Special Coronavirus Bulletin #6: The CARES Act May Provide Temporary Breaks on Your Federal Student Aid

Yesterday the Coronavirus Aid, Relief, and Economic Security (CARES) Act became law. The Act makes temporary changes to federal student aid programs that take the place of any similar measures announced by the President or ED. Here are these changes affecting federal aid recipients:

Federal Direct Loan Program (FDLP)

  • Loan Payments and Interest Accumulation Suspended: The Act suspends all FDLP loan payments due and interest accumulation that would take place through September 30, 2020. Nevertheless, these months must count as if borrowers made payments when adding up the months required to qualify for all FDLP loan forgiveness and default rehabilitation programs.
  • Garnishments Suspended: To reduce their debts, ED normally garnishes (seizes) money defaulted borrowers would otherwise receive from federal benefit programs, federal tax refunds, and wages. The Act suspends all these garnishments through September 30. ED has reportedly confirmed that garnished tax refunds in process on March 13 will soon be sent to borrowers.
  • Notices to Borrowers: The Act gives ED 15 days to notify borrowers of these suspensions, and that they may still make payments if they wish. Beginning August 1, ED must provide borrowers at least 6 notices describing when their normal payments will resume, the FDLP’s income-driven repayment plans, and borrowers’ rights for switching to those plans.

Federally Funded Emergency Grants

  • Washington allocates money for Federal Supplemental Educational Opportunity Grants (FSEOGs) to postsecondary schools every year to help exceptionally-needy undergraduates. Through September 2021, the Act allows schools to redirect some or all of these allocations to emergency grants for undergraduate and graduate students suffering unexpected expenses or unmet financial need due to qualifying emergencies*. FSEOG allocations are fairly small and, at this point in the aid process, most FSEOG money has already been committed, so this may not add huge amounts to emergency grant programs.

Federal Pell Grants

  • Pell Grant eligibility is limited to 150% of the normal length of recipients’ undergraduate programs — e.g. students in 8-semester programs may get Pell for up to 12 semesters. The Act authorizes ED to exclude academic terms for which Pell Grants are received from this “150% rule” if students don’t finish them due to qualifying emergencies*.

Federal Work-Study (FWS)

  • If FWS jobs for an academic year get disrupted due to qualifying emergencies*, the Act allows postsecondary schools to pay for all or part of what students awarded FWS would have earned during that year, provided the students already began work in their FWS jobs. The Act doesn’t require schools to do this — and doing it may generate some extra costs for schools — so check with your financial aid office if your FWS job’s been disrupted.

Withdrawing Due to Coronavirus

  • Accelerated Federal Aid Repayment: Students withdrawing from school before the 60% point of the terms for which they got federal aid are immediately liable for repaying at least part of that aid. The Act exempts students from such liabilities if they withdraw due to qualifying emergencies*.
  • Satisfactory Academic Progress (SAP): Students must maintain SAP, in part by completing a certain percentage of the credits they attempt, to continue receiving federal aid. The Act allows schools to exempt credits not completed due to qualifying emergencies* when determining SAP.

* Qualifying Emergencies are coronavirus-related emergencies declared by the President or Secretary of Health and Human Services. This includes the current Presidentially-declared coronavirus national emergency.

Follow this website to receive future Special Coronavirus Bulletins as additional information becomes available to College Affordability Solutions.

Special Coronavirus Bulletin # 5: Appeal for More Financial Aid If Necessary

A parent who is or soon will be helping a child pay college-related costs, but the coronavirus has led to that parent losing substantial work earnings or suffering big investment losses in the market crash. An undergraduate who’s experienced similar losses. If either of these describe you, you should submit an appeal for more financial aid.

Every student’s eligibility for the federal grants, the lowest-cost federal student loans, and Federal Work-Study jobs — plus many state and institutional grants, scholarships, loans, and work-study positions — is determined by financial need.

