Student Loan News, Updates and Blog Posts

As we head into the warm summer months, many students will be turning their focus to seasonal employment, family vacations, and long days at the beach. Student loans rarely find a place on the summer checklist. I’d like to tell you that’s because students have squared away their financial affairs beforehand, but I don’t want to lie to you. Many students just choose to worry about it later, which can leave you scrambling in the fall. So before you engage in your mental holiday lets first take a quick look at the student loan process to make sure you are all set.

1. Make sure you’ve done your paperwork. All federal student loans like the Stafford loan require the completion of the FAFSA. If you haven’t done so, visit www.FAFSAonline.com for tips and suggestions on how to complete this important form and maximize your federal aid.

2. Get your credit cleaned up. While the Stafford loan doesn’t have credit requirements, PLUS and private student loans do, and chances are there’s at least one thing on your credit history that you can clean up to improve your eligibility for these loans.  Learn how to improve your credit score here

3. Determine who’s paying. For Stafford loans, the student is always the primary borrower and has the sole responsibility for repaying the loan after school. For PLUS loans, the parent is the borrower with the student having no legal responsibility to repay the loan. For private student loans, the student is the primary borrower while the parent serving as the cosigner; so while the parent has some obligation if the student doesn’t pay, it’s still principally the student’s obligation. For this reason, some parents prefer to borrow private student loans over PLUS loans.

4. Determine which is the better rate. Work out the numbers as to which of your borrowing options is going to be the best for you, both during and after school. Take a look at this example to see how private student loans and federal loans compare:

http://www.privatestudentloans.com/compare/private-vs-stafford.php

5. Apply for your student loans sooner rather than later. Financial aid offices have never been busier, so the sooner you can get your paperwork done, the sooner you’ll know what other financial aid options you’ll need to pursue. Here’s a handy, one-stop shopping page for you to get to every loan option available:

http://www.studentloannetwork.com/apply/

Bonus tip: ScholarshipPoints members can enter the code SUMMERTIM for 10 sweet points.

It is no surprise that the default rate on Federal student loans is the highest it has been since 1998. It can be kind of tough to make your monthly loan payments when you don’t have a job. With unemployment rising, so to is people’s inability to keep up with their student loan payments. The good news? You do have options if you can’t pay. To find out what your options are you first need to determine whether you have Federal loans or private loans or both.

If you are unsure what type of loans you have, be it Federal or private student loans, then you will need to do 2 things. First, you should check the national student loan database, which will pull up every Federal student loan you have ever borrowed. To access this database you will need your four digit FAFSA pin and your social security number. If you do not know your PIN number you will have to visit the Department of Education’s PIN site first. Once you have figured out what loans are federal, you may want to check your credit report to see if you have any private student loans. If you only got loans by filling out the FAFSA each year then most likely you do not have any private loans. To access a free credit report the best site is annual credit report.com. If you find that you have both federal and private loans, you need to deal with each type of loan separately. Federal loans are entirely separate from private loans, even if they are serviced by the same company.

So what are your options? For your Stafford loans, grad plus loans, and even parent plus loans, you have 2 main deferment choices: unemployment deferment and economic hardship deferment. You also have in school deferment options if you decide to go back to school. In order to apply for one of these options, you will need to either apply online at your loan servicer’s website, or you will need to download a form from their website and mail it in (you can get your loan servicer name directly from the nslds website). In school deferment forms typically need to be mailed in because they must be stamped by your school.

If you apply for a deferment and you are not approved, then you still have options. Forbearance is your next best bet, and you have up to three years of forbearance time with federal loans. Forbearance consists of putting your loan payments on hold. Interest will accrue on the loan and if you do not pay the interest during this period it will be capitalized no more than four times a year. This means that the interest accrued will be added to the principal balance and you will essentially be paying interest on interest. You can typically put your loans on forbearance simply by requesting one through your loan servicer. Remember that you have up to three years of forbearance time.

For private loans, deferment and forbearance options vary by each loan company, and typically provide less time than with federal loans.  You should contact your private loan company to see what your options are.

