Archive for June, 2009

How does the Income-based Repayment Plan work?

In a standard 10-year student loan repayment agreement, your monthly payment is calculated from the total amount you borrowed and the applicable interest rate applied over 10 years.

By contrast, under the income-based repayment program, your monthly payment is calculated from your Adjusted Gross Income (AGI) using a federal formula that adjusts for family size. The resulting amount is then divided by 12 to produce a consistent monthly repayment

Advantages of the Income-based Loan Repayment Plan

  • Pay as you earn: Your IBR payment is calculated so you can pay off your student loan without draining your budget. Your monthly payments will likely be less than 10% of your income and will be capped at 15% – usually less than the amount you’d have to pay under a 10-year standard repayment plan. (If your IBR repayment turns out to be higher than what you’re paying under the 10-year standard repayment, then your lender may recommend that you stay with your original repayment agreement.)
  • Don’t worry about loan interest for three years: If your IBR payment isn’t enough to cover the interest that accrues on your subsidized Stafford loan (either Direct Loan or FFEL), the government will pay your unpaid interest for up to three consecutive years. After three years, and for grad PLUS loans and consolidated loans, the accrued interest will be added to the loan principal only after you’re no longer is eligible for an IBR repayment amount.
  • Longer repayment period, and loan cancellation: The loan repayment period for the IBR plan is 25 years (more than double the standard loan payment period). If you meet your IBR plan payments and obligations over that time, whatever loan debt you have left will be cancelled outright.

Drawbacks of the Income-based Loan Repayment Plan

There are also a couple of drawbacks to keep in mind when you evaluate the income-based repayment plan. One is financial, one is a matter of convenience.

  • You may pay more interest over the long run. The faster you repay a loan, the less interest you pay; the longer you take to repay, the more interest you pay. Since the IBR plan will extend your repayment period, you’ll owe a lower monthly payment but you’ll pay more total interest over the life of the loan.
  • More paperwork to do. To determine your IBR payment amount each year, your lender will ask you to provide updated information about your income and family size every year. If you don’t provide your lender with this documentation on time, your payment will revert to the standard 10-year repayment amount.
  • IBR Plan may not benefit you if you’re married and file taxes jointly. Because of a poorly written rule in the program, the income of both spouses is counted as total income for the purposes of determining monthly affordability, even if there’s only one student loan to repay. This is rule will likely be changed in the future, but is in effect for the first year of the IBR plan.

The Project on Student Debt has a good FAQ section on the Income-based Repayment Plan.

How do you sign up for the Income-based Loan Repayment Plan?

Contact the financial institution you got your student loan from. Your lender will confirm your eligibility for the IBR program and calculate your final income-based payment for you.

Examples of Income-based Repayment Plan amounts by income

Source: U.S. Department of Education

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On July 1, 2009, a new federal program, called the Income-based Repayment Plan, goes into effect. If you’re a student in the process of repaying your federal student loans, you may qualify for the Income-based Repayment Plan, also referred to as the IBR, which caps your monthly loan payment at an amount calculated to be affordable based on your income and family size. Typically, the cap is set at 15% of your discretionary income.

An excellent IBR overview in the Boston Globe points out that one of the program’s goals is encouragement in a difficult employment climate: as a new grad, you may be willing to accept a lower-paying job if you don’t have to worry about a student loan payment bigger than your monthly take-home pay.

Since the Income-based Repayment Plan is a federal program, it bases your discretionary income on your adjusted gross income. The federal financial aid website has a preliminary calculator that can give you an idea of whether you qualify for the IBR program, but the financial institution you got your student loan from will ultimately calculate your lowered payment for you.

Only federal loans qualify for income-based repayment. Eligible federal loans include:

  • Stafford loans
  • Graduate PLUS loans
  • Most federal consolidation loans

Loans that are not eligible for IBR are:

  • Parent PLUS loans
  • Federal consolidation loans that include Parent PLUS loans
  • Private loans

Sallie Mae, a lender authorized to issue and manage federal student loans, also has information on the IBR program, and a downloadable worksheet that may help you determine your eligibility and monthly payment.

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Simplifying the FAFSA

Washington, D.C., June 24, 2009 — We recently reported on the millions of college students who don’t apply for federal financial aid each year because the 30-page FAFSA (Free Application for Federal Student Aid) is too complicated and time-consuming. Today, the Department of Education is taking some first steps in simplifying the FAFSA, introducing a working draft of a dramatically shortened form that may be ready for students as early as the 2010-2011 school year.

