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TRENTON, N.J., June 20 -- The New Jersey Department of Banking and Insurance issued the following news release:
As many high school seniors have recently made their decisions on where to attend college next fall, New Jersey Department of Banking and Insurance Commissioner Ken Kobylowski today offered advice to new and returning higher education students and their parents to help them make smart financial decisions regarding student loans, credit and debit cards, and health and life insurance.
"As students and their families begin to transition from high school to college, they need information to help them avoid unnecessary costs and scams aimed at higher education students," Commissioner Kobylowski said. "In addition to meeting tuition costs, college students and their parents face many important financial decisions that can have a major impact on their lives."
Commissioner Kobylowski offered advice and suggestions in the following areas:
With the deadline for choosing a loan for many schools rapidly approaching, these are some guidelines that parents and students should consider:
- If possible, choose a federal loan, such as Stafford, Plus or Perkins, rather than a private loan. Interest rates on federal loans tend to be lower and fixed, rather than variable, with shorter payment terms and more flexibility for making payments. Unlike many private loans, federal loans may offer payback deferrals, income-based repayment and public service loan forgiveness.
- Consider a New Jersey College Loan to Assist State Students (NJCLASS) offered through the Higher Education Student Assistance Authority (HESAA). New Jersey residents attending any college may apply for these loans.
- Understand the terms of the loan agreement. This requires reading the loan agreement very carefully and asking questions. If a loan is deferred or the repayment terms extended, this could change the interest rate and make the loan more expensive. It could also affect the borrower's credit score.
"Whether shopping for a student loan, college students and their families should understand that they have to do their research in order to secure the most generous terms at the best price," said Commissioner Kobylowski. "There are significant differences between government and private loans. Students and their families must make sure they read all of the information and understand all of the terms of the loans."
Parents who are co-signing for their child's college loan should consider purchasing life insurance on their child to cover the guaranteed debt.
Most federal and many private college loans - but not all - include debt forgiveness clauses in the event of the student's death; however students and parents who co-sign for the loans without such clauses should make sure that they have some form of protection in the unfortunate event of the student's death.
If parents who co-sign are unable to find college loans that include debt forgiveness, they should consider purchasing insurance policies for their child that would help defray the costs of the loans in the event of the child's death. This could either be a term or a whole life policy. Once the student graduates, he or she should assume responsibility for the policy.
Nearly 50 percent of full-time students took out federally financed student loans in 2007-08, the latest numbers available from the National Center for Education Statistics (NCES). According to the U.S. Department of Education, federally financed student loans can be canceled or reduced in the event of a student's death. Some of the larger commercial lenders, such as Wells Fargo and Sallie Mae, also have similar policies regarding debt forgiveness. However, not all do, and consumers should consider life insurance to cover these instances.
"I strongly advise parents who are co-signing on a college loan for their child to be sure they have insurance to cover any amount they are signing for that does not include guarantee debt forgiveness," Commissioner Kobylowski said. "There have been cases, albeit rare ones, where parents have been held responsible for a child's college loan when the child dies. Parents should not have to deal with that at a time of great loss."
Some universities sell student lists to credit card companies which then aggressively market cards to students using low introductory interest rates and other promotions. Under the provisions of the federal Credit Card Accountability Responsibility Disclosure (CARD) Act of 2009, banks are forbidden from offering free items such as mugs or t-shirts to students as incentives to sign up for credit cards on campus or at an event sponsored by or related to a university or college. The Credit CARD Act also forbids credit card issuers from offering credit cards to students younger than 21 without a co-signer or some proof they have the financial resources to repay their credit card debt. However, the Credit CARD Act requires only proof that a student younger than age 21 have the resources to make the minimum monthly card payment - typically a small fraction of the total amount owed.
Before signing up for a credit card, students should read the contract carefully and review all fees. Many credit card companies impose steep fees for missed or late payments, exceeding credit limits, or writing a check drawn on the account. Some companies charge fees whether the card is used or not. Also, once the introductory rate expires, the interest rate can increase dramatically.
A debit card, cash or checks may be a better way for students to pay expenses. Students who decide to obtain a credit card should maintain a small credit limit, pay off the balance each month and should not sign up for more than one or two cards. They should also avoid cash advances, which can generate high fees and carry a much higher interest rate than the rate applied to purchases.
When shopping for a card, students should consider the following:
- Shop for a credit card with a low Annual Percentage Rate (APR). The higher the APR, the more it will cost to borrow if the monthly balance is not paid. Students should exercise caution with cards with low introductory APR offers.
- Look for a card with a low or no annual fee. This is the fee that must be paid whether or not the card is used.
