Author: Cecilia Clark

Is $20K Student Debt Forgiveness Still Going to Happen?

Posted on by Cecilia Clark

No one knows for sure when — or if — student loan forgiveness is coming.

As of now, you should plan for payments on your federal student loans to resume in January 2023, especially if you were counting on debt cancellation to erase your balance entirely.

Why? A federal judge in Texas has struck down the Biden administration’s plan to erase up to $20,000 per borrower. The plan is also under an injunction arising from another lawsuit, and several more lawsuits are winding their way through the courts. Any of them could derail debt relief, too.

While the Department of Education is seeking to overturn the court rulings, there’s no guarantee these roadblocks will be cleared before January — or ever.

Unless the president orders forbearance to be extended once more, the clock starts again in January. Loans will resume accruing interest, and missed payments eventually will leave a big dent on your credit history.

Will student loan forbearance be extended?

We don’t know. The White House has not yet committed to pausing payments beyond the Jan. 1, 2023, deadline. It’s possible, though, as forbearance has been extended multiple times since 2020.

Student borrower activists are pressuring the Biden administration to immediately extend forbearance.

“The Biden administration cannot resume payments on Jan. 1,” said Student Borrower Protection Center deputy executive director and managing counsel Persis Yu in a press release. ”It must use all of its tools to fight to ensure that borrowers receive the debt relief they need.”

But Scott Buchanan, executive director of the Student Loan Servicing Alliance, which represents the companies that handle federal student loan accounts, says student loan servicers are moving forward as though payments are restarting in January.

Are the lawsuits likely to succeed?

We don’t know. It’s unclear if any of the lawsuits to stop student loan cancellation will be successful in the end.

However, the two lawsuits that are most challenging have led to a complete halt of the program. In one case, a judge deemed the plan unlawful. The Biden administration quickly appealed the decision, but getting a final answer while the case moves through the courts will likely take months. In another, a court of appeals left an injunction in place, preventing any debt relief while the case moves through the system.

Borrowers should make plans based on the current situation, says Buchanan. That is: Student loan cancellation is blocked, and payments restart in January.

“You have these big programs and big decisions using authority that is untested in courts,” Buchanan says. “That can cause a lot of delays or this could mean it doesn’t happen.”

That stings for those watching from the sidelines.

“It makes me incredibly frustrated,” says Dave Christensen, a Wisconsin borrower who repaid his loans during the pandemic and is awaiting a refund he worries he might have to repay with interest. “We tend to drag things out for so long trying to become victorious for our agenda and our policies, we lose track of how this actually affects people.”

Can I still apply for debt cancellation anyway?

No. For now, the Department of Education has shut down new applications for relief until lawsuits play out. The White House says 26 million borrowers have applied, with 16 million already processed and ready to roll.

Under current guidelines, you must apply by Dec. 31, 2023.

Will I have to return my refunded payments?

Yes, but not all at once. If you sought a refund for payments made during the pandemic, your new payment amount in January will reflect a larger balance, which will include the refund.

If you have not sought a refund, it might be best to wait until the debt cancellation lawsuits play out. If cancellation still happens and you paid your loan balance down below the amount of cancellation you qualify for, your refund will be automatic.

If you still want to put in a manual refund request, you have until the end of 2023 to do so.

What if I cannot afford to make payments?

Take action now, urges Dwayne Kwaysee Wright, a professor of higher education administration at George Washington University.

“It’s going to take a while,” Wright says. “Take a day, take a lunch break, maybe take an extra hour, call your loan provider right now, and have a conversation about January 1st.” He says borrowers should be clear on the amount of their upcoming payments and ask servicers about options that could lower their bills.

An income-driven repayment plan caps your payments at a certain portion of your total income, potentially lowering your monthly bills while extending the loan period. Payments can be as low as $0.

If you’re already enrolled in an IDR plan, you won’t have to recertify your income before July 2023.

If you’ve lost your job, an unemployment deferment can let you skip payments altogether until you start earning again.

What happens to the other parts of debt relief?

The other provisions of debt relief are unchallenged so far, but they could be impacted in the future.

  • Changes to loan forgiveness programs greatly streamlined the process for borrowers in public service, teachers whose schools were closed, and those whose schools defrauded or misled them.
  • An income-driven repayment waiver will broaden which past payments — including partial or late payments, or time spent in certain types of forbearance or deferral — count toward the 240 to 300 needed for forgiveness.
  • “Fresh Start” will allow borrowers with defaulted loans the opportunity to resume repayment in good standing, without penalties and catch-up payments.

Cecilia Clark, Eliza Haverstock and Trea Branch write for NerdWallet.

