Archive for September, 2009

There’s been a lot in the news recently about college student funding.

At the start of the financial aid cycle…

We sent Congress all our money and all we got was this job as a loan servicer. New information is emerging about the millions of dollars that private lenders have spent on fighting the elimination of the bank-based Federal Family Education Loan Program (FFELP). Kelly Field, writing for the Chronicle of Higher Education, reported today that between January 1, 2008, and the end of June 2009, the top FFELP 20 participants spent nearly $14 million lobbying federal legislators against the Obama administration’s plan shut down the program. Just by itself, Sallie Mae, the student-loan industry’s biggest player, spent almost $6 million over the last 18 months to charm Congressional representatives — both Republican and Democrat.

That sounds like a lot of money to you and me, but it’s a small investment when you realize that until recently, private lenders got very rich in the multibillion-dollar federal student loan industry.

It’s the thought that counts. The new Post-9/11 GI Bill that went into effect on August 1st had an ambitious deadline to meet: providing all the veterans who applied with the money they needed for tuition, books, and housing by the time the school year began. The new benefits, which are well-intentioned and well-deserved, provide veterans with generous financial aid for college. Unfortunately, the timeframe may have been a little too ambitious. More than 270,000 veterans applied for college student funding and the GI Bill computer system was not able to keep pace. It’s far behind in processing requests, causing last-minute financial hardships for many veterans.

Fortunately, many schools are allowing veterans to begin classes anyway, and the Washington Post reports that the VA has scrambled to come up with emergency money. Starting October 2nd, veterans who need college funding right away can get an immediate $3,000 advance.

At the end of the financial aid cycle…

Who knew bankruptcy wouldn’t end student loan debt? At the other end of the financial aid lifespan, the U.S. House Judiciary Committee began looking into revising 2005 bankruptcy laws so that personal bankruptcy would include private student loans. Under current law, even if you file for bankruptcy, you would still be on the hook for any private student loan debt you have. (Your federal student loans may be discharged if you file for bankruptcy, if a bankruptcy court rules that repayment would cause you undue hardship.)

If you’re forced to file for bankruptcy (a difficult and embarrassing experience for anyone), your credit card, mortgage, and other consumer debt all gets written off. So why not your private student loan debt, too? Several student finance experts and advocates talked to the Judiciary Committee about the unfairness of the existing bankruptcy law, which has become more glaring under the crushing impact of the recession and unemployment. Stay tuned.

Die, student loan… maybe? On the other hand, if you’ve got money to burn and have been wondering whether you ought to use it to pay off your student loan early, the Motley Fool offers some excellent advice under a typically witty title, “Die, Student Loan, Die!” The decision comes down to comparing interest rates (what you’re paying on your student loan vs. what you might get from saving or wisely investing the money) and the other debt you may be carrying.

And in between….

No, I don’t want the free T-shirt. Starting next February, new rules take effect regarding the marketing of credit cards to young college students. Like other industries that have developed a reputation for preying on college student funding, the credit card industry is getting some clean-up. A new credit card law prevents banking and finance companies from offering college students free gifts for signing up for a credit card. This is an old stand-by that’s been used on college campuses for years, especially in September when the 18-year-old freshmen arrive and the first week of school is one long festival.

But in a digital age, credit card companies can send appealing offers of high credit lines (with astronomical interest rates and fees) right to the phone of those very young college students. (An annual Sallie Mae report on student credit card debt showed a 74% increase in 2008 — and an average 4.6 credit cards per undergraduate!) The new law will also prohibit under-21 students from getting a credit card at all if they’re not able to prove an independent means of income or provide the (legitimate) signature of a 21-or-older co-signer — a protection long overdue.

There are a number of additional provisions that apply to all of us, whatever our age. For those details, see this MSN Money column and this 8 benefits countdown from Bankrate.

“I Am What I Learn.” That’s the theme for the new video contest that the U.S. Department of Education is sponsoring — and there’s no written essay required.

Could you use an extra $1000 for college? Here’s your scholarship contest invitation from Arne Duncan, the U.S. Secretary of Education:

Courtesy of the Department of Education on YouTube

The contest is open to active college students, high school students, and middle school students (age 13 and up).