If you currently have a federal loan or loans in default, and you can’t afford the monthly payments that the debt collection agency is demanding, you should call the US Dept of Education’s default center at 1800-621-3115. They can buy your defaulted loan from the agency and work out a rehabilitation program with you. If you just ignore your defaulted loan then eventually the government will garnish your paycheck and take your tax returns and part of your social security benefits.

As we wrote yesterday, newly released data by the U.S. Department of Education’s National Center for Education Statistics provides disturbing news about the growth of private student loan borrowing, particularly at the nation’s for-profit colleges and trade schools.

But the data’s release also brings to light a more basic problem: the government’s inability to collect and disseminate accurate and timely information about student debt. This is a major failing, as it leaves public officials without the vital information they need to make sound student aid policy.

As it stands now, the most comprehensive information available comes from the National Postsecondary Student Aid Study (NPSAS), a nationally representative survey that aims to determine how students and their families pay for college. Unfortunately, NCES conducts this survey only every four years. As a result, the information it provides becomes dated quickly.

Up until the release of the latest edition of the NPSAS survey last week, student aid analysts and policymakers have had to rely on five year old data to try to understand student loan trends, even though there has been an explosion in private loan borrowing during that period of time. By relying on the old data, public officials have been able, at least to some extent, to downplay concerns about the hazardous amount of high-risk debt many financially needy students have been taking on. [As we have just learned from an analysis of the data from our friends at the Project on Student Debt, the percentage of undergraduates taking out private loans jumped considerably during this time period, from 5 percent in 2003-04 to 14 percent in 2007-08.]

Nowhere is this deficiency more glaring than in the government’s tracking of private loan borrowing at for-profit colleges and trade schools. The latest study shows that the percentage of students at proprietary schools taking out private loans has skyrocketed in recent years, from 13 percent in 2003-04 to 42 percent in 2007-08. Wouldn’t that information have been helpful for lawmakers to know last year when they were reauthorizing the Higher Education Act?

The information NPSAS provides also has other limitations. While the data set is helpful in identifying broad trends, it does not include a large enough sample to provide reliable statistics on private loan borrowing at individual colleges. As a result, it’s difficult to identify schools that may be pushing students to borrow private loans without first exhausting their cheaper and safer federal student loan options.

Clearly a better source of data is needed to provide more useful and up-to-date information on students’ borrowing trends.

Luckily, there is a relatively simple solution, as Matthew Reed of the Institute for College Access and Success (TICAS) wrote in a guest post for us last year. Congress should require lenders to report all the private loans they make to the National Student Loan Data System (NSLDS), the database that the Education Department currently uses to track federal student loans. In addition, the Department should be required to issue annual reports generated from this system to provide up-to-date information on student loan borrowing trends.

As Matthew pointed out, the Higher Education Act directs the Department to use the database in part for research and policy analysis regarding student debt levels — including analyzing factors such as family income and the type of institution attended. But the Department has made very little use of this authority as of yet, besides publishing aggregate federal loan volume numbers and calculating cohort default rates.

Ideally, we believe the Department should be required to publish the following:

• Loan volume by loan program and loan type for each institution (unsubsidized/subsidized Stafford loans, PLUS loans, private loans, etc.)
• Average cumulative debt levels for students graduating from college each year at the state, national, and institutional levels.
• Average cumulative debt levels for students leaving college without completing a degree or certificate program.
• Data on borrowing patterns by income level and demonstrated financial need.
• Data on borrowing patterns by students who receive Pell Grants.

Armed with this information, policymakers would no longer have to wait years to get a very limited view of what’s really happening on college campuses.

[Disclosure: Higher Ed Watch is supported in part by the Institute for College Access and Success, which runs the Project on Student Debt.]

Image used under a Creative Commons license from flickr user LensENVY

We have long been concerned that for-profit colleges and trade schools have been aggressively pushing financially needy students to take on high-cost private student loan debt to help cover their costs. Newly released data by the U.S. Department of Education’s National Center for Education Statistics (NCES) certainly appears to bear these concerns out.

