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Graduates

It seemed like a great idea at the time. Getting a personal loan was hardly an option, but financial aid institutions provided loan after loan to get you through school. If financial aid was your sole provider of getting through school, chances are, you feel like your student loan is going to follow you around for the rest of your life.

Consider these tips when dealing with the after effects of taking in large amounts of financial aid:

A Student Loan is an Investment in Your Future
Consider your student loan as an investment rather than a burden. If you think about it, you’re not very different from a business that has borrowed thousands of dollars in start up money. The student loan funded your professional education, now you have the skill sets needed to earn the money to pay back your debt. This is why the government is so willing to provide financial aid to millions of people every year. What they pay in financial aid, is returned in your contribution as a skilled member of society.

Student Loan Consolidation
Many small businesses use a variety of funding sources when getting started such as credit cards, personal loans, and money borrowed from friends and family. Once they begin to earn a steady income, one of the things they may do is to consolidate their debts into one payment. The same concept can be used for easing the burden caused by financial aid.

Since college students in search of ’school money’ often use an assortment of funding sources, student loan consolidation can help simplify your repayment schedule. For example, you could go from owing $200 a month on three different federal financial aid loans to owing just $200 on one. One of the downsides to consolidating financial aid debt is that it prolongs the repayment period, in turn increasing interest payments. A good time to do this is if you several financial aid loans set at different rates. Consolidating can roll them all into one loan with a better rate.

Lowering Your Payments on Deferred Financial Aid Loans
There may be a period of time after graduation when little or no money is coming in. Consider lengthening the student loan term. This can lower payments to a more affordable rate. It will increase interest payments, but can help your current cash flow situation.

Delay Your Payments if You Can
One advantage of a student loan, when compared to a business loan, is that the terms of repayment are often more flexible. If you haven’t landed a job yet and run into trouble making your monthly payments, sometimes you can work with the lender to get a deferment. If you don’t qualify for deferment, you can file for a forbearance which temporarily lets you postpone regular payments on your student loan. A forbearance period is typically shorter than a deferment period. Don’t forget about interest rates that will continue to add up.

Paying Off Your Loans
if you do find a job and have money you can put towards making extra payments on your student loan then go for it. The money you borrowed to go to school was an investment in your future earnings anyways. Once you break even on the loan, the return will come sooner.

Federal Student Loan Program

The Federal Student Loan Program was created to meet the financial aid needs of a variety of students. Therefore, not all student loan programs are created or distributed equally.

The two primary student loan categories are public or private. The difference being that the former is funded by government programs and the latter is offered through private lenders. Generally, a federal student loan will have much more favorable terms than a private student loan.

Stafford Loans

The Federal Stafford Loan is by far the most popular government-run student loan program, probably because borrowers are not subject to a credit check, and since they also offer financial aid that is both subsidized and unsubsidized. The benefit to this program is, as long as you apply before your school’s funds run out, you can use a Stafford Loan as a form of non-need based financial aid.

Students who utilize this form of financial aid are guaranteed one low interest rate over the life of their loan, and are allowed to defer student loan payments for six months following graduation or withdrawal, giving them time to find a job.

In addition, financial aid is available to students at both the undergraduate and graduate level.

Perkins Loans

The Federal Perkins Loan is designed to help students with an extraordinary need for financial aid and many applicants will not qualify for its extremely generous terms. Perkins Loans are subject to a lower annual and lifetime limit on borrowing, but are free from any origination fees. In addition, they offer a significantly lower interest rate which is paid by the government on the student’s behalf. Similar to the Stafford loan, it is a form of financial aid that is available at both the undergraduate and graduate level.

However, unlike some forms of need-based financial aid, it is a student loan must be repaid.

PLUS Loans

A Federal PLUS Loan allows students and parents to borrow enough money to fund whatever need is not met by other financial aid programs. It essentially allows you to completely pay for college with almost no money out of pocket. However, your first student loan payment may be due as early as 60 days from disbursement. In addition, the PLUS financial aid program is subject to noticeably higher interest rates and may be subject to origination fees of up to 4%.

Unlike the Stafford Loan, PLUS loans require good credit and are less flexible with their repayment options.

Federal Grants

While a student loan is one of the most generous and easiest way to obtain financial aid, it also presents the risk and challenge of repayment once they begin.

Make sure you have fully explored available federal grants as they can cover a significant amount of the financial aid you may require, and more importantly they are essentially gifts that do not need to be repaid.