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Time’s Almost Up to Apply for Bigger Student Loan Forgiveness

Posted on by Cecilia Clark

Full student loan forgiveness could be closer than you think under temporary rules for Public Service Loan Forgiveness, or PSLF — but time is running out to apply.

“They should rush to get this done because the program is far more inclusive than it’s ever been in the past,” says Kristen Ahlenius, an accredited financial counselor and director of education at Your Money Line, a financial wellness company.

Payment requirements for the program are more lenient under a limited waiver that expires Oct. 31. Before the waiver, Ahlenius says, “PSLF was kind of this dismissed program for so long because it was so unachievable.”

The basic requirements for PSLF are to work for a qualifying public service employer, make 120 student loan payments and have federal direct loans. But the program has lots of caveats, which led to approval rates below 2% and furious, confused borrowers.

“People thought they were on track and submitted their application only to get a rejection,” says Betsy Mayotte, president and founder of The Institute of Student Loan Advisors. “In particular, that happened to people who had the wrong kind of loans and people who were on the wrong payment program.”

In addition to having direct loans, borrowers must make payments on an income-driven repayment plan to be eligible.

The PSLF waiver addresses those criticisms. It counts more time toward the required 120 months, including periods of hardship deferment, months with late payments and months not enrolled in income-driven repayment. It also opens the door to borrowers with Federal Family Education Loan Program, or FFELP, loans.

Here’s who should apply now and how to do it.

Who should apply now

Current and previous public service workers

Your job sector is the key criterion for the PSLF waiver. Your time with a qualifying employer must coincide with the time your student loans were in repayment.

These types of employment typically qualify:

  • Federal jobs.
  • State government jobs.
  • Local government jobs.
  • Tribal government jobs.
  • Not-for-profit organization jobs.
  • Military service.

Your employer is what matters — not what you do. Payments won’t count if you work for a private employer, as a government contractor or part time. Parent PLUS loans and joint spousal consolidation loans don’t qualify, either — no matter your job.

Check the PSLF employer search tool to make sure your employment qualifies. “You might be closer than you think,” Ahlenius says.

FFELP borrowers

FFELP loans normally aren’t eligible for PSLF. If you first consolidate your FFELP loans into a direct loan, however, your previous payments will be counted toward forgiveness — thanks to the waiver.

The employment qualifications still apply.

Previously denied applicants

If you were denied PSLF in the past, you could receive additional months toward the 120 needed for forgiveness under the waiver.

The Department of Education said it is reevaluating previously denied PSLF claims and will contact borrowers whose accredited time is adjusted.

“If you haven’t heard anything, you should absolutely submit again,” Mayotte says.

How to apply

Applying for the PSLF waiver has only a few steps:

  1. Log into studentaid.gov to make sure you have direct loans.
  2. Consolidate if you don’t have direct loans.
  3. Complete your employer certification form(s) with the required signatures dated by Oct. 31.
  4. Submit the form(s) to the Education Department.

You must complete a separate employer certification form for each eligible job. Using the PSLF help tool, available at studentaid.gov/pslf, instead of the paper form can streamline the process and help prevent errors.

“Anybody that has any period of working full time for either a government employer, any 501(c)(3), you’ve got nothing to lose and everything to potentially gain,” Mayotte says.

Cecilia Clark writes for NerdWallet.

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Unlock the College Financial Aid You Need Starting Oct. 1

Posted on by Cecilia Clark

Despite the headlines, college is still the surest path toward better lifelong earnings. But a degree is far more likely to pay off if you haven’t borrowed a small fortune to get it.

The Free Application for Federal Student Aid, or FAFSA, is a key step in making college affordable. Applications for the 2023-24 school year open on Oct. 1, and those who apply early stand the best chance of getting more free money for school.

D. Jean Hester, who oversaw college enrollment and admissions at schools in Ohio and Oregon for over a decade, advises getting in line as quickly as you can. While the federal government doesn’t run out of money for need-based aid, colleges and states do.

“Do it this fall. There’s absolutely no reason to wait,” Hester says.

When you submit the FAFSA, you are applying for need-based aid that can make a big difference in where you decide to go to school and how much debt you’ll face after graduation. Every dollar you get in grants, scholarships and work-study is one you won’t have to beg from family or borrow.

Filing early also means you’ll get your financial aid offer from the colleges you apply to sooner, Hester notes, allowing you time to compare offers or resolve any discrepancies.

“It’s one of those things you just need to get out of the way,” she says.

Types of aid covered by the FAFSA

The FAFSA is used to calculate your family’s Expected Family Contribution, or EFC. Subtract the EFC from your school’s official cost of attendance to reveal your financial need; the completed FAFSA then serves as your application for financial aid to help fill that hole.

A completed FAFSA unlocks these types of need-based federal, state and school aid:

  • Pell Grants.
  • Work-study.
  • Scholarships.
  • Grants.

