A Muslim called our student loans desk the other day and asked for a loan without interest. We were all very confused by this until we realized that the caller was in fact Muslim, and therefore probably used to dealing with financial services in his home country that did not charge interest. An interesting aspect of this call is that Islam doesn’t - at least from what I’ve read - prohibit the concept of interest, but it does prohibit usury.

There’s two different, distinct terms - fa’eda (interest) and reba (usury). How do you distinguish? I’ll leave that to the Islamic scholars, but generally speaking, a student loan that charges 2.77% and a credit card that charges 31% seem to fit interest and usury pretty well in my view. If you’re interested, there’s two conflicting views about interest - one from Submission.org and one from Ayatollah Sistani of Iraq. Make your own judgements.

http://www.submission.org/islam/usury.html
and
http://www.sistani.org/html/eng/menu/4/?lang=eng&view=d&code=35&page=1

For what it’s worth, the Subsidized Federal Stafford Loan is an interest-free loan while you’re in school - the US government pays the interest for you until you graduate. In the general scheme of how to get financial aid, for Muslim students, I guess that before applying for student loans of any kind, try to secure as much financial assistance from friends, families, and Muslim institutions before resorting to non-Muslim institutions.

Well, we’ve read through the proposed 2006 Student Loan budget. The good news is… well, actually, there isn’t a whole lot of good news for students and graduates, especially for those interested in consolidation. Highlights (so to speak):

* The budget for student loan consolidation has dropped by nearly $10 billion.
* LEAP program cancelled
* Perkins loan program cancelled
* No increase in work study
* Stafford Loan rates to jump to 6.8 percent fixed as of July 1, 2006
* Elimination of fixed rate consolidation
* Initiation of a reconsolidation borrower fee (if you have $100,000 in medical school loans and you reconsolidated to get a better rate, you’d have to pay a $1,000 fee)
* Increase in lender fee from 1/2% to 1% (which could be passed on to students)

So, what does all this mean? If the proposed budget is enacted as submitted, it will be much harder to get out of debt if your graduation date is 2006 or beyond. You’ll graduate with a lot of loans at high interest rates and consolidation won’t help you very much. What can you do to prevent this? Well, not to sound trite, but write your senators and representatives. Tell them that the above submitted proposals are going to be harmful to your ability to be a productive citizen, and encourage them to vote against the proposed budget as written.

In the meantime, if you’ve already graduated and you haven’t consolidated, for Pete’s sake, get going now. You can see the future in all its really ugly glory - don’t wait for it to get here and pick your pocket.

http://www.studentloanconsolidator.com.

From the Chronicle of Higher Education:

The Bush administration’s budget for 2006, due out on Monday, could mean the end of the Perkins loan program. In that budget, the president will ask Congress to recall the federal share of institutions’ revolving loan funds, according to a top Education Department official. The funds, which are made up of federal “capital contributions,” institutional matches, and repaid Perkins loans, are used to make new loans to students from low-income and middle-income families.

The original article is here:

http://chronicle.com/free/2005/02/2005020407n.htm

Not at all related to financial aid, but still worth mentioning… I have been using Picasa and Photoshop Album side by side for some time now, because each did something the other didn’t; Picasa 2 has come out recently, and I have to say… I’m uninstalling Photoshop Album. Picasa 2 is amazing. It makes decent web pages, it organizes very well, and it makes gift CDs that are outstanding. Simple organization and basic editing tools make it really wonderful, and I couldn’t be happier.

Plus, you have to admit that the price is right. Two other things set it apart - the edits it makes are non-destructive, which is nice, because Photoshop Album does the same but creates a duplicate file. When you are talking about thousands of photos, you are talking about twice the disk space, and that gets expensive, not to mention intensive. The other thing is the Photoshop Album is a memory PIG. Don’t get me wrong, Picasa is no lightweight, but compared to Photoshop Album, Picasa is practically Kate Moss in memory consumption. Give it a try. And no, Google doesn’t pay me to pimp Picasa, I’m just that impressed.

http://www.Picasa.com

Just about every new parent gets these really awful mailings touting whole life insurance for kids. Apart from the morbidity of applying for life insurance on kids, these insurance plans tout the returns on their investments as being a great way to save for college. They’re not.

James Hunt, actuary for the Consumer Federation of America, who has analyzed thousands of policies, notes that whole life policies hardly ever yield a reasonable return unless held for 20 years or more. So if you buy one be prepared to pay into it for the very long haul.

Think about it - if an investment just starts to turn around in 20 years, and you want a reasonable rate of return… then you won’t be able to use it by the time a child reaches college age. Not very helpful, is it? Not the best plan at all. Especially when you start to run real numbers. Let’s say you get a whole life plan for a child with $10,000 of coverage and a $9/month payment. If you work in an annual dividend of roughly $150 and a federal tax rate of 30%, combined with a state tax rate of 8%… then you’re looking at a whopping 3.32% rate of return on your investment. You would actually lose money, given that the long term average rate of inflation (computed for the last hundred years or so) is 3.49%.

Now, take that average $9/month payment - $108/year, $2,160 for 20 years - and put it in something conservative like a tax-exempt long term fund (I personally use USAA’s Tax Exempt Long Term fund, and no, I don’t get any compensation for mentioning it) which has an average 5 year rate of return of 7.72% - with inflation accounted for, you’ll have $10,115. When it comes to saving money for college and kids, insurance plans are not the way to go. Let insurance serve its one purpose - to insure - and keep your investments separate.

The February issue of Student Financial Aid News is now going out. In this issue:

* Why getting financial aid is so hard
* How to get more
* Other options for financial aid Plus information on the Coca Cola Scholarship.

All good stuff, get it now!

http://www.financialaidnews.com/feb2005.php