Student Loan News, Updates and Blog Posts

Debt relief could be on the horizon for recent law school graduates. The American Bar Association has proposed extending debt relief to law school graduates who have not been able to find a job because of the recession. While most unemployed graduates can already defer their federal loans or qualify for income based repayment, the ABA’s proposition suggests letting graduates convert their private loans into federal loans so that they can receive the same benefits.

Many law school students graduate with $50,000 to $100,000 worth of debt. Most of this debt comes from a combination of federal and private loans. Private loans can rarely be deferred because of unemployment or economic hardship like federal loans can. The ABA is proposing allowing students to borrow additional money from the government to pay off their private loans. This would leave them with an additional federal loan that they could defer for up to three years or roll into their income based repayment plan.

This plan is in infancy stages and no one knows exactly how it would be accomplished. However, if passed it would definitely be a huge help to many law school graduates who might otherwise default on their private loans and hurt their credit forever.

When you receive your awards letter back from the school, which is the form that outlines your financial aid options, be sure to pay close attention to the loan types offered to you.

Hopefully you will be eligible for a Pell grant or some institutional aid to saw into that tuition cost, but after that you enter the world of loans.  Two of the most common federal loans you will find are the Perkins loan and the Stafford loan, but which should you take?

The quick answer is the Perkins loan, but that may change over the next couple of years.

Right now the Perkins loan holds a 5% interest rate, while subsidized Stafford loans are at 5.6%.  But for the 2010-2011 academic year the subsidized Stafford loan is dropping down to 4.5%.  So as of today I would say grab the Perkins if it is offered, but tomorrow take the subsidized Stafford loan, unless Perkins loans have a rate drop.  Check with your FAO for further details.

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 [...]

Academic probation may cost you your federal aid, or worse, your enrollment in that institution.

Satisfactory academic progress standards are set by the postsecondary school you are attending, which means no one size fits all solution exists. The formal academic probation process at Southern Cal may be entirely different from that of Florida State. Generally speaking, however, academic probation is when your overall GPA has fallen below a 2.0. You are then given a semester to raise your cumulative GPA to above 2.0 (the probationary period). If you are unable to do so you may be sanctioned to financial aid suspension or dismissal from the school.

If a student is dismissed they will need to enter another school, raise their academic standing, and then apply for reinstatement. As for your federal aid, you remain eligible for aid during your probationary period, however, if you fail to reach the 2.0 marker your next semester will be in jeopardy. It is also important to note that you must complete a certain percentage of your classes as well – usually greater than 75 percent. So enrolling in 5 classes and then dropping two won’t cut it. The classes attempted vs. completed ratio is important.

Be sure to check with your school for more details. Remember, if you are in need of funds for school there are always scholarship opportinties worth exploring. ScholoarshipPoints is giving away over $100,000 in scholarship money this year.

As most know you must complete your FAFSA in order to qualify for any federal loans, including the Stafford, but many are not aware you must also sign a Master Promissory Note (MPN) if wish to take out a Stafford loan (your FAFSA is merely the first step).

When you receive your awards letter from the school outlining the grants, scholarships, work-study program, and loans you are eligible for it is your responsibility to either accept the awards or complete your loan application(s). All the school does is inform you how much you are eligible for on the awards letter, but it is your responsibility to have those Stafford loan funds sent to the school. So how do you do that? Sign your MPN here.

Stafford loans offer forgiveness potential to many borrowers. Among those forgiveness conditions include becoming permanently disabled, if the school you were attending closed before you could complete your degree program, identity theft, as well as public service employees and teachers who meet certain criteria, but what about bankruptcy?

If the court makes a ruling that repayment would cause “undue hardship” than your Stafford loans can be forgiven. This is a rarity, but it does happen.

Did you realize your Stafford loan may hold one of several statuses? The most common status these days is deferment (after you get out of school). Many can not afford to pay their student loans at this time so they are deferring their loans for a period of time. Stafford loans come equipped with up to three years worth of deferment time.

Knowing your status is very important. If you change schools, for example, you want to make sure you maintain your “in school” deferment status otherwise it may shift to “grace” meaning your loan will come due within six months time.

Just be sure to monitor your loan status. It could save you a lot of headaches later.

Possible Statuses

“Republicans haven’t given up on the guaranteed-loan program, Rep. John Kline of Minnesota said today. They have just been preoccupied with health care and other pressing issues,” The Chronicle of Higher Education reports. “‘I remain hopeful we can keep some private capital in this and keep the private sector involved,’ the new top Republican on the House education committee told three higher-education reporters in an interview. ‘We’re not rolling over.’”

There are certain mandatory forbearances. Examples include borrowers who:

• are in a medical or dental internship or residency;
• have student loan payments that are 20 percent or more of their monthly income;
• have payments being made for them by the Department of Defense

Contact your lender or loan-servicing agent for more information on the mandatory forbearance benefit.

No, you are not permitted to use your Stafford loan funds to pay non school related bills.

The Stafford loan is to be applied toward your cost of tuition, which is why the funds get sent directly to your school.  You can not apply those funds toward your cell phone bill, car payment, etc.

I do, however, know someone who received funds from the school (through Stafford) and used them to purchase an iphone, but that is not the intended purpose.  That iphone will end up costing her almost double the cost over the next 10-years with interest.

I caution all to be responsible with your Stafford loans funds.  Some schools may not safe guard as well as others, but using your funds in an inappropriate manner will literally cost you dearly on the backend.