It’s been nearly a month since the biggest single student loan interest rate hike, and it’s still making news. An article from Boise State University’s student newspaper explains how it’s affecting students.
They break down two loan scenarios, consolidation before going into repayment and comsolidating after; it explains exactly what it means in terms of what will be paid back over the life of the loan. Definitely a must-read for recent graduates.
I found an interesting article on nj.com this week, a news site dedicated to New Jersey, but the question bears looking at.
A consumer asks “Can money in a 529 college savings plan be used to pay charges for study abroad programs or to pay off Stafford Loans upon a student’s college graduation?”
Lets back up a step and talk about what a 529 savings plan is. Named after the section of the federal tax code that governs them, 529 plans are programs that help families save for college while offering tax advantages. Selecting a plan does requires homework – there are two types. All 50 states offer at least one 529 plan, and the tax advantages, investment options, restrictions, and fees can vary a great deal.
Before buying a 529 plan, you’ll want to compare and contrast the plan(s) you are considering. Request an offering circular or official statement from the plan sponsor or your financial professional or from the corporation’s website. You can find links to 529 plan Web sites on The National Association of State Treasurers’ College Savings Plans Network Web site or you can call them toll-free at 877-277-6496.
Now back to the question:
*Can a 529 plan be used to pay for a study abroad program?
Maybe. If the school is an accredited US institution and the entire check goes to that college, then you’re probably safe. If some of the money goes to an outside organization, then it might not be legal. You can look on the US Department on Education’s website and use the school-code lookup tool. If the school’s study abroad program has been assigned a code, you can assume it is eligible. However, you CAN NOT use the money to pay for transportation costs.
*Can a 529 be used to pay back a Stafford Loan?
No – money from a 529 cannot be used to repay a Stafford Loan or any other federal financial aid.
A lot of people are confused by what’s behind the Stafford and PLUS programs, so I though I’d give a little background information, hoping to make it all a bit clearer. Let’s start with the Department of Education.
The U.S. Dept. of Education began operating in 1980. It’s one of the last items President Carter signed into Law. It’s official acronym is ED, though you’ll often hear Department of Ed or DOE (this last one rightly refers to the Department of Energy, but you’ll hear it for the Department of Education as well).
Unlike the educational system of most other countries, education in the U.S. is not centralized, meaning that the federal government and Department of Education are not heavily involved in determining curriculum or educational standards. The main focus of the Department of Ed is to formulate federal funding programs involving education and to enforce federal educational laws.
So what does this mean to you? The Deptarment of Ed runs the Stafford and PLUS loan programs, which means either you will be dealing with them or you will be affected by them. While some issues, such as the recent rate hike, are decided by Congress, others are decided by the Deptartment of Ed. They can change their policies or their take on federal language independant of Congress. Sometimes this benefits the borrower, sometimes it doesn’t.
That’s the Department of Ed in a nutshell.
Sometimes, when you’re looking for financial aid information, you can get the wrong answer, or at least the not quite right answer. Take this Yahoo site for instance: http://answers.yahoo.com/question/?qid=20060617163838AAbG7w8
Here a person asks why they need to apply for a Stafford Loan and whether deadlines are important. There are three answers. All are partially correct, but not completely. That’s the danger in asking strangers for information. 
The deadlines can be floating, as the first answer says, but the second person makes an important point - schools have a fixed amount of money to allocate. If you miss the deadline, you may not get as much, or you may not get any. If you’re lucky, everything will turn out fine. But to be certain get your documents in on time! Think of it like you’re first college test. You need to get your tuition finances straight before you can begin attending classes.
And the third answer is also partially correct - you DO need to pay back Stafford Loans. It’s not free money, like most scholarships are. It is at a much lower interest rate than non-Federal loans, but it is still a loan and you must pay it back. Scholarships are going to be your best bet as you don’t repay them.
For more information on Stafford Loans visit www.StaffordLoan.com
Visit www.StudentScholarshipSearch.com/ to look through more than one billion dollars in scholarship money.
As many of you probably know, interest rates for federal student loans rose dramatically July 1st. Rates in recent years have been at historic lows, lulling many into a false sense of security.
Those of us who graduated 3-5 years ago were in a lucky situation where we were earning a higher interest rate on our savings accounts than they were paying on their student loans. It made no sense to pay the loans off early.
That’s all changed.
If you’re a current student or recent graduate, you’ll know that the rates have shot up over the past few years, bringing the current in-school Stafford loan rate to 6.54% and the repayment rate to 7.14% on July 1st of this year. That means, in addition to the higher tuition prices, students have to pay more back in interest as well.
That’s why it’s so important to plan financially for after graduation. Start now, before you graduate or go into repayment and the whole process will be much easier. Visit July’s edition of the Financial Aid Newsletter - about half way down is a Featured Article: The One Page Budget that is a great guide to get you started. If you get your finances in order now, life will be alot easier once you reach repayment.
Also, plan on applying for consolidation as soon as you graduate. Due to recent changes by the Department of Education, it is much more difficult for students still in school to consolidate with the company of their choice, but once you’ve graduated you have many more options. Don’t wait for consolidation - apply right after graduation. The fiscal year begins July 1, which means if there’s a rate increase again next year, you want to get your application in well before July 1, 2007. As the rates have gone up annually the past few years and with the current national debt, don’t be surprised if the rates go up again next year.
