Fixed or Variable: Which is Best?

Fixed-or-Variable

When faced with the need to find funds to close the gap between college costs and available financial aid, many students and their families turn to private student loans. One of the first choices a family looking at a private loan needs to make may be choosing between a variable and a fixed interest rate. Which is best? The answer: it depends.

First, you should know that variable rates are typically lower than fixed rates. Why? Nobody can predict the future accurately. Because a bank is in the business of making money they must always consider the risk of lending money. One of those risks is called “interest rate risk” – the risk that in the future the bank will need to pay a higher interest rate to its lender for the money it has lent to you. A fixed rate loan, especially one with a long term like a mortgage or a student loan, offers a rate that anticipates higher future rates.

On the other hand, a variable rate loan is usually presented to the consumer as a base rate (such as Prime or LIBOR) plus a “margin”. This assures that the bank will always earn money because when the rate the bank pays to borrow money changes, the base rate will change in the same direction, but the bank will always have a consistent “margin” – that extra percentage they add on to the base. Banks love predictable cash flows – hence, the lower rate for variable rate loans. But, there is a risk to you – what if the base rate increases significantly over time? Your payments will increase to a level that may be higher than one you are able to afford.

So, in the end, the choice between a fixed and variable interest rate is a personal choice based mainly on the borrower’s long-term and short-term goals. What should you consider when weighing the decision between variable and fixed rate loans? Experts say that the answers to just a few questions can help make the decision easier.

Do you believe interest rates will increase significantly over time?

To answer that question you may need to do some research or consult with an expert, but, in general, if you imagine interest rates will increase beyond the offered fixed rate (and stay there) over the term of your loan (around 15 years if you include the time in school), you may want a fixed rate.

Do you imagine being able to pay off the loan faster than the repayment schedule assumes because of an expected windfall in the future or a very high-paying job?

In that case, a variable rate may work for you.

Do you like consistency so you can more easily create a budget?

A fixed rate is the one for you – you won’t see any gains when interest rates drop but you also won’t see any losses when they increase. And you will know exactly what your payment will be for all 120 months of your repayment term.

Do you want to start repaying your loan immediately (which is a good idea)?

Then a variable rate may be best for you as the monthly payments will generally start off lower than a fixed rate loan.

No matter which loan type you select you can choose either type for the next loan. If you follow the old saying of not putting all your eggs in one basket (what financial planners call “diversifying your risk”), you may want to consider taking out some fixed rate and some variable rate loans over the course of your college career.

By: Iowa Student Loan

Start Saving Today

Start-Saving-Today

Whether you’re planning on college next year or just starting your sophomore year in high school, you can take steps to save money today that will help you with college costs in the future.

Open a Savings Account

If you don’t have your own savings account, now is a great time to get one. Ask your parents for advice or visit with an account specialist at a local bank or credit union. You will need to deposit some money to open a savings account, but that amount can often be as low as $5.

Even if you don’t add to your initial deposit, as long as you haven’t taken it out, that amount will increase by the time you’re ready for college simply because of interest accrual. This is one time interest will work in your favor.

You can save more, though, if you deposit gift money you receive into your account. If you really want to give your account a boost, deposit all your gift money to earn interest on every penny. If that seems like too much, think about depositing half of any gift money you receive. That way you can still spend some, but you’ll also earn interest on a bit.

Save Your Change

If you use cash for all your spending money, saving your change can really add up over time.

Take a jar, glass bottle or even a cleaned-out laundry soap container and put any loose change you have every day into the container. Once your change gets heavy, or if you are tempted to spend it, deposit it into your savings account. You’ll probably be surprised at the amount of money you’ve accumulated in just “spare change.”

Have a Sale

Look around your room. Do you have some childhood toys collecting dust or video games you never play anymore? What about clothes you haven’t worn in more than a year hanging at the back of your closet?

If you have no need for the items and your parents are OK with it, think about having a garage sale or putting items on a website like eBay. Do some research before you sell anything to see what prices others are getting for items sold online. Then decide where to sell.

If you want to have a garage sale but don’t think you have enough to sell on your own, see if your friends would like to sell some of their stuff too. To keep track of where the money goes, use different colored price stickers to indicate whose item is being purchased. After the sale, proceeds can be easily divided up between the different color stickers.

Get a Job

The easiest way to save money is to earn money. If your grades and extracurricular activities allow, get a summer job or a part-time job during the school year. Look for places that are willing to work with your schedule and then be responsible for showing up on time. Working while going to school is a great way to learn how to balance different responsibilities.

