Student Loans : News, Updates and Blog Posts

One question we often receive is how much a student can take out per year in federal Stafford loans. I’ve gone ahead and compiled all that information for you here.

Note that these figures are the totals, including subsidized and unsubsidized Stafford loans. They must also obey the lifetime limit for federal loans:

• Dependent Undergraduate: $31,000
• Independent Undergraduate: $57,500
• Graduate/Professional: $138,500
• Medical: $224,000

Borrowing Limits

Dependent Undergraduate

• $5,500 – First-year Students
• $6,500 – Second to third-year students
• $7,500 – Third-year or later students

Independent Undergraduate

• $9,500 – First-year Students
• $10,500 – Second to third-year students
• $12,500 – Third-year or later students

Graduate / Professional Students

• $20,500 / year

If you have any questions about these numbers, head over to our Financial Aid Forum, and make a post. We are really good about answering questions within a day or so.

When it comes to private student loans, one tense topic among students and parents is, “how are you going to pay for it?” Between often needing a cosigner and qualifying for a relatively high interest rate, there are a lot of considerations that go into choosing a private student loan that are not necessarily present in the lending offerings of federal programs like Direct Loan and FFEL.

That being said, many private lenders have systems, incentives, and educational materials on hand to make their loans as attractive as possible. These can include benefits like graduation rewards, conditional interest rate reductions, and deferments based on special circumstances.

Graduation Rewards

An example of a graduation reward would be knocking a fixed percentage off your loan after completion of your degree. Here is a short list of what some of the more popular private lenders are doing today for graduation rewards:

• Discover Student Loans – 2% interest rate reduction
• SunTrust – $300 balance reduction
• Sallie Mae – Cosigner release

As you can see, each has their own little incentive for choosing their company over the competition. If you’re interested in reading up on more of these differences, check out our private loan comparison tool.

Rate Reductions

Interest rate reductions are another great way to save money. Many lenders offer these for becoming part of special programs or consistently making on-time payments.

For instance, the Federal Direct Loan program is currently offering an interest rate reduction for borrowers that join the auto-debit program for making monthly payments. In addition, it is not unheard of for lenders to offer a small rate reduction for participating in paperless billing systems. If you have a pre-existing loan(s), check with your lender to see if there are any opportunities available for interest rate reductions.

Consolidation

The topic of private student loan consolidation is tricky in the arena of saving money, because you realistically are not saving anything. When you consolidate one or more loans, you are essentially remortgaging them; it combines them into one bill, repackages them under a new interest rate, and extends the repayment terms. The end result is a lower monthly payment, but the long term effect is more interest being paid to the bank.

So now I ask you, what tips and tricks have worked to save you money during repayment?

The consolidation section of our Financial Aid forum is consistently littered with questions about how to consolidate certain types of loans. One useful, but tricky loan type is the Parent PLUS.

Parent PLUS loans are federal-based loans taken out by a parent on behalf of a child. These loans are taken out by the parent in his or her name, and can not be transferred to the student’s name upon graduation. The payments on these loans start right away and are not deferred if the child is still in school.

Scenario 1: Say a child is going to school for four years. The parent decides to borrow four PLUS loans, one for each school year. The loan payments will not being until the freshman year spring semester, when the loan is fully disbursed. The following year, the parent repeats this process, and spring of their child’s sophomore year they want to consolidate the 2 loans together. So to apply for a loan consolidation for the two loans, you may apply for consolidation with a company of your choosing.

Scenario 2: Let’s say there are two children in college at the same time. If a parent takes out one PLUS loan for each of his children in school, he MAY consolidate them when the loan is fully disbursed. It must also be noted that the SAME parent must have filed both loans. Mom can’t file for PLUS loans one year, and have Dad consolidate them the next year.

Scenario 3: If the child or parent attached to the loan suffers an untimely death, the loan is forgiven.

What other questions do you have about Parent PLUS loans?

Attention all graduate students: if you have not already filed your FAFSA for the upcoming school year, start it ASAP! No matter if you are starting a brand new degree program, or working toward finishing an existing one, your FAFSA is the first thing most schools look at when deciding your financial aid.

The deadlines for most schools are here now, and every day you wait to complete the form, the greater the chance that need-based aid from your school could shrink. It’s vital to keep in mind that many financial aid departments will not even starting putting your award package together until they receive their report from the government based on your FAFSA. This obviously doesn’t apply to merit-based scholarships (like the ones you can earn for having a good GPA or being part of a special honor society), but anything else will likely need your FAFSA information.

If you need any help filling out the form, check out our Financial Aid Forum and post a question. Between our dedicated group of knowledgeable users and experts, we usually are able to answer most questions within a day of posting.

The Pell Grant is an excellent award set up for financially needy students to help afford the cost of college. It is maintained by the federal government, and acts differently than other financial aid offerings.

How does a Pell Grant work?

Pell Grants are based entirely off of the information presented on a student’s Free Application for Federal Student Aid or FAFSA form. They are meant for low-income students, and do not need to be repaid unless the student drops out of their degree program. One additional criteria to qualify for a Pell Grant is that the student must be pursuing his or her first bachelors degree. This means that if you are going back to school for another bachelors or are taking classes casually, you will not qualify for a Pell Grant.

In addition, your school must participate in the Direct Loan or FFEL programs for you to qualify for a Pell Grant. Check with your school’s financial aid department to see if they are approved to receive Pell Grants for their students.

Pell Grant Awards

For the 2010-11 academic year (Fall 2010 to Spring 2011), the maximum you can receive through a Pell Grant award is set at $5,350. As I said before, your individual award is largely based on the information presented in your FAFSA, but also on the total cost of attendance reported by your school. To receive the most you can from the program, you ideally want to show low family income and high cost of attendance at your chosen college.

