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On March 30, President Obama signed a new law that redefines the roles of much of the student loan industry.  The law appears to be better for the government and better for those taking out student loans.  Big banks are going to take a hit, however.

In the old world, students (or parents) would apply for the student loan through a major bank approved for student lending.  When I needed to apply, I found the best long term deal applying through Citi Group.  In exchange for processing and lending, the government subsidized the bank to keep rates fixed at 6.8% with no application or origination fees.

The savings for the US Government will be about $68 billion over the next ten years.  Some of the savings will go to increase subsidized Pell Grants, for student demonstrating financial needs, and other scholarship programs.

For existing loan holders, it doesn’t look like you will see any major changes.  I am expecting to keep paying my loans as usual, which means new servicers every year or so that screw up my account and take over a month to fix it.

For anyone with a new student loan starting in July, 2014, there are some great new provisions.  Student loan payments will be capped at 10% of annual income above a defined living allowance, where it was 15% before.  If you make regular payments at that rate for 20 years, your loans will be forgiven, rather than 25 years under the old law.  The forgiveness period is still ten years for certain government employees, teachers, health care workers, and the military.

If you are reading this, it is probably to late for the new laws to effect you directly, but your kids might have a much easier time dealing with student debt than you.

Ramit at I Will Teach You To Be Rich just published an interesting post with a quiz that can tell if you have a basic grasp on financial literacy.

1. Suppose you had $100 in a savings account and the interest rate was 2 percent per year. After 5 years, how much do you think you would have in the account if you left the money to grow?

a. More than $102
b. Exactly $102
c. Less than $102
d. Do not know

2. Imagine that the interest rate on your savings account was 1 percent per year and inflation was 2 percent per year. After 1 year, would you be able to buy more than, exactly the same as, or less than today with the money in this account?

a. More than today
b. Exactly the same as today
c. Less than today
d. Do not know

3. Do you think that the following statement is true or false? “Buying a single company stock usually provides a safer return than a stock mutual fund.”

a. True
b. False
c. Do not know

You have to visit Ramit for the answers and the rest of the post.  Let me know how you did in the comments.  I suspect most people who take the time to read a finance blog know the answers, but you never know.  If I have failed you, let me know what I need to write about.

If you have taken out loans to go to school, you most likely have Federal Stafford loans from at least one bank.  If you ended up with more than one bank, you have to make two sets of payments every month for those loans.

I have two sets of loans, and in about 7 months they will come due.  When that happens, I will probably find a consolidation loan.  There are a few important things to know about consolidation loans if you are planning to consolidate.

First, do not get the impression that a consolidation loan will save you money.  Federal Stafford loans, the most popular type of student loans, are fixed at 6.8% by the government.  If you have two loans with minimum payments of $100 each and you consolidate, you will just have one payment of $200.

If you do not get the same kind of loan when you consolidate, the process can actually cost you more money.  Make sure that if you have student loans to consolidate you continue with a Federally backed loan with the same fixed interest rate.

Consolidation can also impact your credit score.  The impact should not be big depending on when you got the first loan.  When you consolidate, you close two loans with history and replace them with one brand new loan.  This lowers your average account age and can impact your credit.

I have been a member of Upromise for nearly a year, and I am thinking it might be time to pull the plug.  I tried the toolbar and registering my cards to the account.  I think I ended up with two transactions that paid me anything.  I will let the picture speak for itself:

Fifty two cents!  That’s it.  Far from the average savings of $458 that Upromise suggests.  Here is what I have decided about the site:

1. Unless you get their credit card, you are not going to make all that much anyway.  The credit card is a way for them to make a lot of money and pass a small amount of it to you.  This works like any other credit card rewards program, but pays for college instead of other rewards.  Not such a great deal if you ask me.

2. Unless you make a crazy effort to go to Upromise restaurants and online stores, you won’t make much else.  That is where I got my fifty two cents.  One trip to a restaurant (not on purpose) that is supported by their program and a website domain renewal, which I would have done anyway.  So, it takes spending money to really earn anything back from Upromise.

Overall, I would not recommend this program.  I try to only endorse sites I really like myself, and this one did not earn the Eric seal of approval.

[SPONSORED POST]

I recently watched my student loan climb for the fourth of five (I cut one off!) times during my MBA program.  It is a little disheartening and overwhelming to see my Stafford Loan balances climb.  My total student loan debt today is $15,981.  However, had I not been paying the loans aggressively while in school, my loans would total well over $27,000.

The average student today is leaving school with some form of debt.  In the US, about two thirds of undergraduates leave college with debt.  The average senior has $23,186 excluding federal PLUS loans at graduation.  Masters degree students tack on an additional $25,000 in student debt on average.  Looking for a PhD?  Expect another $52,000.

At 6.8% (the federal student loan rate) over 10 years, the average student loan payments from grad school alone is $287 per month.  If you are just rolling over the average undergrad and graduate student loans into one monthly payment, plan on $554 per month.  I hope you get a good job if you are in that situation.

Student loan debt is a growing problem in the US and around the world.  Fortunately for grads with large debt, most lenders will allow for deferred payments and graduated payments if you are struggling.  You just need to ask.  However, people are not planning ahead when they are taking on student debt.  It might be easier now to take an extra $6000 per year to help with school, but is it better in the long run?

Many students would have lived a less lavish lifestyle in college had they realized what their student loans were going to do.  It is almost as bad for students with credit card debt, though the upcoming law changes will end most of that.

I know a lot of the readers of this blog are either in school or are recent graduates.  How are you all dealing with student loan debt?  Are you paying the minimum?  Are you paying more?  Are you struggling to just keep the loan current?  Let us know in the comments, maybe a few of us have some ideas for how to deal with it.

