This year it is far easier for students to qualify for additional funds than ever before. Here's a breakdown of what criteria you need to meet in order to qualify. You only need to satisfy ONE of the following in order to be considered independent:
You are an independent student if:
FAFSA answers this question here: http://www.fafsa.ed.gov/help/fftoc03k.htm
To summarize!
- you're 24 years old by the end of the school (aka award) year
- you have legal dependents
- you are an orphan or ward of the court
- you are a veteran of the US armed forces
- you are a graduate or professional student
New qualifying criteria which you might not know about :
- you are an emancipated minor
- you have been or are in danger of homelessness as determined by your high school or shelter
- you were in legal guardianship of someone
What if my parents refuse to give me their tax info or aren't going to help me?
The FAFSA now allows you to opt out of entering your parent's information. This will default the application to filing for unsubsidized loans only, instead of sub and unsub. Everything else is still determined the same.
Friday, January 15, 2010
Joining the Ranks
I will be starting school in June of this year. This means that I will be filing a FAFSA and going through the same process as every other student out there.
I am hoping that this will give me a better understanding of how to help students with their FAFSA. I am still no substitute for calling the FAFSA department directly, but having a basic knowledge of how it all works should help me with any questions students have!
I am hoping that this will give me a better understanding of how to help students with their FAFSA. I am still no substitute for calling the FAFSA department directly, but having a basic knowledge of how it all works should help me with any questions students have!
Thursday, September 24, 2009
Floor Statement of Senator Lamar Alexander, Sept. 23rd 2009
…I would like to say a few words about Federal student loans.
President Obama said the other day, in what I thought was a very perceptive comment, that he understood the health care debate and all its intensity is a proxy for a larger debate, and that is about the role of government in our society. What I and many Republicans believe and, I think, many Independents and Democrats, as well, in the State of Tennessee, and I suspect across the country, is that we have suddenly seen too many taxes, too much spending, too much debt, and too many Washington takeovers.
The President says, and he is correct to an extent with this, that some of these Washington takeovers were not his fault, were not his doing. I suppose he would say that about some of the bank takeovers and the insurance company takeovers. I am not so sure about the takeover of the automobile companies or the takeover of the farm bonds or the proposal to takeover health care. But here is a voluntary takeover that is absolutely unnecessary, is unwise, and the American people should pay attention to this.
This goes to the center of what the President said. If health care is a proxy for a debate about the extent to which the American Government ought to be involved in our society, then the proposal by the President to take over the entire student loan program and move it from the private sector into the government is a perfect example of what we ought not to be doing.
Let me speak first to the dimensions of this program. The United States has the best system of higher education in the world. One of the greatest aspects of it, one of the greatest contributors to its quality, is that we have a generous amount of Federal dollars which permit about half or more of our students to either get a Federal grant, which we usually call Pell grants, or a Federal student loan which follows them to the institution of their choice. So unlike our our elementary and secondary schools, your Pell grant -- your grant going all of the way back to the GI bill in 1944 -- can follow you wherever you go.
That choice and that competition and that money have helped to create not just some of the best colleges and universities in the world but virtually all of them. Most observers agree on that.
The higher education system today is 6,000 institutions. These are the universities of North Carolina and Tennessee. That is what we might think of first, but there are also community colleges, the 2-year schools. There are also nonprofit colleges. There are also the religious institutions -- Notre Dame and Brigham Young and many others. So there are 6,000 institutions.
Last year, 4,400 of those 6,000 institutions used the regular student loan program. That is the one where you go to the bank, usually your community bank or local bank, and you get a student loan. And 1,600 schools, or about one-fourth, used the direct loan program, which was put in at the time I was Secretary of Education about 20 years ago, and you just go to the U.S. Department of Education and get your money. On the private side of it, which is what 3 out of 4 students choose, there are 2,000 lenders that participate in the program.
This year, there are nearly 19 million loans to students and parents and 14 million of them are in the regular student loan program, 4.5 million through the government. There was $86 billion of loans made. So the regular student loan volume through the private lenders was about $64 billion; the direct loan volume was $22 billion.
