The Financial Aid Podcast has a special episode today – financial aid and distance learning options for active duty soldiers. If you or someone you know is currently on active duty, even deployed overseas, their education can continue.
There’s been much talk recently about some student loan companies withdrawing from the student loan marketplace, and whether students will be materially harmed by a smaller marketplace. The short answer? No.
Federal student loans such as the Stafford loan are unaffected by changes in credit insofar as the borrower is concerned. Stafford federal student loans have no credit requirements.
As for private student loans, there will almost certainly be changes in who is eligible for private student loans. Higher credit limits and cosigners required are the most likely outcomes, and in fairness, that’s not a bad thing. It is in no one’s best interests to issue a loan to someone who cannot repay it. The borrower loses, the bank loses, everyone loses, so if students and families with poor credit are turned down for a private loan, it will mean they need to energize their scholarship search efforts to make up shortfalls in financial aid.
If you haven’t done so already, be sure to file your FAFSA, too.
Will I be struck by lightning if I say the “R” word? Yes people, we are in a recession; a period of economic contraction. No question about it – these are difficult times for all of us. The name of the game during such trying times is survival. The economic landscape will turn around as it always has. History has a way of repeating itself.
The current Chairman of the U.S. Federal Reserve, Ben Bernanke, has certainly been doing his part, although some would argue he acted too late, to stimulate the economy by lowering interest rates, but it’s tough to get blood from a stone. In fact, things have been so tough recently that friend’s of mine have decided to save the gas money on a visit and just text me. Personally I feel my electric personality is well worth the $4 price of admission, but I can’t blame them for looking at the economics behind a visit south of Boston.
We will each be getting a small check from the government in May or June as part of the $152 billion Economic Stimulus package that President Bush signed into law last week. It’s small, but significant. The government wants you to spend it to help resuscitate a stale economy, but depending on your financial situation that may not be the wisest use of your dollar. Look out for number one.
Personally I’m going to take the money and run. This is an expensive world we live in with our devalued U.S. dollars. Every one of those George Washington’s is precious. The old mantra, “A dollar saved is a dollar earned,” no longer holds true. It’s more like two dollars saved is a dollar earned. We are all doing our best to stay a float with varying degrees of success. Only you know what is right for you in the end. So put that pen to the paper and draft up an expense sheet for yourself. The pen is mightier than the sword for a reason. Put it to good use.
Did you get your FAFSA results back by mail or email? Want to know how to interpret them and what steps to take next?
Tune into the February 19, 2008 episode of the Financial Aid Podcast to hear how to understand your FAFSA EFC results!
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If you’ve recently tried to consolidate your federal student loans, you may have found it difficult to locate a company willing to help. Some of the biggest lenders in the market are temporarily not offering federal loan consolidation. So what does that mean for you?
Before we discuss your options, lets first look at why so many lenders have stopped offering consolidation. Two different issues are causing the consolidation pause, legislation and credit markets.
Back on October 1, 2007, legislation was passed which contained provisions aimed to shrink the profit margin lenders were getting on federal consolidation loans. The smaller margin allowed for much less profit with zero room for lenders to offer discounts and borrower benefits. It’s important to understand, prior to the October 1st legislation, lenders were taking portions of their own profits and returning it to their borrowers in the form of rebates, interest rate discounts and cash back. Granted, the borrower benefits were a great marketing tool and attracted droves of borrowers to specific programs – but they still helped the borrower save money. Although these changes had a negative impact on many FFELP lenders, the legislation did contain great provisions that would lower interest rates on federal loans over the next several years.
Next we have the credit market crunch – an indirect result of the sub-prime collapse. In order for a lender to consolidate a borrowers federal student loans, that lender has to pay-off the borrowers previous lenders. This requires that the lender have capital available. Now, there are a number of different ways that a lender can do this, (which we won’t get into during this blog) the most common is securing a line of credit with a bank or outside funding source. The outside funding source provides the line of credit with the notion that the lender will be able to package up a bunch of federal consolidation loans and sell them to other investors (securitization). At which point the lender will replenish their line of credit, and be able to write more consolidation loans. For many lenders out there right now, they are not able to secure a funding source, and therefore not able to write consolidation loans. From an investment standpoint, there is a feeling that federal consolidation loans are no longer valuable. I said feeling, because I don’t believe this to be completely true or do I think it will stay this way for too long.
So, the smaller profit margins, coupled with the shaky credit markets have caused a ‘pause’ in the federal consolidation market. And yes, it is a bit more complicated than what I just described, but you get the basic idea of what’s going on.
Now, you need to consolidate your federal loans, but you have no place to go? The Department of Education is still helping borrowers consolidate their federal loans. However, I would wait until after July 1, 2008. For those of you who still have variable rate Stafford and PLUS loans (taken out prior to July 1, 2006), it looks like your interest rate MAY be going down. Not a definite – just a maybe.
Just to point out, the above changes and the federal consolidation pause have not and will not affect private student loan consolidation.
I will be posting more on this topic in the coming weeks – please send along all your questions and comments.
Check out these 6 FAFSA tips for graduate students financial aid for the 2008 – 2009 FAFSA form.
If you are a high school senior and are planning to go to college in the fall, the first step in the financial aid application process is the FAFSA. What is a FAFSA? It is the Free Application for Federal Student Aid. What is it for? You have to complete this government form to qualify for federal student aid, including Pell Grants, Stafford Loans and often college administered scholarships and grants.
For help and advice visit: FAFSAOnline.com
Students who don’t want to complete the FAFSA often go right to private student loans to help cover their expenses. These are often more expensive than federal loans but may be easier to get if you have good credit.
A question recently came up on the blog – if a student loan company goes out of business, do the loans need to be repaid?
The answer is an unequivocal yes. Except for a few rare circumstances (such as a loan being fraudulently issued) borrowers are always obligated to repay the loan.
More often than not, if a student loan lender goes out of business, the loans are sold as part of the company’s liquidation. They’re treated just like office furniture or any other tangible asset, and buyers will buy the loans (and the potted plants and desks). The borrower will receive notification that their Stafford loan has been sold or transferred to a new company, and that they must now make payments potentially to a new address.
That’s one of the many reasons why it’s important to stay in touch with your lender and keep them updated on your address and contact information – otherwise, you could potentially go into default on your federal student loans and not even know it.
Private student loan bankruptcy protection denied
In the Higher Education Act Reauthorization (HR 4137) currently moving through Congress, an amendment by Representative Davis of Illinois would have extended some bankruptcy protection to students holding private student loans. Unfortunately for students, the amendment was voted down after strong opposition from banks and financial institutions.
The argument against the bankruptcy protection amendment was that its inclusion would ultimately make private student loans more expensive as lenders would need to increase rates and fees to cover loans that were in default and discharged in bankruptcy.
The Financial Aid Podcast has also done an analysis piece on this legislation.
The short version? For now, private student loan consolidation remains the best avenue for making private student loans more affordable.
