Student Loan News, Updates and Blog Posts

What do you do with your tax return money, unexpected bonus, or $20 bucks Nana kicks you when you come to visit? Do you catch up on bills? Do you buy clothes? Do you go on an eating safari and hit all your favorite bakeries? My buddy Brian joked with me recently that he’d be getting back just barely enough from his government stimulus check to fill his gas tank once. I actually heard this week the national average may hit $4 per gallon by the summer, yikes! My southern friends have it right; saddle up and take your horse to work. I wish I could do that. In Boston that’s not a realistic option unfortunately. Although I suppose if I had to pick up after them like dog owners with a scoop and bag that would be an unpleasant “Jurassic like” experience.

What I do when I have a surplus of money is sock 60% of it away. I start a car payment fund, rainy day fund, or vacation fund. It’s amazing how fast that adds up. You can do the same thing with loose change too. It all adds up so quickly.

The other 40% I spend on me. I buy that golf shirt, take the Mrs. to dinner, or just buy an ice cream cone. Ah, life’s simple pleasures.

It’s really a balancing act of sorts. You’re living for today but planning for tomorrow. Spend too much money and you may end up on the streets if you lose your job. Spend too little and you’ll think you’re missing out while your friends get to have all the fun.

Once you find that healthy balance you’ll feel a lot better. Saving is nice, but you have to live too people. To quote Ferris Bueller, “Life move’s pretty fast. If you don’t stop and look around once and a while, you could miss it.”

The final auction of the Treasury Bill has taken place, and the new rates for variable student loans have been determined. Drum roll please…

3.60% – Stafford loans in grace (down from 6.62%)
4.21% – Stafford loans in repayment (down from 7.22%)
5.01% – Parent PLUS loans (down from 8.02%)

What does this mean? If you have federal Stafford or PLUS loans that were disbursed prior to July 1, 2006, your interest rate is going to drop. So if you were thinking about consolidating your student loans, I highly recommend that you wait until after July 1, 2008. You stand to save a lot of money…

Again, these rate decreases will only effect loans that were taken out prior to July 1, 2006. Any Stafford or PLUS loan taken out after July 1, 2006 has a fixed interest rate, and will not be affected.

Effective July 1, 2008…

Variable rate Stafford loan disbursed prior to July 1, 2006, that is IN GRACE (IG) = 3.6%

Variable rate Stafford loan disbursed prior to July 1, 2006, that is IN REPAYMENT (RP) = 4.21%

Variable rate Parent plus loan disbursed prior to July 1, 2006 = 5.01%

* note that any Stafford and PLUS loan that were taken out before July 1, 2006, and has never been consolidated, will have these new rates

* note that with consolidation, these rates are rounded to the nearest 1/8% which would make them:

3.625% Stafford in grace

4.25% Stafford in repayment

5.125% Parent Plus

Effective July 1, 2008…

Variable rate Stafford loan disbursed prior to July 1, 2006, that is IN GRACE (IG) = 3.6%

Variable rate Stafford loan disbursed prior to July 1, 2006, that is IN REPAYMENT (RP) = 4.21%

Variable rate Parent plus loan disbursed prior to July 1, 2006 = 5.01%

* note that any Stafford and PLUS loan that were taken out before July 1, 2006, and has never been consolidated, will have these new rates

* note that with consolidation, these rates are rounded to the nearest 1/8% which would make them:

3.625% Stafford in grace

4.25% Stafford in repayment

5.125% Parent Plus

For those who don’t know, if you have past drug convictions, for selling or possession while you were receiving Federal aid, then this can affect your aid eligibility. Your eligibility for Federal aid is revoked for a period of time (directly correlated to the type and number of convictions).

I did some research on this, and it appears that as long as you have completed an “acceptable drug rehab program”, you can still receive federal aid. There are no time constraints on this, either. You could be convicted of selling/possessing drugs, enter a rehab program, complete it, and still get federal financial aid right away

An acceptable drug rehabilitation program must include two random drug tests.

The program must also:

• Be qualified to receive funds from federal, state, or local governments

OR

• Be qualified to receive funds from a federal or state licensed insurance company

OR

• Be administered or recognized by a federal, state, or local government agency or court

OR

• Be administered or recognized by a federal or state licensed hospital, health clinic, or medical doctor

I also found that if this drug conviction (for selling or possessing) was 2 or more years ago, then a drug rehab program is NOT required, and you should still be able to get federal aid. If you have more than 1 drug conviction in the past 2 years, then your eligibility is suspended for longer.

If you have more than 1 drug conviction in the past 2 years, you have to wait longer in order to be eligible for Federal aid. (it appears that each drug conviction you have = 1 year of lost eligibility). If you have 3 or more drug convictions in the past, then you are ineligible for Federal aid indefinitely.

