Welcome to the next fiscal year, and along with it come some great changes for borrowers.

• The maximum Pell Grant amount  increases to $5,350 for the 2009-10 school year, a 13% increase from last year.
• The fees to originate a new loan fall by half of a percentage point. Next year, it will fall by that much again. The changes will free more money for those students to use for tuition.
• “IBR” plans come into effect – income based repayment.  Borrowers may be eligible to reduce their monthly payments based on their income.   Also, teachers or those working in other forms of public service can reduce their payments based on their public service salary.

Education Secretary Arne Duncan is expected to unveil a new, simpler FAFSA form at today’s daily White House press briefing.  This is great news for frustrated parents and students everywhere.

We don’t have too many details yet beyond the following:

• Online form will shrink from 30 screens to 10
• Obscure questions that target a tiny fraction of students have been dropped, such as the question about “special combat pay”
• Questions re-phrased to sound less encyclopedic.  CNN cites the following example:
  “At any time… did your high school or school district homeless liaison determine that you were an unaccompanied youth who was homeless?” will now be, “Are you homeless?”

Click here to read CNN’s article.  I’ll update as more news arrives.

I hear a lot of horror stories from people who can’t pay back their loans, but for most people college is a really good investment.  Lest you still not be sure, take a look at ehse figures from the Wall Street Journal:

“The unemployment rate for workers over 25 years old who haven’t gone beyond high school rose to 10% in May, nearly doubling from 5.2% a year earlier, the government said Friday. Among workers who haven’t completed high school, the unemployment rate rose to 15.5%, compared with 8.4% last year.

By contrast, the jobless rate among those with four-year college degrees was 4.8%, up considerably from 2.3% a year ago, but well below the rate for people with less education.”

Hi all,

Sorry for disappearing so much this month.  A bad bought of bronchitis led to a cracked rib, so I’ve had a lot of doctor-enforced downtime recently.

But I’m back in action, ready to bring you the student loan info and news you want to know.  Stay tuned for more stories, news items and artilces to help you wend your way through the minefield that is financial aid.

In 2008 the rules of the game changed for the better for parents.

Prior to last summer, repayment on a Parent Plus loan began thirty days from the fully disbursed date, which was usually during the second semester. Meanwhile students were enjoying the benefit of an in school deferment on their federal Stafford loan for as long as they were in school half time or greater. This double standard was addressed and now Parents enjoy a similar deferral benefit.

Provided the student is enrolled half time or greater (usually 6 credits) as defined by the school, parents also enjoy the in school deferral benefit; though it’s worth noting that interest will still accrue during that time frame. But what happens when a dependent student (under 24) turns independent in the schools eye? Will the deferral period be terminated? The answer is NO.

Regardless of the students status, independent or dependent, the loan is still deferred whilst they are in school half time or greater. What the independent status does change, however, is the amount of Stafford loan funds which can be borrowed. It also disallows a parent to take out a Parent Plus loan on the student’s behalf.

While this won’t help parents as it doesn’t apply to PLUS Loans, this will help your students. Starting July 1, 2009 a new Income-Based-Repayment (IBR) plan will be offered to students for Stafford, GradPLUS and Consolidation loans that are not used to pay back Parent PLUS Loans.

According to the Team FFELP IBR Workgroup, “A borrower must have a partial financial hardship to qualify for an income-based repayment plan. A borrower who at one time had a partial financial hardship, but ceases to have a partial financial hardship may remain in the IBR plan.”

Partial Financial Hardship is calculated with the equation:
Standard Payment > 15%[AGI – (150% Poverty line applicable to family size)]

This means, partial financial hardship occurs when the standard repayment plan based on a 10-year repayment period at the time the borrower initially starts repayment is greater than 15 percent of the difference between the borrower’s adjusted gross income and 150% of the poverty line for the borrower’s family size.

Family size is defined as members of your household, such as spouse, children, grandparents who live in your residence with you and receive more than half their support from you. So a parent with Alzheimer’s that you take care of would count, but a roommate would not. It does include unborn children that will be born over the next year.

To qualify, you will need to authorize your loan company to receive the current year and past 3 years worth of tax returns from the IRS using IRS Form4506-T.  Contact your lender to learn more!

Parent Plus loans are taken out on behalf of the student by the parent, meaning it is in the parents name. The student is also listed on the application, but that is for enrollment purposes. It is the parents FICO score they run to see if they qualify, and thus, it is the parents responsibility to see to it that the loan gets repaid.

A common misnomer that many students and parents share is when a student gets out of school they can consolidate all federal loans together under one umbrella in their name; which includes parent plus loans, Stafford loans, and Perkins loans. The fact is they cannot. They can consolidate Stafford and Perkins loans, but the Parent Plus loan must remain in a parents name.

So it’s May, you have your award letters.  You don’t get enough financial aid from any school.  What now?

How about delaying admission for a year and taking some online classes to get requirements out of the way?  It’s certainly cheaper than tution at your first choice university.

Yes, I know this isn’t what you want to hear.  There’s been a trend recently that people are entitled to a degree where and when they choose, but the reality in these tough economic times is that we have to make hard decisions.  That may include either not attending the school of your choice, or delaying admission while you take classes online or at a community college.

Seriously, you should look at this problem from a completely different angle.  You have options that you likely have not considered yet.

Search for Online Degrees

Parent Plus loans are not subsidized by the federal government like the Perkins loan and many Stafford loans, which are both in a students name. By subsidized of course we mean the government picks up the interest on the loan while the student is in school.

Parent Plus loans are unsubsidized meaning the borrower is responsible for the interest accruing during the life of the loan from the date of disbursement. Now since the Plus loan does not need to be repaid until after a student falls beneath a part time or greater status (in many cases this is after the student graduates) hundreds or in some cases thousands of dollars in interest may accrue.

Just keep in mind that you can make interest only payments while the student is in school if you so choose. This will help with the total principle and interest owed once the repayment period begins, as the interest is capitalized after each quarter.

Will your paycheck cover all the
college expenses?

It’s that time of year again – parents are trying to figure out how to pay the difference between their child’s financial aid package and what next year will really cost.

So let’s do a review of what a PLUS loan is, and what the benefits are.
A PLUS loan is a loan for parents or guardians. You can borrow up to the full cost of education, minus any aid received (e.g. scholarships, Stafford loans).

• You need the FAFSA to get a PLUS loan.
• Only parents or guardians can take out this loan
• The interest rate is set by Congress.  It is virtually guaranteed to be less than any private loan you could find.  Currently, the rate is fixed at 8.5% (July 2008 – June 2009)
• There is a 3% origination fee, and there may be a 1% federal default fee that are deducted from the principal.
• The PLUS loan cannot be transferred into the student’s name
• PLUS Loans are credit-based, but the credit requirements are less that those of private loans or 2nd mortgages.
• You have to apply for a new loan each year.
• There are no penalties for paying the loan off early, and you will not be responsible for any future interest.
• If you are denied a PLUS loan, you can submit the rejection letter to your child’s school to qualify him/her for more Stafford loan money.