So all in all outstanding, $617 billion of volume for both programs, and the President has said we are going to take all of that and put it in the U.S. Department of Education. So what his proposal is, if you are one of the 14 million students today who are getting their student loans from their local banks, starting in January you are out of luck. You better line up outside the U.S. Department of Education with the other 19 million people who want a student loan and hope they can provide you with the same sort of service your community bank or lending institution or nonprofit organization in your area provides you today.
There is a lack of evidence to show that the U.S. Department of Education can do a better job of making loans than banks can. I used to work at the U.S. Department of Education. I was the Secretary. It is one of the smaller departments in government. The people there know a lot about education, but none of them really is running for banker of the year.
Arne Duncan is President Obama's Education Secretary. He is one of his best appointments. I would much prefer seeing him in Memphis working on charter schools or in Denver trying to find ways to pay outstanding teachers more or trying to help create a better system of colleges and universities or community colleges instead of trying to manage the problem of, how do I grant $100 billion in new loans to 19 million people every single year? How do I replace 2,000 private lenders?
Let me give you an example of what a private lender might do. In Tennessee, we have EdSouth. This is a nonprofit provider. Here is what they do. They had five regional outreach counselors to canvass Tennessee to provide college and career planning, financial aid training, college admissions assistance, and financial aid literacy. They made 443 presentations at Tennessee schools through college fairs, guidance visits, and presentations. They worked with 12,000 Tennessee students to improve their understanding of the college admissions and financial aid process. They provided training to over 1,000 school counselors so those counselors could work better with their students. They distributed almost 1.5 million financial aid brochures to Tennessee students and families. Will the U.S. Department of Education start providing those services, or will the 19 million students who want student loans simply line up outside the U.S. Department of Education or one of its offices somewhere and apply for a loan? I think I know the answer to that question.
According to the Department of Education, it costs them about $700 million a year to administer the loans they make today. That is for one-quarter of all the loans. They estimate they can make those same loans to 19 million students with about the same amount of money. I doubt if that is true, which brings me to the point of the savings -- the alleged savings of this program.
Senator Gregg and I -- the Senator from New Hampshire, who is the former chairman of the Budget Committee, the ranking member now -- talked about the alleged savings in moving all of these loans from the lending institutions that make them to 19 million students today, to the U.S. Department of Education.
Senator Gregg received a letter from the Congressional Budget Office on July 27. I ask unanimous consent to have that letter printed in the Record.
Senator Gregg basically asked: Is it true that if we stop making loans through private and nonprofit lenders whereby the Federal Government guarantees the loans and pays a regulated subsidy to the lender -- if we stop that and start making all of them through the government directly, will we save $87 billion? And the short answer -- if you want the long answer, the letter is available -- the short answer is no, you do not save $87 billion; you are likely to realize $47 billion in savings over the next 10 years.
Instead of saving $87 billion, we save $47 billion. Then we have to deduct the administrative costs. Remember, instead of making some of the loans, the Department of Education is going to make 19 million loans. The Department estimates it might cost it $7 billion over the 10 years to do that. Others think it might cost $30 billion. So the real savings -- the real savings are either $47 billion or more like $20 billion or $23 billion in savings over 10 years.
In order to do that, of course, we are going to have to raise the Federal debt. We are going to have to borrow $1 billion a year for the next 5 years. So at a time when we are concerned that we are adding $9 trillion to the debt over the next 10 years, we are going to add another half trillion over 5 years so we can make student loans instead of doing it through private institutions.
Here is the real clincher. When you press and say: In order to make these loans, what is the real reason you think you can do this if the savings aren't really $87 billion but they are more like $47 billion or more like $23 billion over 10 years?
They say: Well, the real reason is the government can borrow money cheaper than the private banks can.
That is true. The government can borrow money at a quarter of a percentage point, and then it loans it to the students at 6.8 percentage points.
Well, my first point would be that I don't think the government ought to be making a profit by overcharging students for their student loans and then turn around and take credit for starting new programs. What the government is actually going to be doing is charging a student who has a job and is trying to get a student loan -- is going to say: OK, we are going to borrow the money at one-quarter of 1 percent and loan it to you at 6.8, and then we are going to take that money and pay for your Pell grant or pay for someone else's Pell grant.