Student Aid Grants

Federal Student Aid Grants, unlike a student loan, do not have to be repaid. There are 5 federally regulated student aid grants available to students of varying educational pursuits.

The Teacher Education Assistance for College and Higher Education Grant (TEACH Grant)

The College Cost Reduction and Access Act of 2007 created the TEACH grant program that provides student aid of up to $4,000 per year to students who intend to teach to public or private elementary or secondary school that serves students from low-income families. Generally, you should contact the financial aid office at the college where you will be enrolled.

Conditions for student aid:
In order to receive a TEACH grant, you must agree to serve as a full-time teacher in a high-need field in a public or private elementary or secondary school that serves low-income students.

1. These fields include: Bilingual education and English language acquisition, Foreign language, mathematics, reading specialist, science, special education, other shortage areas at the time you begin teaching.

2. Schools serving low income students includes any elementary or secondary school that is listed in the Department of Education’s Annual Directory of Designated Low-Income Schools for Teacher Cancellation Benefits.

3. TEACH Grant Agreement to Serve – Each year you receive student aid in the form of a TEACH Grant, you must sign the agreement that is available electronically on the Teach Grant Agreement to Serve website. This agreement requires the following:
- For each TEACH Grant-eligible program for which you received student aid, you must serve as a full-time teacher for a total of at least four academic years within eight calendar years after you completed or withdrew from the academic program for which you received student aid.
- You must perform the teaching service as a highly-qualified teacher at a low-income school.
- You must comply with any other requirements that the Doe deems necessary
- If you do not complete the required obligations, your TEACH Grant will be treated as a student loan, such as a Federal Unsubsidized Stafford Loan, and you will have to repay the full amount in addition to any interest accrued since disbursement.

Federal Pell Grant

Pell Grants are usually awarded to undergraduate students who have not earned a bachelor’s or a professional degree. Unlike a student loan, a Pell Grant does not need to be repaid.

The maximum student aid award for the 2009-10 year is $5,350. The amount of student aid you get will be determined by analyzing your financial need, the costs associated with attending a chosen school, your status as a full or part time student, and your plans to attend school for a full academic year or less.

Your school can apply Pell Grant funds to your outstanding student loan balance, provide direct student aid by check, or a combination of these methods.

Federal Supplemental Educational Opportunity Grant (FSEOG)

The FSEOG program is a form of student aid for undergraduates with exceptional financial need. Unlike a federal student loan, the FSEOG does not have to be repaid.

You can receive anywhere from $100 to $4000 a year, depending on when you apply, your financial need, the school you’re attending, and the policies of the financial aid office at your school.

If you’re eligible your school will credit your outstanding student loan balance or pay you directly.

The Academic Competitiveness Grant (ACG)

The ACG provides $750 for the first year of study and $1,300 for the second year. (However, the combination of the ACG and the Pell Grant may not exceed the student’s cost of attending school.) This does not have to repaid and can be put towards any outstanding student loan balance.

If the number of eligible students is large enough that full grant payments would exceed the program’s allotment for the year, the reward amount may be reduced.

The National Science & Mathematics Access to Retain Talent Grant (National SMART Grant)

A National SMART Grant will provide up to $4000 for each of the third and fourth years of undergraduate study in a qualifying field. The SMART Grant can be applied towards an outstanding student loan, but the total reward in combination with the federal Pell Grant must not exceed the cost of attendance.

It is available to students majoring in physical, life, or computer sciences, mathematics, technology, engineering, or a critical foreign language in addition to maintaining a cumulative GPA of 3.0 in course work required by the major.

Institutional Grants

There are other grants available other than those provided by the federal government. Colleges provide institutional grants to subsidize the difference between college costs and the estimated family contribution. Like federal grants, there are generally stipulations attached to institutional grants and unlike a student loan they do not need to be repaid.

Financial Aid

The following are the top strategies in impacting need-based financial aid eligibility:

1. To maximize financial aid, save money in the parent’s name, not the child’s name.

2. Pay off consumer debt, such as credit card and auto loan balances

3. Parents should go back to school to further their own education at the same time as their children, or have multiple children in college at the same time. The more family members that are enrolled, the more student aid will be available to each.

4. Spend down the student’s assets and income first.

5. Accelerate necessary expenses, to reduce available cash. For example, if you need a new car or computer, buy it before you file the  Free Application for Federal Student Aid.

6. If you feel that your family’s financial circumstances are unusual, make an appointment with the financial aid administrator at your school. Sometimes the school will be able to adjust your financial aid package to compensate using a process known as Professional Judgment.

