Stafford Student Loan News

Starting with the 2008-2009 school year, the Federal Parent Plus Loan can now be deferred until 6 months after the child’s graduation. This is a big change, because typically Parent Plus loans were due immediately upon disbursement. This will help a lot of parents out who are trying to help their children to pay for College, but cannot afford the monthly payment while the student is in school. This also helps the parents who plan on having the child repay the loan when they are done.

Remember, that Parent Plus loans are the parent’s responsibility for the life of the loan. There is no way to switch the loan to the students name when the student is done (short of taking out a private loan to pay it off, which I don’t recommend).

Also, I am asked quite frequently if the Plus loan can be used to living expenses….if the student is living off campus. The answer to that is, IF the school agrees to it, then yes. They are the ones that certify the actual amount of the loan. Check with the school, and explain to them what you need the money for…this way the loan will be disbursed, and most of it will go towards tuition that is due, then the remainder would go to the parent or student to help with living expenses.

If you need a PLUS loan for this upcoming school year, and your child knows what College they are attending, apply for this loan NOW…every day lenders are dropping out of this loan program, due to an ever changing student loan industry…so its best to get your paperwork in now.

For those who aren’t familiar…colleges that participate in the Federal loan program must be either a ffelp school or a direct school. What this means is this:

1. Schools that choose to be a direct school, process all their loans direct through the government. Most everything is done electronically, and it is a direct relationship between the school’s financial aid office and the governement’s loan dep’t, Direct Loans.

2. Schools that choose to be part of the ffelp program (federal family education loan program)…require that the student choose a lender for their Stafford loan. Often times the FAO will provide a “preferred lender” list to the student, with instructions on how to apply for it once they choose a lender.

Just recently a question was asked…”my school is a direct lending school and they are charging me a fee to get the loan, can I look for a ffelp Stafford loan that is not charging a fee?”

The answer is…yes and no. Although as a loan borrower, it is your choice of who you borrow from …you are gonig to have a very difficult time getting a DL school to certify a FFELP loan. It is not impossible to do, but I suggest meeting with an FAO advisor at your school, so they can tell you what you need to do in order to get this FFELP loan. The last thing you want is for the loan not to be disbursed to the school because you didnt travel through the channel the school uses. Also, before you consider doing this, definitely make a list of the differences between the Direct Stafford loan and the FFELP Stafford loan. The differences may not be worth the time and the hassle.

It is always wise to know what kind of loans you have borrowed, how much you owe, and who services your loans. Being knowledgeable about your loans now, will help you repay them later. Here are instructions on how to look up your Federal loans on the US dep’t of Education’s loan Database:

1. Start by visiting: NSLDS on the Web. Click on Apply Now.
Find federal loan information at pin.ed.gov

2. Read the privacy notice, then click Next.
Privacy notice about your federal loan information

3. Fill out the PIN form. Make sure you include a working email address.
Use your PIN to locate student loan data

4. Agree to the terms
Remember, to protect your privacy and reduce the possibility of identity theft, NEVER share your PIN, even with the Student Loan Network.
Get your PIN to access federal loan info
You’ll receive your PIN via email in about 2 days. Once you have your PIN, you’ll be able to log onto the NSLDS website and obtain your student loan information.
Your PIN allows access to the National Student Loan Data System

5. Visit NSLDS at http://www.NSLDS.ed.gov on the Web
NSLDS allows you to find student loan info

6. Read the privacy notice and click Accept
National Student Loan Data System for federal loan info

7. You’ll be asked what kind of encryption you want
If you are surfing the Web with Firefox, choose the left option. If you are surfing the Web with Internet Explorer, choose the right option. If you’re not sure, choose the one on the right.
Your student loan information is encrypted

8. Log in with your PIN and other identifying information
Your PIN provides access to the NSLDS

9. On your personal NSLDS homepage, you’ll be presented with a list of your loans and current status. Print this page.
The national student loan data system supplies your current loan info

10. For each of your loans, click on the blue number next to them and print the summary page about the loan.

One final word of caution: this change by the Department of Education may increase the potential for identity theft. Do not mail your information to any company that you did not request an application from!

