Student Loan News, Updates and Blog Posts

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.

Wednesday Rant!

If I was a student graduating in 2009 with Stafford loan debt the news of the decreased interest rates, which just broke last week and will go into effect this July 1, would anger me to know end.

I liken these rate decreases to a carrot dangling in front of a typical witless rabbit. You and I both know he will never catch his prize but yet he hops, hops, hops desperately in hopes of snatching it. Sure, the Stafford loan rates which dropped to 2% and 2.5% respectively look mouth watering, but most of you won’t get the chance to sink your teeth into them.

Stafford loan rates have been fixed since July 1, 2006, and at much higher levels than today’s current market. In fact, we already know what the rates will be through the 2012-13 academic year, and these fixed interest rates have many up in arms.

It wasn’t all that long ago when all Stafford loan rates were determined by the 91-day T-bill and pegged at certain margins above the three-month treasury yield in late May, which is how the historically low 2% and 2.5% rates were arrived at last week. Today, only the loans which were dispersed prior to July 1, 2006 are effected by the T-bill and subject to the change (they are variable rates). Today’s graduates may have had one or two loans at most from that desirable time frame with the majority of loans being disbursed afterwards.

So when you pick up that paper, visit a website, or see a newsflash on TV about Stafford loan rates dropping to historic lows just know it probably won’t effect you, and if it does it will be in a very small way. It sure would be nice if the rabbit could catch the carrot once in a while.

Five most recent Stafford loan help blog posts:

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Six months after you graduate you’re hit with your first Stafford loan bill. A bill which serves as a cruel reminder of the past four years of your relatively carefree life, and indoctrinates you into adulthood with responsibilities aplenty.

For my friend Melody her $47,000 student loan bill hit her like a cold shower on a warm Sunday morning. She literally started hyper ventilated when she saw her minimum monthly payment.

She received her degree from prestigious Northeastern last year and is now a part-time teacher. She’s a substitute with no consistent schedule or consistent source of income. She just hopes to get a call each morning to come in. Just woeful. My heart bleeds for her. Of course that’s not her only bill either. She also has the following…

• Rent
• Car Payment / Insurance / Gas
• Credit card
• Utility
• Cable
• Cell phone
• Groceries
• Medical insurance (she’s gets a pretty decent deal on medical because she is under 26)
• Entertainment and recreation (dinner, movies, music, etc)

Basically I’m writing this blog as a heads-up to all you future grads. If you can live at home on the cheap for a while, do it. You can elminate many of the bills you see above. Melody is really struggling big time right now. In fact, I had her fill out a free debt consultation form recently.

School is the gateway to a bright tomorrow, but just make sure you have enough light shining through on you today.

Many students ask me if the rate they have on their Stafford loan(s) is any good. To answer that question I must have a basis point of course. What I do is look at the historical trends over the past seventeen years (seen below).

I thought it might be helpful to share this information with all of you, so you could see where your rates rank. The rates have ranged from 3.37% to 8.25% through the years.

Five most recent Stafford loan help blog posts:

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Many students have seen their federal student loans fall into a default status in recent months, and as a result are having their tax return money withheld and applied toward the outstanding balance. The only way to avoid your tax return dollars being withheld year after year is to get your loans rehabilitated.

Rehabilitation is simply the process of bringing a loan out of default and removing the default notation on your credit report. To rehabilitate your Stafford loans you must make at least 9 consecutive payments of an agreed amount within 20 days of their monthly due dates over a 10 month period to the U.S. Department of Education.

To rehabilitate your Perkins loan, you must make 12, on-time, monthly payments.

Five most recent Stafford loan help blog posts:

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An unsubsidized loan is a loan for which the borrower is fully responsible for paying the interest regardless of the loan status. Interest on unsubsidized loans accrues from the date of the disbursement and continues throughout the life of the loan.

For example, if your unsubsidized loan is disbursed during your first semester of school in September of ‘09 it will begin accruing interest each month thereafter, but you will not be required to begin repayment of said loan until you fall below a half time or greater status in school. If you are in school 4 years a $5,000 loan can easily turn into a $6,500 loan by the time you get out pending your interest rate.

