Stafford Student Loan News

To clear up some confusion…on July 1, 2008 interest rates are decreasing by approximately 3%…BUT only for Stafford loans that were disbursed prior to July 1, 2006…so if you have Stafford loans at 6.8% , these will not be affected by the rate drop. If you just recently graduated, your loan portfolio probably looks like this:

Stafford loan for $2625 from 2005 @ 6.62% variable

Stafford loan for $3500 from 2006 @ 6.62% variable

Stafford loan for $5500 from 2007 @ 6.8% fixed

Stafford loan for $5500 from 2008 @ 6.8% fixed

So on July 1, 2008, the loans at 6.62% will drop to 3.6%, but the loans at 6.8% will remain the same. If you consolidate the 4 together, the weighted average rate will be 5.75%…for the life of the loan. This model is only true for those in their grace period.

If all your Stafford loans are at 6.8%, you will not be affected by the rate drop whatsoever.

Effective July 1, 2008…

Variable rate Stafford loan disbursed prior to July 1, 2006, that is IN GRACE (IG) = 3.6%

Variable rate Stafford loan disbursed prior to July 1, 2006, that is IN REPAYMENT (RP) = 4.21%

Variable rate Parent plus loan disbursed prior to July 1, 2006 = 5.01%

* note that any Stafford and PLUS loan that were taken out before July 1, 2006, and has never been consolidated, will have these new rates

* note that with consolidation, these rates are rounded to the nearest 1/8% which would make them:

3.625% Stafford in grace

4.25% Stafford in repayment

5.125% Parent Plus

For those who don’t know, if you have past drug convictions, for selling or possession while you were receiving Federal aid, then this can affect your aid eligibility. Your eligibility for Federal aid is revoked for a period of time (directly correlated to the type and number of convictions). I did some research on this, and it appears that as long as you have completed an “acceptable drug rehab program”, you can still receive federal aid. There are no time constraints on this…you could be convicted of selling/possessing drugs, enter a rehab program, complete it, and still get Federal aid right away. An acceptable drug rehab program consists of:

An acceptable drug rehabilitation program must include two random drug tests.

The program must also:

• Be qualified to receive funds from federal, state, or local governments

OR

• Be qualified to receive funds from a federal or state licensed insurance company

OR

• Be administered or recognized by a federal, state, or local government agency or court

OR

• Be administered or recognized by a federal or state licensed hospital, health clinic, or medical doctor

I also found that if this drug conviction (for selling or possessing) was 2 or more years ago, then a drug rehab program is NOT required, and you should still be able to get federal aid. If you have more than 1 drug conviction in the past 2 years, then your eligibility is suspended for longer. So basically, if you have more than 1 drug conviction in the past 2 years, you have to wait longer in order to be eligible for Federal aid. (it appears that each drug conviction you have = 1 year of lost eligibility). If you have 3 or more drug convictions in the past, then you are ineligible for Federal aid indefinitely.

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!

A question recently came up on the blog - if a student loan company goes out of business, do the loans need to be repaid?

The answer is an unequivocal yes. Except for a few rare circumstances (such as a loan being fraudulently issued) borrowers are always obligated to repay the loan.

More often than not, if a student loan lender goes out of business, the loans are sold as part of the company’s liquidation. They’re treated just like office furniture or any other tangible asset, and buyers will buy the loans (and the potted plants and desks). The borrower will receive notification that their Stafford loan has been sold or transferred to a new company, and that they must now make payments potentially to a new address.

That’s one of the many reasons why it’s important to stay in touch with your lender and keep them updated on your address and contact information - otherwise, you could potentially go into default on your federal student loans and not even know it.

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

Golf is a solitary game. One fleeting mental lapse and your round will blow up quicker than Kirstie Alley off Jenny Craig. It’s just you against the course. Sometimes that’s how it can feel in the student loan world as well. Many feel alone and unsure of the correct process. Some ask themselves, am I doing the right thing? Well, I’m here to serve as your student loan caddy and dissolve some of that stress and tame those insecurities. You’ll be swinging with confidence in no time. I’ll help you strategize your assault on the student loan course, and get your round under par. So put that karaoke microphone down and step back from your off pitch rendition of Neil Diamond’s “Solitary Man.” You are no longer alone.

I will start by telling you what I have told thousands of students, parents, guardians, and financial advisers over the past year, complete your FAFSA! It all starts with your Free Application for Federal Student Aid. Without this you have nothing. Would you walk up to the tee box with your sand wedge on a 500 yard par 5? I didn’t think so. So don’t start now. The FAFSA is the single most important document you can complete for federal financial aid. Below is an overview of how the process works from tee to green.

1. Complete your Free Application for Federal Student Aid FAFSA which gets sent to the Department of Education.

2. The DOE creates a Student Aid Report (SAR) on your behalf based off your FAFSA and sends this to the school(s) you designate. This process generally takes 7-10 business days.

3. The school will then send out an awards letter to you outlining the financial aid you are eligible for. That aid may include scholarships, grants, and federal loans.

4. You then complete a Stafford Loan application where you will sign a Master Promissory Note agreeing to pay back the loan after school. Please note, some schools are Direct Loan Schools or William D. Ford schools as they are also known. If you attend a Direct Loan School you will need to contact your school’s financial aid office for further instruction on how to complete your federal loan application.

5. The lender will send a certification letter to the school’s financial aid office within 48 hours of your successful completion of your Master Promissory Note. The school then certifies your enrollment and lists the amount of your federal loan (the amount is based on your Expected Family Contribution total from your SAR).

6. The funds get disbursed to the school.

7. Begin the repayment process 6 months after you graduate or take a leave of absence from school.

So there you have it. Never again will you be made the fool. Never again will you be referred to as “Tin Cup”. The tiger roar is now alive and well within. So go for the green. Go for the glory. Seize the moment. Wait, what’s that sound? I think I hear some chirping. Yes I do. Another birdie.