Student Loan News, Updates and Blog Posts

The good news: The Department of Education has recently announced that the Free Application for Federal Student Aid (FAFSA) is getting a facelift. The new FAFSA will be shorter and more intuitive than ever before.

Who will be affected by the changes? Any present or prospective college student who plans on applying for federal financial aid for the 2010 – 2011 school year will be affected by the FAFSA overhaul.

What are the changes? The goal of changing the FAFSA is to make it easier and less time consuming. The current FAFSA contains more than 100 questions. The new FAFSA will be organized more logically and contain fewer questions. It will eliminate some questions across the board and some sections for certain applicants. The online form will automatically adjust which questions to ask based on information that the applicant provides at the beginning of the process.

When are the changes taking place? The FAFSA changes are happening now and they will be seen on the 2010 – 2011 application when it comes out in January.

Why are changes being made? If you have ever filled out the FAFSA before you know that it is not something to look forward to. Filing the FAFSA can be extremely taxing for students and their parents. Changes are being made because authorities are confident that shortening the FAFSA will help families get the aid they need without adding a lot of stress to the process. Additionally, making it easier to apply for federal aid will increase the number of eligible students who submit applications.

How are they doing this? You might wonder how the government can afford to trim down such an important process. The key to the change is eliminating redundancy. Questions about tax data will be eliminated because that information is available through the Internal Revenue Service database. Also, questions that have little affect on aid award will be eliminated. Some students are concerned that if certain questions are eliminated they will not receive as much aid as they should, but according to Caesar Storlazzi, Yale’s Director of Student Financial Services, since FAFSA is only one part of the financial aid application process the changes should not impact the amounts of student financial aid awards.

File your FAFSA online now!

From Inside Higher Ed:

In part because of the FAFSA’s multiple pages and scores of questions seeking personal and financial information about students and their families, many policy experts believe, hundreds of thousands of potential recipients forgo many millions of dollars of federal college aid each year. the Education Department will, right now, make several changes that do not require Congressional approval. This summer, the department will take advantage of existing technology on the Web-based FAFSA to allow married or independent students to skip questions about their parents, among others. In January, the department will stop requiring students with low incomes to answer questions about their financial assets, and only returning students will be asked about prior drug convictions, since the question does not affect first-year students. Department officials said they would work closely with state officials to set up the electronic form to “make it easier to answer questions that the states need but the federal government does not.”

January will also mark the start of the department’s test of a system to allow students who apply for aid for the spring 2010 semester to retrieve relevant tax information from the Internal Revenue Service to help them complete the online FAFSA. “When you’re online filling out the FAFSA, there’ll be a button that says, ‘Want to go get your IRS data?’ ” said Shulman of the IRS.

Commentary

It’s good to see the first incremental steps towards making the FAFSA simpler. The IRS tax data import, if it works correctly, will be a giant timesaver for everyone involved, as those are the questions that students and families tend to get wrong.

A big part of next year’s FAFSA process, then, will be correctly filing your income taxes prior to filing your FAFSA in order to import your tax data. This might have the net effect of causing some folks to file later than usual, and for events like College Goal Sunday, push back the date a little so that families can get their taxes done.

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There are some changes that will occur for this upcoming 2009-2010 school year that will effect any student that receives some sort of Federal aid. These changes are due to the 2009 Economic Stimulus bill. Here is a breakdown of the changes and what it means for you and your financial aid:

Pell Grant increases:  The maximum annual amount for Pell Grants (free scholarships for lower-income students) increases from $4,731 to $5,350 in 2009. Congress is considering President Obama’s proposal to further boost the maximum to $5,500 next year.

Pell Grants needn’t be repaid and can be used for tuition, books and living expenses while enrolled at a participating institution. To apply, you’ll need to complete the Free Application for Federal Student Aid (FAFSA) form at www.fafsa.ed.gov. Note that the federal deadline for FAFSA submission for the 2009-2010 school year is June 30, 2009.