What’s financial need? It’s your postsecondary school’s cost of attendance minus your Expected Family Contribution (EFC). EFC is based on the income and asset data reported on your Free Application for Federal Student Aid (FAFSA). For academic terms beginning before July 1, this was the 2019-20 FAFSA. It was the 2020-21 FAFSA for terms beginning July 1 or after.

If coronavirus-related earnings and/or investment losses have significantly impaired your ability to pay college-related costs, you may submit an appeal asking the financial aid office to recalculate your EFC and, if drops, additional aid need-based aid could become available.

Aid offices must have various documents to prove that financial circumstances have changed since you filed your FAFSA, so look on your aid office’s website or call it to get instructions on how to submit an appeal.

Warning! It typically takes aid offices a few weeks to take up and review appeals, so you should submit yours as soon as possible, especially if additional aid is needed to stay enrolled during the current term.

Unfortunately, not every successful appeal results in lots more grant or scholarship money. Many aid offices have already committed all these funds to other students at this point. But don’t let that stop you! Appealing may at least lead to emergency aid or a low-cost loan.

Get the financial aid needed to keep getting a postsecondary education. Don’t let coronavirus disrupt this basic 21st century necessity!

Struggling to put together an appeal like this? Contact College Affordability Solutions at (512) 366-5354 or collegeafford@gmail.com to arrange a free consultation.

Special Coronavirus Bulletin #3: Payment Suspensions and Interest Waivers on Your Federal Student Loans

If you have federal student loans, you should know that federal policy makers are moving fast to extend debt relief to you during the current coronavirus national emergency.

Federal Student Loan Payments Suspended:

  • Today, the U.S. Education Department (ED) announced that you’re allowed to obtain an “administrative forbearance” suspending your FDLP debt payments. This forbearance took effect last Friday, March 13. It’ll last at least 60 days. To get it, you must request it from your FDLP loan servicer, either by phone or online.
  • Are you pursuing Public Service Loan Forgiveness (PSLF)? Think carefully before requesting this administrative forbearance. Any month in which you make no payment doesn’t count toward the 120 “qualifying months” you need for PSLF.
  • ED’s announcement also disclosed that you’ll get a forbearance suspending any of your payments that were more than 31 days late as of March 13, or that become more than 31 days late after March 13. You need not contact anyone to get this forbearance. Your loan servicer will automatically apply it to your loans.

Interest Waiver on Certain Federal Student Loans:

  • The President recently announced that interest on all student loans held by the government is waived until further notice. Today, ED issued guidance on it’s Federal Student Aid (FSA) office’s coronavirus website confirming this waiver’s effective date as March 13. It’ll be given automatically so you needn’t apply for it.

Student Loans Held By The Government:

  • These include all FDLP Loans, but usually not Federal Family Education Loan Program (FFELP) Loans, normally held by commercial lenders, or Federal Perkins Loans, normally held by postsecondary schools. So this interest waiver is off the table for them.
  • However, under certain circumstances, the holding of such loans may have been transferred to ED, in which case they’ll get this interest waiver.
  • Ask your loan servicer if you’re unsure about who holds your federal student loans. If your FFELP or Perkins Loans are held by lenders and schools, ask your loan servicer about consolidating them into the FDLP to get their interest waived.
  • The government never holds private student loans, so their interest won’t be waived unless their holders do interest waivers.

Interest Waiver Impact:

  • Normally, during a forbearance, you’re not required to make payments on loans held by the government, but interest keeps accumulating on them. At forbearance-end, unpaid interest gets added to your loan principal, and thereafter interest accumulates on your enlarged loan principal.
  • However, because of the interest waiver, there’ll be no post-March 12 interest to capitalize if you get a forbearance. Also, if you choose to make a payment while in a forbearance, 100% of it’ll get used to shrink your loan principal.

More guidance is coming. We’ll issue additional “special coronavirus bulletins” as it does. So keep checking this website, or FSA’s coronavirus website, for additional news. Meanwhile, stay healthy!

