Financial Aid

Another $400 in Free College Aid Could Be Coming Your Way

Posted on by Colin Beresford

College students could see their Pell Grant award go up by as much as $400 for the coming academic year, thanks to the federal spending bill signed into law March 15.

Congress raised the annual Pell Grant limit to $6,895 for the 2022-23 academic year as a part of the 2022 federal budget. That’s the largest increase to the Pell Grant since 2009.

“The $400 increase to the maximum Pell Grant — the largest increase in 10 years — is a pivotal and much-needed investment in making college affordable for today’s students,” Mamie Voight, CEO and president of the Institute for Higher Education Policy, said in a statement. Nearly 7 million students receive Pell Grants each year, Voight said, and many are minority students.

Pell-eligible students who have already received financial aid award letters for the 2022-23 academic year will likely be sent revised letters, according to Karen McCarthy, the vice president of public policy and federal relations for the National Association of Student Financial Aid Administrators, or NASFAA. The increase will be reflected in any financial aid award letters that haven’t been sent yet.

More for Pell Grants, work-study and PSLF

The boost in funding will affect more than just the students receiving the maximum Pell Grant. The law expands eligibility and increases award amounts, according to McCarthy.

The federal budget also includes an increase in funding for the federal work-study program. Students could see higher award amounts, and more students could become eligible for work-study, but these changes are not guaranteed, according to McCarthy.

Although the final budget doesn’t contain as much support for students as the original proposal, it does increase higher education funding beyond Pell and work-study. Minority-serving institutions, or MSIs, will receive increased funding compared with last year’s budget, and programs intended to help disadvantaged students attain a higher education also will see a boost to funding.

Money is also being allocated to the Department of Education to further expand eligibility for Public Service Loan Forgiveness, or PSLF. The Department expanded eligibility for PSLF with a temporary waiver, which goes through October of this year; this funding will allow the program to include more borrowers whose previous payments had been ruled ineligible.

Submit the FAFSA to be eligible for aid

In order to be considered for any federal student aid, including the Pell Grant and work-study, you need to submit the Free Application for Federal Student Aid, or FAFSA. Submitting the FAFSA makes you eligible to receive grants, scholarships, loans, and other state-based aid.

Submit the FAFSA even if you’re just considering attaining a higher education. Doing so will give you an idea of how much aid you’ll receive if you end up enrolling; you’re not obligated to accept the aid if you decide not to go to college.

The Pell Grant, like scholarships and work-study, is a form of aid that you don’t have to repay. Eligibility for the grant is determined by your expected family contribution as well as the cost of attending the school you’re considering.

Take advantage of aid you don’t have to repay before accepting any federal loans or aid that you have to pay back. If you must use loans to pay for your education, exhaust all federal loans available to you before applying for private student loans.

Colin Beresford writes for NerdWallet. Email: cberesford@nerdwallet.com.

The article Another $400 in Free College Aid Could Be Coming Your Way originally appeared on NerdWallet.

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6 Things to Know About Student Loans Before You Start School

Posted on by Anna Helhoski

The summer before your freshman year in college means choosing classes, checking out your future roommate’s Instagram and figuring out how you’re going to pay the bills.

Chances are you will need a loan: 2 out of 3 students have debt when they leave school, according to 2017 graduate data from the Institute for College Access and Success. But consider a loan after you’ve accepted grants, scholarships and work-study. You can get these by submitting the Free Application for Federal Student Aid, or FAFSA.

Here are six things you need to know about getting your first student loan.

1. Opt for federal loans before private ones

There are two main loan types: federal and private. Get federal loans first by completing the FAFSA. They’re preferable because you don’t need credit history to qualify, and federal loans have income-driven repayment plans and forgiveness that private loans don’t.

You may be offered two types of federal loans: unsubsidized and subsidized. Subsidized loans — for students with financial need — don’t build interest while you’re in school. Unsubsidized loans do.

Take a private loan only after maxing out federal aid.

2. Borrow only what you need — and can reasonably repay

Undergraduate students can borrow up to $12,500 annually and $57,500 total in federal student loans. Private loan borrowers are limited to the cost of attendance — tuition, fees, room, board, books, transportation and personal expenses — minus financial aid that you don’t have to pay back.

Aim to borrow an amount that will keep your payments at around 10% of your projected after-tax monthly income. If you expect to earn an annual salary of $50,000, your student loan payments shouldn’t be over $279 a month, which means you can borrow about $26,000 at current rates.

To find future earnings, look up average salaries in the U.S. Department of Labor’s Occupation Outlook Handbook. Then, use a student loan affordability calculator to estimate payments.