For prospective or current college students, it is important to know the 2 different types of the Stafford loan. It is not news that if you are going to take out a loan, you should be well educated about the loan, for obvious reasons….but equally as important is realizing what these loans mean for your financial future. Remember it’s your Education and your money…two things that have extreme importance in todays world. Ok so here goes: Subsidized Stafford loan means that no interest accrues on this loan while you are in school at least part time. Interest starts accrueing on it 6 months after you graduate, or withdraw from school…or 6 months after you drop below part time. The goverment puts limits on how much you can borrow, because they are the ones paying the interest for you to the lenders.

Unsubsidized Stafford loan are a bit different. They accrue interest from the moment it is disbursed. You, the borrower, have the option to pay the interest monthly, or let the interest accrue and be capitilized. For a 3500 Unsub Stafford loan, with a rate of 6.8% - this will accrue about $20 per month in interest. So $20 a month for four years will add about $1000 to your original loan balance by the time you graduate….and this will increase if you have the interest capitlized.

So here is the big picture….

Four years of school…you take out as much Sub as you can….you also take out some Unsub to help cover tuition costs….so you have $17125 in subsidized Stafford, and 10,500 in unsubsidized Stafford

Scenario # 1 (you paid the interest monthly for 4 years)

Total loan debt: $27,625

Monthly Payment: $ 318/ month for 10 years

Total Interest Paid: $10,535

Scenario # 2 (you did not pay your interest)

Total loan debt: $29,605

Monthly Payment: #341/ month for 10 years

Total Interest paid: $11,315

As you can see, it is wiser to pay the interest monthly, if you can afford it. If you cannot afford it, thats ok…you can make up for it later by paying not taking the full 10 years to pay the loan. Federal loans have no prepayment penalties. So the sooner you pay them off, the less you will end up paying in interest. Got Questions or Comments…..

Financial Aid Forum

Here is a really interesting article from the ABC affiliate in Chicago, based on a Consumer Reports report, on how to cut costs for college.

“College Cost Cutting
Consumer Reports

October 18, 2006 - With the average cost for tuition, room, and board at a private university going for nearly $35,000 a year — college-bound students and their parents face a daunting task. But don’t despair! Consumer Reports Money Adviser says there are ways to cut college costs significantly.
Related Links

Michele Mironchik and her son, Andrew, are looking at colleges. What they’re learning is that qualifying for a school and paying for it are two very different things.

“We found that some of the colleges he could get into and can get into are colleges we just can’t afford,” said Michele Mironchik, mother.

Marlys Harris, editor for Consumer Reports Money Adviser, has learned from college planning experts there are ways to cut costs.

“Last year merit grants, need-based grants, and tax benefits at private universities and colleges led to reductions in tuition that averaged an amazing 45 percent!” said Marlys Harris.

When it comes to merit awards, Consumer Reports Money Adviser says parents can size up colleges online to determine where their child stands a better chance of getting one. To be eligible, students must have an SAT or ACT test score that’s higher than the institution’s mid-range score. While ivy league schools don’t give out merit awards, plenty of private institutions do.

“Your kid doesn’t have to be the class valedictorian or get straight A’s to qualify for these grants. You want to apply to a school where your child’s SAT or ACT test scores will put them in the top 25 percent of applicants at that school,” said Marlys Harris.

Consumer Reports says here’s how to find potential schools:
# Go to collegeboard.com to find each school’s profile.
# First, check the mid-range SAT and ACT scores.
# Then, click on Cost and Financial Aid to see what the school’s average merit-based package is. Your best bet: Target schools with highest average merit aid per student.

And as far as getting into a school, Consumer Reports says you can up your chances by applying to schools in the same athletic conference — even if your child isn’t an athlete. That’s because competition between these schools can go well beyond sports.

