Student Loans : News, Updates and Blog Posts

We all know that college is undoubtedly expensive. It is one of the biggest financial investments a person makes in his or her lifetime. I’ve been out of college for a little over a year now and know that paying for college will be on my mind every month until my student loans are paid off sometime over the next ten years. Loans are great because they allow you to pay off your education over time after you graduate, but you do end up paying back more than you borrow due to the interest you pay.  The federal Perkins and Stafford loans, which I took out, have interest rates ranging from 5 to 6.8 percent. Scholarships on the other hand are essentially free money and there is so much free money out there just waiting to be snatched up for those willing to look.

In college, between classes, co-curricular activities, a social life and my beauty sleep, every minute of my day was accounted for. Scholarships were the absolute last thing on my mind. Nonetheless, my mom would occasionally send me a new scholarship that she had found online and encourage me to apply. I certainly do not blame her for trying since I was going to college partially on her dime, but I kept telling her that I was too busy and that I would worry about scholarships later.  I now realize that applying for scholarships doesn’t have to be complicated or time consuming as I had previously thought.

ScholarshipPoints.com, an Edvisors company, gives away over $100,000 dollars annually in scholarship money. By signing up, which takes less than a minute, and participating in different activities you can earn points. Each point you earn is worth one entry into the free scholarship of your choice. There are monthly $500 and $1,000 scholarship drawings and a quarterly $10,000 drawing. In addition other scholarship opportunities arise throughout the year for members.  The next $10,000 scholarship winner will be drawn on October 31, and it’s not too late to sign up, and this is just one opportunity.

There are literally thousands and thousands of scholarships out there. Some scholarships are so unique that few people even apply making them very noncompetitive. Do you excel in leadership and community service? There are scholarships for you! Are you left-handed? There are special scholarships for you! Do you play the bagpipes? Well, there are scholarships for you too! The point is the money is there, you just need to take the time to find the opportunities that are right for you.

StudentScholarshipSearch.com can help connect you with hundreds of great opportunities with 873 links worth a jaw dropping $9,761,962,903 in scholarships and awards.  If you are crunched for time you can parse through the Featured Scholarships section which funnels out large monetary awards and scholarships that are fast and easy to apply for. You can also search for local scholarships that are specific to your state or country of residence. These scholarships sometimes have a smaller pool of applicants so your chances of winning are a lot better.

If you devote just an hour a week to researching and applying for scholarships I think you’d be surprised just how many you qualify for. Today I look back on my college experience with only two regrets; I wish I had taken the time to apply for more scholarships and wish I’d discovered the pastabilities meal in the café during my freshman year, yum!  Had I taken that one hour a week to search for scholarships I might have come out of college with a much smaller loan obligation.  Though had I discovered the pastabilities plan during my first year in school my waistline may have been a bit thicker come graduation.  I guess I really only have one regret after all.

In all of the debate about changes to financial aid, lots of small stuff is getting overlooked, such as proposed changes to the Student Aid Report, the report that families and students get after successfully completing the FAFSA. The SAR in the past has been a hideously ugly, incredibly complex affair to attempt to decode. Happily, the Department of Education has been simplifying how the SAR looks and how it presents information to you. Here’s a preview of the new SAR compared to the old one.

Old

See how completely unclear your federal financial aid eligibility is? You’d be hard pressed to know what you’re eligible for. The number you’re actually looking for is in the upper right hand corner, the EFC.

New

This is much, much easier to read for everyone. In the second section, the federal student aid eligibility, we can see plain language detailing what your EFC is, plus what that means for scholarships, grants, and loans in the text.

This is a huge improvement and should help reduce some of the anxiety students and families feel about the financial aid process.

I just have to laugh when I hear people say that credit cards put you in debt. I believe what they are really trying to say is, I’m irresponsible and can’t control my spending ways. That would at least makes sense to me.

The fact is credit cards serve a real purpose if used wisely. They help establish credit and are great for emergency situations. Of course your definition of emergency may be different from mine. A clearance sale on shoes does not constitute an emergency.

But if you feel you can not exercise self restraint, than a credit card is definitely not for you. You’ll run up a high balance and destroy your credit history. And should this happen to you, and I certainly hope it will not, just remember it won’t be the plastic that put you in debt.

