A Financial Education Event

Service Academies and Military Funded Education



 I recently spoke at Congresswoman Katie Hill’s (25th Congressional District) Military Academy night.  The audience members were parents and students in high school.   These federal academies are highly competitive and look at the whole person. So it’s not enough to be a brainianc (super smart), they are also looking for students who are exceptional in the area of athletics, community involvement and leadership.  In return for this amazing education valued at $450,000, your student will be required to serve in the military for their “commitment” period. The commitment is a minimum of 5 years of service and can be longer, depending on a number of factors in regards to additional training after graduation.  If you have a “hero at home” who wants to go to a service academy, there are several things to keep in mind.

One of the first places to visit is your service academy’s admissions site:

USAFA – The United States Air Force Academy

USNA – The United States Naval Academy
USMA — The United States Military Academy

USMMA  The Merchant Marine Academy

USCGA    Coast Guard Academy (does not require a congressional nomination)

From Prospect to Appointee:  

  • Prospect: A student who has filled out the initial response form showing interest. This means they are essentially on an admissions mailing list. You can fill this out as early as middle school by going to the academy’s website.
  • Applicant: The individual has filled out a pre-candidate questionnaire and provided initial info on PSAT/SAT/ACT scores, grades and extra-curricular activities. This is usually done NO LATER than the spring of their junior year. This is also the time to contact your congressman and senator in regards to a nomination. In addition, if the student’s parent is qualified for a Presidential nomination, (see nominations and appointments below) then the student can contact the academy directly to pursue this nomination as well.
  • Candidate: To move from applicant to candidate indicates that you have cleared your first competitive hurdle. This step is decided by the Academies admissions staff in the early summer of a student’s Senior year. Not all students will get to this point, but this is when they will be interviewed by the Academy Liaison Officer (or the equivalent). It is from this list that appointments will be offered as early as the fall. For example, one of our sons was offered an USNA appointment by October.
  • Appointee: This means that the candidate has been offered an appointment into the Academy. They can choose to accept it or turn it down, but it means they have not only received an official nomination, but they have also been approved by the Academy’s admissions board and offered an actual appointment.

The Essay

It’s never too early to begin to think about what you would like to write in your admissions application essay. These are very important and should be well thought out before submitting. Be sure to have you liaison officer review it before you submit it or ask an academy graduate to help. It also wouldn’t hurt to have a faculty member from your school review it as well. More eyes on the project can mean a broader perspective, but it still needs to be your own voice, so you will have the final word on the essay.

Consumer Debt: Victim or Victor?

When I was in Mrs. Brewer’s third grade, we participated in the school field day. My best friend, Debbie, was set to run the 50 yard dash and her mom made her braids extra tight that day so they wouldn’t get in the way. She was placed in line next to Dee Dee, a competitive blond who had super long legs and a wicked smile. About 25 yards into the race, Dee Dee ran into Debbie’s lane, tripping her and causing her to fall. Stunned, Debbie shook herself off, got back up, and ran to the finish line where she came in second–right behind Dee Dee (who was later disqualified for unsportsmanlike conduct.) Debbie was declared the winner.

My friend could have stayed on the ground and milked the “victim” routine for all it was worth but she wasn’t interested in that kind of attention. She just wanted to finish the race and taste victory.

When I look at the consumer debt bubble that is bursting at this time, I see a lot of different scenarios: some people have lost jobs, others have had excruciating medical bills or suffered a failed small business. While the vast majority have the ever present scenario of a consumptive lifestyle that led to their debt. Some of these are built in “victim” cases–after all, how can you control job loss, medical bills or a failed business?

I, too, qualified to be an alleged victim when it came to the $40,000 of inherited consumer debt we had when we got married. Instead of staying down on the ground, when tripped up by circumstances, we chose to follow Debbie’s example and we got back in the race, determined to finish well by getting rid of that debt. On a military man’s salary, with lots of kids to financially support and only one income, we were able to pay down all of that consumer debt in two years and we’ve remained debt free ever since! If we had played the victim card, we would probably still be waiting for some event or some person to bail us out.

So how do you get out of consumer debt? Stay tuned for specific, targeted tips next week on how we did it and how you, too, can be a victor rather than a victim!