The current maximum Pell Grant award is $6,895; any combination of grants, work-study and scholarships can cover some or all of the difference between the school’s official cost of attendance and your family’s expected financial contribution.

The great thing: These types of aid don’t need to be repaid.

You also need to complete the FAFSA to access federal student loans.

Watch your student loan debt tally

After completing the FAFSA, you are likely to be offered subsidized federal loans as well; they are called financial aid because the government pays the interest on them until you graduate. But they must be repaid like any other loan.

The FAFSA also serves as the application for unsubsidized federal loans, which aren’t tied to need. For freshmen, the amount is capped at $5,500 a year, but that rises to $7,500 by junior year.

If you need to borrow money beyond that amount, you could get a private student loan.

Any loan — whether subsidized or unsubsidized or private — becomes part of the debt you’ll have to cope with once you graduate. A NerdWallet analysis suggests the high school class of 2022 could face an average debt of nearly $40,000 by the time they graduate college.

And while student loan news is currently focused on President Joe Biden’s recent cancellation announcement, the administration has made clear that this allowance is tied to COVID relief and won’t happen again.

Cecilia Clark writes for NerdWallet. Email: cclark@nerdwallet.com.

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Are 0% Interest Student Loans Better Than $10K Cancellation?

Posted on by Cecilia Clark

Cancellation is the most popular proposal to address student loan debt, but it isn’t the only one out there. With the interest-free student loan payment pause in its third year, some wonder if 0% interest on student loans is a better answer.

“I think this COVID pause has really illustrated — hopefully for policymakers but definitely for consumers — that the interest is what’s really killing people,” says Betsy Mayotte, president and founder of The Institute of Student Loan Advisors.

She’s talked to many borrowers who say they wouldn’t turn down forgiveness but would much rather have a cut in the interest rate.

The Biden administration is expected to announce $10,000 in cancellation to federal student loan borrowers earning less than $150,000 for individuals and $300,000 for couples. This aligns with the president’s campaign promises but falls short of what some experts think is necessary.

Lodriguez Murray, United Negro College Fund senior vice president for public policy and government affairs, encourages “the administration to go bigger and bolder.”

“When there is a way you can reset the course of history for certain populations, you should,” Murray says.

Tomas Campos, CEO and co-founder of debt optimization software Spinwheel, thinks 0% student loan interest could be a realistic solution. Student loan debt “impacts half of American households. They may not be in debt themselves, but they see their loved ones struggling with it,” says Campos.

According to a recent NPR poll, the majority of the general public supports partial student loan relief, but that support decreases with higher amounts of cancellation.

Here’s how eliminating student loan interest could work based on two existing proposals aimed at borrowers with problematic long-term debt.

Two plans for 0% interest

LOAN Act

Last summer, U.S. Sen. Marco Rubio, R-Florida, reintroduced the Leveraging Opportunities for Americans Now Act. This act, first introduced in May 2019, calls for the government to disburse all federal student loans at 0% interest and replaces interest charges with a one-time origination fee.

Under the LOAN Act, undergraduate student loans would carry a 20% origination fee, and PLUS loans would carry 35%. These fees would be added to the total principal amount and paid back over the life of the loan.

Borrowers would automatically be placed in an income-driven repayment plan but would have the option to select the standard 10-year repayment plan. Those who repay their loan early would be refunded some of the origination fee.

If a student borrows $27,000 in federal loans at the 2022-23 interest rate of 4.99%, their payment would be about $286 a month for 10 years, with $34,349 repaid in total. With a 20% origination fee and no interest, that borrower would have $270 monthly payments with a $32,400 total repayment.

Low-income borrowers who enter an income-driven repayment plan would benefit most. According to a NerdWallet analysis, a borrower with $27,000 in debt and a starting annual salary of $30,000 would pay nearly $42,000 by the time income-driven repayment forgiveness kicked in. With the Rubio proposal, that borrower may pay about $9,600 less.

Zero-Percent Student Loan Refinancing Act

Sen. Sheldon Whitehouse, D-Rhode Island, introduced the Zero-Percent Student Loan Refinancing Act in February of this year. Rep. Joe Courtney, D-Connecticut, also introduced a version of the bill to the House.

The Zero-Percent Student Loan Refinancing Act would automatically refinance all loans under the federal Direct Loan program to 0% interest. It would also give borrowers with Federal Family Education Loans, Perkins loans and Public Health Service Act loans the option to refinance to 0% interest.

Borrowers with private student loan debt would be eligible for the 0% refinance, too, according to email statements from Meaghan McCabe, a senior communications advisor with Whitehouse’s office

This proposal was introduced to help student loan borrowers recover from pandemic-induced financial strain and mounting interest totals that have the potential to exceed the original principal loan balance. The proposal would allow borrowers to refinance at 0% through 2024.