The video submission deadline is November 2, 2009.

Why is education important to your future?

That’s the question your video should answer. There are no restrictions on video style, and creativity is encouraged! Winners get a $1,000 cash prize to put towards education expenses.

How the Video Contest Works

  • Between November 2nd and 9th, a panel of judges (including Secretary Duncan) will review all the video submissions that arrived on time and choose 10 finalists.
  • From the 9th to the 24th, the finalists’ videos will be posted on the U.S. Department of Education’s official YouTube channel, where the public can vote on their favorites.
  • Finally, the top three finalists with the most votes will each win a $1,000 prize from the U.S. Department of Education. Winners will be announced the week of December 1.

Winning videos will be chosen based on creativity, originality, strength, and the ability to inspire.

Video Contest Rules

For your video to qualify for consideration:

  • You must be actively attending school
  • Your video must be two minutes or less in length
  • You must include the Department of Education’s website, www.ED.gov/IAmWhatILearn, in your video
  • You must have a YouTube account (see below)
  • The content of your video must be original (and can’t be rude or offensive)
  • Your video must convey both the importance of education and your personal academic goals

Where to Submit Your Video

You can submit your video right on the “I Am What I Learn” contest website. If you’re chosen as a finalist, you’ll be contacted through your YouTube account.

Read the Video Contest Fine Print!

Be sure to read the complete contest rules and FAQ on the www.ED.gov/IAmWhatILearn site.

The Department of Education is calling the $1,000 awarded to video contest winners a cash prize. And maybe it’s only a one-time contest and a one-time prize. But you won’t have to pay it back and it may help you pay that one last college bill this fall. Sounds like a scholarship to me!

Good luck!

In stop-the-presses! news today, a new study from the National Bureau of Economic Research confirmed that getting assistance with filling out the complicated FAFSA was a significant motivator to low- and moderate-income Americans considering going to college but a little daunted by the idea. The positive results of the study were interpreted as another strong case for simplifying the FAFSA for all aspiring college students.

Please pardon us if we sound smart-alecky, but… no kidding! At something like 30 online screens and more than 120 questions, the current FAFSA is an intimidating form to most people. In fact, it has almost 30 more questions about student and family finances than the federal income tax form has!

The latest Department of Education estimates suggest that between one and two million college students a year who would likely qualify for federal financial aid don’t apply for it, and the Institute for College Access & Success has pointed out that colleges spend well over $400 million a year just trying to verify information applicants do provide. Simplifying the FASA has been a financial aid reform recommended by just about everyone involved in higher education.

The creative and persuasive study released today featured an experiment in which H&R Block tax preparers helped a number of low- and moderate-income students fill out the FAFSA using their existing IRS information. The tax preparers tested software that automatically copied income and other financial information from a potential student’s tax return directly over to matching questions in the FAFSA, and helped the student wade through the tedious remaining questions. Once the FAFSA was complete, the software calculated an immediate estimate of how much federal financial aid the student was likely to get.

Together, the simplified, computerized process of auto-filling the required financial information and the immediate feedback about a likely financial aid amount dramatically increased students’ confidence in applying for federal student aid and enrolling in college.

Having been based on the theory that the time-consuming, confusing form is a barrier to many deserving students, the entire experiment was hailed as another strong case for simplifying the FAFSA: Computerize as much information as possible, simplify the language of the rest, and provide immediate feedback about financial aid eligibility.

The FAFSA is already undergoing changes for the 2010-2011 school year. The instant estimates of financial aid are in place, a wide variety of unnecessary questions are being eliminated, the form will automatically skip over whole sections based on yes/no answers to certain questions, and financial information may be brought over from tax returns.

IRS Commissioner Doug Shulman says, “When you’re online filling out the FAFSA, there’ll be a button that says, ‘Want to go get your IRS data?’”

It’s not necessarily true that college is for everyone. And it’s not always in a student’s best interest to go to college no matter what the cost or how huge the student loans.

But it also isn’t right that students who could go and would go and should go be held back solely by discouraging, brain-frying paperwork. Even the H&R Block folks agreed they helped build another strong case for simplifying the FAFSA.

