Recently, the U.S. Senate rejected President Barack Obama’s plan to maintain the 3.4% interest rates on federal student loans. If both parties are unable to agree on terms by the July 1 deadline, the rate will jump to 6.8%.

Both parties agree that the rates should remain at 3.4%, but paying for an extension of this proposal would cost $6 billion. So the question is, where will this money come from?

The Democrats are proposing the money come from shutting down a Medicare loophole that business partners can currently use to save money, while the Republicans suggest that eliminating a preventative health fund could provide the funding.

Background

In 2007, when interest rates on subsidized Stafford loans were 6.8%, the Senate approved a law that temporarily reduced the rates to 3.4% for low and middle-income students. While the rates are expected to return to 6.8% on July 1, President Obama is urging legislators to keep those rates at a more affordable level for students and their families.

Learn more about Stafford loans so you can prepare for the upcoming semester.

I’m pretty sure the title of this post just about says everything I need to say about the following video. Obama + Student loans + music + Jimmy Fallon = Magic. Pure magic. Oh, and what’s even better? It’s actually informative if you want to know more about what’s happening in the world of Stafford Loans right now.

Well done Sirs, well done.

To begin let’s first delineate the difference between subsidized and unsubsidized Stafford loans.  If you received a subsidized loan for school NO interest will accrue while you are in school, sweet! If however you have an unsubsidized loan than you are not so lucky.  Granted you could elect to make interest only payments if you so choose while in school, but if you don’t that interest will later be added onto your principal amount, and overall will increase your debt.  Let’s take a look how.

So what is capitalized interest exactly?  When the interest is not paid during college, it is accrued and added to the principle balance. Capitalization occurs the day the deferment period is over and the interest accrued over the loan period is added to the original amount of the loan. This additional amount subsequently accrues interest, adding an additional expense to the loan.

Here is an example.

Loan amount: $6,000.

Interest per month: $20

Loan balance after 1 year: $6,240

Loan principal upon capitalization (let’s say after 2.5 years): $6,600

Then that $6,600 loan balance is used as the new benchmark instead of  $6,000.  Now the monthly interest may go up to $21.78.

This was just a very basic visual used to demonstrate the capitalization concept.  Actual balances and interest rate calculations may vary.

Confused about any other terms.  Check out the Student Loan Network Glossary.

Also, find more information on the Difference Between Subsidized and Unsubsidized Loans.

In my previous post, I gave a quick run down of the types of financial aid that I can apply for to help finance my education. Applying for federal aid will be my first step, so I want to start preparing my FAFSA form.

Why do I need to fill out a FAFSA form?

In order to qualify for federal aid for students, you must complete and submit the Free Application for Federal Student Aid (FAFSA) to the U.S. Department of Education. This form is used to calculate your financial aid eligibility based on the financial and demographic information for you and your family.

Once complete, the Department of Education will forward a record of the application to the school/schools you specify.

What can I do now to prepare my FAFSA?

While the FAFSA needs to be filed with your 2010 tax information (which you won’t get until at least January of next year), it is recommended that you get a head start on gathering the right information now. In fact, most of what you’ll need for the FAFSA can be taken care of now. You can also estimate your tax information based on this years forms, however, this is only recommended if you can make a very accurate guess.

Below is a check list for what you and your family can do now to prepare early for the college financial aid application process:

Financial Aid Deadlines: Begin gathering the deadlines for your financial aid applications. Each school may have different deadlines.

Tax Information: Grab your 2010 tax forms, and anything else you are preparing for 2011 as well. You’ll receive your W2′s in February of next year and you may want to update your FAFSA when that information arrives.

Asset and Demographic Information: This where you list the financial details about you and your family, including your assets and demographic information. For help with what this will entail, visit FAFSAOnline.com and send your parents here.

School List: You can tell the Department of Education to send your results to a maximum of 10 schools. You will have to list the schools by their school code, which can be found here: FAFSAOnline.com – School Code List. When you’re looking into schools and noting their deadlines, make sure you find their code as well.

FAFSA Pin: Both you and your parents need to sign up for a FAFSA Pin #. This number will be used to identify you throughout the application process, and you can get it early and put it away in a safe place!

Ok, now go! You can download the FAFSA form now. You may file it early, but you will have to then update the forms next year with your new tax information.

My mission: In one month, learn everything there is to know about the financial aid process, and federal student aid programs so that I can get a jump start on my applications.