Answer: Bad .

Since October 1, 1992 when the Stafford loan was first introduced there have been 17 academic periods with accompanying interest rates. During the mid 90’s rates hit an all-time high at 8.5% before falling as low as 3.37% for the 2004-2005 school year. Today interest rates stand at 6% fixed for subsidized Stafford loans and 6.8% for unsubsidized and graduate Stafford loans. But rates weren’t always fixed.

Prior to July 1, 2006 interest rates were variable and subject to change each year based on the 91-day T-bill, which is influenced by the Fed Funds Rate. Since ‘06 when the rates were moved over to a fixed platform the economy has been spiraling downward, which has been hurting everyone, including students.

In past years when rates were variable students could ride out the high interest rates when the economy was thriving and wait for them to fall before consolidating and fixing them, but not now. Now your fixed interest rate is locked in for the life of the loan.

To show you the interest rate disparity between the current 6-6.8% level versus those who are holding on to pre-7/1/06 variable rates consider the example below. If a student took out a Stafford loan during the 2004-2005 school year and never consolidated that loan their variable interest rate would have changed as follows from year to year.

As you can see the rate dropped 3 percentage points over the last year due to the poor market conditions. There is also a strong likelihood that 4.21 percent will come down even further this year. So while students who obtained a Stafford loan on or after July 1, 2006 are stuck with a 6 or 6.8 interest rate those with a variable rate are enjoying our economic swoons. Well, enjoying may not be the best verb choice, but they are certainly benefiting.

Five most recent Stafford loan help blog posts:

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The maximum tax deduction for interest paid on student loans each year is $2,500.

This benefit applies to all loans used to pay for postsecondary education school expenses. If you’re unsure how much interest you’ve paid on your loans you can contact your lender for further details, although they generally send out a 1098 tax form highlighting those details for you.

In order to qualify for this benefit your adjusted gross income must be less than $70,000 ($145,000 if filing jointly).

So you’re getting ready to consolidate and are wondering what your interest rate will be. That’s certainly a fair question. I mean, when you go out to dinner you don’t pay for your meal before you eat it. You make sure you get what you ordered, that is tastes good, and that the temperature is to your liking. Then, at the end of the meal, you take out your credit card and sign on the dotted line. Why should things be any different in the consolidation world? Don’t sign and then ask questions later. Get the answers you need up front.

Here is an interesting federal consolidation fact. Ten students who graduate from the same university this May could very well have ten different interest rates. But how can this happen?

Unlike in other financial circles federal consolidation interest rates are not tied to one thing in particular, like the Fed Funds Rate. To arrive at your fixed interest rate the consolidation company simply takes the weighted average of all your loans. They look at the interest rate and the amount of each loan, then round up to the nearest eighth percent.

Nowadays undergraduate students are coming out with rates ranging from 3.61% to 6.8%, and end up consolidating for about 5-6%. A lot of grad students carry grad plus loans at 8.5%, which elevates their fixed amount.

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If you’ve been hearing conflicting reports on what the Stafford loan interest rate is, that’s because there is not just one universal Stafford loan rate out there.

There are essentially four different Stafford loan rates that you will see in 2009. Let’s clarify the Stafford picture for you.

Currently enrolled students have the following interest rates……

Students whose loans are disbursed after July 1, 2009 will enjoy the rates below.

As you can see Unsubsidized Stafford loans and Graduate Stafford loans will maintain their 6.8% interest rate. The one and only change is tied to the Subsidized Undergraduate Stafford loan, which will be falling to 5.6%.

Additional note: As these loans are fixed at the point of dispersement you will not have the luxury of getting a lower interest rate on your current loan(s).

For example, if you have a subsidized loan which you obtained for this spring semester you have a 6% interest rate attached to it. If you take out a another subsidized loan for the fall that loan will be at 5.6%. Your current 6% loan will not decrease because it is fixed. So over four years you could conceivably have four different interest rates attached to four loans susidized Stafford loans.

Five most recent Stafford loan help blog posts:

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