What do you want to know about financial aid for college? Considering the country’s economic turmoil in 2009, EducationGrant.com certainly picked a good year to launch a college financing blog. Not surprisingly, the posts that attracted the most readers were those that focused on how to get scholarships and grants.

Here are the top 5 EducationGrant blog posts of 2009:

1. Single Mom Scholarships

2. 10 Scholarships for Women

3. Pell Grant Application Process

4. Financial Aid for Single Mothers: Grants

5. Student Loan Forgiveness

With the latest numbers on average student loan debt rising to $23,000, the demand for scholarships and grants and a better financial aid system will surely be intense in 2010. No one has all the answers to the question of paying for college, so EducationGrant.com invites readers to share their personal experience, ideas, and suggestions with each other and the entire EducationGrant community next year.

We’ll be back on Monday, January 4th. Best wishes for a safe and happy New Year holiday.

With the intention of providing consumers with more transparency from lenders, there are big changes to credit card rules and fees on the horizon. But many financial experts have also been emphasizing the equally important need for knowledgeable and responsible borrowing, and this includes responsible borrowing for college. Student loans are a form of credit; just as credit card issuers extend you a “loan” to pay for your purchases, student loan issuers (federal or private) extend you a loan to pay for your college tuition, fees, and expenses. To minimize the risk of relentless student loan debt after graduation, responsible borrowing for college is crucial. The 2009 increase in student loan debt is one reason why financial literacy is a topic you’ll be hearing a lot about in 2010.

Until then, we have time for one more laugh to help us say good riddance to a pretty bad financial year. For a (somewhat painfully) funny look at the credit card industry, take a look at “Card Reform in Action,” a video by political cartoonist Mark Fiore and hosted on the website of the Center for Responsible Lending:

To get a jump start on increasing your financial literacy, read the latest on what to look out for in your credit card agreement fine print: Dodging Reform: As Some Credit Card Abuses Are Outlawed, New Ones Proliferate. New laws may be helpful, but ultimately, responsible borrowing, whether for college, a house, or a wide-screen HDTV, will be up to us, the borrowers.

After a year of daunting news about student loan debt and broken state financial aid budgets, EducationGrant.com is happy to share this positive assessment of Santa Claus’s readiness for his big night, from his personal physician at University of North Carolina School of Medicine:

Although a bit conservative (they would like him to lose weight), the rest of Santa’s UNC medical team nevertheless appears optimistic about his continued employment. (Santa’s endocrinologist needs a little gender sensitivity training, however.)

For students in need of financial aid to attend college, North Carolina has a substantial collection of scholarship programs and sources. The Carolina Covenant program, for example, provides a debt-free education to qualified low-income students.

UNC Chapel Hill was the nation’s first state university (1795) and the only public university to award degrees in the 18th century. If you are or plan to be a UNC student, check the university’s Office of Scholarships and Student Aid for instructions on how to get started. The UNC Office of Adult Services and Evening Services has scholarship resources for single moms and other nontraditional students, and for North Carolina residents, the College Foundation of North Carolina has a long list of providers of both need-based and merit-based scholarships.

And check back here next week for information on the 2010 FAFSA. January 1, 2010 is the first day you can start filling out a FAFSA for a college program that starts after June 30th. The first step: applying for a FAFSA PIN (Personal Identification Number) and filling out a FAFSA practice worksheet to familiarize yourself with the official form.

Until then, EducationGrant wishes all its readers, and college students everywhere, safe and happy holidays!

Worried about adding all that holiday shopping to your debt? Well, you may get some financial power back in 2010, when new credit card and student loan rules start leveling the playing field between customers and lenders.

A week ago, Congress approved a proposal to create a new Consumer Financial Protection Agency. The new CFPA is designed to monitor financial transactions not covered by the Truth in Lending Act — including private student loans, which are currently unregulated. If the CFPA proposal eventually becomes law, the Agency will have the authority to establish and enforce rules for private student loans.

Also, a new credit card law goes fully into effect in two months (February 22, 2010). These new rules ban or restrict unfair fees, require more transparency about credit card costs, and help consumers make more informed decisions about which credit cards they acquire and how they use them.

