Student Loans Insight

Direct College Student Loans and Federal Family Education College Student Loans (FFEL) are the two largest government federal financial aid loan programs. FFELs are guaranteed college student loans made by a private lender. This means the government will reimburse the lender if a borrower defaults, or fail to pay back the college student loan. However, before getting reimbursed, the lenders are required to make certain efforts to collect on the college student loan.

Although the FFEL program is a federal financial aid program, it is generally administered through the state or private nonprofit agencies called guaranty agencies. Guaranty agencies will pay off the lenders if a borrower defaults, and in turn, will be reinsured by the Department of Education.

Federal Direct College Student Loans are made directly by the federal government to the college student, with the assistance of the college or other entity that has originated the college student loan. Lenders as well as the guaranty agencies will not be involved in the process.

Both federal college student loan programs are highly regulated by Congress and the U.S. Department of Education. The maximum interest rates, and much of the important terms of a federal college student loan us set by Congress, and are very similar in both programs. However, there are a few important differences in repayment plans for FFEL and Direct college student loan borrowers. You must be in the Direct College Student Loan program to ever qualify for public service forgiveness.

Stafford college student loans are for undergraduate, graduate and professional students. Federal Stafford College Student Loans are made to college students through the Direct College Student Loan program and the FFEL college student loan program. FFEL and Direct Stafford college student loans will have the same loan limits, deferment, and cancellation rights, however there are some differences in regards to repayment plans.

Stafford college student loans can be subsidized or unsubsidized. A subsidized college student loan is awarded on the basis of financial aid need, and the government will pay the interest before repayment begins or during deferment. Unsubsidized college student loans are not awarded on the basis of financial aid need, and borrowers will be responsible for all interest. However, interest payments are generally deferred while the borrower is in school, but will be added to the principal of the loan when repayment does begin. Borrowers may choose to pay interest while in school or during an authorized period of deferment to avoid any capitalization.

For college student loans first disbursed on or after July 1, 2006, Stafford student loans have a fixed interest rate of 6.8 percent. This is the maximum interest rate. Lenders may set lower rates. However, most Stafford college student loans taken out before July 2006 have a variable interest rate that will be capped at 8.25 percent.

We already know that interest rates will continue to be reduced for new Stafford subsidized college student loans over the next few years. These cuts will only apply to college student loans disbursed after 2007.

The new rates will be:

• 6 percent for student loans first disbursed July 1, 2008 to July 1, 2009
• 5.6 percent for student loans first disbursed July 1, 2009 to July 1, 2010
• 4.5 percent for student loans first disbursed July 1, 2010 to July 1, 2011
• 3.4 percent for student loans first disbursed July 1, 2011 to July 1, 2012.

Are you aware of the differences between a private student loan and a federal college student loan? There are some major differences I would like to make you aware of before you get started with obtain and college student loans, whether it be private or federal.

A private student loan is typically found at a bank or financial institution. You do have to have a credit history (a good one) as well as a minimum amount of monthly income to qualify for one. Or, you will need to obtain a co-signer. Someone with good credit willing to sign on the loan for you. However, a federal college student loan will be based on need for the most part. There is no credit check and you do not need to have a job with a minimum amount of monthly income. Simply filling out the free online FASFA application is all it takes to get started. Sounds simple doesn’t it.

Some other differences between a private student loan and a federal college student loan will be when it is paid back. Typically a private student loan will start the repayment process almost immediately. Meaning you need to make payments while you are in school. With a federal college student loan you will not pay it back until 6 month after you have graduated or you have dropped to below half time enrollment.

A very important difference you need to consider is the interest rate differences between a private student loan and a federal college student loan. Depending on the program with the federal college student loan, you could be at a fixed interest rate of 6%. Generally, with a private college student loan and your co-borrowers credit history, you may be at a 12% or higher interest rate. That will equate to twice the interest with the life time of the loan. This is a huge difference.

There are also some other federal college student loans that will offer the college student 8% and a program for the parent of a college student loan that offers 8.6%. So, it is important to remember there are many different federal college student loan programs offering low interest rates that a private college student loan may not offer. However, when it comes down to it. If you need more funds and the federal college student loans are not going to cover it, they you will need to go to a private college student loan. The trick would be to borrow only what you need and not a penny more.

What is important is that you research all your options and weigh the differences. Talk to other college students and find out what has worked for them. Every college student has a different financial aid need back ground and founding out what has worked for many students just may work for you. Just make smart and good decisions and weigh your options wisely. This is a very important time of your life, make it easy but fruitful.

The only thing harder than getting into a college or university might just be paying for it. I have some tips for you on earning your degree for less.