New tax credit: The Hope Scholarship, an educational tax credit that reduces a student’s or family’s tax liability, is being replaced in 2009 and 2010 by the more robust American Opportunity Tax Credit. Enhancements include:

* Maximum credit amount increases from $1,800 to $2,500.

* Tax credits can now be claimed for all four years of college, instead of only the first two.

* Those with an adjusted gross income (AGI) of less than $80,000 ($160,000 for joint tax filers) qualify for the full credit – a significant increase over previous years. The credit gradually phases out for AGI between $80,000 and $90,000 ($160,000 to $180,000 for joint filers).

* Unlike Hope Scholarships, this credit is partially refundable, which means lower-income families paying for college can receive a refund of up to 40 percent, even if they owe no federal income tax.

Federal Work Study Program expansion: About $200 million has been added to this program, which provides on-campus part-time jobs to students. Eligibility is determined by information provided in the FAFSA.

Financing computers: Tax-free withdrawals from 529 College Savings Plans are now allowed for computers, in addition to tuition, room and board, and books.

Federal Stafford loans: An additional $2000 in the unsubsidized loans will be available for dependent students. Also, the interest rate for subsidized loans will decrease from 6.0% to 5.6% after July 1, 2009.

So with all these additions to the Pell grant, Stafford loans, work study etc…it seems like a lot of people should be seeing more aid in their award letters for the 2009-2010 school year. If you receive more financial aid, what will that mean for you? How will it help you personally? Leave a comment, share with me, and happy Friday:)

**For Scholarship Points members enter the code STIMULUS2009 to collect your points!

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It is no surprise that the default rate on Federal student loans is the highest it has been since 1998. It can be kind of tough to make your monthly loan payments when you don’t have a job. With unemployment rising, so to is people’s inability to keep up with their student loan payments. The good news? You do have options if you can’t pay. To find out what your options are you first need to determine whether you have Federal loans or private loans or both.

If you are unsure what type of loans you have, be it Federal or private student loans, then you will need to do 2 things. First, you should check the national student loan database, which will pull up every Federal student loan you have ever borrowed. To access this database you will need your four digit FAFSA pin and your social security number. If you do not know your PIN number you will have to visit the Department of Education’s PIN site first. Once you have figured out what loans are federal, you may want to check your credit report to see if you have any private student loans. If you only got loans by filling out the FAFSA each year then most likely you do not have any private loans. To access a free credit report the best site is annual credit report.com. If you find that you have both federal and private loans, you need to deal with each type of loan separately. Federal loans are entirely separate from private loans, even if they are serviced by the same company.

So what are your options? For your Stafford loans, grad plus loans, and even parent plus loans, you have 2 main deferment choices: unemployment deferment and economic hardship deferment. You also have in school deferment options if you decide to go back to school. In order to apply for one of these options, you will need to either apply online at your loan servicer’s website, or you will need to download a form from their website and mail it in (you can get your loan servicer name directly from the nslds website). In school deferment forms typically need to be mailed in because they must be stamped by your school.

If you apply for a deferment and you are not approved, then you still have options. Forbearance is your next best bet, and you have up to three years of forbearance time with federal loans. Forbearance consists of putting your loan payments on hold. Interest will accrue on the loan and if you do not pay the interest during this period it will be capitalized no more than four times a year. This means that the interest accrued will be added to the principal balance and you will essentially be paying interest on interest. You can typically put your loans on forbearance simply by requesting one through your loan servicer. Remember that you have up to three years of forbearance time.

For private loans, deferment and forbearance options vary by each loan company, and typically provide less time than with federal loans.  You should contact your private loan company to see what your options are.

If you currently have a federal loan or loans in default, and you can’t afford the monthly payments that the debt collection agency is demanding, you should call the US Dept of Education’s default center at 1800-621-3115. They can buy your defaulted loan from the agency and work out a rehabilitation program with you. If you just ignore your defaulted loan then eventually the government will garnish your paycheck and take your tax returns and part of your social security benefits.