Your school should provide instruction on accepting and rejecting financial aid in your award letter. If you’re not sure how to do it, contact your financial aid office.

“We’re not scary people,” says Jill Rayner, director of financial aid at the University of North Georgia in Dahlonega, Georgia. “We really do want students and families to come in and talk with us so we can help strategize with them.”

3. You’ll pay fees and interest on the loan

You’re going to owe more than the amount you borrowed due to loan fees and interest.

Federal loans all require that you pay a loan fee, or a percentage of the total loan amount. The current loan fee for direct student loans for undergraduates is 1.062%.

You’ll also pay interest that accrues daily on your loan and will be added to the total amount you owe when repayment begins. Federal undergraduate loans currently have a 5.05% fixed rate, but it changes each year. Private lenders will use your or your co-signer’s credit history to determine your rate.

4. After you agree to the loan, your school will handle the rest

Your loan will be paid out to the school after you sign a master promissory note agreeing to repay.

“All the money is going to be sent through and processed through the financial aid office — whether it’s a federal loan or a private loan — and applied to the student’s account,” says Joseph Cooper, director of the Student Financial Services Center at Michigan Technical University in Houghton, Michigan. Then, students are refunded leftover money to use for other expenses.

5. You can use loan money only for certain things

Loan money can be used for education-related expenses only.

“You cannot use it to buy a car,” says Robert Muhammad, director of the office of scholarships and financial aid at Winston-Salem State University in North Carolina. “It’s specifically for educational purposes: books, clothing, anything that is specifically tied to the pursuit of their education.”

You can’t use your loan for entertainment, takeout or vacations, but you should use it for transportation, groceries, study abroad costs, personal supplies or off-campus housing.

6. Find out who your servicer is and when payments begin

If you take federal loans, your debt will be turned over to a student loan servicer contracted by the federal government to manage loan payments. If you have private loans, your lender may be your servicer or it may similarly transfer you to another company.

Find your servicer while you’re still in school and ask any questions before your first bill arrives, says John Falleroni, senior associate director of financial aid at Duquesne University in Pittsburgh. They’re also whom you’ll talk to if you have trouble making payments in the future.

When you leave school, you have a six-month grace period before the first bill arrives.

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The article 6 Things to Know About Student Loans Before You Start School originally appeared on NerdWallet.

Grads Left Behind $3.75B in Free College Aid in 2021, Study Says

Posted on by Colin Beresford

High school graduates are forgoing free money for college by not submitting financial aid applications, according to a new analysis by the nonprofit National College Attainment Network.

The Class of 2021 left behind $3.75 billion in Pell Grant aid by not completing the Free Application for Federal Student Aid, or FAFSA. An estimated 813,000 students were eligible for the Pell Grant — the largest federal grant program offered to undergraduates — but didn’t submit an application for federal student aid, according to NCAN.

“This quantifies exactly how much opportunity, in the form of forgone Pell Grants, students are leaving on the table,” says Bill DeBaun, director of data and evaluation at NCAN. “It’s another component of showing how dire the college-going situation is in the U.S. right now.”

The findings of the analysis are estimates only; it assumes all high school grads who are eligible for financial aid would submit an application and attend college directly after high school. Nonetheless, the analysis does show that a large number of students aren’t submitting the FAFSA, and if students aren’t submitting it, it’s unlikely they’re enrolling in college, DeBaun says. That can have countless long-term impacts, he added.

FAFSA completion rates are declining

The pandemic’s impact on FAFSA completion is one of the reasons $3.75 billion went unclaimed.

“A huge part of it is the FAFSA is complicated, and students from all walks of life really need support to get through the process,” says Traci Lanier, vice president of external affairs at 10,000 Degrees, a nonprofit college access organization that supports students before and after enrolling in college.

The pandemic forced much of that support to go virtual, Lanier added, and assisting students over one-on-one video conferencing proved to be a challenge compared with large groups that could gather and learn before the pandemic.

In 2019, 61% of high school graduates submitted the FAFSA, while in 2021, an estimated 53% had submitted the application by June 30, according to NCAN. College enrollment has dropped during the pandemic, along with FAFSA completion.

Since fall 2019, there has been a 5.1% drop in enrollment, which translates to nearly 1 million fewer students enrolled in college now than before the pandemic, according to estimates from the National Student Clearinghouse Research Center.

“This is not a hiccup, this is not a blip in college-going,” DeBaun says. “This is a real trend, and it is something that has and is going to keep having real implications on students’ individual finances, on their family’s finances, community’s finances, and then of course, local, state, and national revenue.”