Consumer Reports says if you are applying for a merit award — limit the number of applications to eight. College planning experts say applying to more than that could actually hurt your chances of getting in. That’s because admissions officers know how many financial aid forms you’ve filled out and may think you’re not serious about their school. “

There was a very interesting article on the NAFSAA website that I found last night. I’m copying the whole article here as it’s an article EVERY parent should read:

“Most parents have misperceptions about the amount of financial aid their children will receive, but have a relatively good idea about the cost of college, according to a recent survey published by AllianceBernstein Investments. The survey, Failing Grades? American Families and Their College Saving Efforts, found that 95% of all parents intend to pay at least some of their children’s college expenses and feel that helping with those expenses would be the best investment they could make in their child’s future. However, when asked to rate themselves on being financially prepared to pay for their children’s college educations, 34% gave themselves a grade of “D” or worse.

Of the 1,358 parents surveyed, only 27% felt they were very likely to reach their college savings goal. The study suggests there is a lack of urgency partly because 84% of parents felt that there were lots of scholarships that will help them pay for some of their child’s higher education costs. Meanwhile, almost all of the 200 financial aid administrators (FAAs) surveyed thought that parents “have a false sense of security that colleges will help them cover education costs.”

“It’s important to remember that financial aid is meant to be a last resort, not a way for mitigate college costs,” said Dallas Martin, president of NASFAA.

The reality is much different than most parents’ perception, according to the survey. Two-thirds of aid administrators surveyed said the current system does not meet the needs of many students and their families. Nearly 75% said that less than half of those who apply for aid are financially able to meet their expected family contribution, and 61% said they thought it would be a major financial hardship for the average family applying for aid to meet their EFC.

“The discouraging reality is that college costs have skyrocketed and federal financial aid has eroded,” Martin said. “The result is that the doors of educational opportunity have closed for many of our nation’s youth because they cannot afford to attend college. It’s critical for parents to have more realistic expectations for financial aid and adjust their savings efforts accordingly.”

An overwhelming 97% of all FAAs surveyed felt that families have become more reliant on financial aid in recent years and 99% said that even wealthier families are looking for ways to reduce or avoid college costs.

“With college costs at an all-time high, parents are more likely to limit how much they are willing to spend on higher education expenses,” Martin said. “As a result, many young adults are picking up more of the tab for their undergraduate educations, and accumulating heavy debt burdens in the process.”

The survey found that parents’ believed that graduating without debt was an advantage, but 63% saw student debt as a “fact of life.” However, 57% of the administrators surveyed said they would not let their own children take out the average loan amounts borrowed by today’s college students.

Aid administrators also saw the amount of borrowing as a potential problem. Nearly 95% of administrators expressed concern about the amount students were borrowing and nearly all said that they expect borrowing to continue to increase in the next decade.”

The entire Alliance Bernstein report is available online.

By Justin Draeger
NASFAA Assistant Director for Communications

House to Take Up Measure to Boost Pell Grants, Alter Student Loan Rules
Source: Congressional Quarterly Today

The House is beginning debate on a bill that would authorize larger Pell grants for low-income college students, increase competition for consolidated student loans and endorse an “academic bill of rights” proposed by conservative activists.

The legislation (HR 609) — introduced by Majority Leader John A. Boehner, R-Ohio, when he was chairman of the Education and the Workforce Committee — would renew many provisions of the 1998 Higher Education Act (PL 105-244), which authorizes more than $70 billion in federal aid to college campuses and students.

The law was set to expire at the end of fiscal 2003, but has been extended several times as Congress has debated a broad rewrite. The most recent extension (PL 109-150) expires March 31. On Tuesday evening, the Senate cleared a new extension (HR 4911) lasting through June 30.

Direct and guaranteed student loan programs, which entail mandatory spending, were reauthorized for eight years by the fiscal 2005 budget reconciliation law (PL 109-171) enacted last month. That law made changes to the loan programs that raised interest rates and fees paid by students or their parents; cut some subsidies to lenders, and reduced federal spending on the programs by $12.7 billion over five years

The bill that the House is considering Wednesday and Thursday includes other provisions pertaining to the loan programs.

One would eliminate what is known as the “single-holder” rule for loan consolidations. That rule — long supported by Sallie Mae, the heavyweight of the college loan industry — requires student and parent borrowers to consolidate, or refinance, their loans with the lender that originally made them, even when they can obtain lower interest rates elsewhere.

“We anticipate, — and have anticipated for quite a long time now — that it would be repealed,” said Tom Joyce, a spokesman for Sallie Mae. “We welcome the competition.”