President Obama is pushing his budget proposal to overhaul the entire education system throughout the U.S. His plan would affect students of all ages with a goal of improving education levels all across the U.S. starting with preschool aged children. In a recent speech to the US Hispanic Chamber of Commerce, Obama began to divulge what exactly he has in mind for this giant overhaul. He spoke of a 5 tier reform plan that touches on what seems like every stage of the educational process. The President was quoted as saying, “We have let our grades slip, our schools crumble, our teacher quality fall short and other nations outpace us…The time for finger-pointing is over. The time for holding ourselves accountable is here.”

The 5 reform points that he spoke about are as follows:

1. Increase investments in early childhood programs such as Headstart etc.

2. Holding students accountable for higher/tougher testing standards

3. Increase teacher training and recruitment, and offer “merit pay” (teachers that produce more results will get paid more than others). Along with that, ineffective teachers would be let go if they fail to improve.

4. Renew his campaign for the support of charter schools. (definition of a charter school = Charter schools are elementary or secondary schools in the United States that receive public money but have been freed from some of the rules, regulations, and statutes that apply to other public schools in exchange for some type of accountability for producing certain results, which are set forth in each school’s charter). President Obama also proposed longer school days.

5. For Higher Education he wants to increase the annual Pell Grants maximum to $5550, and push for students from working families to receive a $2500 tax credit.

I can only imagine that the republicans must be reeling…especially about the money for Headstart. Also included in early investments was an idea to have registered nurses visit the homes of single moms regularly to make sure their children are healthy and ready for school life. Not a bad idea, but who will run this program? I will say that he has a point when it comes to holding students and teachers accountable for their performances. Have you ever had a bad teacher? I have, and it made me lose any interest I may have had in the subject at hand. Frankly our country collectively cannot really afford to have children caring less about school than some of them already do.

For those students that are fortunate enough to go on to college, Obama has some plans there as well. The Pell grant is a Federal grant given to students who exhibit more financial need than others; this “financial need” is determined when you fill out the FAFSA (Free Application for Federal Student Aid). Obama proposes to raise the annual maximum amounts on that grant from $4,731 for the 2008-2009 school year to $5350 for the 2009-2010 school year, and then increase it again to $5500 for the 2010-2011 school year. The unsubsidized loan amount for dependent students is currently $2,000, but Obama’s stimulus plan will add an additional $2000 to that, which will help a lot of students out whose parents cannot afford to help them through college. The President also proposes to eliminate the FFEL loan program (private lenders who lend Federal loans) and have all Federal loans run through Direct Loans (the U.S. Department of Education’s Loan program); but wait, there is more….the Perkins loan, which is another federal loan awarded based on need, is typically run through the college itself, but Obama is proposing to shift that loan program so it is run through the government. Now I have my loans from my undergraduate degree with Direct loans, and the customer service is definitely not top notch. I am wondering how the Department of Education is going to manage all the loans that are currently in the FFEL program AND all the Perkins loan and still make sure that those loan programs don’t fall at the waist side. I personally do not see it happening…and didn’t Clinton propose this at one point, but it failed?

A student tax credit is also part of this the Presidents budget proposal, which would put an extra $2500 in students’ pockets. This is definitely helpful to any student in school, and it can also serve as an incentive for someone to go back to school and finish their education.

This new budget proposal has a lot of big ideas, some of which already have the necessary platforms to execute the new plans. Others however do not. It seems like all the ideas would help to improve the education system in the US, but the road to get there might be a long and bumpy one.

Code: EDUCATIONOVERHAUL

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If you have ever filled out a FAFSA form then you know all about the parent section in the financial aid application. In my experience I have come across 3 types of Parents.  Type 1 is the proud parent. They are so happy that their child decided to go to college make something of him/herself. These parents want and are willing to help the child in any way they can. Type 1 parents usually have money:) Type 2  parents are fearful. They are happy their kid is going to school, but they are fearful at the same time because they don’t have the money saved up to help pay for school and they don’t want to acquire more debt than they already have. Type 3 parents are hands off. Their child is going to college, and they will not be helping financially, either because they cannot or they choose not to…I don’t come into contact with these folks too much, since it is usually the child calling or emailing for help.

