Tag: financial aid

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.

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Each year, the U.S. government provides more than $100 billion in federal financial aid to help students pay for higher education. “I’m Going,” the Federal Student Aid website, shares the stories of a few of these students. In one video, Delia describes how she got help with the financial aid application, then turned around and helped her single mom to go to college, too:

“My mom learned from me! She went back to school and got her GED. Then I helped her fill out the Free Application! In two years, she became a nurse.”

As of 2007, there were 10.4 million single moms living with children under age 18 in the U.S., and it’s probably a safe bet to say that many, if not most, are heroes to their children. Being a mom is not easy; being single mom is even tougher. You’ll find stories all over the Internet about both single and married parents who inspired their children to pursue dreams and goals never accessible to the parents themselves. Delia’s story is a treat.

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Tips for Affording Student Loans

Student Loan ApplicationStudent loan debt is back in the news again. Based on data from the 2009 National Postsecondary Student Aid Study, the Project on Student Debt has recently publicized these numbers:

  • For the past 4 years, approximately two-thirds of students graduating from four-year colleges have student loan debt upon graduation
  • Nationwide, the average debt for graduating seniors with student loans rose to $23,200 in 2008, an increase of about 6%/year between 2004 and 2008
  • At some colleges, average debt soared to as high as $106,000

The good news is that there are ways to minimize and control student loan debt and many personal finance experts who offer tips on how to do this. These tips for affording student loans are not new—just a little dusty from not having been used for a while.

Liz Pulliam Weston, a personal finance advisor at MSN Money, wrote a terrific article with tips for affording college and student loans:

How much college debt is too much?

Two years later, with the country in a deep recession, that question is even more important. In addition to a refresher course on understanding your personal finances and federal loans vs. private loans, Ms. Weston also provides recommendations for student loan limits based on the degree you plan to pursue.

If you’re starting to think about going back to school next year, now is a good time to familiarize yourself with tips for affording your student loans after you’ve graduated.

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New FAFSA: Latest Update

One enhancement of the new FAFSA that we’ve heard a lot about is the ability to electronically import your latest tax return data directly from the IRS website into your online FAFSA, replacing tax questions you would have had to fill in by hand. The electronic retrieval of IRS information is scheduled to begin in January 2010, but Stuart, an EducationGrant reader, pointed out that I was incorrect in some important details, and he was right. A little more research led me to information from the National Association of Student Financial Aid Administrators about how this new technology is going to work. For starters, it’s going to be rolled out in stages (which seems like a sensible plan).

At first, the new IRS information retrieval feature will only work for importing 2008 tax return data into a 2009-2010 online FAFSA, and the retrieval technology itself will not be available until late January 2010, rather than January 1st.

Once the IRS info retrieval function is fully tested and proves to work successfully, then importing 2009 tax return data into a 2010-2011 FAFSA may begin sometime in the summer of 2010.

The NASFAA stated that the IRS Data Retrieval process will be available to dependent and independent student who are 2009-2010 FAFSA-on-the-Web applicants, and the parents of dependent applicants, who meet all of these criteria:

  • You must be filing an initial or renewal 2009-2010 FAFSA (IRS Data Retrieval will not be available for corrections entry for 2009-2010)
  • You must have a PIN, which is required to access tax information on the IRS database, as well as to sign and submit the FAFSA online. (Any student or parent who does not have a PIN will get the opportunity to apply for a PIN and use it immediately to both transfer IRS data and submit the FAFSA, but to prevent glitches, it’s faster to get your PIN ahead of time.)
  • You must have a valid Social Security Number (SSN)
  • You must have filed a 2008 federal tax return
  • Your marital status has not changed since December 31, 2008

Other changes to the FAFSA, such as a streamlined form, the ability to skip questions that don’t apply to you, and instant estimates of Pell Grant eligibility, should be available even in the 2009-2010 FAFSA in January.

Here’s a quick look at the current (2009-2010) and new (2010-2011) online FAFSA forms, from the U.S. Department of Education’s Federal Student Aid Annual Report (FY 2009):
2010-2011 fafsa sm3

Stay tuned to EducationGrant for more updates on the new FAFSA over the next several months, and in the meantime, thanks to Stuart for the IRS retrieval clarification.

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Kristi, an EducationGrant reader, wrote in with an excellent question: what’s the secret to getting more financial aid when your personal finances get hit by the recession? More specifically: since the FAFSA bases your ability to pay for college on the previous year’s tax return — the one before you lost your job and your income — how can it help you get the amount of financial aid you actually need?

FAFSA OnlineWell, it’s true, the FAFSA seems a little screwy in the way it calculates your ability to contribute to your college education from your prior year’s tax return rather than on your current financial circumstances. Believe it or not, there is a reason for this, but unfortunately, it only holds true in a stable, prosperous economy. When students try to make the most out of their job loss by returning to school, however, their need for any financial aid at all is probably because they don’t have an income any more. In 2009, many students are in this boat.

The secret to getting a more realistic amount of financial aid

Is there a way to overcome your FAFSA’s inaccuracy? How do you tell schools that you don’t really have the income that your earlier tax return says you do?

