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.

Before and During College: Plans of the Presidential Candidates for Your Postsecondary Costs, Grants, and Work-Study

The Super Tuesday primaries are upon us. Now’s the time for you to consider the presidential candidates’ plans for resolving America’s postsecondary education affordability crisis.

We’ve already reviewed the candidates’ student loan proposals. Today we focus on Democratic plans for cutting college costs, increasing grants, and boosting work-study (see our February 19 article for Trump grant and work-study plans.

Joe Biden

Student Costs: Would form a federal-state partnership (75% paid for by Washington) to cover 2 years of tuition at community colleges and in job training programs with good graduation and placement rates.

Pell Grants: Wants to double Pell Grant award amounts, index future Pell amounts to inflation, and make DREAMers and formerly incarcerated students Pell-eligible.

Work-Study: Calls for prioritizing Federal Work-Study (FWS) funding for part-time jobs in which postsecondary students learn career skills or mentor K-12 students.

Other: Would provide 2 and 4-year colleges with federal funds to finance emergency grants to students at risk of dropping out due to unexpected expenses. Also promises to seek $18 billion to help Historically Black Colleges and Universities (HBCUs), Minority Serving Institutions (MSIs), and Tribal Colleges and Universities lower student costs and increase graduation rates.

Mike Bloomberg

Student Costs: He, too, wants a federal-state partnership using 67% federal money to support 2 tuition-free years in states and at schools that limit tuition growth and keep overall student cost increases from exceeding inflation. At community colleges, this partnership would only cover transfer and career-oriented programs using “evidence-based” completion strategies. Private colleges could participate only if they already graduate large percentages of their Pell recipients. Hopes to cut textbook costs by doubling the Open Textbook pilot program’s funding, and wants to make low-income students eligible for the Supplemental Nutritional Assistance Program (SNAP).

Pell Grants: Would also double Pell awards and open Pell to DREAMers and students once imprisoned. Calls for 2 Pell pilot programs — one directing extra Pell money to schools enrolling and graduating large numbers of Pell recipients, the other extending it to adults and students in quality, short-term training programs. Would notify families of Pell eligibility through the federal tax process and would simplify the Free Application for Federal Student Aid (FAFSA) so more students apply for Pell.

Work-Study: Advocates for tripling FWS funding, requiring FWS to go to more low and moderate-income students, increasing career-related FWS positions — including in the private sector — and having employers pay more than their current 25% share of FWS wages.

Other: Would triple federal funding for HBCUs and Hispanic Serving Institutions (HSIs), requiring them to spend the new money on need-based student aid and improving graduation rates.

Bernie Sanders

Student Costs: Wants to provide at least $48 billion per year to eliminate tuition and fees at public colleges, HBCUs, MSIs, TCUs, trade schools, and apprenticeship programs. Would partner with states that cover non-tuition and fee costs for families with incomes below $25,000, and do a 50-50 federal match for additional state outlays that reduce other students’ costs.

Pell Grants: Calls for Pell Grants sufficient to cover low-income students’ book, supply, housing, transportation, and other living expenses.

Work-Study: Says he’d triple FWS funding to employ an additional 1.4 million financially needy students.

Other: Would provide $1.3 billion per year to help 200 private, nonprofit HBCUs and MSIs serving 35% of America’s low-income students eliminate or significantly reduce tuition and fees.

Elizabeth Warren

Student Costs: Promises to give all Americans the opportunity to attend 2 and 4-year public colleges or technical schools without paying any tuition and fees.

Pell Grants: Would inject $100 billion more into Pell Grants so every American, especially low-income students, could afford postsecondary education without using loans.

Work-Study: No proposals.

Other: Seeks $50 billion to ensure that HBCUs, MSIs, and TCUs have the resources they need.

Educate yourself about the candidates and vote in your state’s primary! This election is crucial on countless fronts, including postsecondary affordability.

For the candidates full plans for postsecondary affordability and learning, use the links below.

Joe Biden

Mike Bloomberg

Bernie Sanders

Donald Trump

Elizabeth Warren

Note: This article was edited February 2, after Pete Buttigieg, Amy Klobuchar, and Tom Streyer suspended their campaigns.

Before, During, and After College: Plans of the Presidential Candidates for Your Student Loans

March 3 is Super Tuesday. Americans in 16 states will vote for Democratic presidential candidates. Whether you’ll vote then or later, you should understand each candidate’s plans regarding a critical national issue — postsecondary education affordability.

Today, we focus on the candidates’ plans for student loans.

Donald Trump’s campaign website offers no plans about anything, including postsecondary affordability. Nevertheless, on February 12 we reviewed his FY 2021 student loan budget plans. As for the leading Democratic candidates — Joe Biden, Mike Bloomberg, Pete Buttigieg, Amy Klobuchar, Bernie Sanders, and Elizabeth Warren — here are their student loan plans . . .

Interest Rate

Sanders: Wants to reduce the cap on FDLP student loan interest rates to 1.88% — far below current interest rates ranging from 5.05% to 7.6%.

Collection and Repayment

Biden, Bloomberg, and Buttigieg: Want to cut Federal Direct Loan Program’s (FDLP’s) Income-Based Repayment (IBR) plan’s monthly payment amounts in half — from 10% to 5% of borrowers’ discretionary incomes.