Some state policies have increased FAFSA completion rates

The states with the highest FAFSA completion rates include Louisiana and Tennessee. In 2021, Louisiana had a completion rate of 68%, and Tennessee saw a rate of 71%, according to NCAN’s estimates. Both states have policies that incentivize students to complete the FAFSA.

On the other hand, there are 16 states that have completion rates below 50%, and in the two states with the lowest completion rates, Utah and Alaska, just 37% of high school graduates in 2021 submitted the FAFSA.

Louisiana made submitting the FAFSA a requirement for graduating high school in 2016, and completion rates jumped 10 percentage points in the first year the policy was implemented, says Peter Granville, a senior policy associate at The Century Foundation, a progressive, independent think tank. In Tennessee, students complete the FAFSA at such high rates due to incentives including free community college, Granville says.

“It is implicit in the [mandatory FAFSA] policy that everyone should have a chance to go to college,” says Granville. “I think it has the potential to do a great job starting conversations between students and their schools and their families about going to college and paying for college.”

Submitting the FAFSA is key to paying for college

Each Pell-eligible student in the Class of 2021 who didn’t submit the FAFSA missed out on an average of $4,477 nationally, NCAN estimates.

The Pell Grant is awarded based on demonstrated need, most often to lower-income students, but there is no income limit. The total award depends on details shared in the FAFSA as well as the cost of attendance of the school you plan on applying to.

For students in the Class of 2021 who didn’t submit the FAFSA, 44% said they didn’t do so because they didn’t think they’d qualify for aid, according to student loan lender Sallie Mae’s 2021 “How America Pays for College” study.

If you’re considering pursuing higher education this fall:

  • Even if you’re unsure whether you’d qualify for financial aid, you should still complete the application, as not all aid is based on demonstrated need.
  • You don’t need to know where you’re going to school before completing the application; rather, you just need to provide the names of the institutions you’re considering.
  • It’s best to submit the FAFSA sooner rather than later as some aid is disbursed on a first-come, first-served basis.

Colin Beresford writes for NerdWallet. Email: cberesford@nerdwallet.com.

The article Grads Left Behind $3.75B in Free College Aid in 2021, Study Says originally appeared on NerdWallet.

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Will Inflation Be Good for Student Loan Borrowers?

Posted on by Anna Helhoski

Student loan borrowers are taking to social media to celebrate inflation.

That’s right, inflation: the sound-the-alarm scourge to consumers everywhere that’s hiking the price of goods and services. Over the last year, prices have risen 6.2% — the largest annual increase in three decades, according to October data from the Bureau of Labor Statistics.

Student loan borrowers face a payment restart in February after a 22-month pause. In the meantime, they’re praising inflation because — as they posit — it reduces the value of their debt.

“It’s always good to be a fixed debt holder during an inflationary period,” says Jason Delisle, senior policy fellow in the Center on Education Data and Policy at the Urban Institute, a nonprofit research organization.

This is the logic: Since student loans have a fixed interest rate, meaning the rate is not sensitive to market fluctuations like variable rate loans are, its value decreases as rising inflation devalues the dollar. The result is that loans borrowed in the past are worth less when you repay them in the present.

Kathryn Anne Edwards, an economist at the RAND Corporation, a nonprofit global public policy think tank, says, “In theory you can inflate away debt; it’s something we don’t recommend.”  She says borrowers might want to curb their expectations about inflation’s potentially positive effect. Your debt’s value may technically be lower, but that won’t matter if your wages don’t keep up with inflation, and if your other household expenses also rise faster than your wages.

Inflation’s impact on debt only benefits you if your wages increase

The value of your fixed rate debt only declines if your wages also rise at a comparable rate alongside inflation.

As inflation continues to climb, it’s unclear whether wages will rise across the board. It’s possible that labor shortages and widespread employee demands for higher pay will force employers to increase wages, but it entirely depends on the industry or sector, experts say.

And if the rate of inflation rises past the rate of wages, your ability to pay for goods and services — consumer purchasing power — declines, as does your ability to repay debt.

However, you could be more insulated from certain rising costs than certain groups. For example, increases in healthcare costs hit the elderly harder than others, and childcare costs hit those with young children as opposed to those with older children.

It’s unclear if wages will or won’t keep up with inflation. But long-term effects from that might not happen quickly, says Constantine Yannelis, an assistant professor of finance at University of Chicago Booth School of Business.

What we have seen so far is this: Real average hourly earnings for all employees decreased 1.24% from October 2020 to October 2021, according to November 10, 2021, data from the Bureau of Labor Statistics.

Wage increases could also increase your loan payments

Say your wage does increase along with inflation and your loan payment stays the same. You could benefit from inflation in that your loan will be less expensive since its amount does not change, but your income has.

