Student Loan News, Updates and Blog Posts

The Higher Education Act allows a financial aid administrator (FAA) to make dependency overrides on a case-by-case basis for students with unusual circumstances. If the FAA determines that an override is appropriate, she or he must write a statement detailing the determination and must include the statement and supporting documentation in the student’s file. However, none of the conditions listed below, singly or in combination, qualify as unusual circumstances meriting a dependency override:

1. Parents refuse to contribute to the student’s education;
2. Parents are unwilling to provide information on the FAFSA or for verification;
3. Parents do not claim the student as a dependent for income tax purposes;
4. Student demonstrates total self-sufficiency.

I actually hear this question quite often, and in the interest of full disclosure I must admit that I didn’t know who my lender was when I took out my Stafford loan either.  Truthfully, you don’t really need to know unless their is a problem with the funds getting sent to your school.  But if repayment is now upon you it would certainly be beneficial to know who holds the note on your loan and ensure they have your updated address on file.  You don’t want to be delinquent with your first payment.

How to find out who your lender is…

1. Ask your Financial Aid Office. They have a record of who your lender or lenders were.

2. Contact the Department of Education.  You can either contact them at 800-433-3243 and request to speak with the borrower tracking department or visit the DOE online with your four digit FAFSA pin number.

A FFEL lender is prohibited from discriminating against an applicant on the basis of race, national origin, religion, sex, marital status, age, or disability. However, a lender may decline to make loans to students who do not meet the lender’s credit standards, to students at a particular school because of the school’s default rate, or to students enrolled in a particular program of study. A lender may also decline to make FFELs for less than a specified amount, for example, $500.

The good news is that there’s more than one FFEL lender available to disburse funds for students.  If one lender turns you down you should complete a MPN with a new one.  Check with your school for a list of lenders they work with.

Did you know that a student who is otherwise eligible for a subsidized Stafford loan and, after not more than two rejections, who has been unable to find an FFEL lender willing to make such a loan, should contact the guaranty agency in his state of residence or the guaranty agency in the state in which his school is located?

The guaranty agency either must designate an eligible lender to serve as a lender of last resort (LLR) or must itself serve in that capacity and must respond to the student within 60 days. An LLR cannot make a loan that exceeds the borrower’s need, and it is not required to make a loan for an amount less than $200. The LLR, as with any other lender, may refuse to make the loan if the borrower fails to meet the lender’s credit standards. Each guaranty agency is required to develop rules and procedures for its LLR program.

So if you are having difficulty finding a FFEL lender to work with now you know you can flash your lender of last resort card!

Did you know the Stafford loan has fees attached to it?  There are two different fees attached to Stafford loans, an origination fee and a default fee.  Now here is the good news – those fees are coming down.

The Stafford loan program instituted a three year program back in 2008 to dissolve the origination fee’s completely and bring down the default rate.  In 2008 the origination fee was 1%, in 2009 it went down to 0.5%, and beginning 7/1/10 it will be 0%.  That’s sweet for students! Now what about the default fee?

The default fee is also coming down from 2% and will land at 1% beginning 7/1/10.  By the way, the default fee is not an absolute charge.  Lenders / guarantors are permitted to waive the default fee as part of their incentive package. This is important to know if you are attending a FFELP school.  FFELP schools allow you to choose your lender.

There are two primary differences between the subsidized and unsubsidized Stafford loan, the interest rate and when the interest begins accruing on the loan.

First off, you can not choose which type of Stafford loan you want.  It is all based on need after you complete your FAFSA.  Some students end up taking out both kinds of Stafford loans, especially in graduate school when the tuition costs soar.

Right now if you were to qualify for a subsidized Stafford loan for undergraduate study your rate would be 5.6% for the 2009-2010 academic year.  The unsubsidized rate is 6.8% as is the graduate Stafford loan rate (both sub and unsub).

As for the interest rates, the federal government defers interest payments on subsidized Stafford loans, which are available to students based on low family income. Unsubsidized loans, on which interest begins accruing while the student is in college, are available to students regardless of income.

It turns out that doing good really does pay off.

When many college seniors graduate in May they will be facing a tough job market and student loan bills. Because of this, many soon-to-be college graduates are considering alternative post-graduate options. For students who decide to engage in post-graduate volunteer service there are a few student loan benefits.

The Peace Corps is the best example of this. Volunteers with the Peace Corps can apply for deferment of Stafford loans, Perkins loans and consolidation loans for up to 27 months.  Additionally, PeaceCorps volunteers qualify for a partial forgiveness of their Perkins loans (15% for each year of service).