Last Thursday, the U.S. House of Representatives approved a proposal to overhaul the federal student loan program. The proposal hasn’t provoked anything like the uproar over health insurance changes, but it’s had its fair share of fierce debate — and where there’s ideological debate, there’s often a loss of basic information.

Here are 5 things you may not know about the new student loan proposal:

1) Federal student loans only. The new changes to the student loan program will not apply to all student loans — only to student loans provided by the federal government. Those are: Stafford Loans (both subsidized and unsubsidized), Perkins Loans, PLUS loans for parents, and PLUS loans for graduate students. If the student loan proposal is approved in the U.S. Senate, then starting in July 2010, students who take out federal Stafford loans, Perkins loans, or PLUS loans will get them solely through the Direct Lending program. (The Federal Family Education Loan program, or FFELP, will stop operating.)

2) Application process won’t change. There won’t be any change to the way students apply for Stafford Loans, Perkins Loans, and PLUS loans. The application process will stay the same as it’s always been: filling out a FAFSA each year a loan is needed. The only difference students may notice is that the FAFSA will be simpler, with fewer questions and pages, and on the online form, the option to transfer financial information directly from the student or parent IRS income tax form.

3) Private banks can still offer private student loans. Free market competition is not being eliminated — private financial institutions and commercial student-loan lenders will still be able to offer all the private student loans they want. They just won’t be middlemen for federal student loans any more, or get the federal government subsidies that rewarded them for offering student loans with the low interest rates, low fees, more inclusive application rules, and greater protection that the federal government required.

4) A few private institutions will help out with Direct Lending customer service. After the FAFSA stage of the loan process, there will probably still be a few private student-loan companies involved in handling the loan agreement and maintenance on behalf of the Department of Education. These companies will be paid a fee for providing this customer service to students, and will be selected by the Department through a competitive bidding process.

5) Don’t worry about the FFELP student loans you have now. If you have any current FFELP Stafford, Perkins, or PLUS loans, just keep making your interest payments or loan repayments as you have been all along. If the new student loan proposal becomes official, the transfer of existing loans from the FFEL program to the Direct Lending program will be handled by the Department of Education and your school(s). If your school’s financial aid office needs you to do anything, it will let you know. (And if you’re about to apply for a federal student loan, check with your school to see if it has signed up for the Direct Lending program. Probably no point in getting a loan through the FFEL program now.)

As expected, the U.S. House passed legislation yesterday that takes a giant first step towards major federal student loan reform. The Student Aid and Fiscal Responsibility Act (”SAFRA”) includes ending the Federal Family Education Loan Program (FFELP), in which the government paid subsidies to private lenders to provide education loans to college students, and moves all federal student loans into the Education Department’s own Direct Lending program.

This shift (if SAFRA or something similar also gets passed in the U.S. Senate) would be the biggest federal student loan reform in more than 30 years. If you’re watching all the developments in the news, it sounds like a very big deal. And it is — to the FFELP private-sector lenders who have been profiting from federally-guaranteed student loans for many years. Except for maybe the opportunity to be a selected loan servicer, commercial lenders will be cut out of the federal student loan picture after July 2010.

But what would this student loan reform mean for you? Will it change the way you get federal student loans, or make them harder to get?

Actually, the system overhaul approved yesterday doesn’t change the federal student loan eligibility rules, application process, or repayment process as far as the college student borrower is concerned — it only changes the source of the money that gets loaned out. If you’re a college student in need of a student loan, you would still apply for federal loans — the best deal you’re going to get — by filing a Free Application for Federal Student Aid, or FAFSA, every January.

It will be up to your school and the U.S. Department of Education to be ready to efficiently process your January 2010 FAFSA through the Direct Lending program. Fortunately, if the SAFRA overhaul is made law, it will include providing you with a simplified FAFSA next January.

Read more about these changes would mean for you: SAFRA: What’s In It For You?

Why undertake such massive student loan reform at all?

SAFRA’s supporters, which include President Obama and education officials in his administration, believe that cutting out the middle-man (the commercial student-loan lenders) will save the government about $87 billion over 10 years. Education officials plan to put $40 billion of that savings directly into the Pell Grant program, boosting both the maximum amount of each Pell Grant and the number of grants available.

