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.

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.

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

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.

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.

Calculating Student Loan Interest

Your student loans accrue interest every day. The only exception to this is that Stafford subsidized loans do not accrue interest while you are on a deferment. For example, when you are on an in-school deferment any subsidized fund you have will not have any interest accruing.

Unsubsidized, PLUS and GradPLUS loans will all accrue daily interest at all times. At the end of any deferment or forbearance if this interest is not paid, the interest will become part of your principal balance.

If you want to know your daily interest, here's a simple formula to calculate it:

Principal balance x interest rate / 365.

That's your principal balance multiplied by your interest rate and divided by the number of days in the year. Viola! Your daily interest.

As your principal balance lowers, your daily interest will also lower. This is why there is no prepayment penalty on these loans - if you pay off your entire balance plus the amount of interest that you've accrued as of that day, you will not pay another dime for that loan.

Now to define some terms!

You will know which loans are "subsidized" and "unsubsidized" by your financial aid awards package. They designate these totals on the package for you. You can also call up the servicing agent and ask.

You can also call or check your account online for the amount of interest due. If at all possible, make payments toward your interest while on a deferment or forbearance. It can save you thousands in the long run.

Deferments and forbearances are ways to pause your payments. If you are ever struggling to make payments on your account, call your servicing agent immediately! Chances are they CAN lower or pause your payments. You will spare yourself the hassle of delinquency and could even avoid default. Honestly, defaulting on student loans takes effort! Call as soon as you have a problem and you can avoid all of the pain.

Why Loanfaqs.org?

Clearly this is not a .org site, so where did the name come from?

Over a year ago I tried to create a student loan forum where people could come and post their questions online for me to answer. I called it Loanfaqs.org, got a logo created, even got the forum up and running. But unfortunately it just never got popular. Student loan advice isn't really something you can sit and discuss in forum threads because it is a one-question one-answer format.

So now I've decided to try a blog format. I think this will help in that it's easily searched for specific information. I've kept the name just for the thrill of having something with that name still floating around the internet. I hope to help the same amount of people with advice and resources that I've been able to help elsewhere.

No question is "stupid" in this business. The process is long, confusing and complicated. Never be shy to ask a question or post a comment! I'm here to help or at least get you pointed in the right direction.

Medical Students: Minimizing the Debt

If you are a medical student then you are subject to much higher loan limits than other students. This includes nurses, doctors, veterinarians, etc. So if you know you're looking at anywhere from $75,000.00 to $250,000.00 in debt, what can you do to?

First of all, get a job while in school. I know this will be difficult for many of you but it will pay off in the long wrong. Why get a job (beyond living expenses, of course)? To make payments toward your interest. Every chance you get, make a payment toward your loans. It will hurt in the short run but help you by leaps and bounds in the long run. If you manage to pay over the interest owed you'll start lowering your principal balance, which will then decrease the interest you're paying.

Now you've graduated and gotten through your residency. Now what? First, check into forgiveness programs through the Department of Education. Direct also has an early write-off policy. The write-off wouldn't happen for a long while but if you know it's coming, it can make the wait bearable.

Some states have assistance programs for nurses and doctors. Try to find one! And most importantly, some hospitals will help you pay down your loan debt. Get a job with one of these.

Remember, you can't help how much you have to take out, but you have some control over how much you have to pay back. Never miss a chance to pay down your interest or principal balance. It will save you in the long run!

Navigating The Basics Of Student Loans

I would love to target students navigating the student loan system. It's true that FFELP has the potential of going away this year but Direct is not an easier system to navigate. Even if FFELP does go away, thousands of students will still have FFELP loans and repayment schedules to handle. If you have a student loan question, please feel free to email me! I may post your question and answer as a full blog entry. If you would prefer I not then tell me so and I will not, but if your situation might help a future questioner then I might post a hypothetical situation.

As for credentials, I work for a servicing agency in the student loan business. I won’t say which servicing agent I work for. I am trying to not be biased toward or against any lender...except Sallie Mae...so please don't ask me who I think is the best. Obviously, I think my own company is the best...and that's a bit biased.

And now for actual content! I refuse to post a starting entry without legitimate information to use, so here you go: my quick and easy guide to student loan basics.

If you have questions about consolidation, please refer to the bottom of this post.

This post is intended to translate student loan processes, lingo, and rules into normal human being language, instead of Federal Guidelines. Contact me for all your Stafford, PLUS, and GradPlus loan questions and needs - from the servicer’s perspective. If it’s school-related, or something the Financial Aid Office of your school needs to answer, you must ask them. I can’t help ya, and neither can any other lender.

