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An Overview Of The Canada Student Loan Program

The Canada Student Loans Program (CSLP) is an essential element of the Government of Canada. Through the agenda, the Government is working to ensure that the Canadians have the necessary skills to be able to compete with all countries in the future.

By providing loan monies to Canadians enrolled in full or part-time post-secondary education studies, the CSLP is able to offer individuals the opportunity to participate in the process of lifelong learning.

The Government has assisted over 3.8 million students with over $16 billion in loans since the CSLP was founded. The CSLP was created in 1964. However, up until July 31, 2000, the Government of Canada and participating financial institutions worked together to finance the loans.

Rules were changed and as of August 1, 2000, the Government of Canada formed the new National Student Loans Service Centre (NSLSC) and they now directly finance all loans. There are two divisions of the NSLSC, one to manage loans for students attending public institutions and the other to administer loans for students attending private institutions.

As a result, these student borrowers have one student debt and make a single payment when repaying their student loans. Already, integrated certificates of eligibility are in use for borrowers residing in all integrated provinces.

These borrowers also benefit form a single loan consolidation form and process and a single interest relief application for their student loans. Also, they maintain a separate consolidation and repayment process for their risk-shared and guaranteed loans.

They were having problems and decided to reform their system. They began improving program results, reducing costs per student, reducing defaults, decreasing loans written off, enhancing tracking data, improving on-line services to students for study, repayment and collections.

A Quick Overview Of The USA Student Loan Program

The most favorable student loan would be a Federal loan. They have lower interest rates, options to postpone payments, longer repayment terms and easier credit requirements. Eligibility for some of these loans is need based, while others are not.

The Federal loans in which a student can choose from are the Federal Perkins Loan and the Federal Stafford Loan. Both types of these loans can be either subsidized or unsubsidized due to your qualifications.

Next, is the Federal PLUS loan (Parent Loan for Undergraduate Students). Once again as stated, the Federal loans are preferable in several aspects to the private student loans.

Private loans are designed to supplement Federal loans and are available from schools, banks, credit unions, and education loan organizations. They are usually used to cover education costs that cannot be met by Federal aid.

On terms for private loans, interest rates and fees vary according to the lender and your credit history and their rules of their individual company. They are not run nor governed by the Federal Government.

As you can see, students attending college here in the US could have many options, good or poor, without having a strong voice in the situation. It is usually dictated from their family’s financial background and how they were encouraged to prepare for college.

The industry of lending money out to customers has become extremely popular over the last decade or so, and hundreds of companies have been able to become very profitable off of the high interest rates that are often attached to them. Obtaining loans has become quite a normal thing to do and almost a necessity if you want to get through life in today’s complex financial society. There are many different types of loans that are available for customers to apply for and use, depending on the types of things that they want to purchase.

Probably one of the most popular types of loans that are obtained is a student loan. Student loans are often acquired by people who are seeking to obtain a higher education and do not have the financial means to pay for it. Receiving an education at a university or college can be very expensive, especially as your advance into the higher degrees of learning which include master degrees and doctorate degrees.

Most people simply take out a single loan in order to pay for the acquisition of their bachelor’s degree. This is an easy loan to obtain and can easily be paid off throughout the next few years after the education is received. The majority of students who only get a bachelor’s degree only have a four year loan to pay off and do not have to worry about consolidation.

There are many other students, however, who seek a higher education that obtains degrees that are more expensive than seeking a bachelor’s degree. For these students, taking out loans can be much more expensive and much more frequent as well. They often accumulate many student loans that they have to pay off throughout the next couple of decades in their lives.

Students who have many student loans to pay off can consolidate them into one monthly payment. Before doing so with one bank, however, they must make sure that there are no hidden catches or strings attached to the consolidation. Many times, banks try to increase interest rates dramatically and fail to inform the payer.

The process of consolidation can be very complicated and involve many details that are hard for a normal, inexperienced student to understand. Another option that is available to students who need money for an educational degree is what many businesses call a direct student loan. A direct student loan comes straight from the educational bureau of the federal government and is given out in response to the financial needs of certain individuals.

Many positive aspects come from the acquisition of direct student loans, one of which includes how simple and easy it is to understand them. The federal government does not make the payments for the loan due until after the educational career of the student is finished and he or she has secure employment. Another benefit of this particular student loan is that the federal government only requires a minimal interest rate that most students and their parents can easily afford.

Why Do Lenders Sell Their Loans?

Lenders sell their loans for variety of reasons, but usually to get cash in order to make more student loans. The loans are mainly sold to other lenders and organizations in a “secondary market” made up of state and private organizations that specialize in buying and servicing these loans.

Some lenders and all secondary markets have contracts with student loan services, which are companies that take care of all the details, like collecting and processing payments, handling inquiries and maintaining loan records.

This not only happens with student loans but to all types of lenders dealing with loans. One of our homes changed mortgage lenders three times within a period of six years that we lived in that home.

Asking the question of whether a lender will sell your loan is the wrong question to ask. The question you need to ask is whether or not the new lender will offer the same benefits and terms. It really does not matter whom you make the check out to.

What Happens When My Loan Is Sold or Transferred?

You will receive a letter from the lender who is selling your loan. When the loan is actually sold, the new owner or its servicer will send you a letter that explains why the loan was sold, who the new owner is, where to send your payments and where to call if you have any questions.

The letter will include a statement listing the loans they are servicing for you, the dates you took out the loans, the interest rate, the names of the loan programs, and the total amount you owe.