Special Coronavirus Bulletin # 4: Call Your U.S. Senators Right Away About Federal Student Debt Relief

Today U.S. Senators are negotiating the contents of the next coronavirus-related economic stimulus bill. Those negotiations are focused on numerous issues — including relief for the millions of Americans with federal student loan debts.

As reported in Special Coronavirus Bulletin #3, the President and U.S. Education Department (ED) have already announced two student loan relief measures:

  • Allow all Federal Direct Loan Program (FDLP) borrowers who ask to get their payments suspended for at least 60 days beginning March 13; and
  • Automatically waive interest accumulation on student loans held by the government (mostly FDLP Loans).

However, competing plans in the U.S. Senate would go beyond these actions. If you like one or the other of these plans, call your Senators’ offices immediately and let them know. Look here for their phone numbers.

Senate Republicans

They want to:

  • Require payment suspensions and interest waivers for 3 months instead of 60 days; and
  • Allow the Education Secretary to extend these suspensions and waivers for another 3 months if she considers it necessary.

Senate Democrats

They’d go far beyond anything described above. For the duration of the coronavirus national emergency declared on March 13, they’d:

  • Require ED to make all monthly FDLP and Federal Family Education Loan Program (FFELP) payments borrowers owe — payments that’d be tax-free and count just like borrower-made payments for forgiveness and default rehabilitation purposes;
  • Require ED to ensure that it’s paid no less than $10,000 for each borrower; and
  • Forbid FDLP and FFELP interest capitalization and the garnishment of social security benefits, tax refunds, and wages.

Make your voice heard to your Senators so they can take it into account as they decide which of these plans to support!

Special Coronavirus Bulletin #2: The Coronavirus Interest Waiver on Your Federal Student Loans

Our Special Coronavirus Bulletin #1: Coronavirus and Your Financial Aid, covered the President’s March 13 announcement that he had “waived interest on all student loans held by federal government agencies, and that will be until further notice.” It also noted that there are many outstanding questions about this waiver. Now, some answers have begun to emerge.

So far these answers haven’t been announced by the U.S. Education Department (ED) or its Federal Student Aid (FSA) office, but by The New York Times after questioning ED officials who say they’re still “finalizing details.” Here’s what The Times learned:

  • Affected Loans: Loans made under the Federal Direct Loan Program (FDLP) are held by ED, so they should end up with this interest waiver. But loans still held by lenders that participated in the old Federal Family Education Loan Program, and Federal Perkins Loans still held by postsecondary schools, will not. The Times pressed ED about whether this waiver will apply to FDLP PLUS Loans for graduate students and parents, but ED wouldn’t confirm this.
  • Begin Date: ED advised The Times that this waiver will be retroactive to March 13, although it’ll probably take about a week for federal student loan servicers to “operationalize” it.
  • Borrower Responsibilities: ED advised that this waiver will be automatic. You need do nothing to get it.
  • Impact on Monthly Payments: FDLP servicers have no instructions from ED to reduce monthly payment amounts due to this interest waiver, so what you pay every 30 days will likely remain unchanged — i.e. no short-term benefit.
  • Impact on Overall Debt: Normally monthly FDLP payments are first used to pay down interest owed, then to reduce FDLP principal. So everything you pay on/after March 13 should go to principal. This’ll shrink your debt faster, which means the amount you’ll repay in the long-term will be reduced.
  • Impact on Payment Postponements: Normally, when monthly payment obligations are postponed with deferments, interest on FDLP Unsubsidized Loans continues to pile up and, at deferment-end, it gets added to debt principal. If payments are postponed through a forbearance, the same normally occurs on both Subsidized and Unsubsidized FDLP Loan interest. But in the long-term this interest waiver should lead to faster debt elimination and less debt to repay.
  • Waiver Reversal: Will waived interest be added to your FDLP debt later? ED could not, or would not, give The Times to answer on this question.
  • When Additional Guidance Will Come: ED would only tell The Times it would share more details on this waiver “as soon as they are available.”

Keep looking here, or at FSA’s coronavirus webpage (https://studentaid.gov/announcements-events/coronavirus) for more information.