The Credit Card Accountability, Responsibility, and Disclosure Act:

• Requires “Plain Language in Plain Sight” explanations of both account and contract terms before consumers open an account and the activity on consumers’ accounts after the account is opened. (For example, customers must be told before they open a credit card account what fees they may be charged. Then, after the account is open, credit card statements must conspicuously display fees the consumer paid both in the current month and over the year-to-date, along with the reasons for those fees.)
• Bans unfair interest rate increases
• Bans retroactive interest rate increases for arbitrary reasons and restricts retroactive rate increases due to late payment
• Offers first year protection: Contract terms must be clearly spelled out, and they can’t be changed at all during the whole first year
• Bans late fee traps such as a too-short payment deadline, weekend deadlines, deadlines that change each month, and deadlines that fall in the middle of the day
• Requires over-payments be applied to the balance with the highest interest rate first, and bans interest charges on debt paid on time ( “double-cycle” billing)
• Requires transparency about over-the-limit fees by requiring the customer’s permission before processing any transaction that would push the account over the credit limit
• Restricts unfair sub-prime and low-limit card fees
• Limits fees on Gift Cards and Stored Value Cards and requires more transparency in the disclosure about fees
• Requires consumers under the age of 21 to provide the signature of a parent, guardian, or other individual 21 years or older who will take responsibility for the debt, or proof that the applicant has an independent means of repaying the debt
• Requires a periodic review of all interest rate increases since January 2009 and requires rate reductions when a review indicates that a reduction is warranted
• Requires the inclusion of real information about the financial consequences of decisions, including periodic statements that clearly display how long it will take to pay off the existing balance (and the total interest cost) if the consumer pays only the minimum amount due VS. the payment amount and the total interest cost if the existing balance was paid off in 36 months.

The Credit CARD Act also mandates stricter safeguards for college students and young adults, who are particularly vulnerable to sales gimmicks and traps in the fine print.

• Credit card issuers and universities will be required to be very clear about any agreements they have regarding the marketing or distribution of credit cards to college students and young adults.
• Credit card issuers and regulators will be held accountable for failure to abide by the new rules, including increased penalties for repeat violators.

Financial literacy is going to be a hot topic in 2010. Visit EducationGrant.com often for updates on new student loan regulations, credit card rules, and changes to the federal financial aid process.

An article I read about young Americans stuck on a hamster-wheel of debt was so compelling, I was surprised to see that it dated back to February 2006. It’s just as relevant today as it must have been four years ago—perhaps more so, given the recession that’s affected the country between then and now.

‘Generation Debt’ is going deep into the red, by Vanessa Richardson at msnbc.com, highlights the financial frustrations facing Generation Y, including heavy loads of student loan and credit card debt and an insecure economy with poor job prospects.

The article also offers candid feedback from graduates about how they’re coping with their overwhelming financial obligations and some practical advice from finance experts on how to get off your own hamster-wheel of debt. College and high school graduates alike will find these personal finance tips helpful. (Stay tuned to EducationGrant.com for information on upcoming changes to credit card laws.)

Thanks to Penelope Trunk for the reference to this article.

One of the benefits for college students provided in the Economic Stimulus Bill (American Recovery and Reinvestment Act of 2009) is a new and improved Hope Tax Credit for higher education expenses. The Hope credit has been renamed the American Opportunity Tax Credit, and if you’re a college student (or student parent) who paid for college in 2009, you may be able to claim this tax credit on your upcoming IRS tax return.

A tax credit reduces your income tax after you’ve calculated it. With the American Opportunity Tax Credit, you get a dollar-for-dollar credit for the first $2,000 you paid for certain college expenses, then 25 cents on the dollar for the next $2,000 spent. The maximum credit is $2,500—a $700 increase over the original Hope credit.

Kim Clark, writing for U.S. News & World Report, talked to a tax expert about the American Opportunity Tax Credit. Read: How to Get Back $2,500 in Tuition Money

Here are 6 facts about the American Opportunity Tax Credit from the IRS:

1. The American Opportunity Tax Credit, which expands and renames the existing Hope Credit, can be claimed for qualified tuition and related expenses that you pay for higher education in 2009 and 2010. Qualified tuition and related expenses include tuition, school fees, books, and other required course materials.
2. The AOTC can be claimed for qualified expenses paid for any of the first four years of postsecondary education.
3. The credit matches 100% of the first $2,000 you spend and 25% of the next $2,000 (per student per year). If you paid $4,000 or more in qualifying college expenses for yourself (or your dependent student), you may be eligible for the full $2,500 credit.
4. The full AOTC is generally available to eligible taxpayers who make less than $80,000 ($160,000 for married couples filing a joint return). The credit is reduced on a sliding scale for taxpayers with incomes above these levels.
5. You can’t claim the American Opportunity Tax Credit in the same year that you claim the Lifetime Learning Credit or the Tuition and Fees Tax Deduction.
6. 40% of the AOTC is refundable, so even if you don’t owe any tax, you can get up to $1,000 of the credit as cash back.

