Student Loan News, Updates and Blog Posts

First off, it’s not actually refinancing that you are doing as much as it is consolidating your student loans.  Still, you will have a new interest rate and loan terms extended to you which is what refinancing is all about, so it is very similar.

The main difference between traditional refinancing and federal loan consolidation is how they arrive at your interest rate.  With traditional refinancing, like in the case of a mortgage, your FICO score, debt to income ratio, and earnings are all important factors.

When it comes to federal loan consolidation it is simply the weighted average of your loans rounded up to the nearest eighth that is fixed for the life of the loan.  The repayment term is dependent on your loan volume.

I’m sure the title of this blog alone has fired up some staunch federal student loan supporters.  In fact, when I told my friends I was going with a private student loan even they called me an idiot and told me that anyone in their right mind knows that federal student loans are the way to go.  But by the end of my defense, they were the ones on the defensive.

There is a student loan myth out there that you should ALWAYS get a federal loan first (after you exhaust grants, scholarships, and work-study dollars of course).  But that way of thinking is not practical at all.  We go to college to exercise and educate our minds.  We are told to ask questions and inquire why it’s so, but then when it comes to paying for education we are directed to ”fill this form out.”  Sometimes it feels like a bother to ask the simplest question to a financial aid officer too.  The fact of the matter is for some students a private student loan is the smart choice.  Let us examine five reasons why private student loans may be right for you.

Interest rates: Did you know that undergraduate students taking out an unsubsidized Stafford loan and graduate students are subjected to a 6.8% fixed interest rare?  In today’s market that is absurd.  Furthermore, there is no way to lower that rate.  You are stuck with that rate for a lifetime.  No thanks.

Flexibility: Your student loan dollars are not restricted like with federal student loans. You can use your dollars on a wide gamut of expenses such as transportation, books, lab fees, and computers.

No Deadline: You don’t have to get your paperwork in by January 1.  Funds are there for you when you need them 365 days a year.

No Annual Loan Limits: Federal loans have annual caps that you can not exceed.  In most instances students still need to seek a private student loan to make up the shortfall.

No lengthy application: Private students loans do not require lengthy applications, as is the case with federal loans and the FAFSA.  No 100 question FAFSA form sounds fine by me.

So now you have some ready knowledge about private student loans.  And whether you choose a federal student loan, private student loan, or both, the important thing is that you are now educated. And isn’t that what school is all about?

GET A PRIVATE STUDENT LOAN TODAY

ScholarshipPoints code: PRIVSLOAN

In short, consumer banking regulations governing each specific loan type are different making consolidating federal and private student loans a non option.

Federal loans, which include the Stafford and Perkins, are contingent on the successful completion of the FAFSA.  Private student loans are based on credit.  The benefits  each hold are vastly different.  That said, there have been rumbles of allowing private student loans for law students to be converted to federal loans so that law students carrying a great deal of student loan debt may benefit from the richer federal benefits, read Debt Relief for Law School Grads.  But for now that’s not the case.  If you have private and federal student loans expect to have two separate consolidations.

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.

Before you apply for a private student loan to help fund your undergraduate education it is important to think about where you will be after graduation. If you see yourself taking on more education, and do not think you will be able to start paying your loans back, you might want to think twice before taking on a private student loan.

Unlike federal student loans, private student loan payments cannot be deferred while you are in grad school. Deferment is at the discretion of the lender and they are not required to extend any kind of help to borrowers who are either unemployed or in school.

While in school students often find themselves in need of funds quickly. Private student loans are great because you can use them for any education-related expense, however you should not sign off on them hastily to get money for books right away. Make sure you research and compare private student loan options. You should know when you will be expected to start paying the loan back, what the interest rate is, how much you will pay in the long run, and what the other terms of the loan are. You do not want to be kicking yourself and wishing you had made a different financial decision down the road.

Most people who go to grad school fall into one of two categories; professional students or professionals advancing their career. For some, four years of college can be grueling enough, others love going back to campus every fall. If you fall into the first category and thought you were done with school forever you might want to think again. In today’s world even people who never imagined touching another textbook are being forced back into the classroom.

Whether you are an intellectual junkie or a career ladder climber, getting funding for your graduate education has never been easier.  Graduate students have three great student loan options and many people take advantage of all of them. The Graduate Stafford Loan is the first option. This loan comes with a low fixed interest rate and there is no credit check to apply. With the Stafford loan graduate students can borrow up to $138,500 for school. This is way more than what undergrads can borrow with the Stafford loan. The second option in the Graduate PLUS Loan. This is also a federal loan, but it is not based on need and it comes with a flexible repayment plan. Unlike other federal loans the PLUS loan is based on credit so a clean credit history is helpful when applying. Finally, graduate students can always apply for flexible private student loans to help cover the costs of books and living expenses.

If you plan to be in school for a long time there are loan options for you. If you are trying to get out of school as quickly as possible there are loan options for you. If your employer is making you go to school there are loan options for you. And, if you have the choice between school or unemployment there are loan options for you.

Debt relief could be on the horizon for recent law school graduates. The American Bar Association has proposed extending debt relief to law school graduates who have not been able to find a job because of the recession. While most unemployed graduates can already defer their federal loans or qualify for income based repayment, the ABA’s proposition suggests letting graduates convert their private loans into federal loans so that they can receive the same benefits.

Many law school students graduate with $50,000 to $100,000 worth of debt. Most of this debt comes from a combination of federal and private loans. Private loans can rarely be deferred because of unemployment or economic hardship like federal loans can. The ABA is proposing allowing students to borrow additional money from the government to pay off their private loans. This would leave them with an additional federal loan that they could defer for up to three years or roll into their income based repayment plan.

This plan is in infancy stages and no one knows exactly how it would be accomplished. However, if passed it would definitely be a huge help to many law school graduates who might otherwise default on their private loans and hurt their credit forever.

What is a FAFSA Verification?

It is basically an audit of your information.  Either the Department of Education or the school you are enrolled in can request a verification from you.

Why were you chosen?

The reason you were chosen may vary, but some of the most common reasons include;

• Random selection
• The submitted FAFSA application has incomplete data.
• Information on the application contradicts itself
• The FAFSA application has estimated and not actual information in some places

If you do have errors, which are corrected through the verification process, that may affect your federal student aid. If that is the case the school will issue you a new awards letter outlining what you are eligible for with your new FAFSA details.

Note: Some schools elect to do a 100% verification for all students.

Generally speaking, a student cannot update information, such as income or assets, that was correct as of the date the application was signed. However, three items, household size, number in college, and dependency status—must be updated in certain circumstances.

Dependency status

A student must update their dependency status any time during the award year unless it changed because his or her marital status changed. This update is required whether or not the student was selected for verification.

Household size and number in college

Unlike dependency status, household size or number in college cannot be updated unless the student is selected for verification. If the student is selected, these items must be updated to be correct at the time of verification unless they changed due to a change in the student’s marital status, in which case updating is not permitted.

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.