The new owner or its servicer (a servicer is a loan service/company that works for many lenders and secondary markets at the same time) may send you a new payment book or may offer you some services that were not available from your original lender.

You are now indebted to the new owner of your loan, no longer to the original lender that you signed papers with. There should in no way be any change in the rate and terms of your student loan.

There will be that question and concern with any new lender if any changes have been made. As soon as you obtain the name of the new lender, I would ask in writing for a guarantee of your former benefits you received with your prior lender.

There rarely is a problem, however, this might make you feel more secure. Also, if there is a problem or if you have any questions you would like to discuss with your College Board loan, call 888-272-5543.

Read your first statement from the new owner carefully and make sure that the information is up to date. When a loan is sold, it can take up to 60 days for your payments to be forwarded from your original lender to the new owner.

Call your new servicer if you are having difficulties in anyway. They are there to serve you and are glad to have your loan. Let’s face it, that’s their job and how they make their living.

The Definition Of The Eight Percent Rule For Student Loans

The maximum amount that any student can borrow is adjusted from time to time as federal policies change. A study published in the winter 1996 edition of the Journal Of Student Financial Aid, “How Much Student Loan Debt Is Too Much?” explains this concept.

It suggests that the monthly student debt payment for the average undergraduate should not exceed 8 percent of total monthly income after graduation. Some financial aid advisers have referred to this as “the 8 Percent Rule.”

Circumstances vary for individuals, so the 8 percent level is an indicator, not a rule set in stone.

A Financial Path To Graduation

The 8 percent program was developed at Brigham Young University nearly ten years ago where it takes a need-based approach to asking questions to determine, where will my current course of action take me? Will I be able to afford this situation?

This process requires a student to evaluate their individual path to determine if it will lead them to a firm footing at graduation, as opposed to the all-too-common scenario of owing more than can be afforded.

How the Eight Percent Rule Works

The program has a budget worksheet to help you plan your future income and expenses after you graduate. It actually has several calculators in one. It can determine:

1. How much interest would be capitalized on unsubsidized Stafford loans (if you do not pay the interest while you are in school or during your grace period.)
2. How much your monthly payment amounts would be after adding in capitalized interest.
3. What percent of your income is taken up in student loan payments, based upon you career choice.

Your results are presented on a graph, which represents the percent of student loans to projected earnings over time. As our income increases, student loans represent a lower percentage. When the loan is paid off, the percent is zero.

You choose the information to be placed on the graph to determine the end result. The results prove to be very helpful. Following are your choices:

You choose your career from over 20 occupational categories in a dropdown box. Entry-level salaries are displayed with each career.

You enter each loan you plan to borrow by academic year and grade level. This will take a little planning, but the chart has loan limits to assist you. You also need to estimate the dates you plan to begin college and graduate.

You may change the interest rate, loan term (years for repayment) and minimum monthly payments that are already entered.

You can see how much you can save on interest if you shorten the loan term or raise the minimum payments. You can also see how much lower you payments will be if you choose to pay interest on an unsubsidized Stafford loan while you are in school and during your grace period.

Obviously this is a guideline only. Yet it allows a student at any stage of their education to take stock on where they are. And it is a very nice tool to be able to program other financial responsibilities (car payment, credit cards, etc.) into the picture to examine your current student loan borrowing status.

Why Rates Are Climbing!

February of this year Congress decided to slash $12.7 billion over the next five years from the federal student-loan program and boost interest rates on the most popular loans.

A few weeks earlier, the U.S. Supreme Court gave the government even more power to go after delinquent student loans, even if the borrower is elderly or disabled. It is clear that a student needs to limit student-loan debt.

If your total borrowing exceeds the salary you expect to make in your first year out of school, you may be borrowing too much to begin with.

Congress has been signaling for sometime that the days of cheap loans were numbered. The government had to pay subsidies to student lenders for many of those consolidated loans and missed out on the higher interest rate of loans it generated itself. It was subsidizing long-term loans at short-term rates and they said, NO MORE!

Where Should A Student Look First?

When we speak of cheap student loans, clearly we mean that the loan should be of a lower interest rate. There are many ways available to a student where he can get a loan at a cheap rate.

The best-considered way is to look for student loans that are sponsored by the state government who provide subsidy on the loans and the student pays less interest on them. Such cheap student loans come at relaxed repayment duration and options as well.

In case you are taking a student loan from a private lender, then the rate of interest gets cheaper if you are willing to provide some security to the lender. Of course a student usually does not own property, and so his parents take the loan out for the student on offering the security.

On securing the loan amount the lender will surely offer a cheaper rate of interest. If a student has bad credit due to late payments or payment defaults on previous loans, the best way to over come that problem is to have a co-signer. Your parents or any person who has good credit can co-sign for a student loan.

Excellent or good credit of the co-signer gives more assurance of the safe return and the lender therefore, is wiling to reduce the rate of interest. Make sure to compare lenders who claim of providing cheaper rates on student loans for a suitable deal.

And the last consideration for a student loan with somewhat of a better option is a home-equity loan. Currently fixed home-equity rates are in the 7 percent to 8 percent range for people with good credit. Depending on the amount borrowed, you may be able to get a longer payback term with home-equity borrowing than with many other loans.

Interest payments on most government loans are tax-deductible up to $2,500 and you don’t have to itemize. Interest on home-equity loans is deductible on loan amounts up to $100,000, but you have to be able to itemize to take advantage of this break.

Also, if you are the student, you will most likely have to have your parents willing to help you out in this area with their home.

The best word of advice; work as much as you can before and during your college years and if you do take out a loan, use moderation, prudence and forethought.