Fall is For FAFSA

October 1 of each year marks the date that the FAFSA (Free Application for Federal Student Aid) becomes available. Students who wish to receive any form of student loan or grant from the federal government must complete and submit it. Most states and colleges also require completion before schools offering aid and formulating a financial aid package.  Even some scholarship foundations and other private grantees will ask for the FAFSA.  

The financial aid process can feel somewhat mysterious for both students and their families.  The first step is to complete the form.  It is available on the StudentAid.Gov website and can be submitted online or mailed.  If sent in electronically, the Department of Education processes your application in about three days, and then makes the information available to all of the schools you chose to list on the form.  Each school then uses the information you documented on the FAFSA to determine how much aid you are eligible to receive if you attend that school. Aid can be a combination of subsidized loans, unsubsidized loans, grants, and scholarships. 

To determine a student’s financial package, the financial aid office evaluates a complex formula.  The parts of the formula are the cost of attendance (COA) and an Expected Family Contribution (EFC). The outcome of this formula will determine the amount and mix of student financial aid. 

Cost of Attendance. The COA takes into account the variety of costs that the student will incur in order to reasonably complete their education.  This calculation includes tuition and fees, living expenses such as lodging and food, books and related resources, dependent care expenses if the student is a caregiver, travel to and from the school, costs of disability accommodation, and reasonable study abroad costs if applicable.  

Expected Family Contribution. The EFT is the portion of costs that the student and family are expected to pay toward the cost of attendance.  The EFT is also a formula, and factors in the size of the student’s family, the number of students attending higher education (for now), most forms of income, and certain assets. Whether home equity is considered or not can depend on requirements of some private institutions

Be careful with deadlines.  While the FAFSA can be completed and submitted any time between October 1 and June 30, many schools have earlier deadlines, especially for specific scholarships and grants.  Additionally, even some federal grants are available on a first-come-first-served basis, and the opportunity for those funds can close once the budget is used. 

Next year, there will be many changes happening to the FAFSA application.  These changes will not be in effect until the 2023-2024 application period, but they will be discussed in an upcoming post so families can plan accordingly. 

Important information for student loan borrowers during COVID-19

The CARES Act provides automatic suspension of principal and interest payment on federally held student loans through September 30, 2020. An Executive Order directs the Department of Education to extend these benefits until December 31, 2020.

Important facts about student loans

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  • The interest and monthly payments on federally held loans are suspended through September 30, 2020.  
  • Consumers do not need to contact their student loan servicer or take any action on federally held student loans.  
  • Make sure the servicer has up-to-date contact information and check your mail or email in order to receive any updates or information about your loans.
  • Suspended payments through September 30, 2020 will count towards any student loan forgiveness program, as long as all other requirements of the loan forgiveness program are met.  

How do I know if I qualify?

The student loan payment and interest suspension only applies to federal student loans held by the Department of Education. Some federal student loans under the Federal Family Education Loan (FFEL) Program are owned by commercial lenders and some Perkins Loans are held by the institution or school you attended. Your FFEL lender or school may choose to suspend interest and payments on a voluntary basis, but they are not required by law to do so.  If you need more information contact your servicer to find out if these options are available to you. Use the link https://studentaid.gov/manage-loans/repayment/servicers to see the list of federal student loan servicers. 

What should I do if I have federally-held student loans?

You don’t need to take any action.  From March 13 through September 30, 2020, the interest rate is set to 0% and payments are suspended for student loans owned by the federal government.  It is suggested, however, to make payments or continue making payments on your student loans, if you are financially able to do so.  Any payments you make after March 13 have been applied directly to principal. By doing this it will help pay off your loan faster.  

Student Loan Debt, Education, College

What should I do if my student loan is already in default? 

The CARES Act requires the Department of Education to stop the collection of defaulted federal student loans, including garnishment of wages and the offset of tax refunds and Social Security benefits, through September 30, 2020.  There is no additional action required from the consumer for federally owned loans. Contact your loan holder to find out about your options regarding other defaulted federal loans you may have. Use this link https://studentaid.gov/manage-loans/default/get-out to learn how to get out of default.   

What should I do if I have private student loans?

Many private lenders have already implemented forbearance options that allow borrowers to postpone monthly payments.  Some of the private lenders also are waiving late fees and will not file negative reports to consumer reporting agencies.  Additionally, private lenders also offer their own reduced payment options.  Contact your student loan servicer to find out what is available to you. 