Ellie Kay

America’s Family Financial Expert (R)

Ellie Kay on Nightline

Resolved to dig out of debt? It can be done but there’s a right way and a wrong way to approach the topic, which is true in a lot of areas of our life. For example, there’s a right way to hail a cab in New York City. I can jump out of an airplane, but can’t successfully stop a cab without lying down in front of it –and even then it probably wouldn’t STOP! But my biz colleague, Tara, can hail a cab by just walking out of a building! It’s truly miraculous, I’ve watched her hail cabs a half a dozen times and she just takes a few steps, raises her hand, gets the magic gleam in her eye and voila! A yellow cab appears!
Conquering consumer debt can be as daunting as trying to get one of those yellow things to stop but not if you know what you’re doing. So let’s look at the right way to get outta debt!

  1. Assess Your Debt — Order your credit report for free at http://www.annualcreditreport.com/ and add up all your consumer debt numbers (for both spouses if married.) Most consumers don’t know how much debt they have, like Lorinda on the recent Nightline special I was on earlier this week. Go to 1. Link to video only of segment: http://abcnews.go.com/Video/playerIndex?id=6599750 2. Link to video embedded in four-page story on website (note this onetook some time to play–maybe it was my computer–which is why I am also offering the one above.)http://abcnews.go.com/Business/Economy/story?id=6594831&page=1
  2. APR Reduction — This is where the miracle of compounding interest happens and it can either work for you or against you. If you go to my tools section at http://www.elliekay.com/ you can find the minimum payment calculator and run your own numbers. Watch the Nightline section for the specific strategy involved in HOW to do it (hint: you should never threaten to close your account). It involves knowing how to talk to the person at the credit card company and being polite, prepared, and persistent! The average family with 10K in debt, paying the 2% minimum at an 18%APR can save $6K a year (in interest) by lowering their APR to 9% and paying a little more on the minimum (3%). It’s a “little” that saves a “lot!”
  3. All IN — OK, I’m not a poker player, which is where the term comes from, but being “all in” is when you put all your chips on the table and decide to play your hand–hoping it will work out. With consumer debt, it’s important to commit to getting out of debt and that ALL the money you save (on the tips that are shared throughout my book, Living Rich for Less and this blog) is going to go toward consumer debt. ALL the unexpected money that comes in (tax refunds, bonus checks, birthday dollars) will go toward paying the principle on those credit cards. To get started, take TEN MINUTES, and shop around for auto insurance. I’m amazed that 1/3 of consumers never compare auto insurance prices. Go to http://www.progressive.com/ to see quotes from multiple carriers and pick the one that is right for you. People I’ve worked with save hundreds by comparing prices. Then take those dollars saved and immediately write a check toward your debt!

I’ve given this consumer debt reduction advice to thousands of families through my writing, media appearances and at live events and there are thousands of those readers/viewers/audience participants who are now outta consumer debt.

I may not be able to hail a cab in NYC, but I do know how to help people find financial freedom.

Ellie Kay

America’s Family Financial Expert (R)


Ellie Answers Your Questions on ABC News – “Good Money” Show

I was recently in New York on the set of a fun new show called “Good Money” and I solicited questions from this blog to ask on the air. By now you know if the producer chose your question to read on the air and you also have a free copy of my new book, The Little Book of Big Savings (Waterbrook, 2009) on its way to your mailbox! If you didn’t win this time, don’t give up! We’ll post new ways to win a copy of my books in the future.

Here is a link of me answering your questions on ABC News Now – Good Money. Follow this live link to listen to my answers to the following award winning questions:

  • My husband and I want to get out of debt, but we each have a different idea as to how to go about achieving this. Any advice on how to get on the “same page”? Bren Jones – Vienna, WV
  • Deals4moms.org said… After all your experiences with counseling couples, can you say that your financial advice has helped to save marriages?If yes, what are the 3 top things that helped those couples?
  • Audrey asked…Here’s my question-if one spouse makes more than the other, how can the budget be equalized?
  • L A Hughes said… Dear Ellie Kay,I saw your advice to the married couple who found it difficult to communicate about spending on Nightline. My question concerns couples who are dating, engaged, etc : Do you have any suggestions or tips for how couples can learn discover, understand or achieve common ground about attitudes about money–before marriage–without sacrificing romance, or without seeming pushy?
  • How can you have some fun and adventure with your spouse when you really shouldn’t spend money to go out on a date night once a week because you have so many other bills to pay, and it gets boring just sitting home watching a movie and ordering a pizza or worse making your own dinner when it is supposed to be a break from the routine and not work. Kim from Manchester, Maryland.
  • OK, guys, we’ll do this again in the future and please remember I didn’t choose the questions to air, the producer did!

