Before and During College: Hey Parents, If You Really Need a Federal PLUS Loan But Have an Adverse Credit History, Here’s What to Do

Melissa’s a widow with three children and a $50,000 per year income. She’s proud of her oldest, Madison, a daughter who’ll start at the state’s flagship university in August.

The total cost of attending the university during Madison’s first year is predicted to be $29,000.

With two children still at home, Melissa can afford to give Madison just $200 a month for each of her nine months at school. So Madison’s determined to save $3,000 from her summer job and earn another $3,000 from part-time jobs while enrolled.

Madison’s financial aid for the year consists of grants and scholarships totaling $9,500, plus the $5,500 maximum a freshman may borrow from the Federal Direct Loan Program (FDLP).

This leaves Madison $800 a month short of what she needs. So Melissa consulted the financial aid office. She came away convinced that borrowing an FDLP Parent PLUS loan of $7,000 is the only way to send Madison to the university.

Unlike other federal college loans, the U.S. Education Department (ED) runs a credit report on each PLUS applicant. It disqualifies anyone with an “adverse credit history.”

ED would consider Melissa’s credit history “adverse” if her credit report shows that:

• She’s 90 or more days delinquent on one or more debts which, collectively, equal over $2,085; or

• During the last two years, she had more than $2,085 in debt placed in collection or charged off; or

• In the last five years she:

• Defaulted on a debt, suffered a foreclosure, or had something repossessed; or

• Had a federal student loan debt charged-off or written-off; or

• Was subject to a wage garnishment or tax-lien.

Melissa can still qualify by undergoing PLUS credit counseling and:

1. Obtaining an endorser (who agrees to repay the loan if Melissa can’t) without an adverse credit history. Madison, the loan’s beneficiary, can’t be the endorser.

2. Providing documents convincing ED that her adverse credit rating is based on inaccurate information.

3. Sending documentation that persuades ED her adverse credit situation is subject to “extenuating circumstances.” Example? If Melissa defaulted during the last five years, providing ED with a letter from the debt’s current owner or loan servicer confirming she met its conditions for resolving her default could prove an extenuating circumstance.

For more guidance, see ED’s Document Extenuating Circumstances (Appeal) instructions on the Federal Student Aid website.

Even if she qualifies for a PLUS loan, Melissa should tap any other financial resources available to her instead of borrowing it. PLUS is the costliest FDLP loan. It generates debt. But it doesn’t improve Melissa’s earning potential at all.

Nevertheless, because incomes and grants haven’t kept pace with inflation, PLUS has increasingly become a necessity for college parents such as Melissa.

Contact College Affordability Solutions for free consultations on strategies that can help make postsecondary education more affordable before, during, and after college.

Before and During College: Federal Student Loan Interest Rates Drop for 2019-20

Here’s some good news for students and parents borrowing to pay for college — Federal Direct Loan Program (FDLP) interest rates are dropping effective July 1.

The U.S. Education Department (ED) hasn’t yet announced this, but the New York Times and other reputable publications such as Forbes have run stories about it based on expert analysis.

These reductions leave interest rates above their 2017-18 levels, and at best they’ll reduce borrowing costs for the typical FDLP borrower by a few dollars a month. So don’t let the new interest rates motivate you to borrow more than you absolutely need. Nevertheless, it’s better to have an interest rate decrease than an interest rate increase.

Some of the most common questions borrowers have about FDLP interest rates are:

How long may I borrow at the interest rates that begin this coming July 1?

Each FDLP interest rate year runs from July 1 through June 30. The 2019-20 rates apply to loans made — i.e. first applied to what you owe your school or released directly to you or your bank account — on or after July 1, 2019 all the way through June 30, 2020, even if portions of those loans are made after June 30, 2020.

I understand each year’s loans are at “fixed” interest rates. What’s this mean?

The rates on loans you get each year will never change. For example, a 2018-19 FDLP unsubsidized loan you borrowed at 5.05% will still have a 5.05% interest rate when you finish repaying that loan.

If my interest rates on FDLP loans never change, what’s the rate on my combined loans?

It’s a “weighted average” interest rate that reflects the interest rate of each of your loans as a share of your total debt. So if you borrowed a subsidized loan of $2,000 at 4.45% in 2017-18 and $2,000 at 5.05% in 2018-19, the weighted average interest rate on your combined debt of $4,000 is 4.75%.