Graduating? Time to Manage Your Student Loans

The saying usually goes “With April showers comes May flowers” but typically with May flowers, comes students graduating from college. While some students may already have jobs lined up after graduation,  others are just beginning their search. On the minds of many graduating seniors is how they will repay their student loans acquired over the last few years. 

Celebration Education Graduation Student Success Learning ConceptThe first thing a graduating student needs to do is figure out how much money they owe. Federal student loans can be tracked through the National Student Loan Data System. It will list each loan as well as a total for all loans acquired. Private student loans are not part of the database, so grads should check their own records. Another option is to check your credit report at AnnualCreditReport.com. This site will provide detailed information about your credit history, including any private loans you have taken.

When it comes to repaying your federal student loans, I suggest you visit studentaid.gov. The site provides information about repayment, including options for repayment as well as a checklist of items for people who took out loans. 

Typically, you have a six-month window before you need to make your first payment which you are then automatically placed on the Standard Repayment Plan. It is set up as a typical 10 year fixed payment. There are other repayment options, but always keep in mind – the longer you take to pay off the loan the more interest you will pay.  Choosing a Federal Student Loan Repayment Plan provides an overview of various repayment options. 

The spread of COVID-19 and the passage of the CARES Act affect student loan repayment drastically. All federal student loan borrowers are placed in forbearance (means you do not need to pay) from March 13, 2020 till September 20, 2020. Although you are not required to make payments, you still have the option. Most federal student loans will accrue 0% interest during this time. For more information about the impact of the CARES Act on student loans, visit studentaid.gov.  

My colleagues in Extension created a series Factsheets on student loans which is very useful and can help you get more information on what to do when it comes to paying back your loans. The Consumer Financial Protection Bureau also has good information that you should check out. During this pandemic you should take time to learn more about your student loans and the best way to pay them back. Your decisions now can affect how much you pay back in the future and other aspects of your financial life.

 

Paying for your Future – Four things to consider

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While the world’s attention at the moment is on the global COVID-19 pandemic, it is healthy and wise to still think about future goals. Some of you are planning to head to college, technical school, or trade school in the near future. For many, school acceptances are due soon. Whether continuing your education means living away from home, commuting, or learning online from your home, it is important to consider the impact the cost of your education will have on your future. Here are four points to think about when making decisions about your educational future. 

How do I make a wise purchasing decision?

There are many components to making an education choice, but it is important to consider it from a purchasing perspective. If you were planning to buy a car, what are some of the considerations you need to make?  You will want to answer questions such as, “Why do I want it?” “What will I use it for?” “Is the price a good value for me?” and, “What else will I need to pay for once I’ve made my decision?” These and others are some of the same questions you should be asking, and answering, before making a costly education decision. Think about why you plan on going to college and weighing the pros and cons. Set a game plan for yourself by listing all your goals as well as how you plan on achieving those goals, which can ultimately put things into perspective. 

What are my educational choices and costs?

There are many educational program choices one can make regarding their future. For example if you like to work with your hands, you might be interested in going to a trade school to become a chef, licensed electrician, or contractor. If that’s not the path for you, going to a college may be a better option. If you want to pursue a college degree you may have to consider financial options. For example, an in-state public university is usually a less expensive option than a private university. Choosing to start at a community college and transferring to a four-year program is another cost-effective option to consider. The University of Maryland offers a 2+2 option, granting transfers to four-year UMD system universities for students after completion of a community college degree. 

While much depends on student loan structure, (see below) for every $10,000 you borrow to attend school, you will pay roughly $100 each month in loan payments after you leave. It is wise to research the expected income potential of your career choice to make sure you are not overpaying. Student loan debt can affect other life goals, such as marriage or buying your own home.

How do student loans work?Friends People Group Teamwork Diversity

Federal direct subsidized loans are the most common type of student loan. The government is the lender, and also pays the interest while the student is in school. Payments usually start within six months after graduation or when the student leaves school. Borrowers have many loan repayment choices. Loan criteria, choices, and payback options are highly individualized, so it is crucial to carefully review accurate student loan resources and understand interest and repayment terms

What are good sources of funds? 

Financial aid officers at your school of choice will inform you of student loan choices. However, don’t overlook the thousands of smaller dollar scholarships and grants offered by community organizations and businesses. It is worthwhile to research those opportunities and take time to apply. School guidance counselors are excellent resources for scholarship information and can also advise you on federal and state financial aid programs. Money earned from evening, weekend, and summer jobs can also go a long way to reducing loan burdens.

Selecting an educational path can be exciting, but it is smart to consider how choices affect your financial future.