However, if you’re enrolled in an income-driven repayment plan, you must recertify your income in order to stay on that plan. Income-driven repayment is beneficial for borrowers whose loan payments are more than they can handle. These plans set payments at a portion of your discretionary income and extend repayment.

That means if your income rises in response to inflation or other reasons, and you’re enrolled in an income-driven plan, then your monthly payment amount will also increase. There is an upside though: The higher your loan payment, the faster you pay off your debt and the more you’ll save on interest.

“It’s not necessarily a bad thing, but the perception of borrowers matters a lot here and there may be a little bit of a backlash when people see their payments rise because their incomes have gone up,” Delisle says.

Yannelis says inflation could affect your payment under an income-driven plan in a different way. If the federal poverty guidelines shift in response to inflation, then the amounts used to calculate discretionary income could change, as well.

All borrowers need to factor student loans back into their budgets

Nearly 43 million people will have had 22 months without federal student debt payments in their budget come February 2022. A lot can change in that time.

The payment pause was intended to give borrowers breathing room to focus on other financial needs. For some borrowers, this meant paying for rent and food. For others, it meant paying down their student loan principal, buying a home or a car, finding higher quality care for their children or elders, investing or padding a retirement account.

And according to data from the Federal Reserve Bank of St. Louis, many Americans were able to save since the start of the pandemic due — in part — to a combination of the payment pause, the expanded Child Tax Credit, extended unemployment insurance and stimulus checks.

Borrowers with financial cushioning won’t feel the sting of repayment or inflation’s impact on goods and service costs as quickly as others, experts say. But those who are still out of work or who were in default prior to the pandemic may have a tougher time with the transition.

What all borrowers can do ahead of payment restarting is contact their servicers about their options, which could include:

  • Enrolling in an income-driven repayment plan, which would lower your monthly payment to $0 if you’re unemployed.
  • Submitting an unemployment deferment request if you’re out of work but don’t expect to be for long, and if you don’t want to commit to an income-driven plan.
  • Requesting a hardship forbearance for a short-term hardship unrelated to unemployment.

If you choose to take an additional pause through deferment or forbearance, interest will continue to collect and will be added to your principal whenever you do start repayment.

Anna Helhoski writes for NerdWallet. Email: anna@nerdwallet.com. Twitter: @AnnaHelhoski.

The article Will Inflation Be Good for Student Loan Borrowers? originally appeared on NerdWallet.

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The FAFSA, Your Ticket to Help Pay for College, Just Opened

Posted on by Colin Beresford

October marks the open date for the Free Application for Federal Student Aid or FAFSA — and college-bound students should submit the application as soon as possible.

Completing the FAFSA allows you to be considered for federal, state and school-based aid. In addition, submitting it soon after the Oct. 1 open date will increase your chances of receiving scholarships and grants that schools include in aid packages.

For the 2020-21 academic year, 56% of families used scholarships to help pay for college, according to Sallie Mae’s 2021 How America Pays for College study.

Even if you’re unsure you’d qualify for free aid, it’s still important to fill out the FAFSA. Most people are eligible for federal student loans. However, what varies is need-based aid, which is calculated based on your family’s finances. Since this aid comes from limited funds, applying early matters.

Here’s what you need to know about applying for aid sooner rather than later.

Get started on the FAFSA now

Submitting the FAFSA, particularly if you’re the first in your family to do so, can be complicated.

It helps to have all of the necessary information to complete the FAFSA before you start filling it out. And if you need additional assistance, there are online and in-person resources to help you complete the FAFSA.

“Some colleges and universities do select students for scholarships and grants based on a priority basis, and when your FAFSA was received could make a difference,” said Joe Cooper of Michigan Technological University in Houghton, Michigan, in an email. Cooper, the executive director of Student Financial Services, added, “If you are able to, completing your FAFSA within the first couple months it’s available is usually a best practice.”

You need to submit the FAFSA every year that you want to be eligible for federal aid. The FAFSA for this upcoming award year, or 2022-23, will remain open until June 30, 2023. If you haven’t yet submitted the FAFSA for the 2021-22 award year, it remains open until June 30, 2022. But deadlines can differ for individual institutions and states, so check which deadlines apply to you.

Give yourself more time to make a college decision

By submitting the FAFSA early, you also give yourself more time to consider your college choices.

If you haven’t enrolled in college yet, you can submit the FAFSA to the schools you’re considering and compare your award letters before you choose one. The aid you’re offered, including federal and school-based, can differ among colleges.

Completing the FAFSA early can also give you more time to appeal your financial aid award by submitting a financial aid appeal letter or requesting a professional judgment, regardless of whether you’re submitting it for the first time or not. During the 2020-21 academic year, 29% of families who received a financial aid offer appealed for more aid, according to Sallie Mae’s 2021 study.