Special Coronavirus Bulletin #1: Coronavirus and Your Financial Aid

Coronavirus is affecting different Americans in different ways. If you’re a current or past student who’s using, or used, federal student financial aid, here’s some information you may need.

  • Campus Closure and Online Classes: You must stay enrolled at least half-time to “earn” all your financial aid for the current academic term. So keep participating in classes and submitting assignments, even if only through the internet. Otherwise, you may need to reimburse your school for financial aid that government rules require it to repay on your behalf.

  • Federal Work-Study (FWS): If you can’t work your scheduled FWS hours due to coronavirus, your employer may pay you for those hours or allow you to complete them by other means (e.g. online). Contact your financial aid office about this.

  • Increased Financial Need: If a business closure or layoff causes you or a parent listed on your Free Application for Federal Student Aid to lose earnings, consult your financial aid office to discuss whether and how to seek a reduction in your Expected Family Contribution. This could lead to additional financial aid.

  • Public Service Loan Forgiveness (PSLF) Job Disruption: A month during which you can’t work 30 or more hours per week in a government or nonprofit job won’t count toward the 120 qualifying months you need for PSLF. But these months needn’t be consecutive, so your PSLF “clock” will pick up where it left off when you return to that job.

  • Student Loan Interest: On March 13 the President announced that he’d “waived interest on all student loans held by federal government agencies, and that will be until further notice.” So there’ll be a time period during which no interest will be charged on most or all of your federal student loans. Unfortunately, the White House and FSA haven’t provided any additional guidance by the time we published, so much about it is still unknown. Example: whether this waiver applies to Federal Perkins Loans — almost all of which are held by postsecondary schools, not federal agencies. Hopefully, FSA’s coronavirus webpage will soon have clarifications on this waiver.

  • Student Loan Payment Reductions: If you can’t make your monthly federal student loan payments anymore due to employer shutdowns or layoffs, contact your loan servicer to explore your options — downsizing payments by switching repayment plans or temporarily suspending payments through deferment or forbearance.

Check FSA’s coronavirus webpage periodically for new guidance you may need in the future. We’ll do this, too, and post useful guidance as it arrives. Meanwhile, stay safe and well!

During and After College: Be Sure to Establish, and Keep, a High Credit Score

Your credit score. It’s important because it predicts the risk of lending you money. Potential employers, insurance companies, and landlords also use it when hiring, issuing policies, and renting.

A higher credit score gives you a better chance of getting credit cards, loans, and home mortgages. If your score is 740 – 850, you’re generally considered an excellent credit risk. But if your score drops to 620 or less, it’ll be difficult to get credit — or at least get credit at a low interest rate. The riskier you’re thought to be, the more interest a lender will want to collect to offset its loss if you ever stop making payments.

What affects your credit score? Investopedia highlights five components, each with a different weight:

Payment History (35%): Lenders rely on your promise to pay, and past actions indicate your promise’s reliability. So the more delinquent you become on bill payments, the lower your credit score will be. Your score also drops if a collection agency must be hired to force payments from you, if you default on a debt, or if your debt results in bankruptcy, debt settlement, foreclosure, a lien, wage garnishment, or a write off.

Amounts Owed (30%): The total amount you owe is a factor. So is the combined limit of your revolving credit accounts minus what you owe on those accounts. Finally, your credit score is affected by how you’ve handled both installment and revolving credit. You needn’t owe $0 on everything you ever borrowed to get a high score, but it’s better to owe $50 than $400 on, say, a credit limit of $500.

Length of Credit History (15%): Having a credit card or student loan, even as a freshman, isn’t all bad. Your score will rise as these accounts age — provided you don’t over-borrow and you make your payments as required.

New Credit (10%): Experience shows that people with cash-flow problems and/or planning big spending sprees often seek additional credit accounts. So applying for credit will drop your score for about year while lenders wait to see if you’ve overextended yourself. Nevertheless, lenders understand that consumers sometimes shop for lower interest rates on auto loan and mortgages, so occasionally seeking to refinance such debts is OK.