7. Minimize capital gains and in turn, maximize student aid

8. Maximize contributions to your retirement fund.

9. Do not withdraw money from your retirement fund to pay for school, as distributions count as taxable income, reducing next year’s financial aid eligibility.

10. Minimize educational debt

11. Ask grandparents to wait until the grandchild graduates before giving them money to help with their education. This can be used later to pay down the balance on your student aid loan.

12. Trust funds are generally ineffective at sheltering money from the needs-analysis process and can backfire on you.

13. Prepay your mortgage

14. A section 529 college savings plan owned by a parent has minimal impact on financial aid, and one owned by a grandparent has no impact on financial aid.

Keep in mind, federal regulations regarding financial aid change frequently. Therefore, strategies that work in increasing student aid this year may not work next year.

Consider these several basic principles when attempting maximize federal student aid:

1. You can maximize your need-based student aid by reducing income during base years

2. Reduce ‘included’ assets. There are two types of assets, ones that are included in the needs-analysis formula for distributing federal student aid and those that aren’t.

3. Increasing the number of family member enrolled in college and/or pursuing a degree or certificate at the same time. This effects the estimated family contribution ratio when considering distribution of federal student aid.

4. Change the student’s status from dependent to independent. This is generally difficult to do, but it will make a significant difference in the amount of student aid money received.

In regards to income:

1. If you estimate your income on the Free Application for Federal Student Aid, don’t overestimate. Using too high an income figure will have a significant impact on your expected family contribution and, in turn, the total amount of student aid money you receive.

2. Be careful when reporting the amount of taxes paid. Many people confuse the amount of withholding (W2 form) with the amount of taxes paid. Don’t let this affect your need-based financial aid eligibility.

Avoid Losing Your Student Aid

According to the U.S. Department of Education, if a student is convicted of a drug offense after receiving federal student aid money, he or she must notify the financial aid department immediately and that student will become ineligible for any further student aid. They will also be responsible for reimbursing any and all financial aid they may have received after the conviction.

The law requires that a student lose his or her financial aid upon conviction of a drug offense. The good news is that many times, student aid can be recovered in many ways. Even if a conviction results, a student can take advantage of a rehabilitation program that can make them eligible for financial aid again.

Under the Higher Education Act, students become ineligible for federal student aid money upon conviction of any offense involving the possession or sale of drugs. This includes Pell Grants, Stafford Loans, Plus Loans, Work-Study Programs, and Perkins Loans.

Common questions from those who lose financial aid

How long am I ineligible for federal student aid?

For possession of illegal drugs
First offense: You are ineligible for financial aid for 1 year from the date of conviction.
Second offense: You are ineligible for financial aid for 2 years from the date of conviction.
Third and subsequent offenses: Indefinite eligibility from the date of conviction.

For the sale of illegal drugs
First offense: You are ineligible for financial aid for 2 years from the date of conviction
Second offense: You are ineligible for financial aid indefinitely from the date of conviction.

Is there anything I can do to protect my financial aid and/or have it reinstated after a conviction?

Yes. If a student successfully completes a drug rehabilitation program, he or she will regain eligibility for federal student aid funds as of the day they complete the program.

What are the drug rehabilitation programs like?

To be sufficient to reinstate financial aid eligibility the program must:

1. Include at least 2 unannounced drug tests

2. Be recognized as a Federal, State, or local government agency run program.

Generally, a student forced to enroll to maintain financial aid eligibility will have to do so at his or her own expense.

Do city tickets for possession of marijuana make me ineligible for federal student aid?

If the tickets are paid through mail and you never appear before a judge, then this does not count as a drug conviction. It is advisable to pay such tickets through the mails if you are in fact guilty or you lack a realistic legal defense to avoid risking having to appear in court and be convicted. If this occurs, despite the option to pay through mail, you will lose your eligibility for federal student aid.

What about court supervision on a misdemeanor charge of possession of marijuana?

Under the terms of court supervision, the judge is deferring a guilt conviction in anticipation of you fulfilling certain conditions. At that point, you receive a conditional discharge/dismissal and you can retain your student aid money.

What if I lie on a Federal Student Aid Application form?

Although many critics have pointed out that the federal government has no way of knowing if you have been convicted in a municipal or state court, lying on your FAFSA form is considered a crime and can carry a fine of up to $10,000. It can also lead to immediate dismissal from the school.