Lisa Desjardins of CNN details some of the specific, dinosaur-aged questions that are likely to be dropped from the streamlined financial aid form.

Simplifying the FAFSA is a project long overdue. Today’s introduction to the major overhaul will highlight the sharp reduction in questions and a common sense arrangement with the IRS that will allow students and families to download financial information straight from their tax returns to the online FAFSA.

Simplification efforts will also include cleaning up inefficient or irrelevant questions, such as those that apply to only 3% of Pell Grant recipients. The online version of the federal financial aid application will be cut from 30 screens to just 10.

The fact that simplifying the FAFSA has even reached a draft phase is tremendous news for college students and their families. Stay tuned for updates as more details and an image of the new FAFSA emerge.

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Student Loan News

If you have, or have applied for, a federal student loan, you’ll be glad to know the U.S. Department of Education has been doing some spring cleaning in its $100 billion federal financial aid program. Between the swirling credit market and the lingering effects of corruption in the student loan industry, the availability of loans for college has been a concern for many students. The Department has done some work to sort things out and move to a more streamlined loan process.

First, four financial services companies have awarded federal contracts to manage both new student loans and the many existing student loans that may end up on the Education Department’s doorstep as a result of the credit crisis. The fact that the financial services companies had to compete for the Department’s gigantic student loan business reflects the decision to make federal financial aid a contract arrangement based on performance, similar to the way contracts are awarded in the private sector.

“The award of these contracts is another step in the Department’s efforts to ensure that all eligible students have access to federal student loans and that, in partnership with the private sector, schools and borrowers receive excellent service,” Department of Education Secretary Arne Duncan said.

From now on, financial services companies who want to offer student loans through the Department’s Title IV financial aid program will be evaluated on the quality and reliability of their customer service. Or at least, that’s the plan, which is certainly an encouraging first step. We’ll see how it works out over time.

Second, in addition to taking on any necessary management of existing loans, the government wants to make arrangements to handle all student loans from 2010 on through the Education Department’s Direct Lending program.

Loans awarded through the Direct Loan program provide money directly from the U.S. Treasury, even though contracted financial services institutions handle the loan transaction. The Obama administration wants to go with this arrangement for all students, and to abolish the FFEL program in which the private financial services institutions themselves provide the loan money. Supporters of the direct loan program argue that it cuts out the middleman and offers students lower interest rates; supporters of the FFEL program claim that private industry provides better customer service. With the Department’s decision to contract out loan servicing based on performance, we may see more financial institutions joining the federal direct lending program.

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This week, folks are starting to feel the pressure as the FAFSA application deadline nears (psst, that’s June 30th), and that sentiment is echoed in the first article of this week’s Financial Aid Roundup.

Forbes: Nightmare Application May Be Driving Students To Costly Loans

A recent study by FinAid found that students aren’t completing the FAFSA, likely because it’s too complex to fill out. Your financial aid options are limited if you opt to do without the FAFSA application, as many (if not most) scholarships, grants and federal loans require its completion. This study found the number of students who only took out private loans jumped by 27% a year over the last decade. Some 60% of undergraduates, and nearly 90% of graduate students, who took out only private loans did not complete the FAFSA. Private student loans typically have variable interest rates and fewer repayment options than federal loans.

USA Today: Rates on Stafford, PLUS loans for college students are falling

On July 1, the interest rate for new subsidized Stafford loans for undergraduate students will drop to 5.6% from the current rate of 6%. This rate, which applies to loans issued between July 1 and June 30, 2010, will remain in effect for the life of the loan. Subsidized Stafford loans are available for borrowers who demonstrate financial need.  Sandra Block, personal finance columnist, also outlines the potential for borrowers of old loans to see lower rates as well, and reminds readers of the difference between federal and private loans.

U.S. News & World Report:10 Tips for Getting More Financial Aid

If you didn’t get the financial aid amount you were hoping for, here are 10 tips for getting more, compiled by columnist Kim Clark. Colleges and universities are being flooded with a record number of appeals for more financial assistance, and the good news is that these appeals are being granted, considering how drastically the financial landscape has changed over the last year.