[SPONSORED POST]

Almost every investment firm offers a 529 account.  They talk about how great it is and how everyone should have one.  Most people have no idea how a 529 works or what it is.  This post will give you a breakdown on the basics of a 529 and what you need to know if you are going to get started with this type of account.

What It Is

Explained simply, a 529 is an education savings account.  529 plans allow you to save for future education expenses.  The funds can be for your future education, your kid’s future education, or any other family member.  Generally people use them to save for graduate school or their child’s future college expenses.  529 funds can be withdrawn to pay for “qualified expenses” such as tuition and fees.

Why You Want One

You might be thinking that you can stash away cash in any old savings account or investment account and do the same thing.  Not exactly.  A 529 account is special because of its tax status.  You can make contributions to a 529 account “pre-tax” from you income.  Like a 401(k), 403(b), or traditional IRA, you can deduct 529 investments from you income before you are taxed on it.

How It Works

 A 529 works just like a 401(k) for the most part.  Many employers offer to make deposits in a 529 account automatically.  This is the best way to fund a 529.  If you can just set it up and forget about it, you will never have to worry about writing a check or transferring the funds every month.

Also like a 401(k), you can pick how it is invested.  You can leave your 529 funds in a savings account or CD, or you can invest it into mutual funds or stock.  If you open your 529 through a brokerage firm, you have total flexibility to invest as you please.  Companies like Charles Schwab or Oppenheimer often give suggestions of how to invest 529 funds to have the cash ready when you need it.  This is probably the best route if you are saving for your own education.  Just remember, like any investment, there are risks.  The firm can help you figure out what is best for you.

While investment firms all offer a 529, you might be better off to check with your state government.  Many states operate a 529 fund where you can safely keep your child’s future.  I know my state, Colorado, has a plan that many parents start investing in when their children are born.  Some state funds perform very well while some have suffered from stock market losses.  Check into your state for details.

Where To Start

Start with your employer.  Look into making an investment straight out of your paycheck.  If you can, you can most likely manage your funds easily and invest into an assortment of funds.  You will have to do a little paperwork when you set it up, but it is easy from that point on.

If you can’t invest in a 529 through your employer, look into a state government or private option.  Compare fees and how easy it will be to make contributions.  Also look into what you will need to do when you are ready to make a withdrawal.  For some plans, it is as easy as writing a check.  Others are more complicated.

Finally, before you make your first investment, take a little time to read the IRS website for 529 details.  It is important to know what you can use 529 funds for and what the penalties might be for withdrawing early.  Be well versed in how the 529 codes work when you get started.  If you have a tax adviser, consult with him/her as well.

It really is that simple.  Use the automatic investing plan to make things easy, even if you can’t with your employer.  You can use bill pay or automatic transfers in an online bank account to fund your 529.  Keep track of the paperwork for tax season.  You can save a lot on taxes if you use this investment method correctly.  It is also nice to have the peace of mind that your education, or your child’s education, is going to be funded without worry.

I recently gave in and took the dive into Upromise.  Upromise is a program designed to give you cash back from select purchases (namely restaurants, online stores, and grocery) to fund a 529 college savings account, pay for college loans, or go directly to education expenses.

Anyone can sign up.  An adult can sign up today for their children and may amass quite a 529 by the time their kids turn 18 and head to school.  Through the program students can sign up family and friends to fund their account.  The nice part, and the reason you know it is not a scam, is that there are no fees to sign up and take advantage.  Rather than write a long post on it, I will link to several good posts I have found about Upromise.  Please take a look and comment here if you already participate or sign up because of this post.

You promise also offers coupons for affiliate companies and a credit card to earn rewards faster.

Upromise Earn Free Money for College – Cash Money Life

Upromise Tuition Tales: $10000 Giveaway » Poorer Than You

UPromise Review: Free & Automatic College Savings

Upromise College Savings Review | Suburban Dollar

My little sister knows nothing about her finances. When I was her age, I had filled out a FAFSA, probably a dozen scholarship applications, and a scholarship re-application. I dealt with my own banks, my own statements, my own checkbook, my own bills, and my own budgeting.

If you are a parent, you should make sure that you do the right thing for your kids. I wish my parents would do the right thing for my sister. It is often much easier to help your kids out, or do the paperwork for them, than to help them work their own way through.

If your kids are 5 or 10, I understand you taking care of things for them. If your kids are in college, it is probably time for them to deal with their own money. College is the time to learn how to be a real live, independent adult. If they can’t do things in college, when will they learn? Your kids (and my sister) cannot rely on their parents forever.

For the parent readers out there, when did you/do you plan to teach your kids about money? When do you envision them being independent?

If you are going to college next year or have gone in recent years, you probably remember the Free Application for Federal Student Aid, usually called the FAFSA. There are a few things that you should know if you are filling out a FAFSA this year.

First, fill it out early. Schools have limited funds to give out as grants and scholarships. Once it is all given out, that is the end. With the endowment and stock market troubles schools have had in 2008, there is more reason to fill it out early than ever before.

Next, fill it out even if your taxes are not done. By now you probably have the bulk of your W2, 1098, and 1099 forms. Fill out the FAFSA now. I filled mine out last night. Once you have your taxes done, you have to go back on and fill out a “correction FAFSA” to ensure your final product is accurate.

The moral of this story: stop waiting. There is usually nothing stopping you from filling out the FAFSA once you get to the first or second week of February. Other people are competing with you for limited funds. To get more free money, fill out your paperwork today.