Stafford Student Loan News

It is no secret that the current state of our economy is affecting the student loan industry. It is more difficult to obtain a loan, and you have fewer borrowing options. People ask me frequently why they should borrow federal loans before a private loan. The answer has always been because federal loans are less risk then private loans. Federal loans have fixed interest rates, and set deferment and forbearance options (making it easier for you to repay the loan, and harder to default on it). Currently, my answer to this question would be the same, except I would stress the interest rate factor. The majority of the private student loans have variable interest rates. They are either based of the LIBOR rate, or the PRIME rate. The LIBOR rate has gotten some recent press because it is set to increase in the current months. What this means for students who have private loans based off the LIBOR rate, is that their monthly payments will increase…making it harder and harder to repay that loan. USA Today has a recent article about the changing LIBOR rate. As stated above, federal loans have fixed rates…this means you will always have the same amount due every month for the life of the loan. This is very important, especially considering the current state of the economy, and the rising numbers of unemployment. But as so m of you know, federal loans are not typically enough to cover just tuition, never mind living expenses. Some students have no choice but to borrow private loans. But my advice would be don’t borrow blindly. Know the risk, know how much your monthly payment could balloon to…and make sure you will be able to pay that loan back, no matter what happens to the rate.

Friday Fun Fact!

Did you know there are tax incentives while paying back your federal student loans? Most can claim the interest on their taxes. This benefit applies to all loans used to pay for post-secondary education, including PLUS loans.

The IRS publication 970, Tax Benefits for Higher Education explains these benefits in greater detail. You can also contact the IRS at 800-829-1040 with additional questions.

I get asked “where’s my stafford loan money” at least twice a day. I feel bad for these students too. It’s as if they’ve been thrown to the wolves to fend for themselves. I know at 18 I was a few fries short of a happy meal so I suspect some of them are too.

Basically, this is how it works. You’ll be paid through your school in at least two installments. No installment may exceed one-half of your total loan amount. Your loan money must first be applied to pay for tuition and fees, room and board, and other school charges. If loan money remains, you’ll receive the funds by check or in cash, unless you give the school written authorization to hold the funds until later in the enrollment period.

Generally, if you’re a first-year undergraduate student and a first-time borrower, your school cannot disburse your first payment until 30 days after the first day of your enrollment period. This practice ensures you won’t have a loan to repay if you don’t begin classes or if you withdraw during the first 30 days of classes.

To apply for a stafford loan (click here).

Tom Petty and the Heartbreakers soared to the top of the pop charts with their mega hit “Free Fallin” back in 1989; a simple little ditty with a great beat. That song pop’s into my head these days when I look at the future interest rates of Subsidized Stafford Loans. They’ll be falling faster than the mercury in the North pole, which is great for students! See below!

Year Subsidized Stafford

2008-09    6.0% 

2009-10    5.6% 

2010-11    4.5%

2011-12    3.4% 

Did you know the Expected Family Contribution (EFC) is basically the same for everyone, but there is some flexibility.

If you have a special circumstance such as your family’s unusually high medical expenses, tuition expenses, or unemployment your financial aid administrator may be able to execute a special circumstance overturn for you to increase the amount of federal funds you are eligible for.

You will be required to provide adequate documentation to support any such adjustment. The financial aid administrator’s decision whether you have special circumstances is final and can not be appealed.

If you feel you qualify for a professional judgment overturn than contact your financial aid administrator today.

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