It’s the type 3 parent that will be my focus. I find that these parents usually disagree with their child’s choice of major (art, music, theater) OR they just simply cannot afford to help their kid out. Obviously each type of parent I have experienced, does not represent all the parents out there, so PLEASE do not be offended by my generalizations. This is just what I have experienced from working in the financial aid industry.

So what can an eager-student-to-be do if they want to apply for financial aid, but their parents will not give them their financial information to actually fill out the form? In previous years, students were basically out of luck. Their school could try and help them get more funds elsewhere, but the  FAFSA was not an option  which means the student couldn’t even borrow a loan from the Federal government.

Provisions made to the 2009-2010 FAFSA changed all that. A school now has the authority to deem a child independent based on their special circumstances, which means you can still fill out the FAFSA without your parents information IF the school works with you to do that. I have yet to hear how in fact a school over rides this, so if anyone has dealt with this recently please share your experience. If you find yourself in this situation my advice is to go talk with someone directly at the school.

If you feel there is a chance you can convince your parents to give up their information…then keep in mind that all the aid you will receive (Stafford loans, Pell grants etc) are in your name only. Your parent has no responsibility for those, even though their financial information is needed for that FAFSA form. Reiterating this to your parents may help change their minds, because it is the fear of ownership/responsibility for those loans that deter most parents from giving up their financial information. Also, DO NOT PASS THIS UP….the 10k Scholarship drawing is March 31st and takes 30 seconds to sign up for it. Any college student or high school senior can enter. Enter the drawing here.

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I was speaking with a few friends earlier this week who had asked me some general questions about the economy. After answering one question in particular about taxes I thought it might make for a nice blog topic. After all, it is my aim to educate and inform.

First off, the economy is a complicated mechanism as we all know. When we’re struggling thru tough economic time’s politicians can not simply institute tax cuts to remedy the problem. True, tax cuts may be part of the solution but not the sole answer. So why will tax cuts alone not work? I mean, that would help jumpstart the economy, right? More money being spent by consumers on goods and services is a good thing. But the reality is those tax cuts have a counterproductive aspect to them as well.

Conventional wisdom tells us if you have less money to spend than your consumption will decrease. If taxes get cut than the government has less money to spend which means something must get sacrificed. But if you delve a little deeper into the root of what happens when tax cuts are made you will have a better grasp of the mechanics behind this negative relationship.

For example, say McCain or Obama cut taxes. That will mean consumers will have more disposable income in their pockets, which is great. And because of that extra money the consumer can then purchase more goods and services with those extra dollars. That will then lead to a positive shift in the aggregate demand. With consumption on the rise that will then lead to higher interest rates which will then serve as a detriment to businesses that want to invest, since the cost to borrowing money would be increased by those higher interest rates.

So by doing a good thing, cutting taxes to stimulate growth, demand for investment falls. It is such a tangled web we weave. It’s like trying to juggle 10 things at once and hoping you don’t drop one. Unfortunately we’ve been dropping more than we’ve been catching lately. Let’s hope the next circus that comes to town can keep things a float.

Source: FAFSA blog

As we approach the end of calendar year 2007, it’s a good idea to turn our eyes to the future and start thinking about our 2008 financial aid efforts. Here are 5 strategies to help you make the most of the waning days of 2007 with payoffs in the year to come.

1. See an expert. Most community banks and credit unions offer access to a certified financial planner for little or no charge, making them a great, hidden resource for figuring out your finances. Take the opportunity and an hour or two on a weeknight or weekend to see one and review your personal finances. Get a sense for where you are and how your finances are currently set up.

2. Start writing scholarship essays. Scholarship season really starts in earnest in January of each year, and the sooner you can get your applications in to a scholarship foundation, the sooner you can move onto the next application. Do your research for which scholarships would be appropriate to apply to, and download their applications. The most time consuming part of the scholarship search is the essay, so start writing now!