Thinking Ahead: The earlier you start your research process, the bigger the payoff. Starting as early as there sophomore year, your student should start the collecting and organizing of applications, recommendations, test scores, essays, as well as transcripts. Want to be college students should begin applying by there junior year in order to take advantage of the many scholarships geared toward younger college students. Starting a family calendar of college application deadlines can also help you both set some realistic goals and stay on top of the over whelming amount of paperwork.

Think Federal Financial Aid: The most important step in the college scholarship search process will be filling out the FAFSA for federal financial aid. The FAFSA is the Free Application for Federal College Student Aid. This is available online at www.fafsa.ed.gov or by calling (800) 4-FED-AID. FAFSA is the only way you can apply for a college grant, scholarship money, and or college student loans issued through the U.S. government. Get your forms in order as soon as possible and mark it on the calendar to get your hands on the some of the nation’s biggest financial aid resources.

Think About Local Financial Aid: College tuition may be no farther than your own backyard. Organizations like the Rotary Club, the Jaycees, the American Legion, and Boosters chapters generally have college scholarship funds set aside specifically for area high school seniors. Memorial college scholarships honoring local students may also be a lucrative, but generally overlooked, resource. Since competition for local funds can be significantly less than that of the national awards, researching what is offered just around the corner may pay off in a very big way. You can start by stopping by your students’ high school career office to see what is available, and then you should follow up by asking prospective colleges about their scholarship, financial aid and grant packages.

Think Categorically: Your college age student could very well be eligible for certain college scholarships just by virtue of ethnic, religious, and professional affiliations. Books such as Peterson’s Scholarship Almanac, The Scholarship Handbook, and Scholarships, Grants, and Prizes can help your college bound student find scholarship money from around the world that will meet your financial aid needs and requirements. To find out what kinds of funds your potential college student is qualified for without even leaving your home, create a profile through an online college scholarship search engine and allow the opportunities to find you.

As you can see, the few things I have mentioned above are all wonderful options to start at. Apply for FASFA to ascertain the financial aid, college student loans, and grants your potential college student may qualify for. Once this has been done, check out the private college student loans if needed. There is help out there. Do your research and you too will find the financial aid needed for your student.

Many college students worry that tuition and the other costs of their continuing education just might will be out of reach. But, you should not let a large price tag stop you. It is only one part of the picture.

Most college students will receive some kind of financial aid or college student loans to help pay for the cost of their education. A few college students may even get a “free ride,” this is when all their educational related costs will be paid for by one form or another.

Where Does One Obtain Financial Aid or a College Student Loan?

The U.S. Department of Education should always be your first source to access any kind of financial aid or college student loans. They award $80 billion a year in grants, work-study assistance as well as low interest college student loans.

Financial aid will also come from scholarships from schools, employers, individuals, private companies, non-profits, religious groups as well as professional organizations. So, there is money out there, you just need to know how to find it.

What You Are Expected To Pay (EFC)

The financial aid or college student loans you qualify for will depend on your Expected Family Contribution, or EFC. The EFC is a number formula that colleges and universities use to determine how much federal financial aid you qualify to receive if you attend there school.

When you apply for federal financial student aid, you will be asked to provide certain information about you and or your family’s finances, such as income, assets as well as family size. After you have submitted the application, you will receive an EFC based on this particular information.

Any personal contributions to your expenses may come from a combination of savings, current income and other loans.

What Does My Financial Aid and College Student Loans Cover

There are typically five basic costs associated with going to a college or university. Your financial aid award package may be used for:

• Tuition and fees
• Room and board
• Books and supplies
• Personal expenses
• Travel

Fast Fact You Should Be Aware Of: About half of a college student’s living expenses are for housing and food.

Applying for Federal Financial Aid and the FAFSA

At some point, you will need to fill out the Free Application for Federal Student Aid (FAFSA). To help you prepare, you can read more about the FAFSA on line. You can also obtain information from your high school counselor, and college or university financial aid offices. Most colleges and universities will have a financial aid office you can contact for much information.

No matter what your personal financial situation is you need to start somewhere. It is strongly suggested that you do start with the FAFSA Federal Financial Aid Free Online Application. Many people think they will not qualify for any kind of financial aid. This may be true, however, you will never really know until you do apply. You could be awarded low interest rate college student loans and Pell grants (free money). You would not want to miss out on these loans and grants just because you did not think you would qualify. Go ahead, apply.

Do you know what a Pell Grant is, and what it means for you? It means free money that will not need to be paid back. One potential sources of federal financial aid for college students can be a Federal Pell Grant. This grant is a form of need based federal financial aid, and unlike a college student loan, the money will not need to be repaid. Eligible college students will receive a specified amount each year under the Federal Pell Grant program.

