Student Loan News, Updates and Blog Posts

Did you know the Stafford loan has fees attached to it?  There are two different fees attached to Stafford loans, an origination fee and a default fee.  Now here is the good news – those fees are coming down.

The Stafford loan program instituted a three year program back in 2008 to dissolve the origination fee’s completely and bring down the default rate.  In 2008 the origination fee was 1%, in 2009 it went down to 0.5%, and beginning 7/1/10 it will be 0%.  That’s sweet for students! Now what about the default fee?

The default fee is also coming down from 2% and will land at 1% beginning 7/1/10.  By the way, the default fee is not an absolute charge.  Lenders / guarantors are permitted to waive the default fee as part of their incentive package. This is important to know if you are attending a FFELP school.  FFELP schools allow you to choose your lender.

There are two primary differences between the subsidized and unsubsidized Stafford loan, the interest rate and when the interest begins accruing on the loan.

First off, you can not choose which type of Stafford loan you want.  It is all based on need after you complete your FAFSA.  Some students end up taking out both kinds of Stafford loans, especially in graduate school when the tuition costs soar.

Right now if you were to qualify for a subsidized Stafford loan for undergraduate study your rate would be 5.6% for the 2009-2010 academic year.  The unsubsidized rate is 6.8% as is the graduate Stafford loan rate (both sub and unsub).

As for the interest rates, the federal government defers interest payments on subsidized Stafford loans, which are available to students based on low family income. Unsubsidized loans, on which interest begins accruing while the student is in college, are available to students regardless of income.

It turns out that doing good really does pay off.

When many college seniors graduate in May they will be facing a tough job market and student loan bills. Because of this, many soon-to-be college graduates are considering alternative post-graduate options. For students who decide to engage in post-graduate volunteer service there are a few student loan benefits.

The Peace Corps is the best example of this. Volunteers with the Peace Corps can apply for deferment of Stafford loans, Perkins loans and consolidation loans for up to 27 months.  Additionally, PeaceCorps volunteers qualify for a partial forgiveness of their Perkins loans (15% for each year of service).

AmeriCorps is another program with loan benefits. If you serve with AmeriCorps for 12 months you receive up $7,400 in stipends and $4,725 to be used towards student loans.

If you do decide to take advantage of one of these opportunities it is important to know that deferment and cancellation do not happen automatically. It is up to you to contact your lender and complete the paperwork needed in order to apply. The Peace Corps’ itself has very little to do with the deferment process. They basically only certify your dates and country of service. The Peace Corps does not grant or deny deferments of loans.

When used as a multi-year document, the Stafford loan MPN enables student borrowers to get additional loans without signing a new MPN.  However, there are still several circumstances that require a borrower to complete a new MPN.

A new MPN is required if the borrower’s FFEL lender changes, unless the change is a result of a merger or acquisition.  Below are some other instances that would require the borrower to complete a new Stafford loan MPN.

• the borrower transfers to a school that is not eligible to use, or chooses not to use, the multi-year feature of the MPN.

• the borrower transfers from an FFEL school to a Direct Loan school, and there’s no valid Direct Loan MPN on file with ED.  Similarly, a borrower needs a new MPN if transferring from a Direct Loan to an FFEL school, unless there is a valid MPN on file with the lender that the borrower uses. (New MPNs are also required if the school itself changes from using DL to FFEL or vice versa.)

• a school’s lender requests that a school no longer use the multi-year feature of the MPN.

Also, borrowers may request an annual MPN, or may request that no additional loans be made using their current multi-year MPN.  Requests that no additional loans are made using current multi-year MPNs must be in writing.  In some cases, a new MPN has to be executed because the maximum period for use of the MPN has expired.

If you are a parent of a prospective college student, or a prospective college student yourself, you should be starting to think about financial aid. You have probably heard people around you talking about FAFSA, Stafford loans, Pell Grants, scholarships, and alternative student loans. It might seem like you are the only one who does not know what is going on, but trust me you are not alone in your confusion. Applying for financial aid can be very stressful for families and filing the FAFSA is a task that most people dread.

In order to be eligible for any kind of Federal student loans or grants you must file the FAFSA. Many people play down the importance of the FAFSA, but it should not be taken lightly.  Mistakes on this form can end up costing you thousands of dollars in aid. Luckily there are people out there who know a lot about financial aid and might even be able to help you with the application process.

Many high schools and communities host financial aid and FAFSA workshops. These are usually free sessions run by the high school guidance department, a local college or outside consulting group. These workshops usually go over a general look at financial aid, applying for student aid, why you should file the FAFSA, determining financial need, and tips and techniques for filling out the FAFSA.

If you are perplexed by the financial aid process make sure you find out if your town is holding a workshop. If they are not planning one it may be beneficial to suggest it to the high school principal or guidance department. The U.S. department of education even provides resources and presentation materials that make hosting a financial aid night more manageable. After attending a financial aid or FAFSA session you will probably find out that you are not the only one who feels lost, but you will also probably feel more confident and ready to tackle the application process.

The day you can hoist your graduate degree overhead will be a proud day no doubt, but then the reality sets in.  How much did I borrow for this piece of paper exactly?

