Tag Archives: finances

Financial Aid, Part 3: Paying Your Loans Back

Posted by on May 26, 2010 No comments
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Whether you’ve graduated, left school, or dropped your classes you’ll have to start paying your loans back. It’s also important that you know you have to at least get a “C” or a 2.0 grade point average to meet the requirements to receive financial aid. If you do not get at least a C average, or if you drop your classes, in some cases, you may even have to pay back some of your grant money and the loan money.

At any time, you can check the status of your financial aid, including outstanding balances and disbursements here. Be prepared to share your personal information.

It’s important to note that you must pay back your student loans every month, on time in their entirely.

Exit Counseling
As you begin to receive information about repayment, your loan provider will notify you of the date that your loan repayment begins. As with any other loan and bill, it is important to make your full payment on time, according to your payment schedule. There could be serious consequences for anyone who does not. It’s important to remember that student loans are REAL loans, such as a mortgage or car loan.

Repaying Back Your Loan(s)
You may have a choice of how you want to pay back your loans. You can decide how much you’ll pay and how long it may take for your to repay your loans. There are different types of repayment plans: Standard, Extended, Graduated, Income Based Repayment (IBR), Income Contingent Repayment (ICR) and Income-Sensitive Repayment. Click here for more information.

There are some options for the repayment plans. I’ve listed some for you:

Level Payment Plan
Total amount of your loan plus interest divided until it equals 120 equal payments. You’ll pay the same amount every year for about 10 years until the loan is paid off.

Graduated Payment Plan
Monthly payments start out low when your assumed income is lower. Repayments gradually rise over the 10 year period as assumed income “increases.” The lower beginning payments mean that you’ll have to pay more interest over the life of the loan.

Extended Payment Plan
This is usually for people who have borrowed a lot of money and need to stretch their repayment plan over 10 years. You’ll end up paying more in interest over the life of the loan.

Income Contingent Plan
If your income is low, you may qualify for lower payment plans made over 25 years.

Trouble Making Payments
If you’re having trouble making your payments, it’s important that you contact your lender immediately. For more information on postponing repayment, click here.

Default
If you default, that means you failed to make payments to your student loans according to the terms of what you signed at the time you took out your loan.  As a result, your school, the financial institution that made or owns your loan, your loan guarantor, and the federal government can all take action against you to recover the money that you owe. As listed on the Department of Education’s website, some consequences include:

  • National credit bureaus can be notified of your default, which will harm your credit rating, making it hard to buy a car or a house.
  • You would be ineligible for additional federal student aid if you decided to return to school.
  • Loan payments can be deducted from your paycheck.
  • State and federal income tax refunds can be withheld and applied toward the amount you owe.
  • You will have to pay late fees and collection costs on top of what you already owe.
  • You can be sued.

If you default, here are some actions you can take.

Discharge/Cancellation of Loans
Under rare circumstances, it is possible to have a student loan debt discharged. For more information, click here.

It’s important to note that you cannot cancel a federal student loan because of financial difficulties unless you qualify for a bankruptcy discharge.

Again, Live like a college student while you’re in college, but don’t force yourself to live like a college student the rest of your life.

Financial Aid, Part 1: What is it?

Posted by on May 24, 2010 No comments
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As I’ve grown older and gone through college, financial aid has been a topic that has been greatly discussed, but also confused many. My goal writing this blog is make financial aid more clear.

What is Financial Aid?
Financial aid is usually need-based, meaning, based on you or your families income. (This is not to be confused with merit-based, which is based on academic performance.) Forms must be submitted each year to be considered for financial aid. Forms may be filled out online, or through a guidance counselor’s office at your college/university.

To apply for need-based financial aid, you’ll need to complete the Free Application for Financial Aid (FAFSA). The FAFSA is an application for federal funds and is required by all institutions of higher learning. To apply, you will need complete copies of your most recent tax and W-2 forms. You’ll be asked a series of questions to help determine what amount, if any, of financial aid that you’ll receive.

It is important to note that if you are listed as a dependent on your parent’s tax return, the numbers will come from your parent’s tax returns. If you are applying as an independent, then you will use your own tax returns. The FAFSA website provides this worksheet to help you determine your dependency status.

If you or your family plans on contributing any money, you will have to report it. That number is known as the “Expected Family Contribution (EFC). The general formula used looks similar to:
Cost of tuition – EFC = Aid Eligibility

For example, if annual tuition of your college is $13,000 and you are able to contribute $7,000. 13,000-7,000=6,000. Your Aid Eligibility will be for $6,000.

Now remember, tuition may include on-campus costs such as rooming, meal plans, and if you opt-in to health insurance. (This is generally what financial aid covers, keep in mind that you’ll need to research what financial aid covers at your school. This may not be for every college/university). Financial aid MAY cover the cost of a computer or laptop, it depends upon your school. It’s best to consult your school’s financial aid office if you wish to purchase a computer or laptop.

However, financial aid does not pay for off-campus rent, off-campus food, books and supplies, personal expenses, transportation and insurance.

Who is eligible to receive Federal Financial Aid?
To see if you are eligible, the FAFSA website has a list of requirements.

Types of Financial Aid
As stated on the FAFSA website, not all schools participate in all types of financial aid. Again, it is important to check in with the school that you’re interested in attending to see what federal aid is available to you.

There are three categories of federal student aid: grants, loans, and federal work-study. Keep in mind that you may additionally be able to get financial aid from your state government, school, or private scholarships.

Grants
Grants do not have to be repaid. Federal Pell Grants are usually only available to undergraduate students. Also, there is a program called the Academic Competitiveness Grant (ACG). There are other types of grants, and if you would like to explore these options or other grants in further detail, the FAFSA website has a convenient PDF.