Borrowers would be eligible to refinance anytime during the open window of the program, even if they are still in school, according to McCabe. Under this proposal, a student who refinanced immediately and had $27,000 in debt at 4.99% interest would save about $7,349 over a 10-year term.

What can you do now?

The existing proposals are a long way from coming to a vote in either house of Congress, and there isn’t even consensus on whether 0% is the ultimate answer to the student debt crisis.

Interest-free student loans “can be coupled with other actions, really, but it’s not enough to make a real difference,” says Murray.

Mayotte says a reduced interest rate, maybe 1%, across student loans may be a better solution, as borrowers may not take 0% debt seriously. She also believes student loans with reduced interest rates have a better chance of garnering bipartisan support in a divided Congress.

Meanwhile, federal student loans are scheduled to return to repayment in September, and that means interest charges will also resume.

Borrowers should plan for repayment. If you think you’ll struggle, contact your servicer to discuss your options, such as reduced payments or halting payments altogether through forbearance. No matter how you proceed, however, interest charges will continue adding up.

As for interest-free or reduced-interest student loans, Mayotte urges borrowers to make their voices heard. She says, “I think if more consumers start writing their members of Congress asking for that, we might get some more attention and more legs to it.”

—

Cecilia Clark writes for NerdWallet.

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5 Things to Consider When Picking a College in the COVID-19 Era

Posted on by Cecilia Clark

Colleges have faced innumerable challenges during the COVID-19 pandemic. And the way they’ve responded to those issues should influence how prospective students evaluate them.

Online learning, strict campus rules and lingering economic concerns have left many students wondering if their college investment will be worthwhile. As a result, fall 2020 enrollment declined by 2.5% — or by more than 400,000 students — according to the National Student Clearinghouse Research Center.

Hafeez Lakhani, founder of college admissions counseling firm Lakhani Coaching, acknowledges the changing college landscape but still advises students to prioritize college. “Education is about playing the long game,” he says, pointing to data showing college graduates earn nearly twice as much over their lifetimes compared with high school graduates.

As you finalize your college selection, consider these questions to gauge which school is best for you in the era of COVID-19.

1. Can you visit campus?

Don’t count out a school just because you can’t physically visit campus.

“Sure, you don’t get to step foot on campus, but you have more opportunities to connect with the school than you had before,” says Sydney Matthes, counselor at college admissions consulting firm Collegewise. She says students can participate in virtual campus tours and virtual class audits.

For example, Hampton University’s campus in Virginia remains closed through at least this spring but is conducting tours and information sessions virtually. Admissions officials say the virtual tours allow prospective students to get a sense of the campus in anticipation of its reopening.

If a school isn’t offering virtual tours, Matthes advises students to contact the admissions office directly and ask to meet via video chat with a professor or current student. “It’s easier to sign up for a virtual tour, but shows interest to write an email,” she says. “Creating relationships is important.”

2. What are the COVID-19 rules?

Having a sense of how a college handled the pandemic’s initial outbreak, the rules it set and its response to students breaking campus COVID-19 rules will give you an idea of what school life will look like.

Brett Joshpe, a lawyer who represented students dismissed from Northeastern University over COVID-19 rule violations, says he got calls from parents all over the country who were concerned about the pandemic rules and their enforcement.

“A lot of parents and [students] in general are rethinking what they’re paying for and where they are going [to college],” Joshpe says.

Make sure you can commit to rules set by a college before deciding to attend.

3. What is your — and the college’s — financial situation?

Many colleges and students are seeing their finances change as the pandemic drags on.

For colleges, Lakhani attributes some of the financial decline to decreased international student enrollment. He says there have been fewer international students coming to the United States over the last several years, and the pandemic only exacerbated the situation.

“International students typically pay full tuition,” Lakhani says. “When you take the flow of international students out, universities have to make up that tuition elsewhere.”

He fears that the cost difference could be passed down to other students, that programs or amenities could be affected and that smaller private schools may have to close.

For students, the pandemic-induced economic downturn means you may have less money available to cover college expenses. According to a June 2020 survey by college study guide website OneClass, about 50% of the 9,000 students surveyed say the coronavirus pandemic has decreased their ability to pay tuition.

But even with a shifting financial landscape, you can still attend college:

  • Select a college you can afford that has a strong financial standing.
  • Take advantage of scholarships, grants and other free money through the FAFSA before borrowing.
  • If your financial situation has changed from what’s represented on your FAFSA, contact prospective schools and request a professional judgment to amend your aid offer.

4. What are the online options?

There is no guarantee that colleges will be back in person by fall 2021. And if they start off in person, they could have to quickly pivot back online.

