mom might be right: if something sounds too good to be true, it probably is.

Such is often the case with student loan incentives, or discounts—the offers of interest rate reductions that most lenders advertise to get you to do business with them.

Surely you’ve seen offers like “Get a 2% interest rate reduction (after 48 months of consecutive on-time payments).” Skimming two percent off your hefty loan balance sounds pretty sweet; that would save you a lot of money. So what if you have to wait 48 months. That’s only, what, four years. Hey, wait a minute…

If you have ever looked at the account statements that come in the mail, you maybe have considered using a few choice words to describe the amount of money you have taken out to pay for school. As you might know interest is continually accruing on that money and at some point if you don’t pay down that interest, it capitalizes and becomes part of the principal balance.

It’s easy to get a student loan these days. It’s harder to find a lender that won’t sell you to the highest bidder.

Is your inbox full of student loan spam? Is your quality time with the Simpson’s being interrupted by some lender yakking in your ear about debt reduction? Is your mailbox so crammed full of flyers about interest rates that you can’t even open it? Well, you’re not alone.
But who are these lenders? Where did they come from? And why are they suddenly so interested in you?