The bill also would boost the maximum authorized Pell grant for low-income students to $6,000 from $5,800 per year. However, since Pell grants are subject to appropriations, the actual maximum Pell Grant would depend on the amount appropriated for a given year. (The current amount appropriated permits a maximum of only $4,050.)

The bill would also authorize a new “Pell Grant Plus” program that would allow an additional $1,000 in each of the first two years of college. The total from the Pell Grant Plus program, the regular Pell grant and other federal financial aid programs could not exceed the cost of attendance.

Non-binding language in the bill that would encourage universities to not discriminate against students based on “personal political views or ideological beliefs” has been controversial, though no one offered an amendment to strike it. Republicans included the “academic bill of rights” language at the behest of conservative activists who contend that a liberal political climate at many universities has resulted in harassment of students with conservative views.

The bill also would make it easier for private for-profit colleges to compete for federal aid by redefining the term “institute of higher education” to include accredited for-profit colleges. Public and nonprofit universities argue that taxpayers should not be asked to subsidize for-profit schools. But Republicans say for-profit schools are increasingly important for “non-traditional” students, especially those changing careers.

Tuesday morning, negotiations aimed at reaching a consensus within the Education and the Workforce Committee on a rewrite broke down after ranking Democrat George Miller of California told Chairman Howard P. “Buck” McKeon, R-Calif., he could not achieve a consensus among Democrats to support the bill.

“For some reason there was a meeting of minds among the Democratic leadership that from this morning forward, this was going to be a partisan bill,” McKeon told the Rules Committee, which Tuesday night was considering which amendments would be allowed on the floor.

“We just don’t think that this is a marquee higher education bill,” Miller said, explaining that “possibilities were lost” when Republicans included the student loan changes in the reconciliation law. He called the bill “leftovers” and said he was offering a substitute amendment that would lower student loan rates, create new programs aimed to increase college attendance by black and Hispanic students and allow students to collect Pell grants year-round.

McKeon will offer a substitute amendment backed by committee Republicans. It would set a fiscal 2007 starting date for all reauthorizations in the bill, lasting for the succeeding five years. It would retain current law for the campus-based aid formula and require a Government Accountability Office study of that formula; add three new schools to the list of named institutions authorized to participate in the Historically Black Graduate Institutions program and allow funding to support anti-piracy efforts on college campuses.

Loan Program

The Rules Committee on Tuesday night began considering more than 100 proposed amendments to the bill. Rather than completing that job, the committee approved a rule that will allow the House to begin debating the bill and 15 amendments on Wednesday.

The list of 15 includes one by Dan Burton, R-Ind., to require colleges and universities that receive funds under international education programs to disclose contributions and gifts under the Integrated Postsecondary Education Data System. A bipartisan group of five House members will offer an amendment to authorize funds to recruit and train a national corps of top recent college graduates who commit to teach in low-income communities. Melissa A. Hart, R-Pa., will offer an amendment to establish student services offices that can assist pregnant students and students who are already parents in locating child care, family housing, flexible academic scheduling and various counseling and support services.

The Rules Committee is expected to meet again on Wednesday to approve another rule that would outline any additional amendments that would be allowed, and provide for a final vote on the legislation Thursday.

Among the amendments under consideration by the Rules panel was one by Tom Petri, R-Wis., cosponsored by Miller, to encourage colleges to use the government’s direct loan program, rather than government-subsidized loans sold by Sallie Mae and other lenders.

Several government studies have said the direct loan program is more efficient; White House budget officials agree. But Boehner and many other Republicans prefer providing loans through private lenders.

Another proposed amendment, by Rahm Emanuel, D-Ill., would repeal three student loan provisions recently enacted in the budget reconciliation law. Emanuel’s office said in a news release that the changes totaled a $12 billion decrease in student aid.

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… we won’t be seeing many home equity loans being taken out to pay for college this year.

Mortgage rates hit a 4 year high via MSNBC.

Good thing there are student loans.

• Federal Stafford Loans
• Federal Parent PLUS Loans
• Graduate student loans
• Private Alternative student loans

Technorati Tags: college, equity, financialaid, loan, loans