Tag Archives: financial aid

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 2: Planning & Budgeting

Posted by on May 25, 2010 No comments
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Now that I’ve discussed what financial aid is, it’s important to go into detail about how financial aid can be your friend, or your enemy.

Although it is different at every school, many schools offer the federal financial aid package which includes grants, loans and work-study programs, depending upon your eligibility. Although it is hard to determine how much money you’ll receive each semester before hand, estimate tools are still a great way to plan ahead. The FAFSA website offers a great tool, FAFSA4caster . This will provide an early estimate of your eligibility for federal financial aid.

Remember that the individual school determines the total cost to determine college, not you. It is possible for a college to leave you with what is called an “unmet need” which is the money left over after the school determines your financial need.

Budgeting financial aid money is extremely important. If financial aid is not budgeted properly, it may result in being in massive amounts of debt due to spending it improperly.

In an ideal world, parents should sit down and talk to their children about college in the child’s early years of high school. This way the parents can discuss their expectations for the child, including how much money they will be able to contribute. This may give the parents an idea of where the child’s been thinking about going to school or talk about any extracurricular activities.

Why am I writing this?
Please do not spend your financial aid on anything but your education. Sometimes people use the loan to make a down-payment on a car, or on frivolous things… and they don’t have the money left to pay for their tuition or any other educational related expenses, including housing.

It’s your responsibility to budget your financial aid. If you run out of money during the semester, it’s difficult to find ways to get it.

Budgeting
It’s important to budget before you go to college.

Think about your sources of money. Will you be applying for financial aid? Have you applied to any scholarships? Is someone helping you pay your tuition? Are you going to be working a part-time job while in college?

Student loans and financial aid loans do not disappear. Especially in today’s economy, a student cannot expect to get a job right after graduating college or to be making enough money to pay off the debt. Remember what they say about the word “assume”… Bottom line: it’s important to budget properly and not to accumulate debt.

It’s important for you to think about how you plan on paying back any loans after you graduate. Will you start saving while in school?

Emergency Plans
Always remember that we can’t control what happens in our lives. It’s important to have some emergency funds saved up in case something happens. May you’ll have to pay to fix your car, or deal with a family emergency.

If you drop out of school, the Department of Education requires that you pay back your loans, and a portion of any grants that you’ve received. There are many reasons on why students drop out of school, so it’s important to consider the possibility of this emergency happening to you. Ask yourself, what would you do to pay back the federal financial aid?

Credit Cards
College is difficult. Credit cards are often used in college for living expenses, and anything else financial aid may not cover. College can be very stressful, but it’s still important to budget properly. If not, the debt accumulated will lead to a life of more stress and more problems.

I know that I’m guilty of “I’ll put it on my credit card and pay the bill later. I’ll get the money soon.” This is very dangerous! Life has a way of surprising you, and who knows, you may not be able to pay that next credit card bill. My word of advice to you is, if you can’t pay cash for it, it’s not worth purchasing it. If it’s a large purchase, give yourself 24-48 hours to think about it and try not to purchase impulsively.

If you have a credit card, use it with caution. Debt can be racked up quickly and so can the interest. Don’t think that it can be paid off when you graduate… by then you could be thousands and thousands of dollars in debt.

Sometimes saving is hard while in college, but it’s important not only to save, but to cut your costs.

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