- Understand the credit card's default interest rate. This is the penalty rate that may be applied following a late payment or for paying less than the minimum. A penalty rate may apply to all future purchases and to any remaining balance.
"College students often use their credit cards to cover every day expenses and that can be a real mistake," said Commissioner Kobylowski. "If students put things like meals on their cards and then pay only the minimum charges, that $20 pizza they buy can easily end up costing them $100 by the time they pay the interest."
College-Issued Debit Cards
Universities also may contract with financial institutions to disburse financial aid to students to save on administrative costs. Those financial institutions issue debit cards under the university name to students to access the funds. The cards can also be used to purchase food and other supplies on campus, and serve as identification cards for security and access to campus events.
However, problems may arise if students use these cards as debit or credit cards without first reading the fee schedule. Student account holders can be charged fees as high as $20 to $30 the first time they overdraw their account and might pay higher fees for each additional overdraft; and $2 or more to use another bank's A.T.M. to withdraw cash.
Students should shop around off campus for a financial institution offering a debit card that offers the lowest interest rates and fees. Students may want to opt out of payment cards that their school issues to disburse college loan funds and select direct deposit or paper checks instead. These options may prove to be less expensive.
"Just because the card is issued by the university, that does not mean it is the best deal for students," Commissioner Kobylowski said. "Students should shop around for the best rates and the best terms."
Typically, renter's insurance is affordable and cost effective in making a renter whole in the event of a loss. Students should add up the replacement cost of all contents expected to be stored in their room or apartment and get a quote on how much it will cost to insure it. Unless a parent's policy covers these things while a student is away at college, they should consider renter's insurance.
"Many students and their families simply overlook renter's insurance when the student moves into an apartment," said Commissioner Kobylowski. "But it is very important given that many students keep high-cost items such as laptops, televisions and musical instruments in their apartments that are obviously quite expensive to replace if damaged or stolen."
New Jersey law requires college students to have health insurance coverage, and many colleges automatically enroll students in health insurance plans offered by a health insurance carrier through the university. Students who are auto-enrolled can opt out of the college-issued plan by showing they have other coverage. There is a bill pending in the State legislature to remove the requirement.
Most students can remain covered by their parents' group health insurance policy until they reach age 26. If the health insurance policy is issued in New Jersey, State law allows young adults to remain covered by their parents' group policy until age 31.
The cost of student health care plans has been increasing significantly. For that reason parents should review the cost and benefits carefully, particularly if they have access to employer-sponsored coverage
Students purchasing their own health insurance or the health insurance policy offered through their school should shop around to find the best price, understand the cost of all deductibles and co-pays, make sure the hospital, doctor or other health care provider they wish to use is part of the provider network and check the Department's website for information on providers and costs at: http://www.state.nj.us/dobi/division_insurance/ihcseh/index.html
"Many students should be able to maintain coverage through their parent's policies," said Commissioner Kobylowski, "but those few who are not covered, should make sure to compare any college-sponsored policy to other private individual plans and make sure they get the best price and coverage possible."
Basic auto insurance provides coverage for personal liability in case of an accident and medical costs in the event of injury. For additional premiums, students can add collision coverage, which covers their cars in the event of an accident, or comprehensive coverage, which covers such things as a fallen tree, hail or an impact with deer.
A student owned vehicle requires insurance in most states. Parents should discuss coverage on a student owned vehicle before their children go to college to make certain coverage is adequate and cost effective. It may make sense for a student to keep a car on a parent's policy.
However, if a student decides to shop for a new auto insurance policy, there may be differing minimum coverage laws in the state where the college is located compared with New Jersey. Students should check with a New Jersey licensed insurance agent to explore the best options for them while away at school.
Also, some students who live on campus and have a car will sometimes find that their auto rates increased. Since auto insurance rates are based on territory, a student's insurance company might increase rates if a student moves from home in a community where insurance rates are lower to a college campus where they are higher. Not all insurance companies do this, so students moving away to college and taking a car, should check with their auto insurer to see if the move affects their auto insurance rates.
Finally, students should remember to keep current insurance identification cards in their car in case of an accident. Proof of insurance is required in most states.
"Not all states require the same coverage on automobile insurance policies," said Commissioner Kobylowski. "Students attending colleges in states other than their home should look at those states' laws and make sure they have the proper auto insurance coverage."
Commissioner Kobylowski said that overall, students and their families should research all financial and insurance decisions related to college with the same thoughtfulness and energy with which they selected a college or university.
"Parents who are reviewing health insurance, loan shopping or considering the purchase of a life insurance policy to cover their children, or for auto or renter's insurance, need to research and understand their options thoroughly. Both parents and children should invest similar time and energy expended in shopping for college when making college related financial services decisions," he said.
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