The truth is most students have no idea how much they borrowed.    Grants, federal loans, private loans, work-study, and scholarships fall under one giant umbrella to most.  Their philosophy is simple, why worry about it today when I can worry about it tomorrow?

Well, when tomorrow comes knocking it will serve you well to have a game plan.  Today we shall focus on federal loan deferment. Keep in mind that deferment is not a means to an end, but rather, a way to stay afloat if you are having trouble making your monthly loan payment.

There are two common deferment types that are utilized.  The first one is the Economic hardship deferment.  In order to qualify for this deferment type you must fall into one of the following categories:

• You are receiving payment under a federal or state public assistance program, such as Temporary Assistance for Needy Families (TANF), Supplemental Security Income (SSI), Food Stamps, or state general public assistance.
• You are serving as a Peace Corps volunteer.
• You are working full-time and your total monthly gross income from employment must be less than or equal to the larger of (A) the monthly minimum wage rate or (B) 150% of the Poverty Guideline amount for your family size and state.

The second deferment type is loan forbearance which anyone can basically receive.   The big distinction between the two deferment types is that while in forbearance interest accrues on the principal and any capitalized interest. Your debt will continually increase while in deferment making your repayment period longer.  When you are in an economic hardship deferment no interest accrues on your subsidized loan portion.

You have 36 months of federal loan deferment entitlement regardless of which deferment you take advantage of and must reapply every 12 months if you wish to continue in your deferment state.

Yes, a third party with power of attorney for the borrower may sign a Stafford promissory note if the borrower is unable to sign.

Use of a power of attorney when signing an MPN limits the use of the MPN to
one loan. If the borrower submits his or her MPN through the school, the school must retain a copy of the original power of attorney and submit a copy with the MPN to the loan holder. A photocopy or a fax of the power of attorney is acceptable.

If the note is signed with a power of attorney, the student must authorize the
school in writing to credit the loan funds to his or her account at the school. In addition, the school must pay any remaining balance to the student for living expenses.

Are your Mom and Dad not willing to file the FAFSA with you because they don’t want people knowing their earnings? Are they instead willing to co-sign on a private student loan?  If this is the case the logic behind their actions is illogical.  In fact, you should direct them toward this blog as I will chronicle why their judgment is severely lacking and will only hurt you in the long run.

• By filing the FAFSA you open yourself up for all types of financial aid which includes scholarships, grants, and work-study programs.
• When you file your FAFSA you become eligible for a federal Stafford loan which is in the students name only.  Mom and Dad do not need to co-sign for a Stafford loan like they would for a private student loan.
• You enjoy the security of a fixed interest rate
• You have three years worth of deferment time attached to a federal loan opposed to 1-year on average for private loans
• You may be eligible for 100 percent loan forgiveness if you work in certain fields. Private student loans do not offer forgiveness potential.

The one thing I will say about private loans is that interest rates are very low at this time which is one reason some parents prefer the private student loan to the federal, and if this is your logic it makes good sense.  In fact, after federal aid options are tapped many parents end up subsidizing the rest of their students education with a private loan.  This too is smart. But the parents who are steadfast on protecting their private information are doing so at the detriment of their child.

When it is time to head off to college your parents will probably try to put every penny they have into your education. You may notice your parents going out to dinner less, postponing household projects, and even jeopardizing their retirement fund so you can go to the college of your choice.  However, no matter what income level you fit into it is important to take on some of the financial responsibility of your college education so that mom and dad are not searching through the couch cushions for spare change.

Your parents might have told you that they make too much qualify for any federal student loans. This is not true. What many people do not know is that not all loans are need based. In fact, anyone is eligible to take out an unsubsidized Stafford loan. These loans are federally guaranteed and not based on need. Interest starts accruing at the time that the loan is disbursed to the school, but the loan has a low fixed interest rate and payments do not have to start until six months after graduation.

An unsubsidized Stafford loan will not by any means cover the entire cost of your education, but it will make a dent and take a little bit of the pressure off of your parents. Though you will be making monthly payments on the loan after you graduate you will feel like you own a piece of your education. Your parents will also be extremely grateful that they did not have to give up their retirement dreams to send you to college.

Quick answer, BOTH!

You are not limited to one type of loan forgiveness over another.

Take the Stafford loan forgiveness plan which includes both undergraduate and graduate Stafford loans.  There are two types of forgiveness you may qualify for.

1. Full-time teacher for five consecutive years in a designated elementary or secondary school serving students from low-income families.  You may be eligible for up to $5,000 in forgiveness benefits and up to $17,500 for certain specialties (those specialties usually include the math and sciences). You should hop on this forgiveness plan right away if you qualify!
2. Loan forgiveness for public service employees.  This plan is for a borrower who is not in default and has made 120 consecutive payments on or after October 1, 2007.  After 120 consecutive payments have been made 100 percent of the remaining outstanding balance will be forgiven, provided you hold your loans with the Direct Loan Center.  Faculty Teaching in a high need area is one of the qualifying fields that are eligible for this forgiveness type.  So apply for this one next!

So as you can see it’s not an either or scenario.  Some teachers can have their cake and eat it too, and they really should.  Teachers are the bridge to tomorrow’s leaders.