So even though you may be considering a school based on its in-person classes, campus and activities, also evaluate its online structure. To do this, ask to test drive the school’s online learning platform and attend a virtual lecture. You can also get the perspective of a student who started off in person, but had to switch to online.

And ask if your school keeps records of how many professors are trained or certified in online learning. The ability to teach great classes in person doesn’t always mean the ability to teach great classes online.

5. What support services does the college offer?

The COVID-19 pandemic has led to an increase in mental health issues for college-aged students. According to a June 2020 survey by the research institute Center for Promise, one-third of the 3,300 teenagers surveyed say they have been feeling more depressed or unhappy during the pandemic.

A September 2020 study by the Journal of Medical Internet Research shows 71% of 195 college students surveyed expressed feelings of depression and anxiety. The study concluded there is an “urgent need to develop interventions and preventive strategies to address the mental health of college students.”

Some colleges are responding to this need. Appalachian State University in North Carolina, for example, began offering virtual one-on-one and group counseling for remote and on-campus students. It also hosts a student-led mental health ambassador group that offers peer mentorship.

If you have been struggling emotionally during the pandemic, prioritize a college that has strong support services. Matthes says she advised students to consider support services before the pandemic and that they are even more important now. “The uncertainty can be a little scary, but this, hopefully, isn’t forever,” she says.

Cecilia Clark writes for NerdWallet. Email: cclark@nerdwallet.com.

The article 5 Things to Consider When Picking a College in the COVID-19 Era originally appeared on NerdWallet.

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The FAFSA Just Opened: Why You Should Apply Now

Posted on by Cecilia Clark

An influx of college financial aid applications this year means that money could run out for students who don’t file early.

Due to financial strain caused by COVID-19, nearly 40% of families that didn’t previously plan to apply for federal financial aid now expect to do so, according to a recently released survey from Discover Student Loans.

The federal government, states, colleges and other organizations use the Free Application for Federal Student Aid, or FAFSA, to award financial aid. You must complete the FAFSA to be considered for financial aid.

You have 21 months to submit the FAFSA for any given academic year. For the 2021-22 school year, the FAFSA opens Oct. 1, 2020, and closes June 30, 2022. But that doesn’t mean you should wait.

“There is no downside to applying early, but a lot of risk in applying late,” says Manny Chagas, vice president and head of marketing and product at Discover Student Loans.

Here’s why you should file the FAFSA now.

Better shot at more free money

The sooner you submit the FAFSA, the greater your chances are of getting free aid you don’t have to repay, such as grants or scholarships.

Federal Pell Grant money likely won’t run out, but other need-based aid, including that awarded through your school and state, is limited and awarded on a first-come, first-served basis. Jack Murphy, financial aid counselor at the University of Northern Iowa, named the Federal Supplemental Educational Opportunity Grant and his school’s tuition assistance grant as examples.

The Federal Work-Study Program also has limited funds, so you’ll want to file the FAFSA early to take advantage of it.

More time to appeal a financial aid decision

Students and parents who are dissatisfied with their aid amounts or have a change in economic circumstances can appeal the financial aid award from their school. To do this, you need to petition your school with a financial aid appeal letter and provide evidence to support your need for more aid. If you wait too long, the aid money could run out.

Those who file the FAFSA early are more likely to receive their school-based financial aid awards with their college acceptance letters. While your federal aid will be the same no matter where you attend college, you can send your FAFSA information to several schools to see which will give you the best school-based aid package. Doing so early will allow you to compare offers and appeal if necessary.

If you apply for the FAFSA late, you not only risk a smaller award to begin with, but you also have less opportunity to “shop around” and submit a successful appeal letter.

A quarter of parents surveyed by Discover Student Loans say they’ll appeal their financial aid decision because of previous award amounts and pandemic-induced changes in family finances. In speaking about the survey, Chagas emphasizes that there tends to be more money available early in the process, so students should make the FAFSA a priority.

Murphy agrees. “Filing early makes sure you’re in the running to receive as many awards as possible,” he says. “We see students that get [aid] one year, but not the next.”

They don’t lose out on aid because they no longer qualify, Murphy explains. They just waited too long.

Cecilia Clark is a writer at NerdWallet. Email: cclark@nerdwallet.com.

The article The FAFSA Just Opened: Why You Should Apply Now originally appeared on NerdWallet.

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Will You Get a Refund If COVID-19 Closes Your Campus?

Posted on by Cecilia Clark

Many colleges are welcoming students back for in-person learning and dormitory living this fall semester. Looming over everything: Campuses could shut back down at any time.

With COVID-19 cases still high, many colleges are developing shutdown contingency plans alongside their reopening arrangements.