    Ellie Kay

    America’s Family Financial Expert (R)


    College Credit Card Debt — Ellie answers on ABC NEWS NOW

    As a mom of many (with three in college in 2009) and as “America’s Family Financial Expert,” I know a bit about college kids and credit card debt. Recent studies indicate that the average college student will graduate with $3,000 in consumer debt (in addition to $20K in student loans). This translates into BIG trouble for those starting out in life.

    For example, our son, Daniel, recently graduated from college and then got married right away. Because he did things right and worked very hard, he has no car loans, no consumer debt, no student loan debt and a GREAT degree from the University of Texas. But then he lost his part time job–the one he was hoping would turn into full time work even as he was applying elsewhere (hint: it’s not a great time to be a print journalist looking for work). But because he was debt free, he and his new wifey weathered the storm. Within three days, he had in 16 applications and within three weeks he was employed again–this time full time. If he had consumer debt, he would be in trouble.

    So how do you navigate your kids toward financial literacy while in college? And how does the new Credit Card ACT impact your student? Click onto the link to hear the answers I gave on ABC NEWS NOW, “Good Money” to these questions and YOUR questions:

    My question is why would you want to pay off a credit card while you’re in college, making very little if any income? Why not pay the small minimum payment due each month, and pay off the balance after graduation? You would have a much higher paying job with a new college degree, and could pay off the balance (hopefully) within the first six months to a year of employment.
    Teresa, Boise, ID

    Our oldest daughter is entering her junior year of college, and has so far avoided any credit card debt by very purposefully not having a credit card. She has said that she knows the temptation for impulsive spending would be too great, so she would rather not open that door. While I admire her self-awareness, I am concerned that she is not establishing a “good credit” rating for herself. Is my concern valid? If so, do you have any advice for helping her manage a credit card responsibly?
    Debra Devens, MA

    Our daughter is a freshman this year. She is carrying 19 units so having a job is very difficult. She is on the waiting list for a job on campus and no one seems interested in hiring only for the weekends. It’s hard for her to get and pay off a credit card with no job. Do you have any suggestions?
    Crystal RoughLancaster, CA

    Is it a good idea to set up a debit card for college students so they can only spend what’s in the check acct? Wouldn’t that limit the % on a regular charge card if over extended?
    Mitchell, West Bend, WI

    Should parents help their student get a card, give them a set dollar amount, then let the student use the card to buy things, with the parents paying the bill, to build up the student’s credit rating? Cherie Cheramie from Norton, OH
    When you are a college student and keeping a budget, trying to pay credit card debt, what should you do if you don’t have a stable income? Kelly, St. Louis Park, MN
    All these readers got FREE copies of “The Little Book of Big Savings” and “Money Doesn’t Grow on Trees.” CONGRATULATIONS!
    Ellie Kay
    America’s Family Financial Expert (R)

    Is the Recovery for Real?

    One of my favorite musicals is The Phantom of the Opera. I’ve seen it on Broadway, in Spokane and in Los Angeles and it’s always a powerful reminder of the phantoms we struggle with in life. This recession has been a formidable foe for many Americans as they wonder when (and how) it will end.
    Recently, Federal Reserve Chairman, Ben Bernake, announced that he believes the recession is over. How do we know if this is the real deal or just a phantom? Here are some signs that the recession is really over:

    • Retail Sales – With the holidays right around the corner, retailers are forever watching to overall gains and losses. Any signs that retail sales are on a sustainable upward trend (3 or more quarters of growth) are good signs for a recovery.
    • Corporate Profits — We will need to see genuine revenue growth from US Companies in order for us to say this area is picking up. We can’t just look at profits that result from cost and job cuts or stimulus incentives. Real growth means real revenue.
    • The Market – When investors move away from safe havens such as low yielding CDs and money market funds and they instead go back to investing in stocks–then we can be sure that confidence in the stock market has been restored.
    • Jobs — Just try to tell the guy who is unemployed, “hey good news! The recession is over!” He’s still without a job–it doesn’t feel like it’s over for him. We’ve lost almost 7 million jobs since the beginning of 2008. Signs that companies are creating jobs, done firing and even looking to hire mean that their cash flow is improving and so is our economy. When there’s a drop in the number of jobless claims (getting below 500,000), then we can believe we’re in recovery.

    Whether the recovery is real or we’re still in a recession, it’s important to practice the basics of good financial management: get on a budget, live a more frugal lifestyle, pay down debt, and follow the seven steps to thrive and survive during a recession. If you allow this recession to be a wake up call as to how you manage your money, then your personal recovery will last a lifetime!