Loans
Federal loans must be repaid and are available to both undergraduate and graduate students. Need-based loans do not have to be repaid until you leave school and they typically carry lower interest rates than other kinds of loans. Financial aid preference is given to people with the greatest amount of financial need.

Remember, loans are money that you borrow temporarily. Once you start repaying your loan, you must pay interest on the money that you borrowed.

Subsidized Stafford Loan
A subsidized stafford loan is awarded on the basis of financial need. This is when the US government pays (or subsidizes) the interest on a loan while enrolled in school and for six months after you leave. The subsidized loan usually has a fixed interest rate for the life of the loan.

Unsubsidized Stafford Loans
This loan is awarded regardless of need. There is an interest rate charged on the amount disbursed from the date of disbursement and you may either make or defer interest payments while you are in school and during the six-month grace period.

You can receive both subsidized and unsubsidized loans for the same academic year. So it’s important to find out which type of loan you have.

PLUS Loans (for parents)
This loan provides low interest loans to parents of eligible undergraduate students. Repayment typically beings 60 days after loan is fully disbursed. In addition, parents may have to be approved based on their credit and these loans are not based on financial need.

Federal Work-Study
Federally funded program that provides employment opportunities to students with the highest financial need. Most schools will award a student working part-time during the Fall and Spring semesters money. The average FWS award is $2,500 per academic year. This provides jobs to undergraduate and graduate students, allowing them to earn money to pay education expenses.

There are more ways to help pay for your school costs, so be sure to look at both state and school resources. It’s important to talk to a financial aid administrator or guidance counselor at the school you wish to attend or that you’re currently attending.

It’s important to start early when applying to financial aid. They have strict deadlines.

You may also contact the US Department of Education by writing:

U.S. Department of Education
Federal Student Aid Information Center
P.O. Box 84
Washington, DC 20044-0084

What are you going to do with your tax return?

Posted by on March 29, 2010 No comments
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Hopefully, most of you are getting money back this year from your tax return. If so, what are you going to do with the money? I know several of us (myself included) look forward to getting our money back every year, but are we spending it wisely?

I notice some of my friends put the money towards a large purchase, such as a TV or clothes, but is that really a good idea? Of course, I cannot tell you what to do with your money, I’m just giving you some food for thought. I’ve come up with a list of alternatives to spending your tax return money on disposable goods such as TVs and electronics.

My first question will always be, do you have any debt you need to pay off, such as a loan or a credit card? Think of how much your tax return can help you with that.

Do you have an emergency fund? It’s always a good idea to have at least 3 to 6 months of living expenses in a bank account, short-term CD or a high-quality money-market fund. It may be a good idea to start an emergency fund if you do not already have one in place… and if you do, why not add to it?

Or have you thought about investing the money or putting it in savings?

How about a step towards retirement? You may think your tax return is only a drop in the bucket, but think of how you may be restoring your 401(k).

How about buying a government bond? The current interest rate through April 30, 2010 is 3.36%. If there are any interest on I Bonds, it is added to the bond monthly and is paid, to you, when you cash the bond. It may earn interest for up to 30 years… and after having it 5 years, there is no penalty if you cash it. If you pay $50 for a bond, you’ll get AT LEAST $50 back. The disadvantage is, of course, if you need the money immediately.

Education? Maybe put the money towards something like your education or an education for our children. It could make you more marketable and make you more money, or it may give your child the chance at a quality education.

As much as that new LED-LCD screen may seem like an instant reward, think of how rewarding it is to pay off your debt sooner or to finance your child’s education. I challenge you to think about what’s best for you in the long-term, not what is going to give you instant satisfaction.

College is going to cost what?!

Posted by on March 8, 2010 No comments
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Much has been reported from various news sources, investment firms and college foundations about “college inflation” or the costs that are associated with attending a four-year institution.  News reports of students protesting and being generally unhappy with tuition increases have flooded the Internet news and print media with different claims.

Several studies put the increase in college costs between 5% and 8%, with 8% being the number most focused on.  College costs in this cast take into account only tuition and fees.  In the case of on-campus housing and meal plans, those costs are not included in the traditional inflation calculation for university costs.

There have been multiple studies done on why college is so expensive, but those reasons don’t really matter that much to the student (or parent) who is footing the tuition bill.  According to the Bureau of Labor Statistics, over the last 30 years, college costs have increased on average each year at 7.25%, which is slightly less than the return on the S&P 500, what is termed “the stock market”.

Keep in mind a few factors though.  When looking at the additional expenses associated with college (room and board, transportation, etc.), those costs follow CPI, or the consumer price index, which tracks the overall inflation rate (the increase in costs over the years), or normal inflation.  Normal inflation over the last 30 years has averaged 4.35%, which is still very high.

However, averaged into the last 30 years has been the high inflation of the early 1980’s, where normal inflation was 10% and college costs were rising between 12% and 14% per year.  The last 10 years have actually oscillated between 5% and 6%.  In fact, the last twenty years have also averaged between 5% and 6%.  Both are higher than CPI (which has averaged about 2.5% over both periods).

What does this mean exactly?  A lot, actually.  An in-state school in North Carolina carries tuition and fees of approximately $6400/year.  This means that for a child born in 2010 and attending college for four years beginning in 2028, the cost for tuition and fees alone under the assumption of 7.25% will be $30,000 more than the actual college inflation rate of 5.5%.  Throw in regular costs and that difference jumps to $70,000.

As you can see, college inflation, while significantly more than normal inflation, is exaggerated in the news.  I’m not sure exactly why except that sensationalist claims usually make the news and it also helps sell investment products (529 plans, mutual funds, etc.) or even sells news.

So yes, college is going to be expensive for your baby.  But regard with some skepticism calculations you are shown about “the true cost of a college degree”.