In other words, they are going to overcharge the student to make the Congressman look good. That is what we are doing. We are going out and announcing all of these programs. So we are spending $87 billion, when it is really between $23 and $47 billion -- that is the amount we really have -- and we make that money by overcharging the students.
At the very least, if we are going to take all of these loans into the government, we ought to reduce the interest rate so we don't overcharge the students.
I see the Senator from Oklahoma. I am going to defer to him and welcome him to the floor. But I hope, as we think about the issue the President so accurately described -- he said: The health care debate is really a proxy for the role of government in our society. He is exactly right about that. And while some of the Washington takeovers may not have been avoidable at the beginning of the year, there is no reason in the world why Washington should take over 19 million student loans, eliminate 2,000 lenders, stop students on 6,000 campuses from having a choice in competition, and say: The government is the best banker in America; line up outside the Department of Education, all 19 million of you, in January and get your student loan.
So I am thinking of introducing an amendment that is called a truth-in-lending amendment if this legislation were to pass, and it would say to every one of the 19 million students: Truth in lending -- beware. Your government is overcharging you so that your Congressman and your Senator can take credit for starting a new program.
I yield the floor.
Wednesday, September 23, 2009
FFELP looks to October 15th
This is the FFELP d-day. If there is no budget reconciliation passed before or on this day then FFELP is not going anywhere for at least another year. The House has already passed the bill needed to eliminate FFELP. Now all eyes are watching the Senate.
There is a healthy sense of optimism within the FFELP community. Because health care reform is such a high priority topic, FFELP has been pushed to the side. While Congress works on hammering out a health reform bill that will satisfy Americans, FFELP continues chugging along in the silent background, ever closer to the deadline.
While overall budget reconciliation is an important focus to keep in mind, relying upon elimination of the FFELP program for savings has proven shaky ground. Initial government savings estimates topped $80 billion. However the review commission realized they had neglected to include the higher volume of defaulting student loans into their calculations, a total which left the estimate topping $40 billion instead of $80 billion.
Still, proponents of FFELP elimination still quote the $80 billion figure when justifying their claims. Opponents of the measure point to the massive job losses predicted should FFELP go away, as well as the students who would suddenly be caught in disbursement limbo. Thousands of students would experience dual servicing as their older loans will remain with their older lenders and any new loans would sit with the Department of Education. This discrepancy is a recipe for default. As more confusion permeates an already confusing system, more and more students will contact their schools with questions. This will overburden already strained financial aid staff with an influx of student callers with justified questions which lack an easy answer.
Remember, please contact your Congressman as soon as possible with your opinion on this important matter! We want to make sure that every voice is heard in the ongoing battle to save FFELP.
Sunday, September 20, 2009
FFELP versus Direct Loans: HR 3221
Recently the House voted on HR 3221. This is a bill designed to eliminate FFELP lending and transfer every Title 4 college's business to Direct Lending. The Senate is now working on their own version of this bill.
Health reform is the top domestic priority at the moment, which means that HR 3221 and its ramifications have gone largely unreported. The House bill was pretty much guaranteed to pass, but the Senate has yet to come up with a comparable bill. For those of us who work in the FFELP industry as lenders, servicers or marketing representatives, the battle is now in the Senate.
So why does the average student or parent care?
If the Senate comes up with and passes a similar bill, then every FFELP lender, good or bad, will go away. While this eliminates competition, the bigger loss is service.
Direct has a notorious reputation for sub-par customer service. Recently they put out a contract for current servicing agencies to bid on their business. The servicing agencies which won this contract will not be assisting Direct in all of their processing.
The companies which inevitably won these contracts happen to be some of the same companies which were investigated by the New York attorney general Cuomo and found guilty of most of the illegal activities he cited as problems in the student loan industry. They are now paying fines to make up for their illegal dealings.
Out of the sixteen investigated companies nationwide, only two of them were investigated and determined clean of all charges. Neither of these companies was awarded a Direct contract. Therefore the reward for playing it straight and not abusing student's money for financial gain was watching other companies who did use these illegal activities gain a reward for their actions.
