Before and During College: Prepare for Rising Student Loan Interest Rates

The Federal Direct Loan Program (FDLP) provides 89% of all postsecondary educational loans. Unfortunately, FDLP loans will soon become more expensive to borrow.

FDLP interest rates are set every May for loans made from July 1 through June 30. The 2018-19 rates will be 0.6% higher than in 2017-18, making this the third year in aIMG_2154 row during which they have risen.

Note: FDLP loans are “made” from July 1 through June 30 if, during this period, any portion of their initial installments go directly to students or are applied applied to what they owe their institutions.

Higher rates increase borrowing costs. For example, what if the lower 2017-18 interest rates versus the higher 2018-19 interest rates were to remain in place for the next four years? Depending on the borrower’s choice of repayment plan, the total amount repaid to the FDLP under the higher rates would jump by up to:

  • $2,755 for undergraduates borrowing the maximum amount each year for four years;
  • $7,144 for parents borrowing the national average of $10,226 per year to help their undergraduates earn four-year degrees; and
  • $7,338 for two-year master’s degree students borrowing $25,000 per year.

Why are rates rising? Federal law ties the interest charged on each FDLP loan to the rate at which the government auctions off 10-year Treasury notes every May. The rates at which such Treasury notes are auctioned rises as the economy improves, which it’s been doing since late 2015, so FDLP interest rates have been rising, too.

And assuming there’s no economic recession for the next few years, future FDLP interest rates will climb even higher.

Good news? Federal law fixes FDLP interest rate until loans are totally repaid, so their interest rates never rise. This helps make FDLP loans better than the “variable rate” educational loans offered by many private lending institutions.

Still, rising FDLP rates make college less affordable unless borrowing is reduced. Fortunately, there are ways to do this and still get a quality education, including, but not limited to:

So make plans now, because it’s going to be more important than ever to minimize college debt for 2018-19!

College Affordability Solutions brings 40 years of personal college finance and student loan experience to it’s no-cost consultations with customers. Contact it at (512) 366-5354 or collegeafford@gmail.com for such a consultation.

Advertisements

During College: Advise Your Student to Avoid Dropping Courses, Especially Now!

The end of another academic term is approaching, and students struggling with courses are no doubt assessing their options. Should they drop these courses? IMG_1947Probably not.

Dropping now is a bad idea for several reasons:

  • Students who drop courses late in a term usually receive little or no refund of tuition and fees paid for the courses. So they get no return on the money they invested, and repeated drops can force them to enroll for one or more additional terms, costing them thousands in extra tuition, fees, and other costs of attendance.
  • If dropped courses are necessary to satisfy academic requirements — either in the “core” curriculum or to fulfill the demands of a student’s major — the student will eventually have to retake them or similar courses. Result? The student pays twice to complete requirements once.
  • Dropping courses can also jeopardize financial aid eligibility. To get federal aid, Washington requires a student to meet institutional standards for Satisfactory Academic Progress (SAP) toward graduation. These standards — usually postedIMG_1948 on financial aid office websites — obligate the student to successfully complete a certain percentage of the courses in which she enrolls. Many scholarship providers, schools, and states apply similar requirements for their aid programs. But if dropping would put a student below these percentages, she could lose future financial aid.

Because of all this, students should avoid the temptation to drop in order to avert grades that are good but, for whatever reasons, aren’t considered good enough. Some students, for example, can’t tolerate anything less than an A for reasons of personal pride. Others may worry that Bs or Cs will ruin their graduate or professional school applications.

Is there ever a time when a student should consider dropping a course? Yes. SAP also requires at least a 2.0 undergraduate Grade Point Average (GPA), and most institutions have minimum GPAs that students must remain at or above in order to remain enrolled. If a student is certain her final grade in a course will put her below these minimums, dropping may be her best option.

Students may appeal lost aid if they fail to maintain SAP. These appeal processes are usually described on aid office websites. Successful appeals generally (a) document extraordinary circumstances (e.g. illness or family emergency) that undermined academic performance and (b) describe steps the student has taken to overcome these circumstances.