    Ellie Kay

    America’s Family Financial Expert (R)


    The Road to Financial Heckie-Fire

    Here’s one of my favorite picks taken a few years ago with the “Pastor to Presidents,” Billy Graham. He’s an amazing man of integrity and in the business of keeping people out of hell.

    They say that the road to hell is paved with good intentions. When it comes to your finances, some of these well meaning money moves can actually become major slip-ups that only compound existing financial difficulties. While parts of the economy are looking better, unemployment remains at a rate of 9.7% and this means that many families are dealing with weeks of unpaid leave. Still others are trying to recover what they lost in their investments, home equity and in the stock market. Recently on ABC NEWS NOW, I shared with the host, Tanya Rivero, some advice on how to stay out of the bad place. Here are some things to avoid:

    Q. Ellie, one of the primary money sources that some families are using to avoid bankruptcy is to raid their 401 (k), which, you say is a major misstep. Why is this so problematic?

    ELLIE: Our parents’ generation tended to work for someone who gave them a pension check for the rest of their lives. This means that current workers may not have been raised with the mindset that they control their own pensions and need to make funding their own retirements a priority. There’s an alarming trend that involves looking at 401(k) accounts as “now” money when it’s really “later” money, that really must be saved for later. While raiding an IRA to avoid bankruptcy is a well intentioned money move, it’s also foolish because if you end up in bankruptcy anyway, then you’ve passed up the benefit you have in the fact that retirement accounts are protected under bankruptcy laws in most states.

    Q. For twelve million Americans, their homes are worth less than they owe, which leads us to the next major money misstep that has become more common in the past two years and that is walking out on a mortgage. What are some other options available to families that feel this is their only option?

    ELLIE: I would say that half of the people who walked away from mortgages didn’t have to take that path and probably didn’t consider all their options. Providing you still have some income to pay on a house where you owe more than it is worth, the first step homeowners should take is to decide whether their mortgage issue is a short term or longer term problem. For example, if you just got laid off and have no savings or small savings, but the job market in your town is such that you can probably get some part time or full time work to keep money coming in, then you have a short term problem. On the other hand, a long-term problem means you’ve been unemployed, you’ve wiped out your savings and you don’t see a way back into the job market.
    The sooner you recognize the fact that it’s a long term problem, the sooner you can put your best food forward to sell your home in a short sale and move into a smaller, less expensive place. That way, you can preserve your capital for a better time.
    If it’s a short term problem, then talk with your mortgage lenders and see if they will suspend or lower your payments over the next three to six months until you are employed again. You can go to MakingHomeAffordable.gov, which is a federal government website with the goal of helping families by providing free HUD-approved counselors who can help you modify your mortgage.

    Q. In every newspaper and on television, we see advertisements for credit counseling agencies that will eliminate your debt. But you say that debt wipeout scams are a major problem. How can we tell the scam from the real deal?

    ELLIE: It can really be confusing because they sometimes advertise as debt consolidation companies, but you need to be extremely cautious because I would say the majority of those advertisements are misleading at best and a scam at worst. If it sounds too good to be true, it usually is. Instead, go to the NFCC.org with is the National Foundation for Credit Counseling. This is a non-profit and free service that you can trust.

    Q. An alarming number of Americans, some 19 million of them, have also resorted to payday loans in order to make ends meet. How do these loans work and are they ever a good idea?

    ELLIE: These are high interest loans that have an average interest rate of between 390% and 520%. They are marketed as short-term cash advances to help meet emergency expenses between paychecks. But the problem, besides, the interest rate, is that it becomes a repeated pattern and consumers become trapped in this kind of borrowing. Avoid these at all costs, and if you have young adult children, especially those in the military, educate them on the dangers of payday loans since these companies tend to flourish near military bases.

    Q. Credit card usage has dipped more than 13% in February and yet almost 15% of American families still owe more than 40% of their income in consumer debt, according to the Federal Reserve. Ellie, you say that another major misstep is ignoring the card balance.

    ELLIE: Yes, Tanya, while it’s commendable that credit card usage has declined, it’s still an issue when the credit card is used as a means to spend more than you can afford. This is a strategic error that can lead to financial hell as consumers ignore the balance. The new government mandated box on your credit card bill will show you how long it will take to pay off your balance if you pay only the minimum and how much interest you pay to carry a balance. Pay attention to these numbers, instead of ignoring them, and ask yourself if you can afford that item before you put it on your credit card. Behavior modification doesn’t happen overnight, but eventually, you can begin the climb toward getting out of debt.

