Student Loan News, Updates and Blog Posts

The good news: The Department of Education has recently announced that the Free Application for Federal Student Aid (FAFSA) is getting a facelift. The new FAFSA will be shorter and more intuitive than ever before.

Who will be affected by the changes? Any present or prospective college student who plans on applying for federal financial aid for the 2010 – 2011 school year will be affected by the FAFSA overhaul.

What are the changes? The goal of changing the FAFSA is to make it easier and less time consuming. The current FAFSA contains more than 100 questions. The new FAFSA will be organized more logically and contain fewer questions. It will eliminate some questions across the board and some sections for certain applicants. The online form will automatically adjust which questions to ask based on information that the applicant provides at the beginning of the process.

When are the changes taking place? The FAFSA changes are happening now and they will be seen on the 2010 – 2011 application when it comes out in January.

Why are changes being made? If you have ever filled out the FAFSA before you know that it is not something to look forward to. Filing the FAFSA can be extremely taxing for students and their parents. Changes are being made because authorities are confident that shortening the FAFSA will help families get the aid they need without adding a lot of stress to the process. Additionally, making it easier to apply for federal aid will increase the number of eligible students who submit applications.

How are they doing this? You might wonder how the government can afford to trim down such an important process. The key to the change is eliminating redundancy. Questions about tax data will be eliminated because that information is available through the Internal Revenue Service database. Also, questions that have little affect on aid award will be eliminated. Some students are concerned that if certain questions are eliminated they will not receive as much aid as they should, but according to Caesar Storlazzi, Yale’s Director of Student Financial Services, since FAFSA is only one part of the financial aid application process the changes should not impact the amounts of student financial aid awards.

File your FAFSA online now!

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.

President Obama is pushing his budget proposal to overhaul the entire education system throughout the U.S. His plan would affect students of all ages with a goal of improving education levels all across the U.S. starting with preschool aged children. In a recent speech to the US Hispanic Chamber of Commerce, Obama began to divulge what exactly he has in mind for this giant overhaul. He spoke of a 5 tier reform plan that touches on what seems like every stage of the educational process. The President was quoted as saying, “We have let our grades slip, our schools crumble, our teacher quality fall short and other nations outpace us…The time for finger-pointing is over. The time for holding ourselves accountable is here.”

The 5 reform points that he spoke about are as follows:

1. Increase investments in early childhood programs such as Headstart etc.

2. Holding students accountable for higher/tougher testing standards

3. Increase teacher training and recruitment, and offer “merit pay” (teachers that produce more results will get paid more than others). Along with that, ineffective teachers would be let go if they fail to improve.

4. Renew his campaign for the support of charter schools. (definition of a charter school = Charter schools are elementary or secondary schools in the United States that receive public money but have been freed from some of the rules, regulations, and statutes that apply to other public schools in exchange for some type of accountability for producing certain results, which are set forth in each school’s charter). President Obama also proposed longer school days.

5. For Higher Education he wants to increase the annual Pell Grants maximum to $5550, and push for students from working families to receive a $2500 tax credit.

I can only imagine that the republicans must be reeling…especially about the money for Headstart. Also included in early investments was an idea to have registered nurses visit the homes of single moms regularly to make sure their children are healthy and ready for school life. Not a bad idea, but who will run this program? I will say that he has a point when it comes to holding students and teachers accountable for their performances. Have you ever had a bad teacher? I have, and it made me lose any interest I may have had in the subject at hand. Frankly our country collectively cannot really afford to have children caring less about school than some of them already do.

For those students that are fortunate enough to go on to college, Obama has some plans there as well. The Pell grant is a Federal grant given to students who exhibit more financial need than others; this “financial need” is determined when you fill out the FAFSA (Free Application for Federal Student Aid). Obama proposes to raise the annual maximum amounts on that grant from $4,731 for the 2008-2009 school year to $5350 for the 2009-2010 school year, and then increase it again to $5500 for the 2010-2011 school year. The unsubsidized loan amount for dependent students is currently $2,000, but Obama’s stimulus plan will add an additional $2000 to that, which will help a lot of students out whose parents cannot afford to help them through college. The President also proposes to eliminate the FFEL loan program (private lenders who lend Federal loans) and have all Federal loans run through Direct Loans (the U.S. Department of Education’s Loan program); but wait, there is more….the Perkins loan, which is another federal loan awarded based on need, is typically run through the college itself, but Obama is proposing to shift that loan program so it is run through the government. Now I have my loans from my undergraduate degree with Direct loans, and the customer service is definitely not top notch. I am wondering how the Department of Education is going to manage all the loans that are currently in the FFEL program AND all the Perkins loan and still make sure that those loan programs don’t fall at the waist side. I personally do not see it happening…and didn’t Clinton propose this at one point, but it failed?

A student tax credit is also part of this the Presidents budget proposal, which would put an extra $2500 in students’ pockets. This is definitely helpful to any student in school, and it can also serve as an incentive for someone to go back to school and finish their education.

This new budget proposal has a lot of big ideas, some of which already have the necessary platforms to execute the new plans. Others however do not. It seems like all the ideas would help to improve the education system in the US, but the road to get there might be a long and bumpy one.

Code: EDUCATIONOVERHAUL

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I was speaking with a few friends earlier this week who had asked me some general questions about the economy. After answering one question in particular about taxes I thought it might make for a nice blog topic. After all, it is my aim to educate and inform.

First off, the economy is a complicated mechanism as we all know. When we’re struggling thru tough economic time’s politicians can not simply institute tax cuts to remedy the problem. True, tax cuts may be part of the solution but not the sole answer. So why will tax cuts alone not work? I mean, that would help jumpstart the economy, right? More money being spent by consumers on goods and services is a good thing. But the reality is those tax cuts have a counterproductive aspect to them as well.

Conventional wisdom tells us if you have less money to spend than your consumption will decrease. If taxes get cut than the government has less money to spend which means something must get sacrificed. But if you delve a little deeper into the root of what happens when tax cuts are made you will have a better grasp of the mechanics behind this negative relationship.

For example, say McCain or Obama cut taxes. That will mean consumers will have more disposable income in their pockets, which is great. And because of that extra money the consumer can then purchase more goods and services with those extra dollars. That will then lead to a positive shift in the aggregate demand. With consumption on the rise that will then lead to higher interest rates which will then serve as a detriment to businesses that want to invest, since the cost to borrowing money would be increased by those higher interest rates.

So by doing a good thing, cutting taxes to stimulate growth, demand for investment falls. It is such a tangled web we weave. It’s like trying to juggle 10 things at once and hoping you don’t drop one. Unfortunately we’ve been dropping more than we’ve been catching lately. Let’s hope the next circus that comes to town can keep things a float.