You can submit an appeal letter if you’re unhappy with the amount of aid you received or if your economic circumstances have changed since you submitted the FAFSA. Nevertheless, submitting the FAFSA early will ensure financial aid is still available when your letter is processed.

Regardless, completing the FAFSA in the first place makes you eligible for the more than $120 billion in federal aid the Department of Education distributes each year. And getting it done early “maximizes your potential to be considered for all available financial aid,” Cooper said.

Colin Beresford writes for NerdWallet. Email: cberesford@nerdwallet.com.

The article The FAFSA, Your Ticket to Help Pay for College, Just Opened originally appeared on NerdWallet.

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With Student Loan Payments Set to Return, Here’s How to Get Help

Posted on by Anna Helhoski

For 42.9 million student loan borrowers, it’s been 18 months without a payment. That ends in October — ready or not.

The interest-free federal student loan payment pause, known as a forbearance, was extended three times after it initially went into effect in March 2020 as a way to help reduce the financial blow many borrowers experienced as a result of the pandemic.

But with payments set to resume in a few months, servicers — the companies that manage student loan payments — are already fielding thousands of calls a day from borrowers seeking student loan help, according to Scott Buchanan, executive director of the Student Loan Servicing Alliance, a nonprofit trade organization for student loan servicers.

Time is running out for both servicers and loan borrowers to prepare for repayment.

While Education Secretary Miguel Cardona has indicated it’s not “out of the question” to extend the loan forbearance beyond Sept. 30, for now borrowers should be prepared for bills to come due sometime in October (they’re supposed to be notified at least 21 days prior to their exact billing date).

Talk with your servicer now

Servicers are expecting borrower demand for help to increase and may have trouble keeping up. The repayment system has never been turned off before, so no one is sure what restarting it simultaneously for 42.9 million people will look like.

“We don’t have any guidance from the department [of Education] about what a resumption strategy would look like,” says Buchanan. “We are in the time frame where those plans need to be communicated; it cannot wait.”

Richard Cordray, the newly appointed head of the Education Department’s federal student aid office, told The Washington Post for a story on June 11 that restarting payments was “a very complex situation” and said the office planned to provide more information to servicers soon. He also said the department planned to hold the servicers accountable by setting rigorous performance benchmarks.

Despite the uncertainty, if you’re worried about your ability to make payments, there’s no downside to contacting your servicer now to beat the rush, says Buchanan. Ask about your best options to manage payments, depending on your situation.

If you’re not sure who your servicer is, log in to your My Federal Student Aid account to find out. To ensure you don’t miss any notifications, check that your contact information is up to date on your loan servicer’s website and in your StudentAid.gov profile.

Know your repayment options

“Your options are not ‘pay or default,’” says Megan Coval, vice president of policy and federal relations at the National Association of Student Financial Aid Administrators. “There are options in between for lowering payments. Nobody, including the federal government, wants to see you go into default.”

Default happens after roughly nine months of late federal loan payments. It can result in a damaged credit score, wage garnishment, withheld tax refunds and other financial burdens.

  • If payments will be a hardship: Enrolling in an income-driven repayment plan sets payments at a portion of your income, which could be $0 if you’re out of work or underemployed. Or you could opt to pause payments (with interest collecting) using an unemployment deferment or forbearance.
  • If you were delinquent before the pause: Your loans will be reset into “good standing.” Making monthly payments on time will help you retain that status. But if you think you might miss a payment or you don’t think you can afford payments altogether, contact your servicer about enrolling in an income-driven plan.
  • If you were in default before the pause: Contact your loan holder or the education department’s default resolution group to find out how to enter into loan rehabilitation and get back into good standing.

Find a legit resource

Servicers may be your first point of contact, but they don’t have to be your last. You may have other needs your servicer isn’t providing, such as financial difficulty beyond your student loans or legal advice.

Cash-strapped borrowers can find legitimate student loan help for free with organizations such as The Institute of Student Loan Advisors. Other student loan help, such as a credit counselor or a lawyer, will charge fees. You can find reputable credit counselors through organizations such as the National Foundation for Credit Counseling.

Financial planners can also help, but it’s best to look for one with student loan expertise, such as a certified student loan professional.

You can find legal assistance, including advice on debt settlement and pursuing bankruptcy, with lawyers who specialize in student loans or with legal services in your state as listed by the National Consumer Law Center.

If your issue is with your servicer, contact the Federal Student Loan Ombudsman Group, which resolves federal student aid disputes. You can also file a complaint with the Federal Student Aid Feedback Center or the Consumer Financial Protection Bureau.