    Q. One final area that we’ll look at today has to do with trying to fool Uncle Sam. Ellie, you say that this money misstep can cost taxpayers big bucks if they are caught and that there is a difference between mistakes and intent—what is the difference?

    ELLIE: It’s really pretty simple. Everyone will make a mistake here and there can be accidental errors on the tax returns of the most honest kind of people. But some folks are looking to save money by “accidentally” misrepresenting large amounts of money. We see them in the news—whether you’re a celebrity or a politician, you still have to pay your taxes. By signing the box on your tax form that you believe everything to be accurate and true on your form, you open yourself up to significant liability. If you’re audited and they can prove that the misrepresentation is intentional, then not only are there penalties involved, but you could also be charged with federal fraud. So pay those taxes, even if you have an extension and call the IRS to set up payments if you cannot pay all you owe.

    Ellie Kay
    America’s Family Financial Expert (R)

    ABC NEWS – I’m Answering YOUR Questions

    Here are some of your questions that I answered recently on ABC NEWS “Good Money” regarding the blog I wrote called “The Road to Financial Heckie Fire.”

    Q. I’m in my mid thirties and I haven’t had the problem of friends and family asking me to co-sign on a loan before. But in the last year, I’ve had three requests for this. What’s your advice on co-signing a loan?
    Jill, from Bradenton, FL via facebook

    Ellie: If you have a friend or relative who needs a co-signer, then that means their credit is so risky that no lender will give him money on his own credit history. The question is: why should you? The answer is that you should not! Even though it may come across as “helping a family member out” it’s still a business transaction and when you set the precedence of co-signing on a loan—be prepared to do it again and again. If not for the same person, then for another friend who may say, “well, you did it for Jennifer, why not me?” You have to assume you will be the one repaying the loan & you won’t have the associated asset, so it can’t possibly be a good business move.

    Q. We are boomers in our early sixties and we were thinking of getting a reverse mortgage. Is this a good move for people our age?
    Allison from Granbury, TX via online contact form

    Ellie: Recently, you’ll see older actors on commercials offering these kinds of mortgages to seniors who are house rich and cash poor. They are portrayed as a viable means of getting a steady stream of income that is easy to obtain. But the fees and other costs associated with reverse mortgages can sometimes be considerably higher than on other loans. This is a bad money move unless you have no other income than social security and because of the high cost fees, it should be a last resort not a first resort. The better option would be a home equity loan. You could sell your home and move into a smaller, less expensive house. Or, you could sell the home to your kids and have a multigenerational family under one roof—this is a recent trend I’ve seen emerging. Your kids can use the inheritance to pay down the mortgage.

    Q. I have $10,000 in Stafford Student Loans, an $8800 car loan at 9.99% and two consumer loans at $3500 and $3700, both at 12%. All my loans are current and I have $1000 to put toward one of these loans—which one should I choose?
    Viviene via Ellie Kay’s blog

    Ellie: It’s great that you are current with your payments and even better that you have an extra $1000 to put toward your debts. I recommend that you put the $1000 toward the $3700 loan at 12% in order to retire the loan. Then once you’ve paid off that debt, double up the payments on the $3500 loan. You will feel motivated by the fact that you’re paying off debts and you will also experience the “snowball effect” where you gain momentum in paying these debts and as you pay off one bill, you can put those monies toward the next bill. Before you know it, you’ll have all your debt retired!

    Q. Last year, my teenage daughter couldn’t find a summer job and ended up kind of wasting those months. She tried hard, but there just isn’t much work where we live. Do you have some ideas that maybe we haven’t thought of in terms of summers for this age group?
    Stephanie Corlew from Branson, Missouri

    Ellie: Summer camps are a great place for kids like your daughter to plug into a summer job. My daughter, Bethany, found a job through the American Camping Association by going to www.acacamps.org/jobs (or just google “American Camping Association” and “jobs.”) She’s making enough for her college spending money and gaining the opportunity to impact the lives of young campers as well.
    Another way to broaden a resume for this age group is to go to the local, state or federal political representative from your district and offer to intern in the office. My son, Jonathan, did this last summer as a high school sophomore and this summer as a junior as well. He only volunteered a few hours a week at Congressman Buck McKeon’s office (California) and it made such an impression on his resume that it helped him get into an exclusive summer leadership seminar at USAFA (United States Air Force Academy). His summer internship contributed to the community and it also has contributed to his future as he applies for college scholarships.