DeVry Scholarships for Unemployed Workers Returning to School

DeVry Inc. is offering 500 scholarships to workers affected by recent layoffs. Scholarships will be awarded to qualified, new adult students who have lost their jobs in the last 12 months. Workers can use the scholarships toward any program offered at any of DeVry’s degree-granting institutions:

The DeVry Inc. site states that a scholarship application will be available for download on July 1, 2009.

Society of Broadcast Engineers Scholarships

The Ennes Educational Foundation Trust, associated with the Society of Broadcast Engineers, offers up to three scholarships for students training for a career in the technical aspects of broadcasting.

  • Harold E. Ennes Scholarship
  • Robert D. Greenberg Scholarship
  • Youth Scholarship (for graduating high school seniors)

The scholarship awards are used for tuition, room and board, or textbook costs at postsecondary education institutions, or for other technical training programs approved by the Scholarship Committee.

The scholarship application deadline is July 1, 2009. Recipients will be announced on August 1st, with grants available for the 2009 fall semester.

International Association of Ice Cream Vendors Scholarships

International Association of Ice Cream Vendors offers several scholarships from $1750 to $3,500 to operators, vendors, or employees of an IAICV operator member company; or the dependents (natural or adopted) of an operator, vendor, or an employee of an operator. The member company must be in good standing with the IAICV. Applicants must be or have been working in the ice cream industry during the award year, and must use the scholarship for their postsecondary education, including university, college, or trade school.

The IAICV Scholarship application deadline is October 1, 2009.

Pursuing a business degree is not easy. Luckily, uncovering scholarships to help pay for your business degree may not be as hard as it seems, as long as you know where to look.

  1. Your University or College of Choice: The first, and probably most obvious, place to find scholarships is through the school from which you are earning your business degree.  Contact your financial aid office or speak with an adviser in the Business department. Often alumni, benefactors and outside foundations support the school, and some of the money bestowed is used for student scholarships or grants. Even if your school does not offer scholarships specific to the business program, the financial aid office is a great starting point for additional resources. They may suggest a fellowship or teaching assistantship as an alternative way of earning money while you go to school.
  2. Your Employer: Many companies offer some sort of tuition assistance program for their employees as part of their benefits package. This is often referred to as “tuition reimbursement” but some companies might opt to position it as additional training or continued education. Keep in mind, there may be some fine print to relying on your employer for tuition assistance, such as a promise to continue working there for a set number of years after you’ve received your degree. This is particularly true if you’re pursuing an MBA (Master’s of Business Administration).
  3. Your Industry of Choice: Don’t forget to look into businesses and associations that specialize in the area of business you’re focusing on, as well. You might be pursuing an undergraduate business degree or an MBA, but what do you plan to do with it? Identify national associations that promote a specific business discipline, such as marketing, human resources, finance or accounting.
  4. Your Own Backyard: Ward Allebach at BusinessSchools.com makes a great point that many national associations have local affiliates, so you might do yourself a favor by finding a chapter in your state or region and investigate as to whether they offer a scholarship for residents.  Scholarships from local organizations generally range in smaller sums (think a few hundred dollars to $2500), but the effort needed to apply could be in your favor, as your competition is likely a smaller pool of students than those of larger, more publicized national scholarships.

Sometimes, where you are in your degree program will affect the type of scholarships you should look for as well. Some scholarships require eligible students to be currently pursuing an undergraduate business or business administration degree and proceed to graduate school or an MBA. Keep in mind that requirements are listed for a reason – if you don’t meet the eligibility requirements exactly, you should move on to find other scholarships that are a better fit.

When you’re looking for nursing college scholarships or health care scholarships, there are a lot of websites out there to choose from. Looking through the information on nursing scholarship websites could seem like an overwhelming or time-consuming task, but your efforts will pay off when you identify the right scholarships to help you pursue the nursing career of your dreams.

United States government websites are a great place to start when looking for nursing scholarship programs.

  • The U.S. Department of Health & Human Services offers an array of financial aid websites to help you navigate through a number of the available scholarships and grants for nursing programs: http://www.hrsa.gov/help/healthprofessions.htm. One trick to uncovering additional scholarships is to look for those that are broadly geared toward health professions, so students specifically pursuing a nursing degree are eligible as well.
  • The DHHS offers their own Nursing Scholarship Program, which is a need-based program and requires that the applicant be enrolled in an accredited R.N. training program.
  • You might consider looking into state scholarships for nursing as well, in which case you should contact your state Department of Education for information: http://www.ed.gov/about/contacts/state/index.html.