Will the FDLP interest rate reductions apply to private student loans?

No, but they may influence private lenders who compete with the FDLP to cut their interest rates.

How are each year’s FDLP interest rates set?

They’re based “the highest priced 10-year Treasury notes auctioned at the final auction held prior . . . to June 1.” Then there’s an add-on of 2.05% for subsidized and unsubsidized loans for undergraduates, 3.6% for unsubsidized loans for graduate and professional students, and 4.6% for all PLUS loans regardless of their borrowers. There are also maximums past which interest rates may not go — 8.25% for undergraduate subsidized and unsubsidized loans, 9.5% for graduate and professional student unsubsidized loans, and 10.5% for PLUS loans.

Contact College Affordability Solutions if you have additional questions about the federal student loan programs in general or their interest rates in particular. As with all of College Affordability Solutions’ services for college students and their families, you’ll not be charged for this.

Before College: Is Orientation Worth the Cost?

College costs students pay before classes begin can be shocking — including and especially expenses for attending summer orientation. Freshmen-to-be and incoming transfers often ask, “Is orientation worth the cost of attending it?”

As with so many questions about higher learning, the answer is absolutely definite and crystal clear . . . it depends!

It depends on the costs you’ll incur. Your orientation “budget” should include travel to and from your college or university’s campus, your orientation registration fee, and lodging and meal expenses. Also, don’t forget any wages lost by you and the parent(s) accompanying you to orientation.

Orientation sessions are usually in June or July — the middle of summer travel season. They’re typically two to four days long, although they can last a week. The result? Orientation spending can add up to several hundreds or thousands of dollars — especially at cash-strapped schools that are just looking to generate extra revenues from their students.

It also depends on the opportunities orientation presents you. The National Student Loan Clearinghouse reports that, “Of all students who started college in fall 2015, 73.4 percent persisted at any college in fall 2016, while 61.1 percent were retained at their starting institution.” So orientation is increasingly being called upon to help improve these percentages.

The University of Connecticut at Storrs’ orientation program notes research showing “that students who feel a connection to their new school and other students during orientation are more likely to persist and graduate.” It’s director asserts that “orientation can be an effective way to engage new students, acclimate them to campus, and acquaint them with resources and services that will allow them to hit the ground running — and ultimately graduate.”

So carefully check your school’s orientation schedule. Look for a balance of sessions designed to engage you with your fellow students, acclimate you to your campus, and brief you about campus services. If these are lacking and there are too many parties, receptions or “spirit-building” sessions, orientation may not be worth the money you’d spend on it.

However, one activity can make all the difference. It’s the opportunity to register for fall classes. If your school’s summer orientation program offers this, attend the earliest session possible to reduce your chances of being shut out of classes you need. Otherwise, you may have to wait until just before fall classes begin to register, when you’ll be limited to whatever classes are left — unless your institution offers opportunities to register online from home during the summer. Contact your school’s orientation office to ask about this if necessary.

Finally, it depends on what you put into orientation should you attend it — but hey, that applies to everything you do in college!

Need to control your college costs with sacrificing the quality of your education? Contact College Affordability Solutions for free consultations during which you’ll get the benefit of 44 years helping students and their families develop strategies on this and similar issues.

During and After College: Was Your TEACH Grant Wrongly Turned Into A Loan? Now You Can Get That Fixed!

Do you have a Federal TEACH Grant that’s been turned into an expensive Federal Direct Unsubsidized Loan? Right now it may be eligible for conversion back into a TEACH Grant!

Since their creation in 2007, TEACH Grants have provided $4,000 per academic year to more than 112,000 college students studying to become highly-qualified teachers in high-need fields within low-income K-12 schools.

In April 2018 College Affordability Solutions warned that TEACH Grants were a bad deal because:

• The U.S. Education Department (ED) converts them into Federal Direct Unsubsidized Loans if recipients fail to complete four years of the teaching as described above within eight years of leaving college; and

• ED and its contractors inflicted the same heavy-handed punishment on recipients who allegedly failed to comply exactly with what Public Citizen, a nonprofit consumer protection group, subsequently described as ED’s overly-complicated, even unlawful TEACH Grant regulations.