    Q. My grandchildren are teenagers and are coming to live with me for the summer. I wanted to know if you know of some jobs they can do where they could make some extra money, but still have time for fun, too.
    Connie Green from Tehachapi, CA

    Ellie: Connie, if you email assistant@elliekay.com, we can send you a file that includes 30 different jobs your grandchildren can do locally and make good money as well. Just ask for the “Kids Jobs” file. There’s also a list of safety items you should check out before they work for someone they do not know. For example, there’s job’s like Rent-A-Kid where there may be people in your church or neighborhood who need odd jobs done. There are also jobs like window washing, Garage Cleaning Service, Babysitting Services for summer groups that meet, Mail Checkers (for those who travel out of town), and even Pet Minders.

    Q. Ever since I was a teenager, it’s been a dream of mine to go visit Israel
    Is going on a tour with a large group the least expensive way to go to big tourist destinations? How can I save money on this trip?
    Pamela from Acton, CA

    Ellie: Tour groups with your church or community may not be the cheapest route to go since someone usually gets a free trip or two by booking a large group. In some cases, you actually pay more money to go to Israel with a reknown author or professor than you would if you go on your own. To help save money, go to the website GoIsrael.com and do as much planning as possible. Stay in a hostel, guest house, or a kibbutz, which comes with a free breakfast. Buy a pass for all national parks in order to save as much as 35% on the most popular attractions.

    Q: Our company downsized and I laid off work. I’m thinking of launching my own homebased business, but there’s so much out there, I’m not sure what I should do. How do you know it’s a good business to get into and what should I keep in mind as I make my decision?
    Nicole, Albany, NY

    Ellie: One area of our economy that is thriving is direct sales companies (DSC) as people explore new ways to make money. As you are searching for the best fit for you in your homebased business start with following your passion. Do you love to cook? Then Pampered Chef may be a good option. Do you enjoy wearing the latest styles in jewelry, then try Premier Designs. If you follow your passion you are far more likely to succeed. But all DSCs are not created equal. Before you decide, find out what kind of inventory you have to stock. I know far too many people who went into debt to buy their inventory and then quit the business within a year—but kept the debt! Also find out the percentage you make on sales as well as the hostess plan that the company offers. Does the company take care of filing sales tax for you or do you have that job, too? For more information, email assistant@elliekay.com and ask for the “Homemade Business” file. Have fun pursuing your passion!

    Please ask me YOUR questions!

    Ellie Kay

    America’s Family Financial Expert (R)

    College Grads Avoid Debt Trap

    Son, Daniel graduates from college in this happy snap and it’s that time of year when proud parents of the class of 2010 gather to watch their children graduate from college. I was recently talking about this topic on ABC NEWS, Good Money where you can watch the clip.

    After the hats are tossed, tears are wiped away and the celebratory cake is gone—the graduates will begin their new lives in the real world. But this year’s graduating class faces a wretched job market where there may be as many as five candidates for every job. Consequently, one of the most daunting tasks becomes the challenge of not falling behind on student loans. While challenging times can build moral fiber, you don’t want to build character by getting involved in the debt trap.

    Q. First of all, what are some of the consequences that graduates face by getting behind on student loans?

    Ellie: As a mom of kids in college as well as a recent graduate, I know personally, how difficult the job market is and what a challenge these graduates face. First of all there will be interest charged for late payments as well as fees that will inflate the amount they owe—and chances are good that they owe too much as it is! If you default, the government could garnish your wages and withhold your tax refund. Not to mention a huge hit on your FICO score, when you’re just starting out and trying to build a good score that will help get lower interest rates on a car or a house. This isn’t a good way to start your post-graduate life!

    Q. But you say there is good news and that these dire consequences are avoidable, as least as far as federal student loans are concerned. The key is to understand your options and take action before you fall behind on payments. The first tip you list is to understand your grace period, when do students have to start paying back these loans and how do grace periods vary?

    ELLIE: Borrowers typically have a few months after graduation before they are required to start repaying their federal student loans. For most federal student loans, the grace period is only six months. Most loans have up to ten years to repay. It’s important that you contact your loan provider and find out when the statements begin—especially if you haven’t received notification yet.

    Q. What if the graduate has trouble finding work or they find an entry level job that typically doesn’t offer much in the way of compensation? Is there recourse for the amount they are required to pay for their loans?

    ELLIE: That’s an excellent point and it brings us to our second tip, they need to find out whether they qualify for the income-based repayment program. Under this program, your loan payment could be reduced, based on the amount of discretionary income you have available. In most cases your loan payments won’t exceed 10% of your total income. After 25 years, anything you still owe on the loan will be forgiven.