Avoid scammers

Legitimate student loan help organizations won’t seek you out with offers of debt resolution through unsolicited texts, emails or phone calls. Most importantly, you don’t have to pay anyone to apply to consolidate your debt, enter into an income-driven repayment plan or apply for Public Service Loan Forgiveness.

“The hard and fast rule is that applying for [consolidation and repayment] programs is free,” says Kyra Taylor, staff attorney focusing on student loans at the National Consumer Law Center. “I think when people realize what they can do for free, it makes it easier for them to spot scams.”

And don’t fall for any company that promises to forgive your student loans or wait for the government to do so — thus far, no executive action from President Joe Biden or legislation from Congress has come to pass.

Anna Helhoski writes for NerdWallet. Email: anna@nerdwallet.com. Twitter: @AnnaHelhoski.

The article With Student Loan Payments Set to Return, Here’s How to Get Help originally appeared on NerdWallet.

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Don’t Skip These Steps When Borrowing Parent Student Loans

Posted on by Ryan Lane

In more than one-third of U.S. families, parents decide how to pay for college, according to a July 2020 report from private lender Sallie Mae.

Half of those parents don’t inform the child of their decision.

Joe Allen, 51, of Frederick, Maryland, did talk about college costs with his daughter, a freshman at the University of Dayton in Ohio. But he understands why some families avoid the topic.

“As a parent, you want to protect your children,” Allen says. “You want to do what’s best for them.”

But what seems best for children may be bad for mom or dad — especially if it means taking out hefty parent student loans without discussing them. Here’s how to avoid that misstep and others when borrowing parent loans.

Assess your situation

Students should exhaust free money and federal loans in their names to pay for college. Parents can then cover the remaining costs with federal parent PLUS loans or private loans.

But first, review your current financial situation with your child.

“Have a realistic sit-down with yourself and your family in terms of what (your) finances look like and what’s the best decision for you,” says Rick Castellano, spokesperson for Sallie Mae.

Don’t borrow parent student loans if they’ll put your retirement at risk, you’re deep in debt or you can’t afford the payments. For example, the nonprofit Trellis Company surveyed more than 59,000 parents whose children attended school in Texas and found that most said they struggled with loan repayment at some point.

Have a conversation

Kathleen Burns Kingsbury, a wealth psychology expert and host of the Breaking Money Silence podcast, says talking about big expenses like college tuition can make people uncomfortable and emotional.

That doesn’t mean you should avoid the conversation.

“It’s OK if people get upset,” Kingsbury says. “The pitfall is if people get upset and don’t get back to it.”

Instead, use this opportunity to talk about how much you’ll borrow and to teach your child how to analyze the value of a large purchase.

Allen says he went through a sample budget with his daughter to illustrate the cost of her loans and how they might limit her flexibility in the future.

He liked that the exercise made things more concrete than “just saying don’t take out debt.”

Figure out who’s responsible

A conversation is also necessary to determine who’ll repay the parent’s loans.

If your child will — and 45% of families expect the parent and child to at least share this responsibility, according to the Sallie Mae report — that can affect your decisions.

Angela Colatriano, chief marketing officer for College Ave Student Loans, says some families want the child’s name on the loan because he or she will repay it.

“They don’t want a handshake agreement,” she says.

But only the parent is legally responsible for a parent PLUS loan. You’ll need to weigh that when considering borrowing options.

PLUS loans have less stringent credit requirements than private loans and offer everyone the same fixed interest rate. However, PLUS loans also have large origination fees and are available only to parents — guardians and grandparents aren’t eligible, for example.

Your ultimate goal should be getting the least expensive loan you qualify for. If that’s a PLUS loan, make sure everyone is on the same page for repayment.

Kingsbury suggests writing a simple, one-page agreement that “would spell out what the expectation is and what happens if there’s a conflict.”

Consider co-signing

Parents who prefer private loans can borrow in their name or co-sign with their child. Either option means you’ll be responsible for the loan.

“It comes down to a family decision,” Castellano says. “Families should explore both options.”

But he says that co-signing can benefit students in ways that borrowing on your own can’t, such as helping them build credit.

Also, because a co-signed loan has two applicants, you may get a better interest rate. However, lender underwriting policies differ.

For example, Allen initially got a much higher rate on a co-signed loan than he expected. The lender told him that was because it combined his credit score with his daughter’s.

“I didn’t understand that,” Allen says. “I thought if I’m co-signing and bringing good credit to the equation it should be a better rate.”

He applied with a different lender and got what he called a “much better” rate. Allen plans to take out that loan once his family can no longer fund the education on their own.

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

Ryan Lane is a writer at NerdWallet. Email: rlane@nerdwallet.com.