According to an analysis of the data by our friends at the Project on Student Debt, the percentage of students at proprietary institutions taking out private loans has skyrocketed in recent years, from 13 percent in 2003-04 to 42 percent in 2007-08. In other words, more than 4 in 10 students took out these expensive loans last year to attend schools that have a spotty record of retaining and graduating students.

Overall, the analysis found that for-profit college students are borrowing private loans at rates that are incredibly disproportionate to their numbers. While only 9 percent of all undergraduates attend these institutions, these students represent 27 percent of all private loan borrowers.

The data in question come from the latest edition of the National Postsecondary Student Aid Study (NPSAS), a nationwide survey of college students that the NCES conducts every four years. The survey provides the most comprehensive data available on how students and their families pay for college.

The Project on Student Debt crunched the numbers to try and get a clearer picture of how private loan borrowing has changed on our nation’s campuses since the last survey was conducted in 2003-04. It found that the proportion of undergraduate students taking out private loans jumped considerably over the five year period, from 5 percent to 14 percent in 2007-08.

Meanwhile, the number of students taking out private loans without first exhausting their cheaper and safer federal student loan options is on the rise. The analysis found that the proportion of private loan borrowers who did not take out federal student loans rose to 26 percent from 22 percent in 2003-04. Fourteen percent of all private loan borrowers did not apply for federal financial aid last year, and 12 percent applied for aid but did not take out federal loans.

Private loan borrowers are not only overrepresented at proprietary schools, but at expensive private colleges as well. The data shows that students attending private colleges compose make up about 13 percent of all undergraduates, but 22 percent of those taking out private loans.

While the numbers of students taking out these loans at private colleges are troubling, we are most concerned about the rapid growth of private loan borrowing at for-profit colleges and trade schools because these institutions have such a poor record of graduating students. According to a study conducted last year by Mark Schneider, the Department’s Commissioner of Education Statistics from 2005 to 2008, for-profit schools have "the lowest median graduation rate" of any sector at 38 percent. This figure "is almost twenty points lower than their private nonprofit counterparts and seven points lower than public institutions," including community colleges, Schneider wrote. The median rate at for-profit schools drops to less than 25 percent when counting only black students.

In addition, Schneider found that about half of proprietary school students attend institutions that graduate less than one-third of their students, compared to "around 10 percent in both private nonprofit institutions and public universities." And while more than 30 percent of black students attend colleges that graduate less than one-third of their black students, the percentages jumps to more than 60 percent at proprietary institutions.

At Higher Ed Watch, we have often warned of the hazards of private loans, particularly for students attending questionable for-profit trade schools. Private loans almost always have worse terms than federal loans, and lack important safeguards. In addition, they offer far fewer options for borrowers in repayment.

The latest NPSAS data should set off alarms about the untenable position we’re putting many financially needy students in — loading them up with high-risk debt to attend schools that are more likely than not to leave them stranded. Hopefully, these alarms will no longer go unheard.

[Disclosure: Higher Ed Watch receives support from the Institute for College Access and Success, which runs the Project on Student Debt.]

I’d say at least half the people I speak with have no idea who their lender is. And honestly, until you graduate and need to begin making payments it doesn’t matter. Those loans are out of sight and out of mind. But when the time comes when you need to be fiscally responsible or place your loans in a deferment it certainly helps to know who to contact.

If you have federal loans, such as the Perkins, Stafford, or Plus loan there are three different ways you can go about ascertaining who your lender is.

1. If you have your 4-digit FAFSA pin number you can go to www.nslds.ed.gov and follow the prompts.

2. You can contact the Department of Education at 800-433-3243 and request to speak with the borrower tracking department

3. You can contact your school’s financial aid office.

If you have private student loans you can request a free copy of your credit report at freecreditreport.com or annualcreditreport.com. There you will see the names of your lenders listed.

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If you’ve ever been called a brown noser or teacher’s pet you’re on the inside track in the game of life.