3. Do your budget. January is often thought of as the time to embark on resolutions, but now is the time to plan for those resolutions so you can hit the ground running after the champagne’s gone.

4. Set goals. Set measurable, achievable goals for yourself in 2008, like a scholarship application a weekend. Be sure to have a calendar set up so you don’t miss any deadlines.

5. Get ready to file your FAFSA. The FAFSA process kicks off on January 1, but having your IRS 1040 mostly done will speed up the process, as will doing the FAFSA worksheets. Run through our FAFSA tutorials here on FAFSAonline.com and make notes of where you have questions – then contact your financial aid officer or attend a College Goal Sunday event to get those questions answered!

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If there’s one number that drives more financial aid information, it’s the adjusted gross income on your IRS 1040 form. This number is the effective income you make per year, and since the FAFSA is the government’s way of determining financial need, your adjusted gross income greatly affects how much financial aid you are eligible for.

What are the components of adjusted gross income? AGI is computed by adding your total income to offsets.

Wages, salaries, tips, etc.
Interest and dividends earned on investments.
Taxable refunds, credits, or offsets of state and local income taxes
Alimony received
Business income or (loss)
IRA distributions
Pensions and annuities
Rental real estate, royalties, partnerships, S corporations, trusts, etc.
Unemployment compensation
Social security benefits

That’s your total income. Here’s a list of the offsets:

Retirement plans and savings
One-half of self-employment tax
Self-employed health insurance deduction
Penalty on early withdrawal of savings
Alimony paid
Moving expenses
Student loan interest deduction
Tuition and fees deduction
Educator expenses
Certain business expenses of reservists, performing artists, and fee-basis government officials
Health savings account deduction
Domestic production activities deduction

Offsets are where you can reduce your adjusted gross income the most, and therefore impact your financial aid eligibility. Right off the bat, if you can max out your contributions to eligible retirement plans like 401ks, IRAs, and other retirement vehicles, you’ll lower your AGI and improve your eligibility for aid – not to mention help save for the future.

We’ll add more tips for reducing your AGI in future blog posts, but start by saving for retirement!

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Small businesses that are majority owned and controlled by the family no longer have to be reported as an asset. The business must have fewer than 100 employees and the household members who are included on the application must own and control more than half of the business.

Assets held in the name of a dependent student or an independent student without dependents will be assessed at a maximum rate of 20 percent, down from 35 percent in years past.

The maximum assessment rate for independent students with dependents effectively drops to 3.29 percent from 5.64 percent.

Assets held in the parent’s name will continue to be assessed at a maximum rate of 5.6 percent.

Assets held in a dependent student’s name in a qualified account do not have to be reported on the 2007-08 FAFSA — at all.

Qualified accounts include Coverdell Education Savings Accounts, Section 529 prepaid tuition plans and Section 529 college savings plans.

This change was probably the result of a legislative drafting error, says Mark Kantrowitz, a financial aid expert. Congress wrote a law saying that qualified accounts in the name of a dependent student will no longer be considered student assets. But it never said they would be treated as parent assets instead.

Parents who think their dependent children might be eligible for financial aid can take advantage of this loophole by moving money from an UGMA/UTMA account into a 529 college savings plan in the student’s name before filling out the federal application. Then they won’t have to list the account on the 2007-08 application.

If Congress changes the law, families will still benefit from this switch because the account will be likely counted as parent assets and assessed at the parent rate (maximum 5.64 percent) instead of the student rate (maximum 20 percent).

In the past, prepaid tuition plans were not reported as an asset on the federal aid application. Instead, they were treated as a “resource,” which was even worse because they offset financial aid dollar for dollar, Kantrowitz says.

The new form asks if the student has been convicted of a drug offense while receiving federal student aid, a change from previous forms which asked in general. A yes answer can still result in no financial aid.

Higher income-protection allowances for students go up slightly this year — to $3,000 from $2,200 for dependent students. For independent students, the allowances go up by $1,050 or $1,700 depending on their marital status and whether they have children. This gives you the flexibility to earn more with summer jobs.

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