The article Don’t Skip These Steps When Borrowing Parent Student Loans 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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College Students Can Get More Aid During the Coronavirus Crisis

Posted on by Anna Helhoski

College students who left their campuses in droves as stay-at-home orders rolled in were often met with a whole new financial reality.

They had to relocate in a hurry, racking up unexpected travel and moving costs. Their rented apartments, dorm rooms and meal plans are now going unused. They may have lost a job or left one behind. They may need broadband access or even a new computer to complete the semester remotely.

To top it off, the home they go to may be facing financial straits of its own.

By week three of the coronavirus pandemic, half of college students and college-bound high school seniors said their family’s finances had been affected, according to a survey of 1,000 students by SimpsonScarborough, a higher education marketing and research firm in Alexandria, Virginia. With millions losing their jobs each week, that number has only grown since.

Here are three ways those students can find some help.

Get a refund from your school

Those who had to move out of dorms early will likely get a refund for room and board — the coronavirus relief act allocated money to colleges specifically for this purpose. You can expect a prorated amount, not the full cost you paid for the semester. Your college financial aid office will have information on how to receive a refund.

The funds you get back can be used to pay for any education-, travel- or living-related expenses you’ve incurred as a result.

But if your room and board was paid through a student loan and you don’t need the refund to make ends meet, consider returning it. Making a payment now prevents interest from accruing in the time before repayment officially begins. Contact your student loan servicer, the company that manages your loan, or private lender to make a payment with your refund.

Seek emergency aid from your college

The Department of Education is sending billions of dollars to colleges through the Higher Education Emergency Relief Fund authorized by the coronavirus relief act. Approximately $6.28 billion is specifically intended for colleges to distribute to students in the form of emergency cash grants. The grants can be used to pay for education-related technology and supplies, housing, food, child care and health care, the Education Department says.

“We are turning around applications very quickly, but it’s up to the schools how they choose to get the funding to their students,” says an Education Department spokesperson in an email. So far about half of eligible schools have applied to receive the grant funding, according to the department.

You are eligible to receive an emergency grant whether or not you filed the Free Application for Federal Student Aid. It’s unclear if schools will require the FAFSA from those who didn’t complete it previously in order to receive the aid.

“Some may do a more blanket approach” for students who get need-based aid, like a Pell Grant, while others might require an application, says Ben Miller, vice president for postsecondary education at the Center for American Progress, a public policy research organization. “I could see some doing a balance where some is automatic and some is held back for an application.”

Most schools are still in the early stages of figuring out distribution, but some have a plan.

At Vanderbilt University in Nashville, Tennessee, for example, students with previously identified financial need will receive $1,100 each from the $2.8 million the school will receive. About 20% of the population will qualify, Vanderbilt estimates.

At the University of Connecticut, students are being instructed to email the financial aid office, which triggers a review of their new financial need, according to Stephanie Reitz, university spokesperson and manager of media relations.

Your school may also have its own emergency fund established. These programs typically require students to apply.

At State University of New York at Cortland, a student emergency fund was created and funded by donor gifts. So far the school has received just under 200 applications and authorized around $36,500 in emergency assistance grants to students for food, rent and technology, says Frederic Pierce, director of communications at the college.

The type of emergency and size of awards will likely vary, says Miller, but the common thread will be an ability to demonstrate that need stems, in some way, from impacts of the coronavirus.

Only students eligible to receive federal financial aid can receive the funding, which leaves those in the Deferred Action for Childhood Arrivals program and international students unable to tap this resource.

Update your FAFSA form

Your family’s finances may have looked a lot different when you submitted the FAFSA. But the form you submitted isn’t permanent; you can make changes and receive aid retroactively, even if you already received your financial aid award.

To update the information reported, log in to FAFSA.gov and submit changes under “Make FAFSA Corrections.” Or you can contact your school’s financial aid office and ask them to make changes for you, especially if there will be a significant change in your or your parent’s income this school year, or if there are any other family circumstances to report that the FAFSA form doesn’t require.

The deadline to make updates is June 30 after the school year you need aid. For the 2019-20 school year, that’s June 30, 2020.

If you’re thinking about how you’re going to pay for school next year and you already received a financial aid award, you can file an appeal. Make sure to include a specific amount you’re asking for and reasoning for your request in your appeal.

Anna Helhoski is a writer at NerdWallet. Email: anna@nerdwallet.com. Twitter: @AnnaHelhoski.

The article College Students Can Get More Aid During the Coronavirus Crisis originally appeared on NerdWallet.

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Federal Loans Are Paused for 6 Months — Should You Pay Anyway?