Professors love students who participate in discussions, ask questions, and offer their own perspective. It really adds to the flow of the class and takes pressure off other students who are either too shy or intimidated to speak up. You serve as the savior for both the professor and your fellow students. Think of yourself as that classrooms student body president. That is the role I find myself in right now.

When I was younger I was painfully shy and didn’t utter two words in class, but I have learned in life that the squeaky wheel really does get the grease. This time around I am a presence. I set a precedent for myself early on in each semester by scoring well on my first exam, being an active participant in class, and asking enlightened questions via email on off days. Now moving forward I always get the benefit of the doubt when I miss a class or even skimp on an essay question. Just two weeks ago I argued about the way a certain question was structured on the exam which led to my incorrect response. The professor agreed with me and gave everyone two points that had got that one wrong.

Last semester I told one of my professors she was doing a great job and was very fair. She was overjoyed by the feedback. It’s the same in the business world or in any walk of life. Throw a compliment or two out there and see the response you get, I guarantee it will be positive. I can’t remember ever telling a girl she was pretty and her replying, “You think I’m pretty! You’re a jerk.” People love compliments!

The next time someone calls you a teachers pet accept that compliment with open arms. The world can use more of you.

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This article originally appeared on the Financial Aid Podcast.

Is there such a thing as negotiating your financial aid award package? Yes and no. No in the sense that your school’s financial aid office is not like a car dealership with a dean of admissions in the back room who will give you the manager’s Wednesday special. Yes in that if you can prove beyond question that your financial need and circumstances are greater than what’s provided via the usual financial aid paperwork like the FAFSA, schools can be flexible.

Before we get started, I recommend strongly reading this article on StudentLoanNetwork.com about how to read a financial aid award letter.

Get Your Budget In Order

If you don’t use any kind of personal finance software, be it a desktop application like Quicken or a web-based application like Wesabe, Mint, or Geezeo, I strongly recommend starting with one. The web-based applications are free, so if you’re trying to save money from every angle, start with one of those.

Start by importing any electronic records of your finances and your family’s finances for at least 90 days. You’ll want to take the time to categorize your expenses in terms of mandatory and discretionary, followed by breaking them out into individual categories, like mortgage or rent, utilities, etc.

Once you’ve got your budget broken out, you’ll want to compare it against your award letter, especially looking at what kind of discretionary income you have compared to the expected family contribution, or out of pocket expenses. If your EFC from your award letter divided by 12 (for what’s essentially a monthly EFC) is greater than your discretionary expenses budget (dining out, entertainment, etc.) then you’ve got a good starting point for a conversation about what you can and cannot afford.

Get All Your Paperwork Together

If you’re going to be asking for more financial aid based on changed economic circumstances, have ample paperwork available to back up your claims and requests. Did someone lose a job in the family? Have termination notices, unemployment insurance, or other papers ready. Did your income change? Use any of the budgeting software described above to graphically illustrate your monthly cash flow, along with things like pay stubs, tax returns, etc.

Know What To Ask For

It’s not enough to ask for more money. That’s way too generic. Ask for specific amounts, ask for specific assistance, and try to know some of the different types of things financial aid administrators are permitted to do. Financial aid administrators are permitted to make professional judgement overrides on:

- dependency. If you can prove that you are an independent student due to the involuntary dissolution of your family (i.e. parents in jail, social services removed you from the home due to abuse, etc.) a financial aid administrator can override the dependency requirements for undergraduate students, letting you complete the FAFSA and other financial aid paperwork without parental income information.

- future earnings and income. If you can prove that you or your family has had a significant change in income that impacts your ability to pay for college, a financial aid administrator can grant you more assistance. Be prepared with termination notices, tax returns, and every scrap of paper you can find to make your case.

Updated April 2, 2009: The Department of Education has offered additional guidance for this scenario. See this post at FinancialAidNews.com about the changes.

- cost of attendance. If you can prove that expenses in your student budget (transportation, medical, disability, dependents, and a few other select cases) do not reflect your situation, a financial aid administrator can alter your student budget, allowing for additional aid. If you pursue this override, again, be prepared to document every step of the way to show why, for example, traveling to and from your school requires a transportation budget greater than allotted.