Types of Credit (10%): Having different types of credit helps raise your credit score. But it’s impact is small, so don’t seek new credit just to get a broader mix of credit accounts.

Student loans are installment loans in that repayment occurs in monthly installments. Borrow them conservatively, especially unsubsidized student loans. If, like most students, you can’t afford to pay interest that accumulates on them while you’re enrolled, they’ll magnify what you owe by eventually adding that interest to your loan principal. When you do begin repayment, pay off your student loans as quickly as possible, don’t miss payments, and don’t default.

Remember, your credit score will impact your ability and cost of borrowing for a car or home after college. So take great care to create, and keep, a high credit score.

We’ll be on spring break next week, but check out this website for a new article on Wednesday, March 25, from guest author Linda Matthew. Linda provides personal financial coaching through her own firm, Money Mindful, and is the author of Teach Your Children About Money.

Before College: It’s Essential To Calculate Your Unmet Financial Need As Your Financial Aid Award Letters Arrive

If you completed the Free Application for Federal Student Aid (FAFSA) for your freshman year of college in 2020-21, you’ll soon get financial aid award letters from colleges that admitted you if you listed them on your FAFSA.

Unfortunately, many award letters, which offer financial aid, don’t list unmet financial need. But calculating it is essential.

Start with what you’ll pay to attend each college — it’s called your cost of attendance. It includes:

Tuition and Fees: Charges required for you to take a full-time load of classes.

Books and Supplies: What full-time students’ textbooks and class materials typically cost.

Room and Board: Costs for student shelter and meals, plus utilities in off-campus apartments.

Transportation: Expenditures for occasional trips between campus and home.

Miscellaneous or Personal Expenses: Clothing, eating out, event tickets, toiletries, etc.

Warning! Some colleges “fudge” these costs to appear less expensive than they really are. If possible, ask students already attending an institution about its hidden costs.

Next, subtract your financial aid. Your award letter may list:

Grants and Scholarships: Amounts you’ll receive from federal, state, and institutional programs providing aid you need not work for or repay. But remember, colleges may not yet know about scholarships from private sources, so factor those in once you’re sure you’ll receive them.

Federal Direct Loans: What you’re authorized to borrow in Federal Direct Subsidized and Unsubsidized Loans, up to $5,500. While award letters usually don’t include Federal Direct PLUS Loans, most parents may request and borrow them for up to your cost of attendance minus your grants, scholarships, work-study, and loans.

Borrow conservatively. Federal Direct Loans must be repaid with interest at rates that are currently 5.05% for students and 7.06% for parents, and that could be higher in 2020-21. So remember, you can and should reject or downsize loan offers you don’t need.

Work-Study: You may also be awarded opportunities to earn money through federal and/or state part-time job programs. More about working below.

Most freshmen and their families use two other sets of resources to cover cost of attendance:

College Savings and Family Income: Hopefully such savings and income will meet or exceed your Expected Family Contribution (EFC) — costs you and your family are expected to pay. EFC will be the same at every school because it’s calculated by plugging your FAFSA data into a formula set in federal law.

Your Earnings at School: Even without work-study, you can probably still find part-time employment while taking classes. Don’t fear it — 43% of full-time undergraduates work, and research has long shown that freshmen working 10-14 hours a week average higher GPAs than freshmen who don’t work at all.

What remains is your unmet need — what you’ll have to cut from your cost of attendance, find from still other resources, or both. But eliminating unmet need isn’t easy. The most recent data available show it averaged $4,920 at public 2-year colleges, $9,134 at public 4-year institutions, and $13,844 at private 4-year colleges back in 2015-16. It’s often more now.

Here’s the harsh reality: if you can’t eliminate your unmet need at a particular college, you can’t afford that college and shouldn’t enroll there. It’s time to consider your other options.

Grappling with unmet need? Let College Affordability Solutions help. Contact us at (512) 366-5354 or collegeafford@gmail.com to arrange a no-charge consultation.