About Tom Melecki

40 years experience in the administration of and rule making for postsecondary student financial aid and loan programs. Tom's experience also includes advising students and their parents, providing personal financial management education to college students, research on college students and their finances, and nonprofit management.

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.

Before College: May 1 Is Just A Week Away!

One week from today, May 1, is the National Candidate Reply Deadline. It’s a big day for anyone offered admission for this coming fall at one or more of America’s four-year colleges and universities.

Why? May 1 is the last day for a prospective freshmen to:

• Accept her admission offer from one of these institutions, usually by paying its nonrefundable enrollment deposit;

• Pay another, nonrefundable deposit to guarantee a place for herself in an on-campus residence hall; and

• Accept, reduce, or reject the financial aid awards she’s been offered by her institution.

A prospective freshman who doesn’t do these things on or before May 1 will forfeit admission to her school of choice, surrender her chance of living on its campus, and lose the grants (except for Federal Pell Grant), scholarships, and work-study jobs it offered to her.

So a soon-to-be college student who’s not yet completed these steps has just one week to decide where she can afford to enroll. Toward this end, she needs to:

1. Overcome the games some colleges play by deciphering misleading information and demanding information missing from her financial aid award letters.

2. Engage in comparative shopping by analyzing different award letters in order to:

• Determine the “net price” she’ll pay for her freshman years by subtracting the grants, scholarships, and tuition waivers offered to her from the costs of attendance she’ll pay; and

• Identify any “unmet need” she’ll have to cover by subtracting financial support she’ll receive from her family, loan amounts she and her parents will borrow, and earnings from any work-study opportunity offered from her net price.

3. Get a response to any special circumstance appeal she or her parents submitted to request more financial aid because of extraordinary situations her family has encountered.

Of course, a student shouldn’t necessarily pick a postsecondary school simply because it’s the cheapest alternative. Numerous other issues should also be considered. Does the institution offers the major she wants? How well does the school accommodate disabilities that may afflict her? Is the institution’s campus, faculty, and student body a good “fit” for her, etc.

Any prospective freshman who’s not yet picked her college or university and done everything else she needs to do on or before next Wednesday should get on with it! Finish your research. Formulate your decision! Pay your deposits. Accept your aid.

Then celebrate. No matter where you go and what you study, you’ve just taken the next important step in positioning yourself for a bright future! Congratulations!

For various strategies that can be implemented before, during and after college to keep higher education affordable, feel free to contact College Affordability Solutions.

Before and During College: Students Should Avoid Extra Borrowing Costs by Graduating Before the 150% Rule Affects Them

Here’s a tale of two brothers. Their father died years ago, and while their mother wanted to help them pay for college, her annual income has always been too low for her to do so. Because they’re financially needy, Dick and Mark are among the postsecondary students who borrow over $20 billion in subsidized debt from the Federal Direct Loan Program (FDLP) every year.

Dick began borrowing these loans when his freshman year began in the fall of 2012. But the family’s finances were so shaky that he had to “stop out” of 3 times to college to work and earn money. And like the majority of undergraduates, Dick changed majors, causing him to stay in school for some extra semesters to complete additional classes his new major required.

Dick’s university defines the educational program for his major as a 4-year program. But it took Dick 6½ years to earn his bachelor’s degree.

Mark, who’s 7 years younger than Dick, begins college next fall. He needs all the financial aid he can get, too, including subsidized FDLP loans. He’ll find that these are the least expensive college loans available but, if he takes as long as Dick to graduate from the 4-year program for his major, his subsidized loans will be more expensive than they were for Dick.

What happened? In 2013, Congress changed a longstanding federal rule that made subsidized loans interest-free until their student borrowers completed the 6-month grace periods due to them after they leave school. The change Congress made created the “150% rule,” which limits subsidized FDLP interest-free periods to timeframes equaling 150% of the length of their educational programs.

The 150% rule affects undergraduates with no outstanding FDLP or Federal Family Education Loan debt on July 1, 2013. Dick owed on Federal Direct Loans he’d borrowed before that date, so he was unaffected. But Mark borrows his first Federal Direct Loan in a few months, so he is affected by the 150% rule.

It’s important for Mark to avoid doing what Dick did – i.e. taking more than 6 years to complete his 4-year educational program. If he doesn’t, he’ll be charged interest on his subsidized loans while still in school and/or during his grace period. At current interest rates, this could add no less than $620 to what Mark, and borrowers like him, end up repaying on their Federal Direct Loans.

The 150% rule makes college less, not more affordable. Today’s student borrowers, almost all of whom are subject to the 150% rule, need to complete their studies, graduate, and get into the workforce so they can afford to begin repaying interest as soon as possible.

Contact College Affordability Solutions if you ever want help figuring out how to keep your student loan borrowing costs as low as possible.

 

Before College: Games Colleges Play With Financial Aid Award Letters

Last spring, we published three articles about games colleges play in making financial aid offers and informing students of their tuition and other costs. Washington plays games, too, with TEACH Grants, which ultimately become expensive loans for most recipients.

Last week, National Public Radio ran a story about “award letters” colleges send students. It focused on a recent report, Decoding the Cost of College: The Case for Transparent Financial Aid Award Letters.

Based on an analysis of 515 award letters that different colleges sent high-need to undergraduates, the report listed seven frequent problems with those letters:

(1) Confusing Terminology: 455 that offered unsubsidized student loans used 134 different phrases and terms to describe them, including 24 that didn’t include the word loan.

(2) Omitted Student Costs: One-third contained no information on the costs students would pay at their colleges, making it impossible to determine whether the colleges were affordable.

(3) No Distinction Between Types of Financial Aid: 70% grouped all aid offers together and provided no guidance about the differences between grants, loans, scholarships, and work-study.

(4) Misleading Parent Loan Information: Almost 15% listed Federal Direct Parent PLUS Loans as awards just like they listed grants and scholarships, thereby making their aid offers appear more generous than they really were.

(5) Not Explaining Work-Study: Work-study offers part-time employment to financially needy students, but 70% of the letters that came from schools offering work-study neither defined nor explained the program.

(6) Inconsistent Bottom Line: Only 40% showed unmet need — how much cost would remain after financial aid offers was applied — and they calculated unmet need in 23 different ways.

(7) Missing and Misleading “Next Step” Information: Only about half told students how to accept or decline the financial aid they offered, and their policies about this were inconsistent.

Not every college sends award letters containing such deficiencies. However, colleges that do are, at the very least, close to being deceptive trade practices.

How should students react to such award letters? If possible, enroll elsewhere. Schools using such letters are either incompetent or underhanded. Either way, they can’t be trusted.

Or, if students must attend an institution supplying such letters, they or their parents should contact its financial aid office and demand to be clearly and fully informed about whatever is confusing or missing.

Students victimized by such award letters may also consider submitting complaints to the Federal Trade Commission. Sometimes it’s investigations result in complainants getting money back.

Financial aid award letters should never trick students into selecting schools they can’t afford without taking on giant debts. So check out these letters from top to bottom. And always beware!

Need help decoding financial aid award letters sent to you or a loved one? Contact College Affordability Solutions for a free consultation!