Mistake on your FAFSA

A mistake on your FAFSA can delay the processing of your application by up to three weeks. Consider this statistic, one in seven FAFSA forms is returned do to errors. It can happen to you and it can result in your being denied student aid due to lack of funding.

Common mistakes when filing your free application for federal student aid (FAFSA)

The most frequent mistake when applying for student aid is to leave a field blank. If the answer is zero or does not pertain to you, write in a zero. Leaving a question blank can lead to the processor assuming that you forgot to answer. This can result in the FAFSA being returned to you and delaying student aid you desperately need.

Use the 1040 federal tax return for income reporting and reporting taxes paid when filing for student aid. Some parents and students accidentally use their W-2 form.

When applying for student aid, don’t forget to report all the required sources of untaxed income. This includes Social Security, Child support, and Aid to Dependent Children.

Report your correct marital status. You must be married before the date you sign your FAFSA.

Include yourself in household size. Even if you didn’t live there during the previous year, you should always include yourself in your parent’s household.

Remember to file on time. Priority for programs with limited student aid funds is often given to students who file FAFSA as soon after January 1st as possible.

Don’t forget to sign the application. If you’re filing FAFSA as a dependent both you and your parent must sign. If you file online you can sign the form electronically using your PIN numbers.

On the paper FAFSA, make sure to follow instructions regarding pen or pencil use.

As with all forms and applications, make sure you read the instructions and questions carefully. If you’re unclear about a question or are having trouble filling out the FAFSA, check out the FAQ section on the FAFSA website. Or call the Federal Student Aid Information Center at 1-800-4-FED AID.

To avoid these errors and any complications regarding student aid that may arise from them, always get started early. Be sure to read your student aid application before you submit it. Fill it out right the first time, and you will have your Student Aid Report (SAR) letter in no time.

Student Loan

It seemed like a great idea at the time. Getting a personal loan was hardly an option, but financial aid institutions provided loan after loan to get you through school. If financial aid was your sole provider of getting through school, chances are, you feel like your student loan is going to follow you around for the rest of your life.

Consider these tips when dealing with the after effects of taking in large amounts of financial aid:

A Student Loan is an Investment in Your Future
Consider your student loan as an investment rather than a burden. If you think about it, you’re not very different from a business that has borrowed thousands of dollars in start up money. The student loan funded your professional education, now you have the skill sets needed to earn the money to pay back your debt. This is why the government is so willing to provide financial aid to millions of people every year. What they pay in financial aid, is returned in your contribution as a skilled member of society.

Student Loan Consolidation
Many small businesses use a variety of funding sources when getting started such as credit cards, personal loans, and money borrowed from friends and family. Once they begin to earn a steady income, one of the things they may do is to consolidate their debts into one payment. The same concept can be used for easing the burden caused by financial aid.

Since college students in search of ’school money’ often use an assortment of funding sources, student loan consolidation can help simplify your repayment schedule. For example, you could go from owing $200 a month on three different federal financial aid loans to owing just $200 on one. One of the downsides to consolidating financial aid debt is that it prolongs the repayment period, in turn increasing interest payments. A good time to do this is if you several financial aid loans set at different rates. Consolidating can roll them all into one loan with a better rate.

Lowering Your Payments on Deferred Financial Aid Loans
There may be a period of time after graduation when little or no money is coming in. Consider lengthening the student loan term. This can lower payments to a more affordable rate. It will increase interest payments, but can help your current cash flow situation.

Delay Your Payments if You Can
One advantage of a student loan, when compared to a business loan, is that the terms of repayment are often more flexible. If you haven’t landed a job yet and run into trouble making your monthly payments, sometimes you can work with the lender to get a deferment. If you don’t qualify for deferment, you can file for a forbearance which temporarily lets you postpone regular payments on your student loan. A forbearance period is typically shorter than a deferment period. Don’t forget about interest rates that will continue to add up.

Paying Off Your Loans
if you do find a job and have money you can put towards making extra payments on your student loan then go for it. The money you borrowed to go to school was an investment in your future earnings anyways. Once you break even on the loan, the return will come sooner.

Different Types of Federal Student Aid

There are six federal student aid programs you should definitely know about. They include the following:

Federal Pell Grants
This is need-based financial aid. The amount of student aid you receive will depend largely on how much it costs to attend the school of your choice. The money for the Federal Pell Grant comes to the school, which then delivers it to you. If you are eligible for this form of student aid, you will receive it regardless of how many other students at the same school also show need for this type of student aid.