Because of these very strict requirements, the Pell Grant is typically only seen in the aid reports of very financially-needy students. If you are an independent, low-income student, the chances of receiving one of these awards is much better than if you were reporting the income of family members on your FAFSA as well.

This can be tricky for most students, as you are forced to include your parents’ income on your FAFSA until you are 24 years old. However, if you live apart from your family, don’t have a relationship with them, and support yourself, you can legally emancipate yourself to greatly boost how much need-based financial aid you receive (assuming you are low-income, yourself.) I personally would not recommend this, but if you are in a dire enough situation that you desperately need the financial aid, a legal emancipation will strip away your parents’ ability to report you on their taxes, and therefore lower your income for the purposes of filing your FAFSA and receiving more need-based aid.

How does the song go? “Summertime…and the livin’s easy?”

That’s all well and good, but if you’re unsure of your federal loan status for the summer months, your “livin’” won’t be so easy in the springtime.

One question we get a lot in our financial aid forums concerns Stafford loans and the summer. And really there are two possible answers.

The first is that your Stafford loan covers the “academic year.” In some cases that can include the summer. Your school may elect to use that specifically for the fall and spring and leave it to you to pay the difference in the summer.

The second possibility is that taking summer courses will actually borrow from next year’s financial aid package. So for example, if you receive $10,000 per academic year from the government, and you use $2,500 of it for summer courses, you will have $7,500 for the next fall and spring semester.

In both cases, you should contact your school’s financial aid office for more information.

Did you know that the interest you pay on your Stafford loan may be tax deductible? It is one of the perks of an education loan. You can claim this deduction if you meet the following conditions:

1. You paid interest on a qualified student loan in the last tax year (2009 for anyone filing now). A qualified student loan is a loan you took out solely to pay qualified higher education expenses.
2. Your filing status is not married filing separately
3. Your modified adjusted gross income is less than $70,000 ($145,000 if filing jointly)
4. You and your spouse, if filing jointly, cannot be claimed as dependents on someone else’s return

The interest you pay on the Stafford loan money that you borrowed is tax deductible up to $2,500 per year. This can be a huge deduction that you should definitely take advantage of if you qualify!

Nine times out of ten, you should consolidate your student loans. Student loan consolidation can give you a smaller monthly payment and, perhaps, a lower interest rate. What’s not to like? But for that potential tenth time, you should consider other avenues.

Here are three instances where you should NOT consolidate your student loans:

1. If you are close to paying off your student loans. If you believe you can reasonably pay off your federal and private student loans in just a couple of years, you are probably better off not consolidating. In that instance, consolidation will simply spread out your payments and make you pay more in interest over time.

2. If you are unfamiliar with your lender and its reputation. Check with your financial aid office for a list of lenders that can be trusted. You may also peruse the debt consolidation options here.

3. If your loans contain forgiveness options or discharge benefits. Some federal loans contain borrower benefits, such as forgiveness options. Perkins loans, for example, may forgive debt for full-time nurses or law enforcement officers. Attempting to qualify for those benefits after consolidation may be tricky.

ScholarshipPoints Bonus Code:  CONSOLIDATEYN

I was reading a post today in our forum about some of the more shady practices of student loan lenders, and it occurred to me that while we have a lot of blogs talking about how to get one, and why they are useful, repayment topics tend to be far and few between.

That being said, I’d like to give you a tip today to keep in the back of your mind (or use immediately, if you’re in repayment) to help smooth over paying back your loans.

Principal > Interest

If you are unfamiliar with the loan jargon, principal is the original loan amount you took out, before interest started adding up. So if you took out a $10,000 loan your freshman year, and when it goes into repayment the total bill is $13,000, $10,000 of that bill is principal and $3,000 is interest. You always want to pay principal down as quickly as possible, because the interest is calculated based on how much principal is left. Think of it like a credit card balance; the quicker you lower the balance of charges, the less interest builds on the account and the quicker you are able to pay it off.

If you ever are in a position to make an overpayment on your loan without spreading your finances too thin, absolutely do it! However, make sure that your lenders all know you want overpayments applied to principal. The reason why this is important is most, if not all, lenders have it in their fine print that if you pay over the monthly payment, they are allowed to distribute the rest to their benefit. That means if your monthly bill is $350 and you pay $500, they can decide to pay off interest with it instead of principal. Get in contact with your account manager to put a permanent note on your loan to apply all overpayments directly to your principal balance.

If you’re interested in taking out a private student loan that could hopefully bridge the gap between your federal loans, scholarships and your total cost of education, chances are you have some questions. The first of which is almost certainly, “which private student loan is the right one for me?”

To answer that question, it is best to know  what your current financial aid situation is. There are a bevy of offerings out there, and no two are alike. Use this handy checklist to get an idea which loan fits your lifestyle and financial situation.

• Can you afford to start paying back the loan now, or do you want to wait until after you graduate? Some private student loans offer less fees or no fees if you start paying early.
  
• What kind of interest rate will I get? Unfortunately, you can’t determine your exact interest rate until you apply. But one way to get a good idea is to check your credit report.  Do you have a number of late payments or overdrawn accounts? If so, you likely will get a higher interest rate.
• Can you afford to pay an origination fee?
• Do you plan to consolidate? Hint: Yes, you probably should.
• Will you use a cosigner? Using a cosigner can help you get a better interest rate down the line.
  

Click here for a complete private student loan comparison.

Apply for a private student loan here.