At the same time, the pandemic is fueling new debate about whether colleges should charge the same tuition for online and in-person classes. Tuition typically covers the cost of instruction — salaries, software, labs and such — and that cost at many schools may have increased.

The University of North Carolina Wilmington, as an exception, has a different cost structure for online, hybrid and in-person classes. Still, it announced that students won’t receive a tuition refund if in-person classes move online this fall. And, after the pivot from its sister school at Chapel Hill, it told students to prepare for a similar transition if cases rise.

That leaves freshman Owen Palmer weighing the possibility that the education he is paying for may not be the one he gets. “I’m taking a risk because (the university) mentioned they can’t do refunds,” says Palmer. For him, the risk is worth it, but he does wonder what he’ll do if the campus has to close.

Here’s what he and other students can expect as the fall shapes up.

Don’t expect a break on tuition

Some schools have cut tuition. Hampton University is offering students a 15% discount, bringing undergraduate tuition to $12,519. Other schools are offering additional scholarships and grants.

But tuition decreases and additional aid aren’t the norm.

“If I had to make bets, I would say a lot of colleges will be (freezing tuition) until they get a better sense of the economy,” says Arun Ponnusamy, chief academic officer at the college admissions and application counseling company Collegewise. “But there will be other colleges that say, ‘We need money to run this school.’”

That may be happening already. George Mason University in Virginia approved a tuition increase of $450. The University of Michigan approved a 1.9% tuition increase. Both schools are planning a mix of online and in-person instruction.

Meals and housing refunds likely

Many colleges aren’t publicizing their shutdown contingency plans — or how refunds will work. But students can look to how their school handled refunds in the spring to gauge how fall might play out.

Florida Agricultural and Mechanical University gave refunds for on-campus housing and meal plans, says William Hudson Jr., the school’s vice president for student affairs. If the campus has to shut down this fall, Hudson says the refund structure “would probably be the same.”

Other colleges also offered direct refunds for students. For example, Temple University automatically deposited partial refunds for room and board in students’ bank accounts. The University of North Carolina Wilmington gave prorated refunds for room and board.

But some colleges opted for account credit instead.

  • The University of Arkansas refunded about 20% of room and board costs to student accounts. They haven’t announced an official plan in case of a fall shutdown, but staff members expect it’ll be the same.
  • The University of Alabama offered a prorated refund for room and board, and parking. Students could take a cash refund immediately or apply that amount and an extra 10% as an account credit for the fall.

How can you prepare?

If you’re planning to return to campus housing, contact your school and ask about its shutdown contingency plans. You’ll want to know what factors would cause it to shut down again. This could be a campus COVID-19 outbreak of a certain size, an increase in local cases or other factors.

You can’t stop a campus shutdown, but if you know the metrics your school is looking at, you can anticipate it and react more confidently.

  • Make backup plans for housing if your campus closes. Determine if you’ll go home, stay with a friend, get your own apartment or something else. Communicate your intentions with those you plan to stay with or scope out affordable apartments in advance. That way, if the campus shuts down suddenly, you know exactly where you’ll go.
  • Ask your college about emergency funds and grants if a campus closure will cause you financial hardship. Many colleges have funds available for students.
  • Plan how you’d use a refund. If your school offers a direct refund, consider whether you’ll need that money for living expenses. If you don’t need the money for living expenses, send the refund back to your student loan servicer. Doing so will keep your overall loan balance down and save you money in the long run.

The article Will You Get a Refund If COVID-19 Closes Your Campus? originally appeared on NerdWallet.

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Why Missing College This Fall Is a Bad Idea

Posted on by Cecilia Clark

As colleges figure out how to structure classes this fall, many students are questioning whether to enroll at all. The idea of taking a gap year might sound enticing, but returning students should think twice.

Many colleges have official gap year or deferred enrollment policies for incoming freshmen. But returning students who choose to take time off and re-enroll once the uncertainties of the COVID-19 pandemic have passed aren’t “gappers.” They’re “stopouts,” and they face risks that don’t come with a traditional gap year.

The president and founder of The Institute of Student Loan Advisors, Betsy Mayotte, explains that colleges have individual leave of absence and withdrawal policies for students who want to take time off. Students who don’t follow those rules might end up with unexpected debt and be blocked from accessing their academic transcripts.

“I see a lot of students that just stop going to school and don’t understand why they’re being charged,” says Mayotte.

Taking a break from college this fall could derail your overall educational and financial goals. Here’s why you should stay enrolled.

You might have to reapply to get back in

Unless the college makes concessions, students without an approved leave of absence are at the mercy of the readmission policy to determine if they can return. Even with an approved leave of absence, you can miss only 180 days in a 12-month period, according to the Department of Education’s Code of Federal Regulations.