Having a job also means earning a paycheck. This is another way to take advantage of a savings account. If you set aside some of the money you earn for your savings account on a regular basis, it will start earning interest as soon as you deposit it.

Think about setting a savings goal too. If you get paid every two weeks and are able to put away $40 each payday for two years, you can save more than $2,000 to put toward college expenses. If you don’t work during the school year, what about trying to save at least $250 a month during the summer? In two summers, your savings can increase $1,500.

However you accomplish it, any money you save now is money you won’t have to borrow (and pay back with interest) in the future.

By: Iowa Student Loan

Partnership Creates Greater Access to Financial Literacy Tools

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Students and families now have the chance to gain even greater access to personalized college planning and financing information while visiting a few of the Iowa College Access Network’s (ICAN) locations.

ICAN, a Student Loan Coach contributor, recently teamed up with Iowa Student Loan to create mobile learning stations in three of its 11 office locations.

Providing statewide outreach, ICAN helps more than 500,000 students, parents and education professionals prepare for life after high school each year. An important aspect of that preparation includes financial planning for college.

For the past few years, ICAN has provided visitors instructions to Iowa Student Loan’s online smart borrowing resources and tools. These tools help families borrow less for college, and target majors that lead to jobs. Now, with the help of the learning stations, students and parents will be able to experience those tools while on-site at three ICAN locations, allowing for immediate discussion of personalized results and options with ICAN’s team of highly-qualified student success advisors.ICAN_Station

The tablet- and laptop-based stations have been set up at ICAN center locations in Hiawatha, Ankeny and Coralville. The stations provide the technology needed to access Iowa Student Loan’s suite of financial literacy tools — Student Loan Game PlanSM and ROCI Reality Check — in addition to other resources regarding college financing.

Student Loan Game Plan is an interactive educational resource demonstrating how student loan debt can affect a student’s financial future. It provides customizable results based on major interests and individual situations, and provides an action plan to help reduce the need to borrow for college. During the month of July 2015, 14 percent of users were able to reduce the amount of student loan debt they planned to incur by an average of $1,800 after using Student Loan Game Plan.

The ROCI Reality Check provides users with job prospects, earning potential and maximum suggested student loan debt loads based on a student’s chosen major, allowing them to see the potential return on college investment, or ROCI.

By: Iowa Student Loan

Getting a Jump on Interest

If you have some extra cash from earnings, gifts or your own savvy shopping skills, you may want to invest in your financial future by making an interest payment on your student loans.

Here’s an example situation:

Private student loan amount: $10,000

Interest rate: 7%

Repayment term: 10 years

Extra payment made: Beginning of first year of a four-year college career

Interest-Rate-Chart-1

Simple interest is calculated based on a $10,000 principal balance x interest rate x term of 54 months (48 months in-school + 6-month grace period). The total repayment amount includes interest accrual over the life of the loan and is based on making a single interest-only payment before the repayment period begins. Savings over the life of the loan is equal to the monthly reduction in payment amount multiplied by the 120 payments made over the life of the loan.

Now, let’s assume you need to take out $10,000 in private student loans at the same rate for each of four years, and you are able to make one-time payments each of those years.

Interest-Rate-Chart-2

Calculations are the same as above except interest accrues over 36 months + 6-month grace period for a loan taken out the second year of college, 24 months + 6-month grace period for a loan taken out the third year of college and 12 months + 6-month grace period for a loan taken out the fourth year of college.

The information above shows how making one-time interest-only payments can help reduce your student loan burden.

By: Iowa Student Loan

Parents: Register to Win a $1,500 College Savings Plan Deposit

Save-Now-Save-Later

A college savings account is a great way to set your future college student up for success by helping them to possibly reduce debt later in life.

Iowa Student Loan’s Save Now, Save Later: College Savings Plan Parent Giveaway is a great way to give that savings account a boost.

Now through Nov. 30, you can register to win one of 30 deposits of $1,500 to a College Savings Iowa© account. All you need to do is complete the one-time registration process, including completion of the cosigner version of Student Loan Game Plan, an online educational tool.

Enter now to win a $1,500 deposit

“(The program) is a great way to support Iowa’s youth who are approaching the college years,” said Michele Stiles, of Des Moines, a 2014 winner. “It helps parents plan and save ahead for college so that both parents and students are more financially prepared as students enter college.”

Eligible registrants are:

  • an Iowa resident;
  • and a parent or legal guardian of a high school student in Iowa (grades 9, 10, 11 or 12).

