Did you know unsubsidized Stafford loans do not require a student to have financial need? Of course it is also the borrowers responsibility for paying all the interest which accrues as well.
The distinction between the subsidized and unsubsidized Stafford loans is that subsidized Stafford’s are based on financial need, which the government pays the interest on. That way when you get out of school you will only begin making payments on the principle balance(s) you borrowed.
Unsubsidized Stafford loans begin accruing interest while the student is in school and capitalize each quarter.
Being late or behind on your loan payments does not necessarily mean you have fallen into a “default” status.
If you do not make payments, even one, your loan is considered delinquent and late fees can be assessed, but you need to be 270 days past due to earn the not so coveted default title. I think that is pretty fair. You have 9 months before you loan gets turned over to collections to make arrangements with your lender.
If you are struggling with your monthly payment you may want to ask your lender/servicer about making partial payments, changing your payment due date, or if you qualify for an income sensitive repayment plan.
By definition a preferred lender list is a list of lenders that a college suggests its students consider when taking out federally guaranteed loans. Students who receive a “preferred lender” list from a school should remember that those lists are not legally binding. Borrowers can choose from any federally approved lender and may often find a better deal outside the list.
As some of you may recall a handful of lenders were sanctioned for deceptive loan practices a couple of years ago. Among other things, they were sharing a portion of their loan revenue with the school’s financial aid office, which is a clear code of conduct violation. These financial aid officers were guiding students toward loan products that would offer them kickbacks. Fortunately for students today these unethical practices have come to a halt.
Heavy fines were levied and the Sunshine Act was born. The Sunshine Act protects students and parents from exploitation by private lenders and lenders who offer gifts to colleges as a way to secure loan business.
Keep in mind it is not a violation for a school to have a preferred lender list provided they are not reaping financial gains. So it is up to you if you are enrolled at a FFELP school. You can thumb through the schools preferred list or travel outside that list in search of your own lender to service your Stafford loan and Parent Plus loan.
As G.I.Joe once said, “Now you know. And knowing is half the battle.”
It’s always pretty depressing when you look at your monthly statement and see how much of your loan goes straight to the interest. And since I know some of you have been wondering how this works exactly, I figured I’d give you the quick overview on how your money is applied to your outstanding loan.
- The loan holder first applies your payment to late charges or collections costs on your account (if any).
- Then, to the interest that has accumulated (accrued interest).
- The remainder of the payment is then applied to the principle balance.
Six months after you graduate you’re hit with your first Stafford loan bill. A bill which serves as a cruel reminder of the past four years of your relatively carefree life, and indoctrinates you into adulthood with responsibilities aplenty.
For my friend Melody her $47,000 student loan bill hit her like a cold shower on a warm Sunday morning. She literally started hyper ventilated when she saw her minimum monthly payment.
She received her degree from prestigious Northeastern last year and is now a part-time teacher. She’s a substitute with no consistent schedule or consistent source of income. She just hopes to get a call each morning to come in. Just woeful. My heart bleeds for her. Of course that’s not her only bill either. She also has the following…
Medical insurance (she’s gets a pretty decent deal on medical because she is under 26)
Entertainment and recreation (dinner, movies, music, etc)
Basically I’m writing this blog as a heads-up to all you future grads. If you can live at home on the cheap for a while, do it. You can elminate many of the bills you see above. Melody is really struggling big time right now. In fact, I had her fill out a free debt consultation form recently.
School is the gateway to a bright tomorrow, but just make sure you have enough light shining through on you today.
If you’re a first-year undergraduate student and a first-time borrower, your first disbursement can’t be made until 30 days after the first day of your enrollment period. What that basically means is if the fall semester starts on September 8, your lender will not send the funds until October 8.
The reason they enforce this rule is because many students were abusing the system. What students were doing was taking out Stafford loan funds and then dropping out of class within the alloted time frame where they could get a refund. Then they would use those dollars for unschool related expenses.
Your school is obvioulsy aware of this procedure, so don’t stress out this summer if the they send you a standard Dear John letter stating you have an outstanding balance. You can just call the FAO and knidly remind them that you are a freshman and that their is a 30-day hold on the Stafford loan you were approved for. They will confirm that in the system and then you can go back to playing on that slip n’ slide.
An unsubsidized loan is a loan for which the borrower is fully responsible for paying the interest regardless of the loan status. Interest on unsubsidized loans accrues from the date of the disbursement and continues throughout the life of the loan.
For example, if your unsubsidized loan is disbursed during your first semester of school in September of ‘09 it will begin accruing interest each month thereafter, but you will not be required to begin repayment of said loan until you fall below a half time or greater status in school. If you are in school 4 years a $5,000 loan can easily turn into a $6,500 loan by the time you get out pending your interest rate.
Obama says hes ready to battle on student loan reform:
Posted by Foon Rhee of the Boston Globe
Saying he feels their pain, President Obama today reached out to families struggling to pay college bills, highlighting his plan to revamp student loan programs to cut out private middlemen.
Obama wants to end the private Federal Family Education Loans program that the White House says costs taxpayers an unnecessary $5 billion a year by using private firms as brokers.
“That is a premium we can no longer afford,” he said, saying the system is “rigged” to give profits to “special interests” without any risk.
He told reporters that “wasteful subsidies” are worsening the paradox facing the country: a college education is more important than ever, but the cost of attending is also higher than ever.
“The stakes could not be higher,” he said.
Obama said he wants to boost the percentage of Americans attending college to the world’s highest again, and a key part of that is reforming the student loan system.
He acknowledged that private loan companies vehemently oppose the change. “They are gearing up for battle,” he said. “So am I.”
The private student loan industry has also been beset by allegations of kickbacks to college officials to steer students to the loans. Investigations by Congress and New York Attorney General Andrew Cuomo found that some lenders had secret deals to give colleges or their staffs consulting fees, company shares, and other perks.
With an income-sensitive plan your monthly loan payment is based on your annual income. As your income increases or decreases, so do your payments. The maximum repayment period is 10 years.
Ask your lender for more information on income-sensitive repayment plans.
I have the utmost respect for teachers. My good friend Trisha is an elementary school teacher in the New Hampshire school system. She tells me it can be a thankless job at times; shaping our nations future leaders and doing so for minimal compensation. True, most teachers went into the profession knowing they probably weren’t going to be pulling in six figure salaries but that doesn’t mean they need to struggle so mightily to stay a float with student loan debt looming heavy over their head.
The good news is that both federal Perkins and Stafford loans offer loan forgiveness opportunities for teachers.
Perkins loans can be forgiven for full-time teachers who teach in one of the specified shortage areas or teachers in a designated elementary or secondary school serving students from low-income families.
Stafford loans can be forgiven for full-time teachers in a designated elementary or secondary school for five consecutive years serving students from low-income families.
To see if you teach in a specified shortage area (click here). To check to see if your school is considered a low-income school (click here).