    Q. Is this income based repayment program an automatic enrollment or does the graduate need to apply for it?

    ELLIE: You definitely need to apply for it by contacting the company that is servicing your student loan. If you’ve moved a time or two and your loan papers have not been forwarded to you and you are not sure who services your student loan, then you can go to the database of the National Student Loan Data System.

    Q. Is there some paperwork you need to compile before you apply for the income based repayment program?

    ELLIE: Yes, it’s important to have this paperwork on hand in order to streamline the process because you do want to get this filed as soon as possible—especially if you’re in danger of being late on loans and you have a genuine financial hardship due to your current income levels. You’ll need to authorize the IRS to provide last year’s tax return to the Department of Education. If you feel that your tax return doesn’t reflect your current situation, there’s a form you can use to show how your situation has changed. Get info on these forms and criteria, as well as links to major student loan servicers at the Project on Student Debt.

    Q. We’ve looked at income based repayment, but what about those who need a quick, temporary fix? Maybe they have to take an unpaid internment at first or they may have a job that will become available in six months. Are there options such as deferment or forbearance available to this class of graduates?

    ELLIE: If you are unemployed, still in school or experiencing economic hardship, you can apply to have payments on your federal student loans deferred for up to three years. If you have subsidized Stafford loans, which are provided to students who demonstrate financial need, the government will pay the interest on the loans during deferment. Interest on unsubsidized Stafford loans will accrue during deferment. If you don’t qualify for deferment, then you still might be eligible for forbearance, which allows you to put off payments for up to three years. It’s harder to qualify for deferment than it is for forbearance because in forbearance you will still have to pay interest that accrues.

    Q. Does it take a long time for the paperwork to go through for these kinds of programs we’ve discussed: income based repayment, deferment and forbearance? Couldn’t a graduate find themselves in default by the time the paperwork is processed?

    ELLIE: It’s important that you continue to make full payments until you’re notified otherwise. It takes longer for income based repayments and doesn’t take as long for deferment and forbearance because the latter two are temporary relief from loan payments. Whereas income based repayments could be longer term, depending upon how long you are in that job, making that salary. It’s important to look at forbearance and deferment as short term fixes and not long term—that’s why it’s really important to file for these right away, while you’re looking for a job. But if it looks like your payment problems will last longer than a few months, you definitely need to look at income-based repayment.

    Q. Some graduates have huge student loans, in some cases, they have more than $30,000 in principal and interest. It is especially difficult for these grads to face this mountain of student loan debt. Can they extend the payment term in order to get through the first few years?

    ELLIE: If you are a borrower who owes more than 30K , most lenders will allow you to extend the term beyond the standard 10 years, thus reducing monthly payments. The amount of interest you pay will increase, though, particularly if you extend payment over the maximum term of 25 years. And who wants to spend the next 30 years paying off a student loan? So I would only recommend this option as a last resort. Try to pay it within the standard 10 year term so that you can avoid thousands of more dollars in interest.

    Q. Finally, we’ve discussed federal student loans, but a lot of viewers may hold private student loans that they have to repay. What are their options?

    ELLIE: Well, the outlook is not as sunny for those who have private loans. They have fewer options. Private education lenders don’t participate in the income-based repayment program and they’re not required to allow you to defer payments, even if you’re out of work. If you’re having trouble with your private loans, read your loan agreement. It may require that the lender grant you forbearance under certain conditions. Even if your contract doesn’t include an economic hardship provision, your lender may be willing to provide relief. Some lenders have become more flexible in this post-great recession environment. You could ask for interest only payments or even to change the terms of the loan. For more information, go to Student Loan Borrower Assistance

    Ellie Kay
    America’s Family Financial Expert (R)

    College Debt – Ellie Answers Your Questions!

    One of Yahoo’s most popular videos was yours truly on ABC NEWS NOW earlier this month answering your questions about college grads as well as debt!

    Here’s the scoop:

    Q. Our daughter just graduated from UCLA and we’re very proud of her. But even though she has a prestigious degree, she still hasn’t been able to locate work. Should we allow her to move in with us until she finds employment?

    Bill and Carol from Quartz Hills, CA via facebook
    Ellie: This is a tough one! As a mom of kids in this age group, I know it’s a fine line between enabling and empowering and it’s definitely one of those individual decisions. What may be right for a particular child may not be right for another one. I think you ought to support her emotionally and psychologically, letting her know you believe in her. You can also offer to help with resumes or job research. But I would make the offer to have her move in with you as a last resort only. Furthermore, if she does move in with you, it’s important to sit down ahead of time, come up with a responsibility/income agreement and have both parties subscribe to the guidelines.