Other portions of the savings are targeted towards higher education programs designed to simplify the FAFSA, maintain low student loan interest rates, provide support for colleges that serve minorities, and increase college degree completion, Perkins Loan availability, and student loan forgiveness.

The case for closing down the FFEL Program and changing to all Direct Lending

Commercial student-loan companies, private-sector banks, and student loan trade organizations worked with sympathetic legislators to offer an alternative to the SAFRA, but as yesterday’s vote demonstrated, they were not successful. Their concerns about how much money SAFRA will actually save may not be unreasonable, but the FFEL Program has had more than a couple of strikes against it in recent years.

  • CBO Savings Estimates. The Congressional Budget Office estimated that the FFELP supporters’ counterproposal would save the federal government much less money than the SAFRA Direct Lending proposal. It could be that it’s a question of “Whose math is the right math?” but for now, the SAFRA advocates have come out ahead.
  • Student Loan Default Rates. In 2007, the rate at which students defaulted on FFELP student loans was actually higher than that of students who got loans through the Direct Lending program. This is a real blow to commercial banking institutions, who have often claimed that the premiere customer service private-sector lenders provide to students results in a lower FFELP default rate. The higher default rate is probably due to the increase in the number of students from for-profit schools getting FFELP loans, but it’s too late now.
  • Student Loan Scandal. In 2006-2007, an investigation into the student loan business uncovered extensive and dramatic corruption involving many large and small lenders from the FFEL program. The widespread conflict-of-interest violations and kick-backs between schools and financial institutions forced a federal crack-down on both the private and federal student loan industries.
  • Credit Market Collapse. Many Republican legislators and banking industry advocates characterize the elimination of the FFEL program as another example of “government takeover,” but the truth is, the federal government has been the primary funder of federal students loans for over a year anyway. When the credit market collapsed and financial institutions stopped making loans of any kind, students trying to line up money to go back to school panicked. The federal government stepped in and both took on the debt of existing FFEL student loans provided by lenders who fell apart, and increased federal funding in order to increase federal Stafford loans.

The 2009 student loan reform is not official yet. The U.S. Senate has to approve the plan, too, and the two houses of Congress often do a little negotiating to come up with a final plan that will make the majority and the president happy. Education legislators in the Senate are already at work on a plan that looks likely to pass.

Stay tuned to EducationGrant for further developments, and in the comments section, drop in your questions about what this student loan reform would mean for you.

Federal Student Loans: Program Changes Ahead?

Well, the federal student loan program’s big moment is at hand. On Thursday, September 17th, the U.S. House of Representatives will vote on a proposed major overhaul of the student loan system. If the new legislation is passed, it will shut down the bank-based Federal Family Education Loan Program (FFELP) and issue all future federal student loans from the alternative Direct Lending program, which is funded by the U.S. Treasury.

Schools that currently participate in the FFELP will have until July 1, 2010, to shift all their existing student loans over to the Direct Loan system.

The Obama Administration proposed the FFELP shutdown based on estimated cost savings that would come from not having to pay government subsidies to banks and commercial lending institutions in the student loan business. The plan is to funnel the saved money into the federal Pell Grant program.

Although getting 4,000-plus schools ready to handle billions of dollars of federal student loans through the Direct Lending program in a year’s time would obviously be a gigantic tactical undertaking, it offers the appeal of a greatly simplified federal student loan system, in addition to the boosted Pell.

If you’re wondering if you can get financial aid for an online learning program, you’ll be glad to know the process is no different from getting financial aid for a traditional college program.

iStock_000006140971XSM_money-laptopThese days, with well over 3 million students enrolled in online education, the same rules, recommendations, and procedures apply to financial aid eligibility whether you’re taking your classes online or on campus. Federal financial aid for both online learning and campus-based programs begin with accreditation and the FAFSA.

Legitimate Regional or National Accreditation Required

Under Title IV of the Higher Education Act of 1965, any higher education institution that wants to be able to provide federal financial aid to its students must be accredited by an authorized, legitimate accrediting agency. When schools with online degree programs began asking to participate in the federal financial aid program, the Department of Education decided to require the same accreditation standards of online learning programs that it already requires of traditional “bricks and mortar” schools.