The result is that 63% of TEACH Grant recipients who began teaching before July 2014 saw their grants transformed to Federal Direct Unsubsidized Loans before June 2016. This turned their $4,000 grants into debts exceeding $9,000.

If you were caught up in this fiasco, you can now have your case reviewed. Here are three way to get this started:

1. If you received a February 2019 email from “noreply@studentloans.gov” about this, follow its directions;

2. Call (855) 499-9543 between 8:00 am and 9:00 pm eastern time Monday through Friday to ask FedLoan, ED’s current TEACH Grant contractor, to initiate a review; or

3. Email “TEACHgrantconversions@myfedloans.org” to request a review.

FedLoan will audit your account, plus other information it may need from you. No matter what, it’ll let you know the result. For example, ED says that if you have, or still can, complete four years of required teaching within eight years of leaving college, your loan could converted into a grant.

But be careful! National Public Radio reports indicate that ED and it’s contractors have mismanaged the TEACH Grant program for years. Although ED’s now pledged to do better, but whenever you deal with ED or FedLoans, be sure to keep:

• A copy of every email, form, or letter you send or receive; and always get a delivery confirmation on anything you send; and

• Notes on every conversation you have with them — who you spoke with, on what date, at what time, the exactly what was said?

In short, act like you’ll someday need to take ED and its contractors to court to get what’s rightfully yours under TEACH Grant law and regulations. Hopefully you’ll never have to do this, but better safe than sorry!

Contact College Affordability Solutions for a free consultation if you need help understanding your rights and responsibilities as a financial aid recipient.

During College: The Right Care Package Can Help Your Student Do Well On Finals And Save Money

Sending the college student in your life a finals week “care package” is an old tradition. But there are practical reasons for doing it.

Final exams and papers often count disproportionately toward grades, creating stressful tension and anxiety that can undermine academic performance. Also, students can get so busy cramming for finals that they lack time to address their basic needs — cooking, cleaning, grocery shopping, etc. And since finals occur when the term ends, some students may run short of money.

Here are some ideas to start your thinking about your student’s care package:

Food: Care packages typically include edibles. That’s good, because the National #Real College Survey shows that 45% of enrolled students experience at least limited or uncertain access to nutritionally adequate, safe food. This may be due to limited family resources, insufficient student aid or, as noted above, other finals-related circumstances — even for adequately-funded students.

Stress often leads to snacking. Since 67% of Generation Z values the nutritional content of its food, you’ll want to pack healthy snacks — fruit bars, microwaveable oatmeal, peanuts, etc. As substitutes for skipped meals, include gift cards for restaurants your student enjoys. Food delivery service gift cards can make these restaurants’ locations irrelevant if they’re in her college town.

Finally, most students have favorite homemade “comfort” foods. Don’t forget to pack some of those no matter what else you put in her care package.

Stress Relievers: Offset stress with care package contents like aromatherapy candles, back and neck massagers, CDs or digital tracks of relaxing music, gift cards for massages someplace on or near campus, or stress-relieving pillows.

Time-Savers: Does she live off-campus? Finals leave little time for tidying up, so if dust and grime bother your student, look into booking a service to spend an hour or two cleaning her residence.

If she commutes to campus without access to timely public transportation, a ride-sharing gift card can save her the time and hassle of locating vacant parking places near her exam locations.

Money-Savers: Most suggestions listed above will help your student save money and reduce stress, save time, etc. But you may also want to include a general purpose gift card for costs she’ll incur while traveling home.

If your student needs financial help but you can’t give it, advise her to inquire with the financial aid office about the availability of micro-grants or emergency loans.

No No’s: Leave bottled and canned beverages, candies that melt, cigarettes, fresh fruit, fresh vegetables, and smokeless tobaccos out of care packages. They’re easily ruined even if they can be mailed or shipped. Also avoid bulky items she’ll have to store or ship home when finals end.

These are just ideas. You know your student best, so you’re best-positioned to come up with the right contents for her care package. Send it so she knows you support her, especially with contents to address her unique needs during one of the most important times of her year.

Financial issues have long been the leading causes of students dropping out of college. Future, present and past college students may consult College Affordability Solutions at no charge, so feel free to contact us for assistance in thinking about how to coach and help your student to keep such problems from endangering the dream (and necessity) of a college degree.