Who Is Eligible

The U.S. Department of Education will use a standard formula to evaluate the eligibility information a college student has supplied when applying for a Pell Grant. This formula will determine the Expected Family Contribution (EFC) number, which will decide if the college student will be eligible for the pell grant. Applicants or current college students must be an undergraduate college student who has not yet earned a bachelor’s degree. The applicant must be a U.S. citizen, or an eligible non-citizen, and must have a high school diploma or the equivalent of the GED or the ability to demonstrate benefiting from the Federal Pell Grant program.

What Is The Award Amount

The maximum Pell Grant for the 2008–09 award years has been set at $4,731. The award amount of the pell grant will depend on both the student’s EFC and many other factors. These factors are the cost of attendance for the student (tuition and fees, room and board, books, and supplies) and the amount of time the college student attends school (is the college student a full time or partial time enrolled student). An eligible part time college student can receive a Pell Grant. The awarded amount, however, will more than likely be less than for a full time college student. An applicant can only receive one Pell Grant in an award year and cannot receive Pell Grant funds from more than one school at a time.

How Will It Be Disbursed

A college or university can credit the Pell Grant funds to a college student’s school account, pay the college student directly, or they can use a combination of these two methods. The college or university must notify the college student in writing of the amount of the Pell Grant, and of how and when the payments will be made. Colleges and universities must pay at least once per term, whether that is a semester, trimester, or quarter. Schools that do not use formally defined or traditional terms must pay the college student at least twice per academic year.

Are There Time Limits On This Grant

College students who received their first Federal Pell Grant on or after July 1, 2008 will be limited to 18 semesters of Pell Grant Awards. College students can receive up to two Federal Pell Grants in one award year if they wish to speed up their course work.
How and When Do I Apply

College students will apply not only for the Federal Pell Grants but also for all federal, state, and institutional financial aid assistance programs by completing the Free Application for Federal Student Aid (FAFSA). The paper FAFSA is also available from high school guidance counselors, or may be completed online at www.fafsa.ed.gov.

There are four main types of non-need based college student loans. They are unsubsidized Stafford College Student Loan or unsubsidized Direct College Student Loans for students, PLUS College Student Loans for parents, Grad PLUS college student loans for graduate college students, and the private college student loan for college students.

1. Unsubsidized Stafford or Direct College Student Loan - You must file a FAFSA before you can apply for an Unsubsidized Stafford College Student Loan. The Student Aid Report (SAR from FAFSA) will show if your family has a need. If so, you may then take out a subsidized Stafford college student loan and save money on interest payments. It is recommend to check with the college to learn what application procedures they would like you to follow. You must also complete the same master promissory note whether the Stafford or Direct College Student Loan is subsidized or not. Once the college student loan is approved, the funds are sent to your school of choice.
2. PLUS College Student Loan - This is a parent loan, also sponsored by the federal government that will be unrelated to need. Generally, parents will be allowed to borrow up to the total cost of education, minus any financial aid received. Many lenders can provide pre-approval for a PLUS Loan within just minutes, either online or over the phone. Once the application is completed and the student loan is approved, the money will be sent to the college student’s school.
3. Grad PLUS College Student Loan - This is a college student loan for graduate college students sponsored by the federal government that will be unrelated to financial need. Generally, college students can borrow up to the total cost of education, minus any financial aid that has been received. Most applications can be completed within minutes, either online or over the phone. Once the application is completed and the student loan is approved, the money is sent to directly to the student’s school.
4. Alternative or Private Student Loan - Private student loans are available to all college students, usually at a higher interest rate than the federal college student loans described above. In every case, a credit check and approval will be required. Colleges and universities can provide a list of private student loan sources. You can also check with banks and other financial institutions with which you have accounts.

While not considered financial aid college student loans, for many families, these non-need based college student loans can play an important role in making college affordable, particularly for families that are unable to pay the family share from current income and savings.

It is encourage to always start with the federal financial aid college student loans. Most families will be surprised that they actually do qualify for some form of financial aid. You never know what you will qualify for if you do not apply. Be smart and research everything. Talk to current and previous college students. Ask what worked for them and listen to what did not work for them. Ultimately, every financial situation is different. Just make the right choice for your financial situation.

The purpose of any Financial Aid Office is to help provide education and information, guidance, and support for college students as well as families interested in the financial aid process.

In this role, they will:
• Process applications
• Determine eligibility
• Exercise stewardship over any funds
• Adhere to the rules and regulations governing the distribution of financial aid
• Minimize procedural barriers
• Provide efficient service to college students who have completed the necessary requirements.