Federal Stafford Loan

There are two types of Federal Stafford Loans: subsidized and unsubsidized. The principal balance on these loans are deferred until 6 months after you are out of school. The primary difference between these two is who pays the interest on the loan while you enrolled in school and during grace and deferment periods.

An unsubsidized loan is not based on how much financial aid you need. If you take out an unsubsidized Federal Stafford Loan, you are responsible for the interest that accrues from the time you borrow the loan and the time of repayment. This interest can be capitalized, which means it can be added to the principal amount of the loan and thus be deferred until then, however, you will be responsible for paying interest on the capitalized interest.

A subsidized loan is based on how much financial aid you need. It shares the same interest rates and deferment periods as an unsubsidized loan, however, the main difference is that any interest accrued during that period is paid for by the government.

Federal PLUS Loans

This is financial aid available to parents whose credit ratings qualify. This is non-need based financial aid. These loans have varying interest rates, but it may not exceed 9%. The first payment of interest and principal for this form of financial aid is due 60 days after the loan is fully disbursed and ends no later than 10 years after repayment begins.

Federal Perkins Loans

This is a low-interest form of financial aid with generous repayment options. The grace period is 9 months and you don’t begin this period unless you are less than a half-time student or you finish school.

The generous grace period is supplemented by lax rules on adjusting repayment. Under certain conditions you can defer paying your loans for several months, even years, and finish repaying it later as long as the school that provided the student aid knows about where you are and why you wish to delay repayment.

In addition, this form of financial aid benefits from certain conditions that will exempt you from having to repay your loan at all. They include joining certain law enforcement fields, child or family service agencies, becoming a nurse or medical technician, or serve as a full-time volunteer in certain programs.

William D. Ford Federal Direct Loan Program

This form of financial aid is similar to the FFEL programs, it also consists of subsidized and unsubsidized loans, but the primary difference is in who is providing the loans. Under this financial aid program, the respective amount of student aid is provided by private lenders, such as banks, credit unions, savings and loans, etc..

With the exception of certain repayment options, the terms and conditions of financial aid issued under the Direct Loan Program are identical to those made under FFEL.

Campus-Based Programs

The following types of financial aid are grouped as campus-based programs. The federal government gives out money to participating schools and then they independently decide who to provide student aid for based on need.

Federal Work-Study programs allow schools to provide student aid in the form of jobs for those who need to work to meet some of their educational expenses. Generally, no prior experience is needed for placement in these jobs. You can use your earnings to pay for expenses that come up throughout the school year.

The Federal Supplemental Educational Opportunity Grant is a gift-based student aid to the neediest students, according to federal law. Besides showing need, you must also meet the guidelines the school is required to use when awarding FSEOG.

FAFSA

The Free Application for Federal Student Aid is a form that can be filled out annually by current and prospective college students in the United States to determine their eligibility for federal student aid. The Department of Education begins accepting the FAFSA on January 1st of each year. For previous FAFSA applicants, a renewal form is provided, but tax and income information must be updated annually. In addition to using this information to determine eligibility for federal student aid, most states and schools use FAFSA information to award non-federal student aid.

The FAFSA consists of questions regarding the student’s finances, as well as the family’s finances, number of siblings in college, number of dependents in the family, and dependency status. The information provided in the FAFSA  determines the level of student aid by entering the given information into a formula that determines the “Expected Family Contribution”. A flaw in FAFSA methodology is that the use of this information implies that the parents will contribute to their child’s education, whether that is true or not.

A Student Aid Report, which is a summary of the FAFSA responses, is forwarded to the student. The student should review the SAR carefully for errors and make any necessary correction. Schools may award aid on a first-come, first-served basis, and students are advised to fill out the FAFSA as early as possible for consideration for maximum financial assistance.

FAFSA eligibility

Don’t neglect the FAFSA because you think you will be ineligible. Nearly every student is eligible for some form of student aid. Students ineligible for need-based aid may qualify for an unsubsidized Stafford Loan, regardless of income or circumstances. A student that can meet the following criteria may be eligible for student aid:

-Completes a FAFSA promising to use any federal student aid for education purposes.
-Is not in default on any student loans
-Has not been found guilty of the sale or possession of illegal drugs while federal student aid was being received.
-Is registered with the U.S. Selective Service
-Has a valid Social Security number
-Has a high-school diploma or GED for adult students, or pass an Ability to Benefit test.
-Is a U.S. citizen, national, or an eligible non-citizen

The FAFSA does not have any questions related to the student or family’s race, ethnicity, creed, sexual orientation, disability, or religion.