Schools also don’t have to readmit students who take time off unofficially. For example, University of Arizona’s Graduate college usually requires a new application, application fee and a minimum 3.0 GPA on all previous coursework at the university before readmission.

But University of Arizona Graduate College Dean, Andrew Carnie, says the college is making exceptions for students during the COVID-19 pandemic.

“We are being very flexible with students who want to take off the fall,” says Carnie. “Students can take a leave of absence and we are approving leaves of absence retroactively. These are extraordinary circumstances.”

Communicating with your college and knowing their COVID-19 plans and policies is key. “Students have to weigh their options and look at what’s going on with their university,” says Kenneth Stephens, director of the Department of Human Services for Florida’s Southeastern University. He notes that while his school has systems in place for students dealing with the COVID-19 crisis, others are still trying to figure it out.

Some colleges allow students without a leave of absence to re-enroll after two years off with no hassle. But others, like the University of Miami or East Carolina University, require students to submit an application for readmission and pay a fee after missing only one semester of school.

You might have to make student loan payments

If you have student loans, taking time off could trigger repayment to begin. Contact your student loan servicer or lender to find out their policy.

All federal student loans are in an administrative forbearance through Sept. 30, due to a provision in the federal government’s coronavirus relief package. So until then, you don’t have to worry about your loans gaining interest or going into repayment.

But if you plan on missing the school year, you will exhaust that window and payments will begin after your six-month grace period ends. While there is speculation that the forbearance could be extended, nothing has been announced.

Federal student loans only get one grace period, so if you use it now you won’t have it available after you graduate, says Mayotte.

The coronavirus relief package forbearance doesn’t apply to private student loans. If you decide to stopout due to COVID-19, your private loans might enter the grace period and then head into repayment. And not all private lenders allow academic deferments for students who return to school, so you could be on the hook for loan payments even when you return to full-time student status.

You might not find stable work

Students planning to work full time must contend with the highest unemployment rate since the Great Depression. The coronavirus remains a threat, and a second wave could cause more shutdowns, which might make finding and keeping a job even harder.

“I’ve had students who mentioned stopping-out, and I told them they should really think about that,” says Sharon Taylor, director of academic advising and professional enhancement at Virginia State University. “The first thing they say is they will work, and I ask them to look at how many people are out of work right now.”

Taylor advises students to continue school if they can afford it and says, “It’s better to wait out the pandemic in school than out of school.”

If you want to minimize coronavirus-related uncertainties with your school, there are options other than withdrawing completely.

  • Take a half-time schedule: Students can take fewer classes and still maintain some of their financial aid benefits while making progress toward graduation. Not all students are comfortable with online learning. Taking fewer classes will give you more flexibility in case your school shuts down early to go online.  
  • Take online classes at a community college: If you need to complete general education requirements, you may be able to do them online at a local community college. That way you can save money on tuition, avoid the unknowns with in-person classes and complete graduation requirements. Before taking community college classes, check with your school to make sure the classes will transfer and that you are in compliance with your school’s dual enrollment policies.
  • Take an official leave of absence: If you decide not to take classes this fall, work with your school to take an official leave of absence. Communicate with your college to let them know why you want to take time off and when you plan to return. Make sure you ask questions about financial aid implications and try to work out exceptions to get more favorable terms with your school and loan servicer. If you have private loans, contact your lender to discuss your leave of absence and ask questions about how it will affect your loan’s status.

This article was written by NerdWallet and was originally published by The Associated Press. 

Cecilia Clark is a writer at NerdWallet. Email: cclark@nerdwallet.com.

The article Why Missing College This Fall Is a Bad Idea originally appeared on NerdWallet.

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It’s Now Cheaper Than Ever to Borrow Money for College

Posted on by Cecilia Clark

Federal student loan interest just dropped to its lowest rate ever.

The interest rate for undergraduate student loans disbursed after July 1 is 2.75%. It’s an almost 40% decrease from last year’s rate for 2019-20 loans, which was 4.53%. Graduate and PLUS loan interest rates are also at record lows: 4.30% and 5.30%, respectively.

A lower interest rate means this year’s student borrowers will pay less overall for those loans. Here’s how loan repayment with last year’s rate compares with repayment with this year’s rate:

For $5,500 in undergraduate loans — the maximum a freshman can borrow — disbursed last year at 4.53%, the monthly payment is $57, with $1,350 in interest over the typical 10-year life of the loan. That same loan disbursed today costs $52 a month and $797 in lifetime interest. That’s $553 in savings.

The lower rates offer even greater potential savings to graduate and PLUS loan borrowers, who can borrow much higher amounts.

For $20,500 in graduate loans at last year’s rate — 6.08% — the monthly payments are $228 and total interest costs are $6,910. This year, that loan costs $210 a month, with $4,759 in interest — which is essentially a $2,151 discount.