AmeriCorps is another program with loan benefits. If you serve with AmeriCorps for 12 months you receive up $7,400 in stipends and $4,725 to be used towards student loans.

If you do decide to take advantage of one of these opportunities it is important to know that deferment and cancellation do not happen automatically. It is up to you to contact your lender and complete the paperwork needed in order to apply. The Peace Corps’ itself has very little to do with the deferment process. They basically only certify your dates and country of service. The Peace Corps does not grant or deny deferments of loans.

When used as a multi-year document, the Stafford loan MPN enables student borrowers to get additional loans without signing a new MPN.  However, there are still several circumstances that require a borrower to complete a new MPN.

A new MPN is required if the borrower’s FFEL lender changes, unless the change is a result of a merger or acquisition.  Below are some other instances that would require the borrower to complete a new Stafford loan MPN.

• the borrower transfers to a school that is not eligible to use, or chooses not to use, the multi-year feature of the MPN.

• the borrower transfers from an FFEL school to a Direct Loan school, and there’s no valid Direct Loan MPN on file with ED.  Similarly, a borrower needs a new MPN if transferring from a Direct Loan to an FFEL school, unless there is a valid MPN on file with the lender that the borrower uses. (New MPNs are also required if the school itself changes from using DL to FFEL or vice versa.)

• a school’s lender requests that a school no longer use the multi-year feature of the MPN.

Also, borrowers may request an annual MPN, or may request that no additional loans be made using their current multi-year MPN.  Requests that no additional loans are made using current multi-year MPNs must be in writing.  In some cases, a new MPN has to be executed because the maximum period for use of the MPN has expired.

If you are a parent of a prospective college student, or a prospective college student yourself, you should be starting to think about financial aid. You have probably heard people around you talking about FAFSA, Stafford loans, Pell Grants, scholarships, and alternative student loans. It might seem like you are the only one who does not know what is going on, but trust me you are not alone in your confusion. Applying for financial aid can be very stressful for families and filing the FAFSA is a task that most people dread.

In order to be eligible for any kind of Federal student loans or grants you must file the FAFSA. Many people play down the importance of the FAFSA, but it should not be taken lightly.  Mistakes on this form can end up costing you thousands of dollars in aid. Luckily there are people out there who know a lot about financial aid and might even be able to help you with the application process.

Many high schools and communities host financial aid and FAFSA workshops. These are usually free sessions run by the high school guidance department, a local college or outside consulting group. These workshops usually go over a general look at financial aid, applying for student aid, why you should file the FAFSA, determining financial need, and tips and techniques for filling out the FAFSA.

If you are perplexed by the financial aid process make sure you find out if your town is holding a workshop. If they are not planning one it may be beneficial to suggest it to the high school principal or guidance department. The U.S. department of education even provides resources and presentation materials that make hosting a financial aid night more manageable. After attending a financial aid or FAFSA session you will probably find out that you are not the only one who feels lost, but you will also probably feel more confident and ready to tackle the application process.

The day you can hoist your graduate degree overhead will be a proud day no doubt, but then the reality sets in.  How much did I borrow for this piece of paper exactly?

The truth is most students have no idea how much they borrowed.    Grants, federal loans, private loans, work-study, and scholarships fall under one giant umbrella to most.  Their philosophy is simple, why worry about it today when I can worry about it tomorrow?

Well, when tomorrow comes knocking it will serve you well to have a game plan.  Today we shall focus on federal loan deferment. Keep in mind that deferment is not a means to an end, but rather, a way to stay afloat if you are having trouble making your monthly loan payment.

There are two common deferment types that are utilized.  The first one is the Economic hardship deferment.  In order to qualify for this deferment type you must fall into one of the following categories:

• You are receiving payment under a federal or state public assistance program, such as Temporary Assistance for Needy Families (TANF), Supplemental Security Income (SSI), Food Stamps, or state general public assistance.
• You are serving as a Peace Corps volunteer.
• You are working full-time and your total monthly gross income from employment must be less than or equal to the larger of (A) the monthly minimum wage rate or (B) 150% of the Poverty Guideline amount for your family size and state.

The second deferment type is loan forbearance which anyone can basically receive.   The big distinction between the two deferment types is that while in forbearance interest accrues on the principal and any capitalized interest. Your debt will continually increase while in deferment making your repayment period longer.  When you are in an economic hardship deferment no interest accrues on your subsidized loan portion.

You have 36 months of federal loan deferment entitlement regardless of which deferment you take advantage of and must reapply every 12 months if you wish to continue in your deferment state.