(Editors Note: Today we are running an abridged version of testimony that three major higher education associations have submitted to the U.S. House Judiciary Committee’s Subcommittee on Commercial and Administrative Law, which is holding a hearing this afternoon on the treatment of private student loans in bankruptcy. The three groups — the American Association of Collegiate Registrars and Admissions Officers (AACRAO), the American Association of State Colleges and Universities (AASCU), and the National Association for College Admission Counseling (NACAC) — argue for a reversal of a federal law that makes it exceedingly difficult for financially distressed borrowers to discharge private student loans in bankruptcy. At Higher Ed Watch, we have long argued that Congress should end this cruel policy, which treats private student loans (those without any government backing) much more harshly than nearly any other form of consumer debt, including credit cards.)

By AACRAO, AASCU, and NACAC

Bankruptcy law has restricted the ability of borrowers to discharge their federal student loans since the mid-1970s. For more than a decade, federal student loans have been non-dischargeable altogether, except for cases of undue hardship. While this exceptional treatment of federal student loans under bankruptcy law is harsh, federal student loans do provide basic consumer protections, their own specific discharge provisions, and flexible repayment options that serve as meaningful alternatives to bankruptcy discharge for borrowers. We therefore do not seek any change to the treatment of federal student loans in bankruptcy.

Our concerns focus on the treatment of private educational loans in bankruptcy. Beginning in the early 1990s, for reasons that were never articulated or debated, Congress began to extend the bankruptcy code’s exceptionally harsh treatment of federal loans to private educational loans. Until the 2005 bankruptcy reform act, this identical treatment was limited to private loans that were funded or guaranteed by states or nonprofits. This ill-advised expansion rendered a large number of non-federal loans non-dischargeable in bankruptcy, even if they had none of the important attributes that justified that treatment for federal loans.

In making this change, Congress appears to have assumed that states and non-profits would voluntarily configure their educational loan offerings in a manner that would eliminate the need for bankruptcy discharge for their borrowers. It should come as no surprise to any observer of the student lending industry that the exact opposite occurred. Nondischargeability of educational loans provided eligible lenders with a carte blanche to impose ever harsher conditions on borrowers. Many of these borrowers were unaware that unlike with federal loans, the promissory notes they were signing would obligate them to repay the loans even in cases of school fraud, school closure, or total and permanent disability.

The primary benefit to eligible issuers of these loans was that the bankruptcy code’s unorthodox treatment of their loans insulated them from the economic consequences of otherwise untenable lending practices. Predictably, these lenders were at the forefront of predatory educational lending practices, and began to provide high-dollar private-label loans to borrowers without much concern about their ability to repay the loans. Low-income students, particularly those attending expensive for-profit career schools, were targeted through collaborative marketing and origination relationships between schools and lenders, who in some cases jointly forecasted future default rates of more than 50 percent on the subprime loans that they aggressively promoted.

The comparative advantage that the “non-profit” issuers of such private-label loans enjoyed was quickly seized upon by other predatory providers, who sought a similar advantage for their products. In 2005, again without hearings or debate, Congress extended the exceptional bankruptcy treatment initially afforded only to federal loans to all educational loans. That unfortunate change, in turn, led to an explosion in subprime educational lending practices, which this ill-thought-through federal incentive unwittingly facilitated. Predatory lending targeting low-income and minority communities expanded, while an entire new line of “direct-to-consumer” programs targeted middle- and upper-middle-income families with easy, but punitively harsh educational credit offerings. The most salient feature of these programs is that their issuers were substantially shielded from the consequences of their high-risk products by the fact that borrowers could not discharge these predictably unaffordable loans even in bankruptcy, and that the promissory notes were really a modern indenture instrument.

In addition to its fundamentally negative consequences of promoting irresponsible lending practices, the vagueness and imprecision of the actual language of the 2005 amendment has created loopholes for additional fraudulent and abusive practices. For example, the statutory language fails to define the “educational loans” that it excludes from eligibility for ordinary bankruptcy discharge. This lack of precision allows virtually any credit transaction with families with students in school to be arguably nondischargeable. This same imprecision makes it impossible to track and analyze the scale and scope of the private-label educational loan market, since colleges may well be entirely unaware of credit that might be marketed to their students and their families. This same lack of institutional awareness makes it quite likely that families and students may be induced to borrow more than their actual unmet need.

