March 8, 2007

Pres. Bush and Sen. Kennedy agree – student loans need shakeup!

Posted in Student Loan News at 3:19 PM by Joe From Boston


It’s extraordinary! President Bush and Senator Ted Kennedy agree on something – that student loans need fixing! Read the article here, from the Plain Dealer on Cleveland.com.

Washington takes swing at student loan industry

Bush, Kennedy say students need more assistance

Thursday, March 08, 2007Stephen Koff

Plain Dealer Bureau Chief

Washington- What do Ted Kennedy and President Bush have in common?

Both are making the multibillion-dollar student loan industry incredibly nervous.

Both want to slice the taxpayer subsidies the industry enjoys – subsidies that make student loans “the second most profitable business for banks, after credit cards,” says Kennedy.  Both say students will benefit.

While Kennedy and Bush come at it from different angles, their simultaneous attacks on the student loan industry are extraordinary, say experts in student lending, some of whom are displeased, others ecstatic at the prospect of a shakeup.

“I don’t think we’ve seen the climate that we see now, at least in my recent memory,” said Kevin Bruns, executive director of America’s Student Loan Providers, a trade group of lenders who worry that slimmer margins will drive some out of business.

Tally Hart, Ohio State University’s senior adviser for economic access, called it “one of the more refreshing times in my career,” because ideas are emerging that could put college within reach for more families.

While the loan industry says students will suffer from fewer choices if the changes push lenders away, it also acknowledges it has hurt its own cause through a series of stumbles and scandals.

House Democrats George Miller of California and Barney Frank of Massachusetts, chairmen of committees on education and financial services, respectively, are looking into a stock sale by Albert Lord, chairman of loan giant Sallie Mae.

Lord sold more than $18 million in company stock in early February, three days before Bush’s 2008 budget came out proposing more than $18 billion in cuts to industry subsidies. Sallie Mae’s stock fell 9 percent on Bush’s news.

Sallie Mae says Lord had no warning that he’d better sell before Bush’s announcement.

“The timing was unfortunate but completely coincidental,” said Tom Joyce, the company’s spokesman.

Another major lender, Nebraska-based Nelnet, is under Congress’ lens for allegedly collecting hundreds of millions in excess subsidies from the government.

This occurred, according to the Department of Education’s inspector general, through billing of a program that guaranteed lenders a return of 9.5 percent interest – a program that was supposed to end in this era of lower rates.

Nelnet denied overcharging the government, and in settling the matter in January, the Education Department agreed to ignore $278 million that Nelnet received in questionable subsidies.

The department said repayment could drive out smaller lenders who also may have abused the program, and that would be bad for students.

Nelnet spokesman Ben Kiser said that the company considers the matter closed.

But a group of 10 House members – seven of them Republicans – does not. On Monday, they wrote to the department, taking it to task for “setting a poor precedent that we believe will encourage further abuse by lenders.”

These were not liberal lawmakers; among them was Rep. Jeff Flake, a fiscal conservative of Arizona.

“He’s coming at it from a government-waste, good government perspective,” said his spokesman, Matthew Specht.

Read the rest of this article here.

Can’t Afford Your Monthly Payments?

Posted in Consolidation, FAFSA, Graduate Students, Saving for College, Stafford Loans, The Financial Aid Process at 1:29 PM by kpops


So many students are overwhelmed with the expected monthly payments when they get there first coupon booklet from lenders upon graduation. The obvious reaction for those who have not yet established a job and finances is to freak and think “Oh my god, how am I going to afford this?”. You need to know, you have rights as a borrower of Federal Loans so don’t freak just yet!

Not only do Federal Loans have better interest rates than private but they also carry certain benefits to borrowers in order to make your college education affordable. The first thing you want to consider when you graduate is consolidating your loans. Not only will this lock in your interest rate for your loans and combine them all into one payment but consolidation will also extend your loan term. This makes a huge difference in your monthly payment. Extending the loan term is sometimes enough for students in order to afford their monthly payments.

Although, others still need more time to get established in a career. Again, because this is a Federal Program all lenders have to also offer additional repayment plans aside from the standard Level Repayment Plan. Often you will find that borrowers will request the Graduated Payment Plan. This is when you would start a lower monthly payment and gradually increase your payment over the course of the next 2-5 years. This again gives borrowers time to get there feet on the ground and establish a steady income.

Another great option is the Income Sensitive Payment Plan. Once your consolidation is finalized with a specific company you can c0mplete an application for the repayment plan. The lender will review your Debt to Income Ratio and determine an affordable monthly payment plan for you based on guidelines set forth by the Department of Education.

Its important to know your rights as a borrower of Federal Loans. There are options out there to make your education affordable and keep your from defaulting on your loans. The most important thing is to make contact with your lenders or a consolidation company and discuss your options.

In addition, here is an article discussing the Student Borrower Bill of Rights.