Professional nursing associations also offer a wealth of information when it comes to finding financial aid for nursing programs. Many associations award their own nursing scholarships through foundations, and they can often validate those other scholarships offered by third parties:

There are also private nursing scholarship websites that allow you to search through a database of available scholarships and find those that match your eligibility and requirements criteria you searched for. For example, there’s Discover Nursing, run by Johnson & Johnson: http://www.discovernursing.com/scholarship-search.

Still looking for a nursing degree program? Click here to find the right nursing & allied health program for you today!

We’re always scouring the Web for news and information that will help you simplify the complications of researching and applying for financial aid. Over the last few days, we’ve put together the first installment of the Financial Aid Roundup:

Pell grants, other student aid can help older college students

Sandra Block, personal finance columnist for USA Today, provides a roundup of the financial aid options for adults, including federal grants like the Pell Grant or the Supplemental Educational Opportunity Grant (SEOG), institution grants that you’d get directly from your school of choice, or student loans. Further, the team at Scholarships.com mentions that adult students with dependents, are married, have served in the military, or are over the age of 24 are considered independent, and are eligible for larger federal Stafford loans.

The labor market continues to be competitive; millions of Americans are out of work or are worried about losing their jobs. Many adults don’t pursue retraining programs or acquire new skills because they believe they can’t afford to pay for school. The important thing to note here is that there a number of scholarships and grants available for adult learners, adults returning to college, and single parents.

Making college more affordable for poor Americans

The Christian Science Monitor reported on President Obama’s aim to create a new entitlement program to help low-income Americans attend college in the form of pell grants. An “entitlement program” is a government program that requires payment to anyone who meets specific qualifications; those who qualify are “entitled” to the payments. Social Security, Medicare and food stamps are entitlement programs you might be familiar with.

Why is YOUR Aid Controlled By the School?

There is a lot of fine print to understand when it comes to how much control a school’s financial aid office has over the Federal aid awarded to a student. At the FAFSAOnline.com blog, Lee Anne Hannula addresses a frequently asked question, in which a student doesn’t understand why she can’t just have the money she is awarded in hand, rather than receive it in smaller sums through the school. Sound familiar?

While aid might be awarded to a student, it’s mandated by each school that participates in the Federal loan program to ensure their own good standing. The school could lose its eligibility to certify Stafford loans for others if students default on their loans, so financial aid is best distributed through the school and not given directly to the student.

If you’ve lost your job with one of the auto manufacturers and are not sure what to do next, take heart. Channeling stimulus money toward the states hardest hit by the recession, the U.S. Department of Education set aside $7 million in education funds especially for the auto industry states in early June, Colin Fly of the Associated Press reported last week. The Education Department wants community colleges and technical/vocational colleges to create “innovative and sustainable” retraining programs that will prepare displaced workers for new careers. The first programs funded with this money are targeted for communities in which autoworkers have lost their jobs, but retraining programs in other hard-hit states will follow.

The $7 million announced on June 3rd will be awarded to institutions of higher learning, private and public nonprofit organizations, and other agencies that create retraining programs primarily for adults who have been laid off in the auto industry states. One goal is to help these workers continue to provide for their families with a steady income; a second goal is to help workers successfully transition into new careers by using their skills and expertise in new industries.

“Education is the catalyst for a strong economy and the means by which adults will reinvent themselves and rebuild the industrial cities that have been the foundation of our nation,” said U.S. Department of Education Secretary Arne Duncan. “The Obama administration is committed to supporting auto communities and workers, who have been displaced from their jobs. Community colleges are invaluable resources for adults seeking to acquire new skills that are needed by employers.”

For laid-off workers in the auto industry states, the $7 million education funding will be used in several ways directly and indirectly related to the needs of adults returning to school: career counseling, academic counseling, assistance with the college registration process, academic tutoring, childcare, transportation, and buying textbooks.

If you’re a laid-off auto industry worker, you may be eligible for one of these new retraining programs in the fall. Stay in touch with your state’s higher education office and unemployment office for announcements about which voc/tech and community colleges will offer programs that suit your needs and skills.

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