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For those who don’t know, if you have past drug convictions, for selling or possession while you were receiving Federal aid, then this can affect your aid eligibility. Your eligibility for Federal aid is revoked for a period of time (directly correlated to the type and number of convictions). I did some research on this, and it appears that as long as you have completed an “acceptable drug rehab program”, you can still receive federal aid. There are no time constraints on this…you could be convicted of selling/possessing drugs, enter a rehab program, complete it, and still get Federal aid right away. An acceptable drug rehab program consists of:

An acceptable drug rehabilitation program must include two random drug tests.

The program must also:

• Be qualified to receive funds from federal, state, or local governments

OR

• Be qualified to receive funds from a federal or state licensed insurance company

OR

• Be administered or recognized by a federal, state, or local government agency or court

OR

• Be administered or recognized by a federal or state licensed hospital, health clinic, or medical doctor

I also found that if this drug conviction (for selling or possessing) was 2 or more years ago, then a drug rehab program is NOT required, and you should still be able to get federal aid. If you have more than 1 drug conviction in the past 2 years, then your eligibility is suspended for longer. So basically, if you have more than 1 drug conviction in the past 2 years, you have to wait longer in order to be eligible for Federal aid. (it appears that each drug conviction you have = 1 year of lost eligibility). If you have 3 or more drug convictions in the past, then you are ineligible for Federal aid indefinitely.

Some more advice from the EASFAA conference – at least once in your college career, complete the EFC formula by hand to see what variables have the most impact on your financial aid. Some variables count more than others, and every situation is unique, so give it a try at least once and see how you fare. It may not be the most exciting way to spend a Sunday afternoon, but it could very well be one of the most financially rewarding.

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More interesting findings this week – Student loan borrowers that take advantage of borrower benefit discounts should pay close attention to their repayment schedule to avoid loosing their discounts. Because so many lenders are struggling to stay in business right now, many of them are shortening or removing the late payment grace period. For example, some lenders offer discounts for on-time payments, and previously allowed borrowers to be up to 14 days late before removing the discount. This window is either shrinking or getting completely closed – being only 1 day late in some cases could cause discounts to be removed.

So make sure you stay on top of monthly payments and give yourself a few extra days, or even a week to get a payment delivered. If you have automatic checking account withdrawal setup, be sure to spot check your payments periodically. If you plan on setting up auto payment, note that it usually takes 1-3 billing cycles to get setup, so make your normal payments via check or debit card (over the phone or online) until you can confirm that the auto pay is setup. Also, if you switch banks or checking accounts, make sure and remember to switch your student loan payment(s) as well.

A little extra care and attention could help you save thousands.

I had the opportunity over the past three days to attend the EASFAA conference, and one of the best sessions I sat in on was on Demystifying Federal Methodology. The presenter explained this vital fact:

The income tax paid line on the FAFSA is the one most often done wrong, and when done wrong, it costs students and families money.

Most people put down their withholding amounts on the FAFSA, not the actual income tax paid.

Depending on how you have federal tax withholding set up, this could cost you financial aid!

So we’re going to change our advice here – instead of recommending that you do your taxes before filing your FAFSA, we’re now going to suggest that you MUST file your taxes first, to ensure as correct a FAFSA (and subsequent EFC) as possible.

Consult a qualified tax professional or a financial planner/CPA to have your taxes done (or redone) – and if you have already filed your FAFSA, do the EFC formula by hand or use the FAFSA Forecaster to see if filing a correction makes sense.

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Starting with the 2008-2009 school year, the Federal Parent Plus Loan can now be deferred until 6 months after the child’s graduation. This is a big change, because typically Parent Plus loans were due immediately upon disbursement. This will help a lot of parents out who are trying to help their children to pay for College, but cannot afford the monthly payment while the student is in school. This also helps the parents who plan on having the child repay the loan when they are done.

Remember, that Parent Plus loans are the parent’s responsibility for the life of the loan. There is no way to switch the loan to the students name when the student is done (short of taking out a private loan to pay it off, which I don’t recommend).

Also, I am asked quite frequently if the Plus loan can be used to living expenses….if the student is living off campus. The answer to that is, IF the school agrees to it, then yes. They are the ones that certify the actual amount of the loan. Check with the school, and explain to them what you need the money for…this way the loan will be disbursed, and most of it will go towards tuition that is due, then the remainder would go to the parent or student to help with living expenses.

If you need a PLUS loan for this upcoming school year, and your child knows what College they are attending, apply for this loan NOW…every day lenders are dropping out of this loan program, due to an ever changing student loan industry…so its best to get your paperwork in now.