The Student Loan Network: Stafford Federal Student Loans, Parent PLUS Loans, Student Loan Consolidation, Private Student Loans

Independent Student Vs. Dependent Student

Posted in FAFSA, Grants, Misc, Parent PLUS Loans, Saving for College, Stafford Loans at 1:28 PM by kpops


Independant Students do not need to provide their parents information on the Fafsa but Dependant Students do need to. Do not confuse this with filing taxes as the criteria for these categories is not the same. Students and Parents often think that because the parent no longer claims the student on their taxes that the student is now considered an Independant. When it comes to filing for your taxes this is true but not when applying for Federal Financial Aid.

If you answer yes to any of the following questions than you are considered to be an Independant Student…

Are you 24 years of age or older?
Are you married?
Are you considered a Ward of the State?
Do you have any children?
Are you a veteran of the U.S. Armed Forces?
Are you enrolled in a Masters or Doctorate Degree Program?

If you answered no to all of these questions then you are considered to be a dependant student. In this case you must provide your parents information on your Fafsa in order to apply for Financial Aid.

Unsure of your status or think you may fall under special circumstances? You should call your school and discuss your situation with a Financial Aid Advisor and they can assist you with how to file your Fafsa.

The Student Loan Network: Stafford Federal Student Loans, Parent PLUS Loans, Student Loan Consolidation, Private Student Loans

Interest Rate Cuts: How will if Effect You?

Posted in Graduate Students, Grants, Misc, Parent PLUS Loans, Saving for College, Stafford Loans at 1:26 PM by kpops


Here is a great article from DiverseEducation.com on the proposed Interest Rate Reductions and how it will effect you. It gives a very clear breakdown on savings over the long run…

Just the Stats: Will Student Loan Interest Rate Cuts Really Help Low-Income Students?
By Olivia Majesky-Pullmann
Mar 2, 2007

The College Student Relief Act of 2007, recently approved by the U.S. House of Representatives, has been hailed as a savior for students trying to handle the ever-rising costs of college. Phased in over five years, the interest rate on federally backed loans will be cut in half, from 6.8 percent to 3.4 percent. But some say the cut isn’t the saving grace politicos make it out to be.

Once fully phased in, these cuts would save the typical borrower, with $13,800 in need-based federal student loan debt, $4,420 in savings over the life of the loan,” says U.S. Rep. George Miller, D-Calif., of the House Committee on Education & Labor, relying on an analysis by U.S. PIRG. The new interest rate will drop to 3.4 percent by 2001, but on January 1, 2012 the rates will go back to 6.8 percent.

But U.S. PIRG, a public interest advocacy group, has said Miller’s office has misquoted its findings. Miller’s prediction assumes that the interest rate at its low of 3.4 percent will be permanent, although the act is scheduled to expire in 2012. A student with $13,800 in debt might save $4,420, but only if the rate was not scheduled to go back up to 6.8 percent in 2012.

Even if the 3.4 percent interest rate were to be extended, it would only help borrowers taking out loans in 2012 or later. Unlike a mortgage, when the rates drop, students with existing loans do not have the capability to re-finance at the new, lower rates.

Who Will the Student Relief Act Really Affect?

Based on the U.S. Department of Education’s 2003-2004 National Postsecondary Student Aid Study, a national survey representing more than 80,000 students, only 36 percent of all low-income students received subsidized Stafford Loans. By comparison 32.7 percent of all middle-income students received the loans. The average Stafford loan for low-income students is $3,213, compared to $3,222 for middle-income students and $3,050 for upper-income students.

Whites receive 61 percent of all subsidized Stafford Loans, borrowing an average of $3,287. By comparison, Blacks received $3,105 and Hispanics received $3,092. Just over 19 percent of Blacks borrowed, while 11.5 percent of Hispanics did. Although the percent of loans going to Asians was low, at 3.7 percent, they were awarded a higher average loan amount at $3,484. Of all Black students enrolled in 2003-2004, nearly 37.8 percent received the loans – the highest of all races.

The following figures incorporate four-year and two-year institutions, however, the numbers shift when broken down by institution type, and Blacks have more cumulative Stafford Loan debt than any other race/ethnicity. Based on data derived from FinAid.org, the average cumulative subsidized Stafford Loan debt for students completing a degree program in 2003-2004 was the highest for Blacks at four-year institutions ($12,458) and at two-year institutions ($6,457).

Since Blacks borrow the most, they are also likely to save the most. However, when broken down by monthly payments, the savings are miniscule. Blacks will save about $2 more than any other race per month. These figures assume a student who took out a loan in 2007 at 6.12 percent interest, the first drop in the phased-in rate cut, will pay the loan back over 20 years.