Karen Stabiner, author of The College Insider column at The Huffington Post, says:

“So here’s a secret right up front, from a long-time financial aid officer: The letter of special circumstance. When you’re done with bubble grids, write a letter that says whatever you think a college needs to know: That the money you have is earmarked for seven dependent relatives, that the money you don’t have is due to altruism and not misguided greed, that you’re willing to sell your second car but you’re too young to cash in the IRA without a penalty.

“It is your one opportunity to be a human being and not a set of numbers. If you need money, don’t be shy. Write the letter.”

What’s a letter of special circumstance?

Another name for the “letter of special circumstance” is “letter of appeal.” By either name, it’s an opportunity for you to explain to the school(s) you’re applying to how your personal finances have changed since the tax return information reflected on your FAFSA, and the reasons you need more financial aid than your FAFSA indicates.

A financial aid appeal is a letter of special circumstance plus a little more, including:

  • Call the school financial aid office first to see if there’s an appeal form they require in addition to your letter of special circumstance.
  • You’ll need to provide proof of your current circumstances— a copy of an unemployment benefits stub, for example.
  • Be as thorough and detailed as you can about any sources of income you have and all the expenditures in your budget, such as a mortgage, rent, and car payments.
  • If you’re a custodial parent or a parent paying child support, say so.
  • Share the education goal you hope to achieve and why you think their school’s program can help you meet it.
  • If additional financial aid will make or break your ability to enroll, say that, too (but be careful to sound grateful for their consideration, not demanding!).

Where do you send your letter of special circumstance?

You don’t send your letter of special circumstance in with your FAFSA. You send it to the school you’re applying to because it’s your school’s financial aid office that will handle your request for more aid. Your school may have its own grants for students who experience a change in circumstances, or it will work with the Department of Education to get you more federal financial aid. Your financial aid office may recommend that you take out a subsidized or unsubsidized federal Stafford loan if there is no more grant money available.

Filing a FAFSA is still Step One

With regard to the FAFSA, Ms. Stabiner recommends: “Get your finances in order as though the IRS deadline were January 15 instead of April, because you can download the FAFSA forms at 12:01 a.m. on January first — and in this economy, there’s something to be said for the sooner the better.”

If the education program you want to enroll in begins between now and June 30th, 2010 (spring 2010 semester and early summer), you’ll use the 2009-2010 FAFSA, which is available now. If the program you want to enroll in begins AFTER June 30th, 2010, you’ll need to use the 2010-2011 FAFSA, which will not be available until January 1, 2010. Either way, plan to file online, which is much faster.

One thing to look forward to with the 2010-2011 FAFSA: no more filling in all your tax return information yourself. With the click of a button, you’ll be able to transfer it over electronically from the IRS. The 2010-2011 FAFSA, of course, will use your 2009 tax return, which may be a more accurate reflection of your current circumstances.

But for the years when your FAFSA doesn’t tell the whole story, there’s the secret to getting the financial aid you really need: a letter of special circumstance that supplies the latest chapters.

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Black Mortarboard and dollarIf you saw the news about the University of California raising its tuition by 32%, you’re probably sympathizing with the UC students protesting loudly on campus. And who can blame them? The huge increase averages out to about $2500 more per student, and to anyone in a low-paying job or, worse, unemployed, another $2500 might as well be $25,000 as far as coming up with it is concerned.

But even considering all the students affected by tuition increases across the country, it’s not as easy as you’d think to figure out the real problem in paying for college these days.

Ian Ayres, a lawyer and economist who writes for the Freakonomics blog at the New York Times, suggested this today:

Why California’s Tuition Hike Might Be a Good Thing

He makes some interesting points and provides a different angle on the college cost problem and solution.

What do you think is the real problem in paying for college? Is the cost of your college education a bargain, just right, or too high? If you were successful in paying for college with no or minimal debt, how did you do it?

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iStock_000005608156XSM_momgirlEducationGrant often hears from single moms who are looking for ideas about going back to school and the financial aid that can help them accomplish this goal. It’s inspiring to see how many single moms are determined to get the higher education they need to create a better quality of life for their families!

Single moms have many factors to balance when it comes to going back to school: scheduling, child care, transportation, time management, college tuition and fees, money for schoolbooks, and keeping children fed, clean, and rested while mothers work, study, or both. (Not sure how they do it all!) It won’t come as a surprise to any single mother that money, or the lack of it, is the biggest worry that most single moms deal with every day. So going back to school can feel like a Catch-22. To earn more money and make your family financially stable, it helps to have a quality college degree. But to get the college degree, you need money.

Even still, finding financial aid isn’t always the first necessity in ideas for single moms going back to school. Another important goal, especially in this bleak economy, is to NOT end up with a lifelong mountain of student loan debt after you’ve graduated.

Are you determined to get your college degree? Here are some ideas on how to get started:

1) Choose a realistic education goal. Are you going back to school so you can qualify for a particular job or change your career? What’s the average pay for the new career? (How about the pay for an entry-level worker?!) Will this industry still need workers once you’ve graduated?