Winners will be selected in December, and notified in January 2016.

Read the full news release

By: Iowa Student Loan

Make the Most of Your Senior Year

Make-Most-of-Senior-Year

If you’re planning to go to college after you graduate from high school, you may find yourself overwhelmed as you try to prepare for next year and enjoy this one at the same time. The timeline below can help you make sure you do both well.

All Year Long

No matter where you are in the process, a few things should remain constant from now until you head off for move-in day.

  • Organization is key. You’ll have a lot of paper and deadlines to deal with. Keep it together with a frequently updated calendar and separate folders or binders for each school you’re considering.
  • Enjoy your time with family and high school friends. Have fun and relax once in a while. If you need help, ask your friends and family for advice — they know you best, after all.
  • Meet people! One of the reasons new college freshmen get anxious is that they aren’t sure how to meet new people. Use this year to get comfortable introducing yourself to and making small talk with strangers.
  • Keep your priorities straight. Even after you’re accepted into a college, your grades and behavior may affect your admission and scholarship opportunities.

Fall

  • Now is the time to act if you need to improve your grades or become more involved in volunteering, extracurriculars or a job related to your career choice.
  • Take the ACT or SAT if you haven’t yet or want to try to improve your previous score.
  • Finalize your list of potential colleges.
  • Draft essays and collect recommendations for college applications.
  • Fill out the Common App if several of the colleges on your list accept it.
  • Start researching scholarship and grant opportunities.
  • Visit your final choices of schools to help you narrow down your choices.
  • Take dual enrollment courses to earn college credit before you graduate.

Winter

  • Include a “safety school” or two in your application process. These are schools you know will accept you if you don’t get into your top choices.
  • Submit applications and letters of recommendation to your final list of schools.
  • Keep looking for scholarships and applications.
  • Talk to your parents about financial aid and how much they expect to contribute to your college funding.
  • Prepare for the Free Application for Federal Student Aid (FAFSA) so you can file shortly after Jan. 1. Get your FSA ID, a user name and password that you’ll use to sign the FAFSA, and start gathering the required information.
  • Keep working hard academically. It may be a good idea to meet with your school counselor to be sure you’re on track for graduation.
  • Think about your college major and how that affects the college you choose and the classes you’ll take your freshman year.

Spring

  • Write thank-you notes to the teachers and references who wrote you letters of recommendation.
  • Watch for admission and financial aid letters. Compare them carefully to understand any requirements for admission, scholarships and their renewal, and available loan amounts.
  • Once you make your final choice of college, complete the required steps to accept your admission, sign up for classes and housing, schedule summer orientation and find a roommate as soon as possible.
  • Don’t forget to let other schools know you won’t be attending.
  • Consider summer courses at a community college or a summer job that will give you experience in your chosen field.

See our Summer To-Do List for College Prep.

By: Iowa Student Loan

5 Ways to Start Senior Year Right

Summer’s ending and school is rolling back around! For those who graduated in June, that means starting up college, but for another group of students, it means that their high school senior year and all its thrills, hurdles and achievements is just beginning.

Senior year brings with it a lot of exciting moments, but it also brings a lot of stress and decision-making as well. Here are some tips for going back to school to help get you through your final year of high school.

Start-Senior-Year-Right

1. Get planning and meet deadlines.

The idea of going back to school can seem easier if you ease your way into it, taking it slow. There’s so much going on between catching up with friends, getting back into activities and figuring out your last round of classes. It can seem that the last thing you want to do is start a heavy to-do list for college.

BUT — the earlier you get planning and organized, the easier the process is going to be. Do you want to avoid major headaches and stress-out moments over the next few months? Then get a planner and start writing out a schedule for your final campus visits, your college application deadlines, housing and financial aid deadlines, and final SAT or ACT test dates, and get an outline going on your plan for scholarships.

Trust us. Making a deadline might be stressful now, but when you meet that deadline, the relief and feeling of success that rolls off will make it all worth it.

2. Don’t neglect your actual schoolwork.

We just listed A LOT of new to-dos for your senior year. With all the new stuff to focus on while getting ready for life after high school, it’s really tempting to put off a paper here and a project there.

Don’t do it!

Your schoolwork is extremely important. You don’t want to let your grades slip your final year. Colleges look at your work all the way through your last day of senior year, and those grades can really impact the opportunities that are open to you next year.

This brings us back to tip 1 — planning. The more you plan ahead, the more you will be able to schedule things out and fit everything you need to get done into your schedule.