So now, the focus is on the quality and accreditation of an online learning program, rather than its computer vs. campus classroom. Higher education experts have agreed that if the quality of a school and its online degree program(s) are high enough to earn the same legitimate accreditation as campus schools, they should be allowed to provide federal financial to their students.

5 Tips for Getting Financial Aid for an Online Learning Program

1. Look for legitimate accreditation. Confirm that your school and online degree program are accredited by an authorized accrediting agency. Check the Department of Education site for authorized accreditors and the Council of Higher Education for your school’s accreditor.

2. Choose a school in your state. Online or campus, college programs are usually much less expensive for state residents than for out-of-state students. Even if you’re choosing an online degree program to avoid the hassle of having to get to a campus, your online learning course will probably cost less if you enroll in a school in your state. You’ll have the convenience of an online learning program and you’ll save money on tuition.

3. Choose an online learning program offered by a traditional “bricks-and-mortar” school. A reputable school that’s been around a long time, with a traditional campus, is usually accredited by one of the 6 regional accrediting agencies, and regional accreditation pretty much guarantees federal financial aid. What’s more, after you complete your online learning degree, your school’s name and reputation will serve as “brand recognition” when you’re job-hunting. (The oldest and best-known national accreditor specifically of online schools and degree programs is the Distance Education and Training Council.)

4. Ask about extra fees, state grants, and school scholarships. When you’ve found an online learning program that you like, ask the school’s admissions office for an explanation of all the fees and expenses they’re going to charge you in addition to tuition. Schools consider some fees and expenses as extras even if they’re directly related to the class and seem as though they ought to be included in tuition. Also ask the admissions office where you can apply for state education grants and special school scholarships that you may qualify for.

5. File a FAFSA as soon as you can after January 1st for financial aid to cover online learning programs from July 1st of the same year through June 30th of the year after.

Online Learning vs. Campus Costs

Tuition for online degree programs is not necessarily cheaper than that of their on-campus counterparts, especially at well-known colleges and universities. But the convenience of your personal classroom at home could save you transportation money, and doing your classwork on your own schedule may prevent you from having to cut into your hours at work. And if your school is legitimately accredited, then you should be able to get in-state residency discounts and federal financial aid for your online learning program just as you could for any similar campus class.

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You may have already had to get your financial aid ducks in a row for this semester, but for those students who are still scrambling to find tuition money, or have maxed out their federal loans, consider this new trend in financial aid options: peer to peer lending.

student lendingPeer to peer lending is a type of loan that individuals seek from ordinary people looking to lend money, without the formalities of going through a bank, credit union, or other financial institution. But, this isn’t just free money for school offered up by people out of the goodness of their hearts; there is some structure to these transactions.

If you were looking to borrow money through peer to peer lending, you’d go about it via an “online marketplace” or through your own social network (friends, family, and business colleagues).

The online marketplace connects you with lenders through an auction-like process. You would benefit because, in this case, you would secure the lowest rate for the loan since the lenders compete with each other to “win” the ability to lend you the money. But, these lenders usually factor in your credit score & debt when they make their decision to offer you a certain rate. So, even if they are competing, your lowest rate may not be very low if you have significant debt, a low credit score, or limited income.

The social network method is where you approach your network of friends & family to ask for small student loans in the hopes that one or more of them will lend you a portion or the entire amount that you need. You’d be wise to use one of the sites below to do this because, while your request is personal and you know everyone you’re reaching out to, the sites formalize the process, including the repayment terms and other fine print that you might not be familiar with or you just might feel uncomfortable discussing.

The main peer-to-peer lending sites are:

Though the rates and terms are often much more favorable for lenders and borrowers, there are some drawbacks to this type of financial aid for students that are interested. David K. Randall at Forbes mentions one in particular:

Under current IRS rules, the interest paid on conventional student loans is deductible from income taxes, as long as the borrower had an adjusted gross income of less than $70,000 (or $145,000 for married couples filing jointly.) Peer to peer loans from friends or family generally won’t qualify as educational loans under the government’s definition, which bars loans between family members.

So, have you looked into peer-to-peer lending? Any recommendations or horror stories? Share in the comments!