- special circumstances. In some cases, parents divorce during the financial aid award year, but the FAFSA cannot be changed to reflect the divorce. With appropriate court documentation noting the dissolution of the marriage, a student can ask for a special circumstances override that will let them use the income of the custodial parent.

There are other, more narrow circumstances that apply as well. If you don’t know what to ask for, haul as much documentation to your financial aid administrator as possible so that they have as complete a picture of your finances as possible.

Be Polite

The single thing that will do the most good or harm in getting additional aid is how you approach the financial aid office. The best time to approach them is before you need their help, as is the case with virtually all professional networking. Stop by from time to time casually, and say hello. Ask if there are any new scholarships that have been posted. Check in. If you find a scholarship that you’re not eligible for but other students at your school might be, let someone in the office know about it so it can be posted in the office. If you want a real education in financial aid, apply for a work study job in the financial aid office.

If you know your parents are, shall we say, less than diplomatic, then try to mediate any discussions with the financial aid office so that overly aggressive or insistent requests don’t harm your chances of getting help.

With students scrambling for ways to pay for college one option does exist, although it may not be your first choice. Uncle Sam is still looking for recruits for the military and willing to pay you money toward your education to boot. I actually tried this route when I was 17, but was medically discharged before I even boarded my flight to the Great Lakes due to the discovery of a circulation problem I have called Raynaud’s.

So how does the Post-9/11 GI Bill work exactly? I’ve outlined the specifics for you below.

The Post-9/11 GI Bill is for individuals with at least 90 days of aggregate service on or after September 11, 2001, or individuals discharged with a service-connected disability after 30 days. You must have received an honorable discharge to be eligible for the Post-9/11 GI Bill. The Post-9/11 GI Bill will become effective for training on or after August 1, 2009. This program will pay eligible individuals:

• tuition & fees directly to the school not to exceed the maximum in-state tuition & fees at a public Institution of Higher Learning. see chart listing 2008 – 2009 maximum rates.
• a monthly housing allowance based on the Basic Allowance for Housing for an E-5 with dependents at the location of the school.
• an annual books & supplies stipend of $1,000 paid proportionately based on enrollment
• a one-time rural benefit payment for eligible individuals.

This benefit is payable only for training at an Institution of Higher Learning (IHL). If you are enrolled exclusively in online training you will not receive the housing allowance. If you are on active duty you will not receive the housing allowance or books & supplies stipend. This benefit provides up to 36 months of education benefits, generally benefits are payable for 15 years following your release from active duty.

For more information you can visit the United States Department of Veterans Affairs.

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[Editor's Note: The National Consumer Law Center is releasing a report today asking the Obama administration and Congress to provide relief for financially distressed private loan borrowers. In this guest post, Deanne Loonin, the report's author, explains why these individuals are deserving of help and outlines steps federal officials can take to ease their burdens and protect future borrowers.]

By Deanne Loonin

For many years, private student loans generated steady, if unspectacular, profits for lenders. The business model was relatively conservative, providing loans mainly to graduate students and creditworthy borrowers. Over the last decade, however, the student loan industry turned that model on its head. Spurred by Wall Street, lenders began aggressively marketing expensive private loans to high-risk students with little ability to repay them. For the most part, these companies were eager to make these loans because they could securitize them and shift the risk onto investors.

The recent crash in the private student loan market should not have been so surprising. The writing was on the wall but, as so commonly occurred during the bubble economy, most chose not to read the warning signs. Most rating agencies continued to rate private loan pools highly, even after signs of trouble began to emerge.

Lenders have paid a price for their irresponsible practices. By all accounts, delinquencies and defaults on these loans are continuing to accelerate and investors have little interest in taking a stake in these loans.

But the heaviest price is being paid by financially distressed borrowers who never should have been stuck taking out these unaffordable loans to begin with. At the National Consumer Law Center’s Student Loan Borrower Assistance Project, we have found private loan providers to be universally inflexible in granting long-term repayment help for these borrowers. Meanwhile, while the government is considering offering assistance to lenders so they can continue making private loans, it has yet to offer any relief to these borrowers.