3. Ask for help.

This year may get overwhelming at times. Don’t feel like you have to brave it all alone; ask for help. It’s a good idea to talk out your ideas for the future with the adults in your life. Talk with your parents, your grandparents, close friends, teachers or your school counselor. They will all be able to give you good advice and help you through stressful moments.

4. Think about ALL your options.

You have so many options open to you right now; don’t close any doors. Use this year to explore new things and try to discover what really piques your interests and gets you excited. Take a self-assessment test and see how the results line up your interests with potential college majors and careers. Make sure those line up with the colleges you are considering.

5. Don’t forget to have fun.

Senior year isn’t just about planning for life after senior year is over. It’s also about enjoying your final year of high school with your friends. Take the time to be a teenager. Hang out with friends, go to the school dance, attend homecoming and try something new. If you’ve always done athletics, try out for the play. Get involved in the community with a new volunteer opportunity. This is your last year of high school; make some memories and have a good time.

By: Iowa College Access Network

www.icansucceed.org

This is Contributed Content. Any opinions, advice, statements, services, offers, or other information contained in Contributed Content are solely those of the respective author(s) or contributor(s) and do not necessarily state or reflect the opinion of Iowa Student Loan and/or this blog. See the “About” page for additional important information about Contributed Content.

11 Things You’ll Learn During Your First Semester

College is about learning, and not just in class. Some life lessons you’ll figure out quickly and maybe painfully. Others will take time.
11-Things-Learn-First-Semester-infographic

Download a PDF version of the infographic.

1. You’ll probably feel lost in at least one class. It’s OK, and you’re not alone. Make an appointment with your professor, check out resources like free tutoring and the writing center, or join a study group to learn from your peers.

2. Your professors expect you to show up, ready to take notes or participate in class. They won’t spell out assignments or remind you of upcoming tests. Use a calendar or organizer to manage study sessions and upcoming due dates.

3. You should go to class. You’re paying to go. If you skip classes, you’re throwing money away. If you’re using student loans, you’ll have to pay back that money with interest. Plus, you never know when the professor will provide key details that will be on an exam.

4. Silence your phone. When you’re in a class, meeting with a professor or studying with classmates, be respectful of their time and others around you by turning off the ringer and turning down the vibrate volume. Rarely is a call or text worth disturbing others or breaking your concentration.

5. Don’t leave your clothes in the laundry after the cycle. You don’t need to babysit your clothes. Just know how long the cycle runs, set a reminder on your phone and return promptly. Your fellow students will not appreciate clothes left in a machine. Your personal garments may end up in a pile somewhere, or potentially, gone for good.

6. Register for classes as soon as you can, especially on larger campuses and for required classes. Waiting until later may mean missing a prerequisite class that can set you back on completing other classes and cause you to attend school longer than you expected, costing you additional money.

7. Credit cards offered on campus are probably not your best options. The cards offered on campus often have extremely high rates. If you feel you need one, talk with your parents or a financial planner at your bank or credit union about the best option for you.

8. You and your roommate may have issues. One way to help prevent or lessen resentment is to discuss preferences at the beginning of the year, compromise where necessary and then set some ground rules. When you do run into problems, talk with your roommate and try to work through issues together. If you still need help, ask your RA for advice. It’s OK to ask your parents for advice, but try to handle it yourself instead of asking them to fix the problem for you.

9. Homesickness is normal. Whether you miss your family dog, younger siblings, homemade dinners or sleeping in your full-size bed, you will likely experience some homesickness. Everyone adjusts to life away from home at a different pace, and with everything going on in your life, it may seem overwhelming at times. Take time to call or video chat with family and friends. Hearing each other’s voices can be better than checking social media or receiving texts.

10. Random acts of kindness are awesome. Something simple can make a person’s day better and give your outlook a boost at the same time. Hold the door open for someone a few steps behind you; smile at people in the hall; be there for someone having a rough day.

11. You can never have too many clean, dry towels. Pack an extra one, or three. You’ll want them.

By: Iowa Student Loan

3 Tips to Limit Borrowing for School

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Before you apply for additional student loans, make sure you’re not borrowing too much. Doing so can make repayment painful. So, use the tips below first and then only borrow what you need.*

*And if you determine you’ve borrowed too much for this year already, you may be able to cancel part of the loan before all the funds are sent (or “disbursed”) to your college. Check in with your financial aid office to see if you can still cancel part of the loan.

Don’t Borrow for Extras

You should only borrow money that you need to pay college costs, not for incidentals or other items you want.