2) Comparison-shop for the best accredited school and program for your needs. When considering schools, keep these factors in mind:

  • Where is the school? Can you get to its campus easily by public transportation if you don’t have a car? How long is your commute?
  • How much time on campus will the program require? Will you be able to get child care to cover the time you want to devote to your classes and schoolwork? (Besides federal financial aid, look for grants and scholarships that provide funding for child care and other living expenses.)
  • Would an accredited online program work better for you?
  • Is there an admissions representative at the school that can tell you about the program and what it will require from you?
  • How much does the program cost? What fees are there in addition to tuition?
  • Is there a financial aid officer who can walk you through the financial aid process? Does the school have education grants for single moms? (If not, maybe consider a different school.)

3) Fill out the Free Application for Federal Student Aid (FAFSA).

  • This application opens the door to all federal financial aid, such as Pell Grants and low-cost student loans, as well as single mom education grants from individual schools and states.
  • Federal and state financial aid can be used for any accredited higher education program registered with the U.S. Department of Education as a “Title IV” school. These include community colleges, state universities, and online programs in addition to traditional 4-year schools.
  • You don’t need to be accepted or enrolled in a school before you submit your FAFSA. All you have to do is list the school(s) you’ve applied to. You’ll get a report back that tells you how much money you’ll be expected to contribute to your degree costs, and the school(s) will use that number to determine how much financial aid they can offer you. If you qualify for a Pell Grant, you’ll get one automatically.

4) Consider choosing the school that will allow you to graduate with the least amount of debt.

Single mothers do it all, and both the news and personal family histories are filled with countless stories of single moms whose children remember and honor them as role models and heroes. A college degree may be your ticket to the quality of life you want your children to have, but only if it doesn’t leave you worse off financially than you were before.

For more college planning details, see the earlier blog-post, How to Prepare for the FAFSA: 3 Pre-FAFSA Steps. You can also find more information about the FAFSA, scholarships for single moms, scholarships for women, adult learning scholarships, and low-cost student loans in earlier blog posts and the grants, loans, and scholarship pages in this site.

And if you have other tips and ideas for single moms going back to school, please share them here in the comments. The very best advisors for single moms are… other single moms!

Check out Grants for Single Mothers too!

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4 Financial Aid Myths

Here’s an excellent quick overview of financial aid from yesterday’s Tampa Bay Informer (”The Good News Newspaper”). Written by María Corral, “College and Financial Aid: Myths and Facts” distills the longwinded complexity of college funding down to 4 financial aid myths and myth-busters. Once these facts are clear, the details are easier to grasp.

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iStock_000001299498XSmallBetween the start of the school year and Veterans Day, there’s been a lot in the news about improving college education benefits for our veterans and their families. The Post-9/11 GI Bill was launched in August, but it’s gotten off to a rocky start in spite of welcome new features such as the transferability of benefits. The database problems will get fixed, but both funding delays and program loopholes have left veterans in the lurch.

On Veterans Day, four veterans enrolled in online college education programs wrote eloquently in The Huffington Post about their frustration and disappointment with a misguided housing policy in the new GI Bill. Click on the title to read this excellent article:

Let’s hope legislation filed recently by Congressfolks Gabrielle Giffords of Arizona and Bob Filner of California will close loopholes and make college education benefits more consistent across all the GI Bills. (Download a summary of most recent legislation here.)

The Boston Globe today profiled an organization that can help when the GI Bill program is not enough. The Massachusetts Soldiers Legacy Fund raises money through private donations to provide college education benefits to the children of veterans who have died in Iraq and Afghanistan. How the MSLF got started and what it has been able to accomplish is a moving story.

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How to Check Your FAFSA Loan Status

NSLDS2The National Student Loan Data System (NSLDS) is the U.S. Department of Education’s online mega-database of federal financial aid accounts. This database keeps track of all federal student grants and loans (Title IV financial aid) awarded to students through the FAFSA program, including FFELP and Direct Lending student loans.

The information about all these student loans comes from the institutions that loaned or manage the money awarded to borrowers via the FAFSA, including banks, financial institutions, loan guaranty agencies, individual schools, and the U.S. Department of Education (Direct Loans).

The National Student Loan Data System provides you with a convenient way to check on the status of your FAFSA loan yourself, without having to go to a physical location or wait in line or on hold to speak to a bank teller or customer service rep. By logging in to the National Student Loan online database, you can see what your loan status is 24/7 and find information such as:

  • the FAFSA grant and loan amounts you were awarded
  • how much money was paid out to you or your school, and when
  • what your FAFSA loan’s outstanding balance is
  • whether you are up-to-date or falling behind on any required interest payments or loan repayments

You’ll need a FAFSA PIN (Personal Identification Number) to check your FAFSA loan status at the National Student Loan Data System site. If you filed your FAFSA online, you already have a PIN. If you mailed in a paper FAFSA, you’ll need to get a PIN before you can check your account status.

You can find more information about getting a FAFSA PIN and checking your FAFSA loan status on the Frequently Asked Questions (FAQ) page of the federal Student Aid website.

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