Along with the elimination of the FFELP program, schools will have to spend money and time to convert their systems over to Direct processing. Direct uses a different system than FFELP, which means every school in the nation would be forced to divert resources to this new process. For most schools this will equal hiring additional staff to train and handle the higher call volume due to student confusion. For smaller colleges, in particular community colleges, this may equal dropping student loans altogether since they do not have the same volume of income as larger schools and may not be able to afford the switch.
For servicers, this switch will mean layoffs. Any left standing will continue to service the volume already on the books, but originations teams and marketing teams will have no product. If the servicing agent does not switch business quickly, the company will die. FFELP defenders estimate a job loss of 30,000 plus.
And so this post is a plea to any readers I might have. Please contact your senator by phone, mail or email and let them know your position on FFELP. I hope that you would prefer defending the program, but if your opinion is the opposite then I still believe you should contact the appropriate Congressman and tell them. These bills will affect every student who enters college in the coming years, and every American with an investment in college through themself or their children should make their voice heard.
Related news articles:
http://chronicle.com/article/House-Passes-Bill-to-End/48499/
http://studentlendinganalytics.typepad.com/student_lending_analytics/2009/06/and-the-winners-aredepartment-of-education-awards-servicing-contract-to.html
Opinion Piece The Quietest Trillion: http://online.wsj.com/article/SB10001424052970203440104574405154157021052.html
Health reform is the top domestic priority at the moment, which means that HR 3221 and its ramifications have gone largely unreported. The House bill was pretty much guaranteed to pass, but the Senate has yet to come up with a comparable bill. For those of us who work in the FFELP industry as lenders, servicers or marketing representatives, the battle is now in the Senate.
So why does the average student or parent care?
If the Senate comes up with and passes a similar bill, then every FFELP lender, good or bad, will go away. While this eliminates competition, the bigger loss is service.
Direct has a notorious reputation for sub-par customer service. Recently they put out a contract for current servicing agencies to bid on their business. The servicing agencies which won this contract will not be assisting Direct in all of their processing.
The companies which inevitably won these contracts happen to be some of the same companies which were investigated by the New York attorney general Cuomo and found guilty of most of the illegal activities he cited as problems in the student loan industry. They are now paying fines to make up for their illegal dealings.
Out of the sixteen investigated companies nationwide, only two of them were investigated and determined clean of all charges. Neither of these companies was awarded a Direct contract. Therefore the reward for playing it straight and not abusing student's money for financial gain was watching other companies who did use these illegal activities gain a reward for their actions.
Along with the elimination of the FFELP program, schools will have to spend money and time to convert their systems over to Direct processing. Direct uses a different system than FFELP, which means every school in the nation would be forced to divert resources to this new process. For most schools this will equal hiring additional staff to train and handle the higher call volume due to student confusion. For smaller colleges, in particular community colleges, this may equal dropping student loans altogether since they do not have the same volume of income as larger schools and may not be able to afford the switch.
For servicers, this switch will mean layoffs. Any left standing will continue to service the volume already on the books, but originations teams and marketing teams will have no product. If the servicing agent does not switch business quickly, the company will die. FFELP defenders estimate a job loss of 30,000 plus.
And so this post is a plea to any readers I might have. Please contact your senator by phone, mail or email and let them know your position on FFELP. I hope that you would prefer defending the program, but if your opinion is the opposite then I still believe you should contact the appropriate Congressman and tell them. These bills will affect every student who enters college in the coming years, and every American with an investment in college through themself or their children should make their voice heard.
Related news articles:
http://chronicle.com/article/House-Passes-Bill-to-End/48499/
http://studentlendinganalytics.typepad.com/student_lending_analytics/2009/06/and-the-winners-aredepartment-of-education-awards-servicing-contract-to.html
Opinion Piece The Quietest Trillion: http://online.wsj.com/article/SB10001424052970203440104574405154157021052.html
Wednesday, September 16, 2009
PLUS Loans or Private Loans
Let me start by saying that a graduate or professional student should always take out a GradPLUS loan to cover any unsatisfied financial need. If you can't take out the GradPLUS on your own then you can have a cosigner. Please only consider private loans an absolute last resort in case of emergency!