Apparently federal officials have decided that these borrowers are "too small" to help. In reality, their numbers are large, but their political power is not. To the extent that their problems are exposed, it is generally through the voices of investors angry at crashing stocks and declining revenues.

In our report, we argue that these borrowers desperately need a safety net to give them some hope of escaping their debilitating debt and starting again. Among other things, we recommend that the government do the following:

• Require private lenders and servicers that receive federal bail out assistance to offer loan modifications and other kinds of repayment relief to borrowers who are clearly struggling to repay their high-cost debt. Servicers should have the authority to modify loan terms, change interest rates, forbear or forgive principal, extend maturity dates, and offer forbearances, deferments, and other types of flexible repayment options. There is ample precedent in the mortgage sector tying loss mitigation and other consumer benefits to the receipt of federal funds.

• Restore the rights of financially distressed borrowers to discharge private student loans in bankruptcy. As readers of Higher Ed Watch well know, the loan industry persuaded Congress in 2005 to make private loans as difficult to discharge in bankruptcy as federal loans.  As a result, borrowers who are too poor to repay their private loans are treated in the same severe way in bankruptcy courts as people who fail to pay child support, alimony, overdue taxes, and criminal fines.

• Cancel the private loan obligations of borrowers who took on this debt to attend unlicensed, unaccredited trade schools that have shut down unexpectedly. As Higher Ed Watch has reported extensively, private lenders have partnered with unregulated trade schools to help students take on high-cost private student loans to attend these institutions, and then refused to cancel them when the schools shut down. These loan providers have spared no expense to try to prevent victims who challenge these practices from having their day in court. In the current environment where creditors are rewarded with bail outs for prior bad acts and where no one wants to take responsibility for the meltdown, taking action in this area is one small way to hold lenders liable for the damage they have done.

• Impose more stringent regulations on the private loan market, including placing a cap on the interest rate and fees that private loan borrowers can be charged, and requiring lenders to strengthen their underwriting standards. Private loans should go only to borrowers who likely will be able to repay them, and they should be available at reasonable rates.

• Strengthen consumer protection laws to expressly give victims of abusive lending practices the right to file individual and class action lawsuits against lenders and schools, and ban lenders from including mandatory arbitration clauses in loan contracts. Private loan borrowers who have been harmed currently have very little recourse because the loan industry often uses its market power to limit their access to justice.

Our report shows how an unsustainable business model helped lead to a credit crunch that has decimated our economy.  These unsustainable products were taken out by individuals trying to improve their futures.  "Unsustainable" in human terms means individuals who pursue their dreams of upward mobility, only to find that these dreams are shattered due to unaffordable debt loads that they will never be able to repay.  While it may be impossible to get all of these individuals back on track, it is clearly possible to help some. The fact that lenders are hardly trying is a national disgrace. We cannot truly begin to reshape the future and improve access to education without redress for those left behind.

Deanne Loonin is a staff attorney with the National Consumer Law Center and the director of the center’s Student Loan Borrower Assistance Project. She focuses on consumer credit issues generally and more specifically on student loans, credit counseling, and credit discrimination. She is the principal author of numerous publications, including "Paying the Price: the High Cost of Private Student Loans and the Dangers for Student Borrowers." Her views are her own and do not necessarily reflect those of the New America Foundation.

Did you lose your job due to the economic conditions? If so, and you reside in Cambria County Pennsylvania, you can take Pennsylvania Highlands classes at no charge under a program that began in January. Because of the costs involved, the college limits free tuition to just Cambria County residents at this time, and also restricts course availability to open seats in existing classes, but that may change.

Sen. Robert P. Casey Jr Casey took the community college’s free tuition program for displaced workers and incorporated it into proposed legislation tapping into the American Recovery and Reinvestment Act. His hope is that colleges countrywide will offer a similar model for those in need.

Since December when Pennsylvania Highlands rolled out this plan, Allegheny County, Luzerne County and Westmoreland County community colleges have followed suit.