To determine whether a tax credit or tuition-and-fees deduction will lower your tax more, you’ll need to add up your education expenses. Because a tax credit offsets your tax dollar for dollar (rather than just reducing your income), it may give you the bigger benefit. The American Opportunity Tax Credit replaces the Hope tax credit for the next two years. To claim it, you’ll need IRS Form 8863, attached to your 1040 or 1040A.

The subject of today’s post, though not exactly financial aid, feels like a higher education story for the holidays: a glimpse into how successful nontraditional students get their college degrees. Nontraditional college students (anyone other than an 18-year-old going to a 4-year college straight from high school, that is) are students of all ages and walks of life. If you’re one of them, you’re already familiar with the challenges that may have made it difficult for you to pursue your dream of a college degree.

This celebratory article, For one student, a long path to college degree, provides both inspiration and some insight into what it means to be a nontraditional student. It’s a great read. In this year of grim news, it’s nice to read about someone’s success for a change!

One of the resources the article mentioned is the Pell Grant. Pell Grants help millions of students a year, and data on Pell Grant recipients provides a familiar snapshot of nontraditional students. For instance, a recent National Center for Education Statistics report (July 2009) profiled Pell Grant recipients who graduated with a bachelor’s degree in 1999-2000. Here’s what the study found:

• Majority were low-income
• 23% were age 22 and under; 31% were 23-24; 27% were 25-29; and almost 19% were 30 and up
• 60% were considered financially independent
• 24% had dependents of their own
• 11% were single parents
• 34% delayed their enrollment in college after high school
• 58% left college or career school for 4 or more months and later returned to complete a degree at either the same school or a different one

These percentages are from 10 years ago, so some may have grown or decreased in the recent recession. It would be a surprise if the percentage of Pell Grant recipients age 30 and older had not noticeably increased over the past two years.

Clearly, pursing a college degree is a big investment of time, money, and maybe even personal sacrifice, but to many people, it’s worth the effort. If not straight from high school, how do nontraditional students get started on their college degrees? Here are a couple of ideas.

What college will work for me?

The nonprofit education organization ACT, maker of the college entrance exam by the same name, has a checklist of 11 items for prospective college students to consider when choosing a college. The checklist is geared more toward the traditional college-bound high school senior, but many items are still relevant to nontraditional students working on their degrees across the years, colleges, and even states. Here are a few, with a nontraditional student twist:

• Academics, particularly the programs, majors, and courses you need to stay on your degree track
• Admission and transfer-admission requirements, and transfer policy
• Total Costs: tuition, fees, books, transportation
• Financial aid (who will give you the most?)
• School size (can you get the personalized academic guidance and support you need to succeed, especially if you’re transferring in?)
• Location (is it convenient for you?)
• Housing for independent students if you need it
• Facilities: certainly academic, maybe recreational, but also practical (is there a daycare center?)

Based on Catherine’s story in the AP article, it sounds like a checklist specifically for nontraditional students would also include:

• Powerful belief in both oneself and the value of a good education
• Determination
• Support from family and friends
• Stick-to-it-iveness: the ability to persevere against the odds

How do I get financial aid?

You start with the Free Application for Federal Student Aid (FAFSA). A new and improved one is being released in stages and the FAFSA for the 2010-2011 school year will be available on January 1st. Submitting a FAFSA is required in order for you to get a Pell Grant.

In the meantime, try the FAFSA4caster on Federal Student Aid website. This little calculator, a sort of mini-FAFSA, allows you to plug in some of the information you’ll need to put on the FAFSA, including the school(s) you’re considering. The FAFSA4caster then gives you an estimate of your Expected Family Contribution (EFC) and your financial aid eligibility. It may be only the beginning of your journey to get your college degree, but a single step, or two, or three, can be a good start.

These days, going to college requires finding the balance between what it will cost you and what you’ll get out of it. As college students take on more financial burden than they can manage, both public and private financial aid experts stress minimizing student loan debt as critical to staying out of a downward financial spiral after graduation.

“Surviving Student Loans and College Debt,” a video from U.S. News & World Report, offers 3 tips for minimizing your student loan debt and provides examples of TV commercials advertising expensive private loans:

The Federal Trade Commission also has tips on avoiding risky loan offers and minimizing student loan debt. Click on the title to download the 4-page “FTC Guide To Avoiding Deceptive Student Loan Offers” PDF.

Stafford Loans are student loans the federal government makes available to undergraduate and graduate college students. There are two kinds of Stafford loans: subsidized and unsubsidized. Subsidized Stafford loans are restricted to applicants with low incomes, but unsubsidized Stafford loans are available to any eligible applicant who wants one, regardless of income level. The interest rate on unsubsidized Stafford loans is fixed at 6.8% for all applicants.