But what about an undergrad student? Unfortunately there's nothing comparable to a GradPLUS loan available to you guys. Let's say you've gotten all your awards in grants, scholarships, and/or Stafford loans. Now you have additional financial need that you can't receive by any of those means. Here's your two loan choices broken down:
PLUS Loans
A PLUS loan is a credit-based loan taken out in the student's name. This loan can only be taken out by one of your parents or one of your legal guardians and you have to be considered a dependent.
How do you know if you're a dependent or independent by FAFSA standards? If you satisfy one of the following criteria, you are considered independent and cannot qualify for a PLUS loan:
- you're 24 years old by the end of the school (aka award) year
- you have legal dependents
- you are an orphan or ward of the court
- you are a veteran of the US armed forces
- you are a graduate or professional student
The parent will need to call in and apply for the PLUS loan, and because this loan is in their name no one but that parent may call in about the account to request any information. The PLUS loan cannot be transferred to the student's name, nor will it appear on the student's credit. A parent can consolidate the PLUS loans they take out together, but they can't consolidate their loans with the student's federal loans.
The interest rate is fixed at 8.5%. While the student is in school the PLUS loan can be deferred (just like Stafford loans in the student's name), and PLUS loans also now have a 6 month grace period after the student has graduated. The downside to all of this is that the interest continues to build while the loan is deferred. If that interest isn't paid by the end of the grace period, it will become part of the principal balance. This is why lenders recommend paying the interest as often as possible.
Private Loans
Private loans can be taken out in the student's name or in both the student and the parent's name. For undergraduates it's common to have a cosigner. In the event of a cosigner the loan is based on the cosigner's credit, not the student's. The loan will appear on the student's credit, though.
Interest rates range across the spectrum and are variable. You might have to make payments toward your interest while in school. Private loans have a finite amount of deferment/forbearance time, meaning that you will not have as much time available to stop payments in case of need or emergency. They are far less forgiving in repayment and harder to consolidate. You cannot consolidate private loans with any type of federal loan, but you can consolidate them with other private loans.
Which is better?
Some students have no choice here. Parents may refuse to take out a PLUS loan or there may not be parents available to do so. Private loans have strict criteria which limits who may receive one.
The basic rule of thumb is, federal before private. Exhaust all federal options available to you before turning to a private loan. Any lender worth their salt will tell you (and sometimes beg you) to take out a PLUS instead of a private loan.
But what about an undergrad student? Unfortunately there's nothing comparable to a GradPLUS loan available to you guys. Let's say you've gotten all your awards in grants, scholarships, and/or Stafford loans. Now you have additional financial need that you can't receive by any of those means. Here's your two loan choices broken down:
PLUS Loans
A PLUS loan is a credit-based loan taken out in the student's name. This loan can only be taken out by one of your parents or one of your legal guardians and you have to be considered a dependent.
How do you know if you're a dependent or independent by FAFSA standards? If you satisfy one of the following criteria, you are considered independent and cannot qualify for a PLUS loan:
- you're 24 years old by the end of the school (aka award) year
- you have legal dependents
- you are an orphan or ward of the court
- you are a veteran of the US armed forces
- you are a graduate or professional student
The parent will need to call in and apply for the PLUS loan, and because this loan is in their name no one but that parent may call in about the account to request any information. The PLUS loan cannot be transferred to the student's name, nor will it appear on the student's credit. A parent can consolidate the PLUS loans they take out together, but they can't consolidate their loans with the student's federal loans.
The interest rate is fixed at 8.5%. While the student is in school the PLUS loan can be deferred (just like Stafford loans in the student's name), and PLUS loans also now have a 6 month grace period after the student has graduated. The downside to all of this is that the interest continues to build while the loan is deferred. If that interest isn't paid by the end of the grace period, it will become part of the principal balance. This is why lenders recommend paying the interest as often as possible.