Existing loans don’t get the new low rate

The lower interest rate applies to new loans only. Jan Miller, president of Miller Student Loan Consulting LLC, says many borrowers mistakenly assume their existing loans adjust to the latest rate each year.

Student loan interest rates are fixed based on the year a loan is disbursed. So only undergraduate loans taken out for the 2020-21 academic year will have a 2.75% rate. Existing loans will retain the rate associated with the disbursement year.

Student loans for the 2020-21 school year are unaffected by current student loan relief measures outlined in the coronavirus relief package.

Private loans are also cheaper

Private student loan interest rates are also trending down. Unlike federal student loan rates, private loan rates depend on a borrower’s creditworthiness and can vary greatly between lenders. For the best qualified borrowers, many lenders are now offering rates near 1%.

Many interest rates for student loan refinancing have fallen as well. Graduates can take advantage of low refinance rates to reduce interest and payments on existing debt. They’ll typically need a credit score in the high 600s, a low debt-to-income ratio — below 50% — and steady income to qualify.

While lower rates make it a good time to refinance private student loans, don’t refinance federal student loan debt yet. All federal student loans are in an interest-free administrative forbearance until Sept. 30, 2020.

Borrow only what you need

Don’t overborrow just because the rates are low. Base borrowing on college costs and expected future earnings.

Stephanie Hancock, a certified financial planner and owner of College Aid Consulting, advises borrowers to consider the current economic uncertainty, which contributed to the rate drop. “In this environment, do people want to take on additional debt?” she asks.

Miller also cautions against taking student loans if they weren’t previously in a student’s financial strategy.

“I hope people aren’t changing their plans based on the rates,” he says. “Debt is a great instrument, but it should be a last resort in many ways.”

Cecilia Clark is a writer at NerdWallet. Email: cclark@nerdwallet.com.

The article It’s Now Cheaper Than Ever to Borrow Money for College originally appeared on NerdWallet.

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Student Loan Interest Rate Dropping to Historic Low

Posted on by Cecilia Clark

We don’t know exactly what college will look like in the fall, but student loans to get there just got cheaper.

The interest rate on new undergraduate federal student loans will decrease to 2.75%, the lowest point on record, for the 2020-21 school year. That is a drop of 39% from 4.53% in 2019-20.

The government sets federal student loan interest rates based on yields from the U.S. Treasury Department’s auction of 10-year notes each May. Notes sold at the May 12 auction yielded just 0.7%, driven by investors willing to trade higher returns for lower risk. For comparison, last year’s high-yield was 2.48%.

Undergraduate student loan rates are set by adding a margin of 2.05 percentage points to that yield; graduate loans are marked up by 3.6 points, PLUS loans by 4.6 points. That formula predicts these interest rates:

  • Undergraduate direct loans: 2.75%, down from 4.53%.
  • Graduate direct loans: 4.30%, down from 6.08%.
  • PLUS Loans: 5.30%, down from 7.08%.

These rates apply only to new loans for the 2020-21 school year and will stay the same for the life of the loan. Loans taken out prior to the rate change keep their original rate unless you choose to refinance privately.

Under normal circumstances, the lower interest rates might attract more students to colleges and universities. But COVID-19-related campus shutdowns, rocky household finances and transitions to online learning may decrease demand for enrollment this fall.

Impact of the new rates

The lowered interest rates mean new borrowers will see smaller monthly payments and decreased interest costs over the life of their loan as compared with last year’s interest rates.

Someone who took $5,500 in loans with a 10-year term at last year’s rate — 4.53% — could expect monthly payments of $57 and $1,350 in total interest costs. That same loan at the new rate would result in monthly payments of $52 and $797 in total interest.

Dependent undergraduates can borrow a maximum of $31,000 total in federal loans.

Parent PLUS loans have higher rates, and amounts tend to be larger — about $16,000 a year — because borrowing isn’t capped in a similar way. That gives the cheaper rates a bigger impact: A parent borrowing a typical amount would save about $15 a month and more than $1,700 by the time the loan is repaid compared with current rates.

Federal vs. private student loans

Undergraduate federal student loan interest rates are generally lower than rates from private lenders, and borrowers should exhaust federal borrowing before getting private loans.

Federal loans do not require a co-signer. But few undergrads have the credit history or income to get a private student loan on their own; more than 90% of private loans have a co-signer.

All federal student loan borrowers get the same interest rates. Private student loan interest rates vary based on the borrower’s credit and the term of the loan.

All federal loan interest rates are fixed. Private lenders usually offer both fixed and variable rate loans.

Cecilia Clark is a writer at NerdWallet. Email: cclark@nerdwallet.com.

The article Student Loan Interest Rate Dropping to Historic Low originally appeared on NerdWallet.

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