A Financial Aid Office recognizes the distinct needs of all college students and families, and will project a positive attitude with each interaction. Through outreach efforts, they will support the mission of Enrollment Services and the overall mission of the college or university you have chosen to attend.

More than not, U.S. citizens and permanent residents will be found eligible for federal financial aid assistance regardless of there family income! However, only by completing the FAFSA Online can the kind and amounts of financial aid assistance be determined. Federal financial aid assistance is a superior financial option to a private college student loan.

1. Grants will not need to be paid back if the college student meets all of the requirements of the award.
2. Loans are money that is borrowed from either federal, state, institution, or private lenders.
3. Scholarships are assistance that does not need to be paid back as well if the student meets all conditions.
4. Work-Study is a college student employment program with many unexpected benefits.

Pell Grants

The Pell Grant is the most common of the federal grants and is an entitlement grant based on financial aid need. The Expected Family Contribution (EFC) is calculated by completing the FAFSA and is used as an index to determine eligibility for a Pell Grant. Only college students who have not yet earned there bachelor’s degree are eligible to be awarded a Pell Grant.

Academic Competitiveness Grant (ACG)

First or even second year college students who have completed there academically rigorous high school program can be eligible for the ACG. ACG recipients must be eligible for a Pell Grant as well, a U.S. Citizen, and enrolled in 12 or more credits each semester.

National Science and Mathematics Access to Retain Talent (SMART) Grant

The SMART Grant will provide $4,000 per school year for up to two years, and is also open to third and fourth year college students enrolled in a four year degree program in a specific subject area and who have maintained a cumulative 3.0 GPA. Eligible college students must be U.S. Citizens, Pell Grant award recipients and enrolled in 12 or more credits per semester, and each semester, you must be enrolled in at least one class required for your eligible major. Eligible subjects can include mathematics, computer science, many engineering majors as well as the hard sciences.

Federal Supplemental Educational Opportunity Grant (SEOG)

There are also small grants available to high need college students who are also Pell Grant recipients. You will automatically apply for this grant when you complete the FAFSA. SEOG recipients must be enrolled in at least six credits to become eligible.

Leveraged Educational Assistance Program (LEAP) Grant

This is also a small grant typically available to Priority Financial Aid Applicants who are also Pell Grant recipients. You automatically apply for this grant as well when you complete the FAFSA. LEAP recipients must be enrolled in at least six credits to be eligible.

Federal Pell Grants of up to $4,000 were awarded last year to undergraduate college students with the most need. Even if you are enrolled less than half time, you can still qualify for a Pell Grant. This is free money. You will not pay it back.

Most states do have programs similar to the Federal Pell Grant. They provide grants (on a first come, first served basis) to college students who live and attend college in there particular state.

Federal Supplemental Education Opportunity Grants (SEOG) can be awarded much less frequently. Funds totaling as much as $4,000 per year can be available to qualifying undergraduate college students. In addition to financial aid need, these awards will also depend on the Federal SEOG funds that are available at your college. The amount of other financial aid you receive will also be a factor.

Institutional grants and scholarship programs are also available through many schools. Funds are limited however, so you really need to apply early for this award.

Federal Work-Study (FWS) will let eligible college students earn a specified amount of money to help with there educational or personal expenses during the year. Jobs will usually pay minimum wage, maybe a little more, and a variety of job classifications will be available. Full time college students will usually work between 10 and 20 hours a week.

Federal College Student Loans will make up about 80% of all federal financial aid college student loans, so it really is likely that one or more of these college student loans will be part of your financial aid package. College student loans are borrowed and will have to be repaid. Because college student loans are so important for college students today, there is much information you can find on them. You can search for specific information as well as general information on a specific college student loan. Be sure you read carefully all the information you do find.

Tax Incentives and Benefits For Your College Student Loan

For college students or their parents or spouses, assistance can be available in the form of tax credits and deductions that might be applied to your federal tax returns.

You should talk with a tax advisor for total and complete details, including any restrictions that may not have been mentioned here. You may also find helpful information in IRS Publication 970 or at the IRS website www.irs.gov .

It is very important to determine how well your resources will match up with what you will be expected to pay.

To get a total picture of the resources you will need, compare your available funds with your colleges Cost of Attendance and your Award Letter.

Your Expected Family Contribution is rarely the same amount you actually have to pay. Some college students might find that they in fact have budgeted more money than necessary. However, others will still need help to meet these costs. These college students usually need a private college student loan to help meet their costs.

For More Information on federal financial aid college student loans you can learn about other sources of federal financial aid on the internet at the below sites:

U.S. Dept of Education - www.ed.gov
FAFSA on the Web - www.fafsa.ed.gov

Resources are also available at your school or library as well as the financial aid office of the college of your choice.