Unsubsidized Stafford loans are a good deal for undergraduate students whose incomes are too high to qualify for subsidized Stafford loans. The maximum loan amounts may not seem like much, but may in fact cover all or almost all your college costs if you attend an in-state public university or community college.

Annual Stafford loan limits for dependent students are:

• $5,500 for your first year of school (no more than $3,500 subsidized)
• $6,500 for your second year (no more than $4,500 subsidized)
• $7,500 for your third year (no more than $5,500 subsidized)
• $7,500 for your fourth year (no more than $5,500 subsidized)

Annual Stafford loan limits for independent students are:

• $9,500 for your first year of school (no more than $3,500 subsidized)
• $10,500 for your second year (no more than $4,500 subsidized)
• $12,500 for your third year (no more than $5,500 subsidized)
• $12,500 for your fourth year (no more than $5,500 subsidized)

2 Federal Loan Methods: Direct Loan Program vs. Bank-based FFELP

Unsubsidized Stafford loans are currently offered through two federal loan programs, the Direct Loan Program and the bank-based Federal Family Education Loan Program (FFELP). The loan funds for the Direct Loan program are supplied by the U.S. Treasury. Loan funds for the FFELP are supplied by private financial institutions, who get subsidies from the government for making their money available for federal student loans at interest rates and fees set by the government. There’s a good chance the FFELP will be shut down some time next year, however, because the Obama administration believes the Direct Loan program is more cost-efficient.

The Student Loan Market

The administration’s decision to stop the subsidies to private lenders and offer federal loans solely via the Direct Loan program has caused a lot of unhappiness among the financial institutions and financial aid administrators who benefited from the FFEL program. If you read any news stories about their protests, you’ll see complaints about how the federal government is trying to “drive private lenders out of the student loan market” and how the “lack of free market competition” caused by the government’s soon-to-be “monopoly” on student loans will deprive students and families of student loan choice.

But the truth is, the federal government providing federal student loans through the Direct Loan program doesn’t have anything to do with the availability of private (or, alternative) student loans. There is nothing in the FFELP shut-down plan that says that private lenders will be barred from offering their own student loans. Nothing that says college students MUST take out federal student loans and are not allowed to take out private student loans if they wish to. Nothing that says private lenders cannot continue to offer student loans from the private sector, just like they already do.

If the new Direct Loan plan goes into effect, federal loan money will come from a federal source and private loan money will come from private sources, and the two will compete for student loan business. No one is forcing private lenders out of the student loan market— they will still be able to offer all the student loans they want. Just not through the government’s program.

Public-Sector/Private-Sector Competition Benefits the Student:
Federal Unsubsidized Stafford Loans vs. Commercial Lender Student Loans

In fact, the only impact the elimination of FFELP may have on private lenders (assuming they want to stay in the student loan market) is to motivate them to lower their interest rates and fees and increase their borrower rights and protections in order to be competitive with the federal Direct Loan program. Private lenders could even undercut the federal loan program by offering even lower interest rates and fees and even better borrower rights and protections than the federal government does. Then everyone will want a private loan instead of a federal loan.

It remains to be seen if the Obama administration has the right idea about offering only Direct Loans, but the hype about private lenders being driven out of the student loan market is misleading. In the meantime, until private lenders are willing to be more competitive, the fixed 6.8% interest rate, no credit check, and no loan payments until after graduation make unsubsidized Stafford loans the best student loan deal around.

If you took out a lot different student loans over your years in college, you may be feeling overwhelmed by trying to keep track of them all. One possible solution is loan consolidation, but like any other loan option, it requires a little looking before you leap. For example, you should understand how consolidating private student loans is different from consolidating federal loans, since the two types of loans cannot be consolidated together.

Carolyn Bigda of the Chicago Tribune Online provided a good overview, and some tips, on consolidating private student loans in her Your Money column last month:

Student loan consolidation makes sense, but federal, private debt has different rules

By the way, although consolidating private loans into a federal consolidation loan is not allowable, it sounds as though some students have consolidated, or tried to consolidate, their federal student loans into a private consolidation loan. The Student Loan Borrower Assistance Project at the National Consumer Law Center strongly advises students against doing this:

“WARNING: It is very dangerous to consolidate federal loans into a private consolidation loan. You will lose your rights under the federal loan programs once you choose to consolidate with a private lender. These include deferment, forbearance, cancellation, and affordable repayment rights. Also, federal consolidation loans generally have lower interest rates.”