Mr. Chairman, the subcommittee’s hearings today are a very important first step in documenting and addressing the problems associated with the highly unorthodox special treatment that Congress opted to extend to private educational loans. As stated above, the unconditional extension of non-dischargeability to private loans has created a perverse incentive for risky lending practices that victimize borrowers and reward the most irresponsible lenders at the expense of other creditors. This fundamental distortion of the bankruptcy code also rewards shoddy schools by enabling them to arrange for inappropriately large private-label loans for their students through collusion with subprime lenders. We find it particularly offensive that entities profiting from these predatory practices justify their special treatment in the bankruptcy code by claiming that non-dischargeability lowers the cost of all private educational loans. There is no evidence that the enactment of the 2005 changes lowered the cost of loans, and therefore, no reason to believe that its repeal would increase the cost.

Legitimate private educational loan programs are subject to underwriting criteria to ensure reasonable prospect of repayment. Bankruptcy, let alone dischargeability in bankruptcy, is not even remotely probable factors for such programs. As previously stated, we believe that non-dischargeability of loans has facilitated the marketing of subprime loans to more vulnerable populations, and that their unorthodox treatment has served as a powerful incentive to promote over-borrowing. We urge the subcommittee to examine a complete exclusion of private educational loans from the special bankruptcy treatment previously reserved only for federal loans.

Mr. Chairman, we thank you for your leadership on this important issue, and stand ready to work with you and your colleagues as you act on the findings of today’s hearing.

The American Association of Collegiate Registrars and Admissions Officers is a nonprofit, professional association of more than 10,000 higher education admissions and registration professionals who represent approximately 2,500 institutions in more than 30 countries. The American Association of State Colleges and Universities represents more than 400 state colleges, universities, and systems of higher education throughout the United States. The National Association for College Admission Counseling represents more than 11,000 college admissions officers, high-school guidance counselors, and financial-aid administrators. The groups’ views are there’s alone and do not necessarily reflect those of the New America Foundation.

By far the best part of my job is when I inform a deserving student that they’ve won a scholarship from scholarshippoints.com, which is giving away over $100,000 in scholarship money this year.  The reactions I’ve got through the years have been priceless. I’ve heard everything from, “Get the bleep out of here,” to “This must be a scam,” before hearing a dial tone.  I even had one grateful student begin sobbing uncontrollably before hyperventilating – I dueled as a 911 dispatch operator that day.

I champion any initiative that helps hard working students realize their dream of higher education, which is why I am such a huge supporter of the John and Abigail Adams Scholarship Program.

I just learned that my neighbor and friend Sam has become eligible for the Adams Scholarship program (pending full-time enrollment in a traditional academic semester following high school graduation and completion of her Free Application for Federal Student Aid), which is open to permanent Massachusetts residents.  A student must score in the advanced category in either the Mathematics or the English language arts section of the MCAS while holding a proficient or advanced standing in the second category.  Students who meet these requirement rank in the top 25% of their school district.

The scholarship is equal to the value of required tuition (not including fees) for all state-supported undergraduate courses.  The scholarship may be awarded for a maximum of four years or eight semesters of continued enrollment.  Students must also maintain a cumulative 3.0 GPA to retain eligibility.

I’m so proud of you Sam.  I just wish I was the one who got to deliver the good news.  You’ve got the world at your finger tips.  The moment of enlightenment is when a persons dreams of possibilities become images of probabilities.  All that’s left is for you to make it a reality.

Stepparents may not be obligated to aid you with your studies, but that doesn’t mean their financial details are not required.

I realize that probably doesn’t sound fair to you – that someone who doesn’t contribute a single dime toward your college education is calculated into the FAFSA, but it really does make sense. His or her income and assets represent significant information about families resources as a whole.

Perhaps this stepparent helps pay the mortgage, put food on the table, or pays the electric or gas bill.  These may sound like basic necessities, which they are, but it is all part of the cumulative family picture that the Department of Education is examining when considering all applicants for federal aid.

Lately I’ve been administering our FAFSA twitter account, and noticed that a LOT of people are talking about the FAFSA and musing aloud why it’s so hard. Here’s why: the FAFSA is designed to be complex and ask a ton of very detailed questions for one reason alone:

To discourage fraud.

See, the FAFSA is the gateway to a limited pool of money set aside by the government in order to help families pay for college. That pool includes scholarships, grants, and subsidized student loans like the Stafford loan. Because that pool of money is limited, everyone and their cousin wants to get a piece of it.