Private Loans
Private loans can be taken out in the student's name or in both the student and the parent's name. For undergraduates it's common to have a cosigner. In the event of a cosigner the loan is based on the cosigner's credit, not the student's. The loan will appear on the student's credit, though.
Interest rates range across the spectrum and are variable. You might have to make payments toward your interest while in school. Private loans have a finite amount of deferment/forbearance time, meaning that you will not have as much time available to stop payments in case of need or emergency. They are far less forgiving in repayment and harder to consolidate. You cannot consolidate private loans with any type of federal loan, but you can consolidate them with other private loans.
Which is better?
Some students have no choice here. Parents may refuse to take out a PLUS loan or there may not be parents available to do so. Private loans have strict criteria which limits who may receive one.
The basic rule of thumb is, federal before private. Exhaust all federal options available to you before turning to a private loan. Any lender worth their salt will tell you (and sometimes beg you) to take out a PLUS instead of a private loan.
Saturday, September 12, 2009
A Question I Hear A Lot: How an Undergraduate Can Get Additional Funding
I have a confession. There's one particular question I often get that always makes my heart sink. There's no easy answer; in fact, the only answer is the one the person doesn't want to hear. But I still get it all the time.
Here's how the question goes:
An undergraduate student will tell me they've exhausted all of their financial aid options through the school. They've gotten their awards package and the amount just isn't enough. They haven't gotten any scholarships/grants, or the ones they have aren't enough to cover the bills. Their parents can't or won't take out a PLUS loan in their name. Many parents outright refuse. A job can't possibly make up the difference.
And they ask me, besides a private loan (more often than not with a cosigner attached), what other options do they have?
The unfortunate answer is always no. Unless you can get a high-paying part time job, you only have a few options to help you pay with school:
1. Scholarships and Grants (Pell included)
2. Perkins Loans
3. Stafford Loans
4. PLUS loans
5. Private or Alternative Loans
That's it. There's nothing else to receive. If the school doesn't award you enough in Stafford/Perkins loans, you're on to PLUS loans. If your parents won't take one out, then on to private/alternative loans.
I hope that one day a type of loan will appear that undergraduate students can take out, similar to the GradPLUS for graduate and professional students. Until that day though, there really is no easy solution.
So what can the undergraduate do?
The only two options I'm aware of are the following. I do not recommend either, but sometimes there's just no other option left:
1. Take out a credit card and put any remaining balance on the card. Clearly this is not the optimal idea as credit cards are one of the higher risk debts to have in your name.
2. Peer to peer lending. If you google this term you'll find a few different websites where people lend money directly to each other. This is actually not a bad system, although the interest rates will likely be higher than with a bank and the loan amounts may be lower than what you need.
Here's how the question goes:
An undergraduate student will tell me they've exhausted all of their financial aid options through the school. They've gotten their awards package and the amount just isn't enough. They haven't gotten any scholarships/grants, or the ones they have aren't enough to cover the bills. Their parents can't or won't take out a PLUS loan in their name. Many parents outright refuse. A job can't possibly make up the difference.
And they ask me, besides a private loan (more often than not with a cosigner attached), what other options do they have?
The unfortunate answer is always no. Unless you can get a high-paying part time job, you only have a few options to help you pay with school:
1. Scholarships and Grants (Pell included)
2. Perkins Loans
3. Stafford Loans
4. PLUS loans
5. Private or Alternative Loans
That's it. There's nothing else to receive. If the school doesn't award you enough in Stafford/Perkins loans, you're on to PLUS loans. If your parents won't take one out, then on to private/alternative loans.
I hope that one day a type of loan will appear that undergraduate students can take out, similar to the GradPLUS for graduate and professional students. Until that day though, there really is no easy solution.
So what can the undergraduate do?
The only two options I'm aware of are the following. I do not recommend either, but sometimes there's just no other option left:
1. Take out a credit card and put any remaining balance on the card. Clearly this is not the optimal idea as credit cards are one of the higher risk debts to have in your name.
2. Peer to peer lending. If you google this term you'll find a few different websites where people lend money directly to each other. This is actually not a bad system, although the interest rates will likely be higher than with a bank and the loan amounts may be lower than what you need.
Subscribe to:
Posts (Atom)