Single Mom Scholarships

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Even with just a quick look at the news it’s easy to see that college classes are filling up with record numbers of students this fall, and single moms are among them. Both campus and online colleges from coast to coast are bursting with enrollment, despite an increased need for financial aid.

Fortunately, the large number of older, “non-traditional” college students is beginning to get more attention these days, and student aid providers are creating more financial aid opportunities tailored to students in special circumstances. Single mom scholarships fall into this category of financial aid.

Before applying for scholarships, however, be sure to thoroughly read our section on scholarships for moms scams. Unfortunately, the business of scholarships is peppered with a couple organizations who use deceit and false promises to take money from vulnerable or unsuspecting moms.

leisure activitySingle Mom Scholarships Start with Federal Education Grants

If you’re a single mom returning to school to pursue your first college degree or career certification, and you’re within a certain income range, you’ll almost certainly qualify for need-based federal education grants such as the Pell Grant. Grants, unlike student loans, do not need to be repaid, and they’re not age-restricted. The money you’ll qualify for will depend on what year you’re in in your program and how many dependents you’re supporting, along with meeting other basic eligibility requirements.

There are federal education grants for single mothers also. To apply for these grants, you must go to the federal Student Aid on the Web site and file a FAFSA:

  • Pell Grant
  • Federal Supplemental Education Opportunity Grant (FSEOG)
  • Academic Competitive Grant (ACG)
  • National SMART Grant
  • TEACH Grant

State Financial Aid Agencies Also Offer Single Mom Scholarships

Most, if not all, states also offer scholarships reserved for women and single parents. Different states have financial aid programs customized with their own eligibility requirements, grant amounts, and application procedures. Find your state higher education agency at this site and see what single mom scholarship programs they offer.

Keep in mind that single mom scholarships (and single dad scholarships) are going to be need-based. All scholarships of this type will ask for proof of financial need and may also ask for proof of your being the custodial parent. Many will require you to file a FAFSA (see above).

In many cases, state single mom scholarships will actually be offered through a college or university system in the state. In addition to contacting your state higher education agency, you should contact the financial aid office of the school you want to enroll in and ask if the school offers single mom scholarships or grants.

A few examples of state and school financial aid programs for single parents include:

Single Mom Scholarships from Private Foundations & Organizations

A wide range of philanthropic and corporate foundations provide scholarships for single parents. Like the state and school scholarships above, these programs may be getting ready to open their new application season. Check their websites to see when their 2010-2011 scholarship applications will be available:

Single Mom Scholarships are a Win-Win Investment

Officials from the federal level all the way down to your town council know that helping you get valuable higher education now is a way of “paying it forward”: If your college degree or career training helps you ensure financial stability and a better life for you and your family, everyone benefits – your community, our larger society, and you.

Still not sure how to get started with finding Financial Aid? Start here:

1) 4 Ideas for Single Moms Going Back to School offers a basic back-to-college plan.

2) How to Prepare for the FAFSA: 3 Pre-FAFSA Steps provides a basic introduction to the Federal Application for Pell Grants and other federal financial aid.

3) The EducationGrant Guide to Grants & Scholarships has tips and information on:

  • Understanding the difference between grants and scholarships
  • How to apply for Pell Grants and other federal financial aid
  • Searching for state and private grants and scholarships appropriate for you
  • Some characteristics of successful applications for state and private grants and scholarships
  • Websites and addresses for more than 80 scholarships, so you can contact them

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Internet Scammer Tells All: FTC Video

In July, 2009, the Federal Trade Commission launched a new effort to crack down on Internet scams of all types: government grant offers, get-rich-quick come-ons, home-based businesses for single moms, guaranteed debt relief, guaranteed foreclosure prevention:

Well, we here at EducationGrant could drone on about get-rich-quick schemes all day, but identifying grant scams is like playing Whack-A-Mole: for every scam that gets whacked, a new one pops up:

Instead, here’s a description of cybercrime right from the horse’s mouth. The subject is fake business opportunities, but it applies equally to education grant scams, mortgage scams, and debt relief scams:

Courtesy of the Federal Trade Commission

Have a safe schoolyear, everyone!

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