All FAFSA-related questions should be directed to the Department of Ed’s website and their phone number, or, once again, your Financial Aid Office. I’m working on learning more about the FAFSA to help you guys out, but currently I wouldn’t touch those questions with a ten foot pole. I’d hate to give you bad info!

So what is this post for?

I can answer general student loan questions for you. I can answer consolidation need-to-knows for you. If you pose a question that I don’t know the answer to, I will not steer you wrong: I will either find the answer for you, or try to provide some other source for you.

That being said, I’m going to outline some general information for you guys. If you don’t see your question already answered in this FAQ, feel no shame in asking. You wouldn’t believe the questions I hear on a daily basis.

Neato Links!!!

These are useful links that have come up during my time researching student loans. I am not responsible for nor claim credit for the information in any of these links. They are all outside sources that can save you tons of time and hassle in your student loan future.

A wonderful online database of general information about student loans (the difference between this site and my blog is that you can ask and receive an answer from me!):

http://www.finaid.org/

A website to help you find the right private lender for you:

http://www.simpletuition.com

(Important note - this site does not list ALL lenders and their benefits, but it's a damn fine starting point.)

If you are not sure if your school is a Title 4 school, search for it here:
http://www.fafsa.ed.gov/FOTWWebApp/FSLookupServlet

International Accredited Schools:
http://www.ed.gov/about/offices/list/ous/international/usnei/international/edlite-index.html

If you are looking for scholarships/grants:
http://www.fastweb.com

The National Student Loan Database (The Dept of Ed, basically) - register an account here and behold the glory!!! The NSLDS is a wonderful, magical website which will tell you every single federal and Perkins loan you've ever had. The drawback is that it's updated (in terms of amounts and status) about every 2-3 months. So it won't be the most up-to-date when it comes to your loan status. The best way to find out is to contact your lender and ask.

http://nslds.ed.gov

The Department of Education's Website ( All FAFSA-related questions go HERE ):

http://www.ed.gov

The FAFSA Online (Now available in Spanish!):

http://www.fafsa.ed.gov

Forgiveness Programs Available for Loans:

http://www.finaid.org/loans/forgiveness.phtml

(There are also state-specific programs available. Contact the state's Dept. of Education to see if there's anything for you.)

Stafford Loans

There are two kinds: Subsidized and Unsubsidized. What this means to you, the normal human being, is:
Subsidized loans do not accrue interest during any deferment or your grace period.
Unsubsidized loans always accrue interest, from the 1st day they’re disbursed to the day you pay them off. There are no exceptions here, this is a federal rule.

Stafford loans are in the student’s name only. Federal privacy laws don’t allow Mommy or Daddy to call in for info on these unless you’ve signed a nifty little release form with their names on it. Stop making them call for you, please.

The current interest rate for new federal loans is 5.6% on subsidized loans, 6.8% on unsubsidized loans. No, I don't know why they didn't make it 5.6% for both. We did not decide this; Uncle Sam did. If you would like to yell about it, call him. Most lenders can give you the number!

The variable interest rate changes every single July 1st. Every one. This has been true for freakin’ ever, and isn’t bound the change anytime soon. What did recently change is that it’s now a fixed rate - your 5.6% is permanent, but future loans may have different rates. Get it?

Aggregate Limits

Aggregate limit is a fancy way of saying “this is the total you can get, period.” This amount varies by grade level and graduate vs. undergraduate status.

Medical students get the special exception of being able to have more debt in their name. I pity you guys.

This is a list of the current aggregate limits. These limits may change but are currently in effect. You cannot take out more Stafford loans, per year, than the amounts listed. The school determines the amount you will be given; there is no guarantee that you will receive the full amount listed. You may be *eligible,* but you still might not receive it. The lender can do nothing, absolutely nothing, to change this.

NOTE: Medical students have different limits. You'll have to contact your Financial Aid Office for those numbers.

Year One :

Subsidized - 3500.00
Unsubsidized - 6000.00
Total Eligibility: 9500.00

Year Two

Sub - 4500.00
Unsub - 6000.00
Total: 10500.00

Year Three-Five

Sub - 5500.00
Unsub - 7000.00
Total: 12500.00

Graduate & Professional

Sub - 8500.00
Unsub - 12000.00
Total: 20500.00

Total Aggregate Limits for a:

Undergraduate Dependant Student - $31,000.00 (maximum of 23000 in subsidized)

Undergraduate Independent Student : - $57,500.00 (maximum of 23000 in subsidized)

Graduate/Professional Student : $138,500.00 (maximum of $65,500 in subsidized)



When can I file my FAFSA as an independent (not have to include parent's income info), and therefore become eligible for more money?