IMG_1949Instead of dropping, it’s usually better to seek academic assistance — and to do so ASAP. Visit with the instructor, get a tutor, join a study group, consult an academic advisor or campus counselor, etc. These actions can go a long way toward avoiding all the costly negatives stemming from a dropped course!

 

Got questions about how to avoid making college attendance more expensive than it needs to be? Contact College Affordability Solutions for a free consultation at (512) 366-5354 or https://collegeafford.com.

During College: You Should Be Protesting If Your Student’s Not Detesting Cryptocurrency Investing!

It’s bad enough that 75% of college students gamble. But now another perilous student behavior has emerged. A recent survey by The Student Loan Report indicates that 21% of student borrowers invest in cryptocurrencies such as Bitcoin.IMG_1834

As a responsible parent you of course advise your student not to gamble. But also urge him to stay away from cryptocurrency investments!

Unfortunately, these investments are easy to make. After loan and other aid money pays tuition and fees for an academic term, your student gets the remainder to cover that term’s books and other necessary expenses. Now he could have up to a few thousand dollars in hand.

He can invest these funds — hopefully in a safe and secure bank account, but also in high-risk opportunities such as cryptocurrencies. Wherever he invests, he’ll still need to pay for necessities like books, housing, and food as the term progresses.

IMG_1779What makes cryptocurrencies so dicey for college students? It’s what investment professionals call “volatility.” Cryptocurrencies can become really volatile really fast!

For example, Bitcoin’s value on January 10 was $14,890.72. But by February 5 it’s value dropped to $6,914.26 — a 54% loss! So if your student bought a $2,000 share in Bitcoin on January 10 and sold this share just 25 days later, he lost $1,080 of his investment! Meanwhile, thousands in costs for the term remain to be paid.

Some call Bitcoin the potentially biggest “bubble” in history. A $1,080 loss from his IMG_1782limited pool of funds could easily place your child among the 52% of college students facing high levels of food insecurity, or the 12% college students who are homeless.

Difficulty paying for basic needs undermines academic performance, and money shortages have long been among the most common reasons why students leave college without degrees, so cryptocurrency financial losses could also end up placing your student among the 25% who drop out every year.

Far better for your student to spend as conservatively as possible and, toward the end of the term, if he has money he doesn’t need, return it to the government. For every $100 of his spring Federal Direct Unsubsidized Loan he returns within 120 days of its disbursement, Washington will immediately cancel all fees and interest applicable to that $100. The result is that for every $100 he returns, the total amount he’ll ultimately repay on this loan will be cut by up to $191!

There’s an old saying, “Never gamble unless you can afford to lose the money.” If your student needs loans and/or other financial aid to help pay for college, he certainly cannot afford to lose money on erratic investments such as cryptocurrencies!

College Affordability Solutions has 40 years of experience in counseling students and parents on ways to manage their dollars for college. Call (512) 366-5354 or email collegeafford@gmail.com for a no-cost consultation.

Before and During College: Games the Government Plays — Federal TEACH Grants

Maybe your high school senior is planning to be a teacher, or your college student’s already an education major. Her 2018-19 financial aid offer may include a Federal TEACH Grant. If so, she needs to be extremely careful about that grant!

IMG_1648TEACH Grants aren’t grants at all. Financial aid pros call them “groans” — grants that all-too easily turns into loans.

TEACH Grant Basics

TEACH Grants provide up to $4,000 per academic year. Their eligibility requirements include financial need and:

Teachers must submit forms for each year they plan to fulfill TEACH Grant service requirements in low-income schools, then submit proof they completed those requirements — all to FedLoans, a private company hired to administer TEACH Grants.