The Average Amount of Savings Throughout the Life of the Loan by Race/Ethnicity, 2007Source: Mark Kantrowitz, Publisher, FinAid.org, 2007

Institutional Level

White

Black

Asian

Other

More than one race

Total

The Average Amount of Savings Per Month Throughout the Life of the Loan by Race/Ethnicity, 2007
Source: Mark Kantrowitz, Publisher, FinAid.org, 2007

Institutional Level

White

Black

Asian

Other

More than one race

Total

What Are Financial Aid Analysts Saying?

Mark Kantrowitz, publisher of FinAid.org, says there are several misleading errors in Miller�s claim. He says the committee overstated the average cumulative subsidized Stafford Loan debt of $13,800 for undergraduate borrowers because they didn�t account for two-year students when they averaged the per-student debt. The actual total debt for four-year degree completers in 2003-2004 totaled $10,667, and is projected to increase to $12,000 in 2007-2008. Two-year degree completer�s debt was $5,488 in 2003-2004 and will increase to about $6,200 by 2007-2008.

When combining unsubsidized and subsidized student loans, the total average cumulative debt is roughly $13,800, thus saving the borrower approximately $4,400 at 3.4 percent with a 15-year repayment term. �Since the 3.4 percent interest rate is limited to a six-month period, it is unreasonable to assume that all of the subsidized Stafford loan debt will be at this rate,� Kantrowitz says.

To measure the true impact of the loan rate cut, Kantrowitz suggests using the weighted average interest rate, since there will be a different rate each year as the cuts are phased in. This would be the impact:

Student Relief Act Average Amount of Stafford Loan Savings, 2007
Source: Mark Kantrowitz, Publisher, FinAid.org, 2007

Cumulative Stafford Loan Amount

Student Subsidized Loan Monthly Savings, 2007
Source: Mark Kantrowitz, Publisher, FinAid.org, 2007

Monthly Savings

Kantrowitz says the U.S. government will lose billions in interest revenue because of the lower interest rate.

�It is misleading to say that the legislation makes college more affordable for needy students at no new cost to taxpayers,� he says.

Thomas G. Mortenson a policy analyst with Postsecondary.org, has a similar view on the proposed act, �My concern is that this idea does nothing to make college affordable. It does nothing to reduce the $32 billion in unmet financial need that we identified from the 2004 NPSAS study�

According to FinAid.org, student loan interest rates are more likely to assist students already inclined to finish college rather than increase the number of students enrolling. Most students from middle and upper income families tend to pursue education regardless of debt incurred, says Kantrowitz. FinAid.org suggests that the government scale back loans for low-income students and increase grants.

Other Sources Used:

1. The College Student Relief Act of 2007

2. �Rep. Miller Introduces Legislation To Cut Interest Rates on College Loans,� House Committee on Education and Labor. January 12, 2007.

3. Undergraduate Financial Aid Estimates for 12 States: 2003�2004: National Center for Education Statistics (2006), 2003�2004 National Postsecondary Student Aid Study

4. PB 2007 Budget Baseline � Standard Loan Volume Tables in Extract Form

Olivia Majesky-Pullmann

 

Click Here for a Link to this Article.

Remember, these rate reductions do not apply to loans that have already been disbursed so it is still worth consolidating now. It is still unknown what the new rate will be for variable interest rate loans.

Fafsa is Finally Done…What Next?

Posted in FAFSA, Graduate Students, Grants, Misc, Parent PLUS Loans, Private Loans, Saving for College, Stafford Loans, The Financial Aid Process at 1:15 PM by kpops


So you have finally submitted your Fafsa and your not sure what to do next. This is of course a common concern of most parents and students. Here is a rundown on what happens once your Fafsa has been submitted…

The Fafsa takes approximately 3-4 weeks for the Department of Education to process. The DOE will then send a SAR (Student Aid Report) over to each one of your selected schools. You will also receive a SAR which will include a summary of your information submitted on the Fafsa and your EFC (Expected Family Contribution). The school then needs to review your SAR (Student Aid Report) and determine what your Financial Aid Award Package will be.

You will receive a Financial Aid Award Letter from your each of the schools within 6-8 weeks from the date that you submitted your Fafsa. This Award Letter will state if you have been awarded any Grants, Loans, or Work Study Programs. At this point you will need to make a decision on which school you will be attending.

If you have been awarded any grants, your school will advise you on how to proceed with the process. If you have been awarded Stafford Loans then you will need to complete a Master Promissory Note. If you do not complete this form your loans will not be disbursed. You can complete the MPN online at www.StaffordLoan.com.

So, now your finally done with your Federal Financial Aid process. Still not enough, to cover that tuition bill. Your parents may want to consider the Parent Plus Loan. Find more information online at www.ParentPlusLoan.com.

Still Confused? Contact The Student Loan Network at 877-328-1561 for additional information on funding your college education today!

The Student Loan Network: Stafford Federal Student Loans, Parent PLUS Loans, Student Loan Consolidation, Private Student Loans