Posted on by Anna Helhoski

Federal student loan borrowers will see payments automatically suspended — without incurring interest on them — for six months, according to a measure included in federal stimulus package released Wednesday. This policy applies only to federal loans, not to private student loans.

This option, called a forbearance, will run through Sept. 30. You will be notified of the option to continue making payments toward the principal.  Contact your servicer if you have further questions.

Make no mistake: This is a pause on payments, not forgiveness. Your debt will be waiting for you when repayment begins at the end of the six-month forbearance, unless the policy changes.

And the policy could well change. The measures were made as part of the federal stimulus bill in response to the economic fallout related to the spread of coronavirus, and COVID-19, the illness it causes. Neither the outbreak nor its economic impact shows signs of slowing, and some lawmakers have proposed more dramatic measures.

“I do think there’s going to be additional waves of relief, depending on how this pandemic plays out,” says Betsy Mayotte, president and founder of the Institute of Student Loan Advisors.

Until then, here’s how to decide what to do next.

If you want to pause payments

You don’t have to do anything to get a forbearance to stop student loan payments for six months, which begin in April. You can call your servicer to request a forbearance before then, which would be retroactive to March 13. Interest won’t continue to accrue, as it normally would.

A forbearance could give you breathing room to address other financial concerns.

If you are jobless or working reduced hours, a forbearance may free up cash to pay the rent and utilities or grocery bills. Even if your pay is unaffected, a forbearance could help you divert some money toward building an emergency fund or help you pay another, more pressing debt.

Usually forbearance is granted at the discretion of the servicer and interest will continue to build. In this case, the Education Department has instructed all servicers to automatically place all loans into a six-month forbearance, and due to the waiver, no interest will grow.

If you’re behind on your student loan payments (or get behind)

Payments are automatically suspended for all borrowers, including those who are more than 31 days delinquent prior to March 13 and those who become more than 31 days delinquent in the coming days. That means the loans are placed in forbearance and won’t default.

Default on federal loans happens when a payment is 270 days past due, sending your loan to collections and exposing you to damaged credit, garnished wages and seized tax refunds.

For borrowers in loan rehabilitation, each month of the forbearance period would also count toward rehabilitation.

For those with federal student loans in default, all collection activities are suspended. You can get a refund for any forced student loan payments made since March 13. If your tax refund was seized before March 13, it will not be returned.

If your loans are already in forbearance, any interest that already accrued will still be added to your loan principal when your repayment begins, but during the six-month waiver no new interest will be calculated.

If you are seeking Public Service Loan Forgiveness

A forbearance won’t undo your progress toward Public Service Loan Forgiveness, or PSLF. During the automatic forbearance, as long as you are still working with a qualifying employer, those six months will count toward PSLF.

Making payments during the forbearance won’t get you ahead on payments. You’re in the same boat whether you pay or not.

Under normal circumstances only full payments count. You also won’t lose credit for the payments you already made.

If you want to continue making payments

Borrowers might want to continue making payments on federal loans if they want to pay down their debt faster.

The stimulus bill states that borrowers will be given the option to continue making payments toward the principal, but otherwise all loans will be placed in forbearance.

If you do continue making payments, you won’t pay any new interest on your loans for six months, retroactive to President Donald Trump’s original March 13 announcement temporarily suspending student loan interest. This 0% interest rate will save you money overall, even though your payment won’t be lower.

The full amount of your payment will be applied to the principal balance of your loan once all interest accrued prior to the president’s announcement is paid.

Contact your loan servicer with any questions about continuing or restarting payments during the forbearance period.

If your income has changed

If you experience a change in income and still want to keep your payments going, the best way to lower your payment to something more affordable is to apply for income-driven repayment. You’ll get a new payment that is based on your family size and a percentage of discretionary income, and it will be in effect even after the stimulus relief has expired. You can apply online at studentaid.gov.

How to work with your servicer

If you want to restart payments during the automatic forbearance, contact your student loan servicer — it’s the private company that manages payment of your federal loans. But you don’t have to do anything to get the forbearance or the 0% interest rate.

Mayotte encourages borrowers to be patient with their servicers.

“These are unprecedented times, and I can assure you the servicers did not have a lot of notice,” says Mayotte.

To find out which loan servicer is yours, log in to studentaid.gov with your FSA ID.

You can get in touch with all of the loan servicer contact centers by calling 1-800-4-FED-AID.

For additional information visit studentaid.gov/coronavirus for forthcoming details.

Anna Helhoski is a writer at NerdWallet. Email: anna@nerdwallet.com. Twitter: @AnnaHelhoski.

The article Federal Loans Are Paused for 6 Months — Should You Pay Anyway? originally appeared on NerdWallet.

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