Now here’s the twist: as with any system, there are loopholes in the FAFSA. Originally, it was a much simpler, much less complex form. What happened? Wealthy families hired really good accountants and financial planners to figure out all of the loopholes in an hour or so and then restructure their finances so that their kids – who didn’t need the money – would appear dirt poor on paper and get free money from the government.

For example, there used to be a provision prior to 1992 on the FAFSA that said if you were self supporting for two years, you could claim independent status and qualify for a lot more financial aid. Well, no surprise, the paid financial consultants of the rich got their kids all set up as independents and leeched a lot of money out of the system that should have gone to legitimately needy families. That provision was revoked, making it harder for those accountants to do it again. This frustrates kids who are legitimately self supporting but are still classified as dependent students, and understandably so, but the alternative is to have much less money available for everyone.

This is why the FAFSA is as complex as it is today, and why we need to take FAFSA simplification efforts both seriously and cautiously, so that we don’t inadvertently make it easier for people who don’t need the money to get at it. The alternative is that we just crank up taxes on everyone really high and make education free, but 70% of every paycheck goes to the government.

If you’d like help making the FAFSA easier, check out our free FAFSA guide eBook. It’s written to walk you through each of the questions on the FAFSA and explain in plainer language what the question is really asking you. Be sure to also check out our free college scholarships program while you’re at it.

Tuesday Observation

I’ve heard from hundreds of malcontent students about the bailout packages the government has been handing out like beads at Mardi Gras this year. It’s not that they disagree with the plans necessarily, but rather, are asking where’s mine? I even blogged about the cash for clunkers plan last month and how those funds would be better served through the Pell grant program. But it appears some crafty scholars could wait no longer to see if the federal government would throw them a life line. They took the bull by the horns and made their own bailout plan.

Whether by keen instinct, dumb luck, or fantastic legal counsel students in financial peril have watched gleefully as their federal loans have been charged off. So how are they doing it? They are filing for bankruptcy. But that in itself is not the bailout of which I speak. The bailout is tied to the fact that these are currently enrolled students. What that means of course is that their debt is not due while they are in school, but bankruptcy courts have been rolling these good standing loans in with all of their other financial discharges.

So basically these students are getting a free education (or partly free) while their lender receives a bankruptcy claim on their non-defaulted student loan. Schools are not too happy about this because it goes against their cohort default rate, but students are skipping in the streets. In addition, because their loans never officially fell into a default status they remain eligible for more student loans in the future.

These students are clever little devils.

What qualifies me for a federal Pell Grant

• The first thing you need to do is complete your FAFSA. Your FAFSA is the key to any and all financial aid.
• Second, you must be enrolled in an undergraduate course of study, though there are some rare teaching certificate exceptions
• If you have received an associate degree, or any diploma below a baccalaureate, and you enroll in another undergraduate program you are still eligible.

What would make me ineligible for a federal Pell Grant

• If you already earned a baccalaureate
• If you are pursuing a professional degree such as pharmacy, dentistry, or veterinary medicine. Professional degrees are not considered undergraduate, and thus, are not eligible.
• Securing your bachelors degree from another country, unless the school provides written documentation stating that your degree is not equivalent to a U.S. bachelors degree.
• If you are currently incarcerated

Additional Notes

• Undergraduate studies are usually only four or five academic years. If the program is longer, like a six-year pharmacy program, then students are considered undergrads for only the first four years unless the school designates that the graduate program begins after the end of the third academic year.
• Grants and scholarships are always what you should strive for first as they do not require repayment. Join scholarshippoints.com for FREE for a chance at winning over a $100,000 worth of scholarship money for school.

In May, Education Secretary Arne Duncan alerted financial aid administrators that they should make students, parents, and families more aware of options for increased financial aid due to loss of job and income using the professional judgement override system. For consumers, asking for a professional judgement override on future earnings and income, along with proper documentation (tax returns denoting previous income, termination notice, and unemployment benefits paperwork) will allow families to ask for reconsideration of financial aid.

In recent professional judgements, additional help is being given by financial aid administrators by implementing guidance from the Department of Education that says unemployment benefits should also be discounted in financial aid appeals. This means that for families where unemployment benefits are the only source of sustenance income, financial aid will not be eating into your unemployment insurance.

If you’ve faced job losses recently, make sure you contact your school’s financial aid office to potentially appeal for more financial aid, and when you complete your 2010-2011 FAFSA, be sure you do NOT include unemployment benefits as additional income on your FAFSA.