Biden: Would also exempt FDLP borrowers from payments and interest whenever their earnings are below $25,000.

Buttigieg: Would automatically put FDLP borrowers into IBR if they fall behind on payments or indicate they’re having trouble making payments. He’d also subject federal student loan servicing contractors to more rigorous oversight and standards. Regarding private student loans, he wants to protect family members from being held responsible for repayment if the borrowers die, and stop such loans from going into default based on co-signer death or bankruptcy.

Klobuchar: Would strive for legislation allowing borrowers to refinance their federal and private student loans at lower interest rates.

Student Loan Forgiveness in General

Sanders and Warren: Offer the broadest forgiveness plans. He’d cancel all existing student loan debt — federal, state, and private. She’d forgive up to $50,000 in student loan debt owed by 95% of all borrowers.

Klobuchar: Is on record rejecting widespread forgiveness, but would eliminate undergraduate FDLP debt remaining after 20 years of IBR payments by employees in “in-demand jobs.”

Biden, Bloomberg, and Buttigieg: Support an existing rule forgiving FDLP debt that remains after 20 years of IBR.

Biden and Bloomberg: Would make 20-year IBR forgiveness tax-free, although Bloomberg would limit this to households with incomes below $250,000.

Public Service Loan Forgiveness (PSLF)

Biden: Calls for legislation making private student loans forgiveable under bankruptcy.

Bloomberg, Buttigieg, and Klobuchar: Seek FDLP debt cancellation for borrowers who attended predatory for-profit schools that put them into unaffordable debts without viable job prospects.

Bloomberg: Wants a pilot program forgiving FDLP debts for borrowers in professions that fulfill “targeted labor-market needs.”

Biden: Wants to fix PSLF, which the Trump administration has mismanaged so badly that 99% of applicants have been denied it. He’d also automatically enroll FDLP borrowers in a new program forgiving $10,000/year for up to 5 years of national and community service.

Buttigieg: Wants to reform PSLF to forgive 5% of borrower’s FDLP debts for each of their first 3 years of public service, 10% after each of their next 4 years in such service, and 15% for each of another 3 years as public servants.

Bloomberg: Calls for all qualified borrowers who applied for PSLF in good faith to get it.

Klobuchar: Would provide more flexibility to meet PSLF requirements while providing borrowers with better information on PSLF eligibility and their progress toward it.

Next

This Friday — the candidates’ other postsecondary affordability plans.

Have questions on these plans? Contact College Affordability Solutions at (512) 366-5354 or collegeafford@gmail.com.

Before and During College: How The President’s Budget Proposals Would Affect Your Grants, Scholarships, and Work-Study

President Trump recently released his Fiscal Year (FY) 2021 budget proposals for federal student financial aid. Last Wednesday, we assessed their possible impact on federal student loans. Today, we focus on how they’d affect grants and work-study jobs for financially needy students.

Pell Grant: The administration promises to keep the Pell Grant program fully funded and financially stable, while raising the maximum Pell award from $6,195 to $6,345. But it wants to cut Pell’s appropriation by $134 million while awarding 252,000 more grants. It would extend Pell funds to 3 new groups: those in what it calls “high-quality” short-term training programs leading to certificates and licenses, convicts taking courses during their last 5 years in prison, and Iraq-Afghanistan Service Grant recipients. Give all this, fulfilling the administration’s promises will be impossible, which could cause frozen or reduced Pell awards after FY 2021 even as college costs rise.

Federal Supplemental Educational Opportunity Grant (FSEOG): The neediest of financially needy undergraduates are now receiving 1.8 million FSEOGs worth $1.2 billion. But the proposed budget would eliminate FSEOG funding, denying much-needed federal funds to exceptionally needy students. A side-effect would be fewer grants and scholarships for others as postsecondary schools, under pressure to be affordable to all qualified applicants regardless of their economic circumstances, would have to divert other grants and scholarships to students currently getting FSEOGs.

Federal Work-Study Program (FWS): Today, FWS provides part-time jobs to needy graduate, professional, and undergraduate students. Washington covers 75% of their wages. They work mostly on-campus and their jobs are often related to student majors. FWS also supports off-campus public interest jobs with government agencies and nonprofits. Mr. Trump would reduce FWS appropriation by 58%. He’d kick graduate and professional students out of the program and extend it’s payroll subsidy to for-profit employers providing “career-oriented” jobs. He’d also place greater emphasis on the numbers of Pell Grant recipients at FWS schools when allocating FWS funds to schools — further decreasing FWS jobs at some institutions and increasing them at others.

Overall: Education Secretary Betsy DeVos said “The budget proposal is about one thing — putting students and their needs above all else.” This is misleading. In reality, the Trump proposals would slash funds for student grants, loans, and work-study by 81%.

There’s so much opposition to President Trump’s student aid budget proposals that one higher education publication has pronounced them “DOA.” But you can’t write them off. The national debt is at record levels, putting pressure on Congress to downsize federal spending. So all or some of these proposals could end up being attached to “must-pass” legislation.

So if you want affordable postsecondary education, it’s essential you tell your U.S. Senator and House member what you think about these proposals.

With 42 years experience in postsecondary student finance, College Affordability Solutions can help you develop strategies to use before, during, and after college to help upgrade your plans for keeping learning after high school within your means. Contact us at (512) 366-5354 or collegeafford@gmail.com to arrange a free consultation.