Check out these great ideas to save money on supplies.

Student loans should be used for any education-related expenses such as tuition, room and board, meal plans, book and even transportation costs. Those loan funds shouldn’t be used to decorate your dorm room with the trendiest items when you may already have most of what you need at home. The newest gaming equipment, spring break trips and pizza for all your friends on a Thursday night also shouldn’t be paid for with student loan funds.

Think about it. Do you really want to be paying back that money, plus interest, in 10 years when the pizza is long gone and the décor and gaming items are out of date?

Work a Few Hours a Week

If you want to pick up the newest version of Call of Duty for a break from studying or want to head to Vegas for spring break, think about getting a part-time job during the school year. Working just 10 hours a week can help put some extra cash in your checking account and may help your grades by forcing you to budget your time wisely.

It would probably even be better to use your paycheck to buy needed supplies like books or pay some of the smaller fees charged by your school so that you don’t have to use loans for those expenses. And don’t forget, you can always use any money earned to make monthly interest payments on your current student loans to prevent the loan amount from increasing while you’re in school.

Maximize Your Course Load

Want to do one more thing to keep your loan balance from getting out of control? Be sure you’re taking as many classes as you can so that you graduate on time. Does your college consider 12 hours full-time enrollment but allow you to take up to 18 hours at the same tuition cost? If so, try to make the most of that time. If your grades and schedule allows, consider taking 18 hours at a time. If you can’t manage 18 hours effectively, taking 15 hours can help you stay on track for graduating in four years better than 12 hours will. And graduating in four years instead of five or more can significantly keep your loan costs down.

By: Iowa Student Loan

Save Money on College Supplies

Save Money on College Supplies

Use these tips to save money as you prepare for your first semester of college.

Save-Money-on-College-Supplies

Buy only what you really need.

  • If you live in a residence hall, you may find you don’t need your own vacuum or printer.
  • Before you buy a lot of new clothes, consider what you’ll really wear on a daily basis. You probably won’t want to dress up for those 8 a.m. lectures.
  • Do you really need a new matching bed set with a duvet cover? You may find your old bedding is more comfortable.
  • Check social media sites and ask professors about recommended books — maybe you’ll find you don’t really need them all.
  • If you’re not sure about a specific purchase, wait a couple of weeks after you move in — by then you’ll probably have a better idea of whether you’ll have room for (or even still want) a sofa.

See what you already have at home.

  • It may be fun to get all new school supplies, but you might have enough basic items like notebooks, pens, folders, scissors, and even a bag or backpack, to get you through a semester.
  • Check for items like extra storage bins, hangers and mirrors at home instead of buying new.

Rent, share, borrow and swap.

  • Your college or an affiliated organization may offer dorm size refrigerators and other large-ticket items for rent.
  • Check for your textbooks on rental sites if you don’t think you’ll have a reason to use it again once the class is over.
  • See if your roommate or other students are willing to share a textbook if you’re in the same class.
  • If you have older relatives or neighbors who are moving off campus, they may be willing to lend you some furniture or other items for a year or two.
  • Check the college library for required textbooks. (If only limited copies are available, you may need to plan ahead to have one on hand just before exams.)
  • Some sites even let you borrow or rent e-books and audiobooks, and electronic versions of text books are becoming more available.

Buy used.

  • Hit garage sales and thrift shops to save the most money on items like furniture, bedding and rugs. Remember to check social media sites and pages dedicated to swaps and sales, especially those used by students at your college.
  • Consider refurbished and certified electronics and laptops.
  • Used textbooks are available at several online sites as well as campus bookstores.

Use discounts.

  • Your student ID will often get you a discount for electronics, software, books and services like oil changes and salon services. Be sure to ask if it’s not advertised.
  • Your parents may belong to an association that offers discounts, such as AAA and other savings clubs.
  • Follow retailers on social media and sign up for emails and electronic coupons. (Be careful about opening new store-associated credit cards, though!)

Watch for deals.

  • School supplies are often cheapest and most available just before school starts. Stock up now so you don’t pay more later.
  • If you don’t need it right away, wait for popular items, like dorm-size rugs and extra-long sheets, to go on sale shortly after move-in is over.
  • Check websites that compare prices (including shipping costs) for you.
  • Take advantage of the annual tax holiday on school supplies.

See additional tips on saving money in college.

What should you do with all the money you saved? See how making an interest payment on your student loans while you’re in school can save you even more in the long run.

By: Iowa Student Loan

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