You are an independent student if:

- 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

PLUS loans

These are in your parent’s name. They are not cosigning for you, they are taking out a loan using their credit and only in their name. This does involve a credit check, which will show on your parent’s credit score. This loan can never be changed into your name. Make sure your parents understand this, please.

Due to new federal policy, while you the student are attending classes at least half-time or more your parents are automatically eligible for a PLUS in-school deferment!!! This works roughly the same way as your own in-school deferment. If you can provide the lender with a verification of enrollment showing your status, they can slap a deferment on your parent's account and pause the payments for you.

The PLUS loan has also gained a grace period. This mirrors the Stafford 6-month grace period.

The interest rate is currently 8.5%, fixed. If you’re shopping around for incentives with lenders, get an incentive on the interest rate itself, not principal rebates. Principal rebates save you less in the long run (unless the parent is going to payoff the loan within the next couple of years, I suppose).

The PLUS loan can be used for personal expenses, but it is still sent to the school first. The school maintains controls over the amount disbursed. If they won't certify your 100,000 request, we can't send it.

GradPlus

For graduate/professional students only (independent undergraduate students do no qualify). This loan is based on credit but the student takes it out in their own name and it’s a much more lenient credit check because it’s for students, not parents. The interest rate is the same as the PLUS. This loan is deferred while the student is in school. NO PAYMENTS IN SCHOOL. But remember to keep yourself at least half time or more, or payments ahoy!

The GradPlus loan can be used for personal expenses, but it is still sent to the school first. The school maintains controls over the amount disbursed. If they won't certify your 100,000 request, we can't send it.

You can have a co-borrower for a GradPlus loan if you are not eligible based on your personal credit. The GradPlus loan can be consolidated with Stafford loans. If you have a co-borrower and you consolidate the GradPlus, the loan is considered paid in full through the consolidation and the co-borrower is no longer tied to the account nor has access to your information.

When are my loans deferred (no payments due)?

You must be at least half time or more at a Title 4 school - that is, any school that is capable of participating in the federal loan program. It doesn’t have to actually participate, it just has to be eligible to. Several online colleges are also eligible.

If you are not sure if your school is a Title 4 school, there's a handy search link up above for you to use!

Even if your grace period has expired or you have a consolidation you are still deferred while at least half time or more!!!

Your status is determined by the school, not the lender. If the school says you’re part time, or less than half time, you can’t have the in-school deferment on your account. I’m sorry!

What is a grace period?

A 6-month period without payments after dropping less than half time (graduation, taking a semester off) which only Stafford loans feature. If you enter your grace period, it is exactly 6 months long. If you are back in school at least half time or more even one day before the grace expires, it is returned to your account and you are placed back into the deferment.

GradPlus and PLUS loans now have a grace period.

If you consolidate, you no longer have a grace period. Note - you don’t lose your deferment, just your grace period. But remember, these are federal loans. There always may be a deferment or forbearance available.

What the heck is a deferment/forbearance?

This is a fancy way of saying “pausing your payments.” The difference is that during a deferment, your subsidized loans do not accrue interest, whereas during a forbearance, everything does. Unpaid interest becomes part of your principal balance at the end of a deferment or forbearance. You’re not required to pay it while on either one, but it’s highly recommended that you do.

PLUS and GradPlus loans are considered unsubsidized, and therefore always have interest accruing.

There are several different kinds of deferments and forbearances. For the sake of length, I won’t go through them here unless a demand rises/people constantly ask.

General Info

If you are in school, and you still have your grace period, you cannot consolidate until you’re in grace or repayment.

Your school determines the total amount of loans you’re eligible for, the amounts we the lender will send, and the dates we will send it. If you have questions/issues with any of this, you must contact them, not us. All we can do is cancel a loan per your request.

If the amount you received from your school is not enough to cover tuition and living expenses, ask them if they have an appeals process. Otherwise, ask Mom and Dad if they would be willing to go the PLUS route. If both of those are bust, you're stuck with an alternative loan, or...well...a full time job, I guess.

I’m hoping that this will become a resource for the many college kids/parents out there. You may email me any questions you have, even if you have a particularly embarrassing question; I won’t laugh.

Consolidation

Because of policy changes, many consolidation companies have shut down. Direct is the only FFELP consolidations company at the moment - that's the federal government, specifically.

Private Loan Consolidation

According to my research Wells Fargo is still offering private loan consolidation. If anyone knows of any other company please let me know and I'll include it in the blog.