    Q. My husband and I have a son who graduated last year and could not find work, so he moved in with us until he could find employment. He found a modest job, and is not making very much money. He decided that continuing to live with us would be a better financial option than paying rent on a limited income. I love my son, and he’s only 23 right now, but I’m afraid of a “Failure to Launch” syndrome and I need to know what you would advise me to do.

    Allana from Lancaster, PA via online contact form
    ELLIE: OK, the Failure to Launch syndrome, it’s every parent’s nightmare. We finally have an empty nest, then boomerang children come back to inhabit a place where they no longer naturally fit. I think, Allana, that it is imperative that you and your husband develop an comprehensive exit strategy for junior. Make sure this plan requires that he pays room and board with you, that he develop a clear budget and make himself accountable to you (while he’s living at home) and then be clear about D-day. The day he will depart. Be loving but firm. Remember that the decisions you are implementing with him today will be the precedence you set for tomorrow. You and you alone, enable the boomerang effect, yet you also have the power to put a stop to that boomerang before it’s ever launched. Then you won’t have a “Failure to Launch.”
    Q: I am a 26 year old single girl with a bachelor’s degree but not yet a Master’s. I am working with children in a library setting currently and am considering various Master’s programs. (Library Science included). I would have to take out loans for the program though, and I am not sure that taking on that debt would be a wise thing, even though it would lead to a professional job. What is your advice for women around my age who eventually want to marry and have a family and do not want the burden of school debt? I have read some of your books and very much appreciate your insights and time.

    Jen Crouse submitted via Online Contact Form
    Ellie: It’s admirable that you desire to go back to college for a master’s while you are still in your twenties and your work with children sounds very gratifying. Ellie usually recommends no more than 10K in student loan debt for any program (bachelors or masters). Instead, you could look into some of the following:
    Step 1
    Apply for a scholarship.
    There are merit based graduate school scholarships out there so go to www.salliemae.com which lists almost 2 million scholarships. Talk to the admissions office at the college or university at which you’d like to apply. They can give you advice on applying for their own scholarships (if they have them) or point you to the appropriate federal and/or state scholarship programs.
    Step 2
    Look into a fellowship or assistantship
    . Many colleges and universities offer programs that enable you to get a master’s degree while doing research or assisting professors in the department in which you wish to study. This is a viable option that also enhances your hands-on experience in your chosen field.
    Step 3
    Talk to your employer.
    Many employers are willing to foot the bill for a master’s degree, especially an MBA (Master of Business Administration). Talk to someone in your company’s Human Resources department to get more information. Or another option is to talk to a military recruiter to join the guard or reserves. The Army, Air Force and Navy will pay up to $65,000 in student loan debts if you qualify for the program.

    Q. My husband and I want to help with our son’s college expenses (he graduates in two years) and we don’t want him to be straddled with huge student loans. Several of our friends and other family members have said, “Just take out a second mortgage or use the equity in your home to pay for college.” What do you think about that?

    McKenzie Thomas from Stanford, CA
    Ellie: I believe that you should never borrow on your own future to pay for your child’s future. In any discussion of college costs, it’s important to keep priorities straight. Your kid’s education shouldn’t cost you your retirement. This means it’s not a wise idea to take out a home equity loan, an equity line of credit or refinance your mortgage in order to pay for school. This would reduce the amount of equity in your home, increase the risk of possible foreclosure and incur costs in interest charges that may cost more if the term on the new mortgage is greater than the remaining term on the existing mortgage.

    Q. My son-in-law just graduated with his Masters Degree in Education. They have had a hard time while he’s been in school and don’t have the best credit scores. They’ve asked us to co-sign on a new automobile loan and we are reluctant. What do you think about co-signing for loans?

    Amanda from Wichita, KS via Ellie Kay’s blog
    Ellie: Since you son-in-law needs a co-signer, it means their credit is so risky that no lender will give him money on his own credit history. The question is: why should you? Even though it may come across as “helping a family member out” it’s still a business transaction and when you set the precedence of co-signing on a loan—be prepared to do it again and again. If not for the same person, then for another friend who may say, “well, you did it for Daniel, why not me?” You have to assume you will be the one repaying the loan & you won’t have the associated asset, so it can’t possibly be a good business move.

    Ellie Kay

    America’s Family Financial Expert (R)
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