Armed with: ejacobs (Student Advocate from FinancialAidForum.com), a variety of web resources that I found from the Student Loan Network, some books and packets, federal student aid guides, the web-o-sphere, and my peers.

Reason: I’d like to go back to school, but I’m not swimming in cash. I recently read that incoming students often underestimate how much financial aid they will get from the government and fail to take advantage of it. I’m determined to find the maximum amount of aid possible for my situation.

There are a variety of online resources I found helpful in the start of my learning process, and I will share some of them with you below. (more…)

For many recent graduates, the grace period before they must begin repaying their Stafford Loans won’t come to a close until the fall, most likely in November. But for the lucky few who have already secured a job and an income, there might be a temptation to start repayment a few months early. So should they do it?

First, you must know that early repayment will immediately end your grace period. So if your grace period is scheduled to end in November and you decide to make a payment now, you won’t be able to wait around until November to make another one. You will have begun the monthly repayment process and must pay the minimum amount owed toward your loan every 30 days.

While you should take that into consideration, the loss of your grace period is really the only apparent downside to early repayment. There are no fees or penalties if you decide to repay early and doing so will only benefit you in the long run. The sooner you start repayment, the shorter the life of the loan and the less interest you will ultimately owe.

Can’t remember how much of your graduate school tuition will be covered by a Stafford Loan? Want to know when your next PLUS loan disbursement will arrive? You can access all of your federal loan details online through the Department of Education’s National Student Loan Data System (NSLDS) database.

The NSLDS database contains all of the information on your loans when funds have been disbursed. You can find details on  Stafford loan,Perkins loans, Pell grants and Plus loans. Simply log on to http://www.nslds.ed.gov/. To enter the database, you will need your four digit FAFSA pin.

On July 1, 2010, the world as you know it is about to change. Okay, that’s not true. But student loans will be handled in a different fashion than in previous years. As a prospective graduate student, you might be wondering how the changes affect you.

Graduate Stafford: You can still receive a Graduate Stafford loan, however this loan will be originated by the federal government, and not a Federal Family Education Loan (FFEL) bank. You will still apply by filling out your FAFSA. You can receive subsidized or unsubsidized Stafford Loans for graduate school, the primary differences being that unsubsidized Stafford loans will being accruing interest immediately and are not based on need.

Graduate PLUS: When Stafford loans aren’t enough, you should look into a graduate PLUS loan, a federally originated loan that allows you to borrow up to the cost of attendance. The Graduate PLUS loan is based on credit, not need, and carries a fixed interest rate of 7.9 percent.

Remember, to receive federal direct loans, you need to fill out your FAFSA. If federal aid isn’t enough, consider an alternative student loan.

Federal work-study isn’t often brought up when discussing paying for college, but it is an amazingly useful and convenient avenue for cash.

Federal work-study programs are based on demonstrated financial need.  All you have to do is meet certain eligibility requirements and complete a FAFSA, where you will be asked if you are interested in student employment.  If you are eligible, your work-study funds will be noted on your award letter.

Federal work-study allocates a set amount of funds per semester that you can earn in various on-campus jobs. Like a scholarship or grant, it doesn’t need to be paid back. You earned it. You keep it.

There is also Non-Federal work-study, which is not based on need and is available on many campuses across the nation. Ask your school employment office about on-campus jobs that are available.

Federal work-study, unfortunately, is not guaranteed. If you don’t use it, you might lose it for future semesters.

Looking for another way to earn money for college that you don’t have to pay back? Visit ScholarshipPoints.com for the chance to win free money to pay for your education. Use the code “WORKSTUDY” to get started.

If you are a recent graduate, once your grace period comes to a close, you will be tasked with repaying your federal student loans. While many people opt for standard repayment, there are actually alternative means as well -  if you are eligible.

Graduated repayment- Graduated repayment allows you to make lower payments at the beginning of repayment with the payments gradually increasing over time. Payments are generally put toward interest only in the first few years. Eligibility for a graduated repayment plan varies depending on loan type, interest rate, and outstanding balance.

Income-based repayment - Monthly payments are based on a percentage of your monthly gross income. Typically you can be eligible for income-based repayment if your monthly payments are greater than 10% of your gross income.  Find out if income-based repayment is right for you.

Extended Repayment - Extended Repayment provides eligible Federal Stafford and PLUS borrowers with payment relief through a lengthened repayment term of up to 25 years. To be eligible, you must have a total outstanding balance of eligible student loans that exceeds $30,000.

Have more questions about Stafford loan repayment? Fire away in our Financial Aid forums.