The Risk

If your student fails to timely document four years of required service within eight years of leaving the major for which she got a TEACH Grant, her grant will turn into a Federal Direct Unsubsidized Loan. Interest then gets charged going back to the dates her TEACH Grant was disbursed. For example, if a $4,000 TEACH Grant received eight years ago converted to an unsubsidized loan today, your student could end up repaying $9,360 in principal and interest.

So it’ll be quite costly if your student receives a TEACH Grant but then moves to IMG_1651another major (80% of all students change majors), doesn’t teach, or teaches in a school or subject that doesn’t fulfill TEACH Grant service requirements. Small wonder a recent U.S. Department of Education study shows that 63% of TEACH Grants have been converted to unsubsidized loans.

Compounding the Risk

Some teachers also allege their TEACH Grants were falsely turned into loans due to minor paperwork errors or FedLoans losing their documents.

IMG_1658The situation’s so bad that at least one state’s Attorney General is trying to sue FedLoans for “callous disregard” of ex-students’ needs. But the current Secretary of Education is protecting FedLoans by asserting that it’s immune from state consumer protection lawsuits as a federal contractor. Ultimately, the courts will have to resolve this matter.

A Bad Deal!

If your student’s awarded a TEACH Grant, suggest she request other grants instead. If she must take the TEACH Grant, stress the importance of completing its service requirements and carefully documenting everything she does to provide FedLoans with proof that she fulfilled them. Even then, that TEACH Grant may still be a bad deal!

Need help deciphering financial aid offers? Contact College Affordability Solutions at (512) 366-5354 or collegeafford@gmail.com for a no-cost consultation!

Before College: Games Colleges Play — Tuition and Fee Disclosures

No, this isn’t about March Madness. It’s about the Cost of Attendance (COA) figures disclosed on financial aid offers your student will soon receive from postsecondary schools that admitted him. Bottom line — these figures aren’t always precise or accurate.

IMG_1289Federal rules require schools to disclose tuition and fees charged to full and part-time students. But you need to understand exactly what is and isn’t being disclosed, because these may be the largest and most crucial costs your student will incur.

 

Tuition

Tuition varies based on the number of credit or clock hours a student takes. But tuition communicated to prospective freshmen generally reflects the minimum number of hours required for full-time enrollment. At public colleges, it should also reflect your student’s residency status because such schools vary tuition on this basis — i.e. community colleges charge less to residents of their tax districts than non-residents, and 4-year public institutions charge out-of-state residents more than in-state residents.

Some institutions also have different tuition rates for different majors. So make sure the tuition revealed to your student reflects the major into which he’s been admitted.

Because tuition is sensitive to the hours for which your student registers, his residency status, and maybe his major, be sure the aid offer lists the appropriate tuition amount.

Fees

Sometimes the fees charged students actually exceed tuition. However, fees are combined with tuition when schools disclose COA. So if your student’s being offered a tuition scholarship or tuition waiver, it’s important to understand whether or not this award also covers fees.

Also, fees divulged on aid offers are usually the required fees all students must pay. IMG_1294Other, hidden fees aren’t listed. These are sometimes called “discretionary” or “optional” fees. They’re charged for everything from attending intercollegiate athletic events to participating in intramural sports. But they may also be required for essentials such as taking certain required classes or using campus labs.

If the aid offer doesn’t fully explain the tuition and fee amount it discloses, contact the financial aid office for more and better information about this disclosure. Otherwise, you and your student could be in for a rude shock when it’s time to pay the school.

There are four other COA categories besides tuition and fees. Read Games Colleges Play — Disclosing Room, Board, and Other Costs for what to watch for in these categories.

College Affordability Solutions helps parents and students decipher financial aid offers. Call (512) 366-5354 or email collegeafford@gmail.com if you need a no-cost consultation for this purpose.

Games Colleges Play — Disclosing Room, Board, and Other Costs

Don’t rely too much on the Cost of Attendance (COA) figures disclosed on your student’s financial aid offers from colleges to which she’s been admitted. Sad to say, they’re often inaccurate.

Games Colleges Play: Tuition and Fee Disclosures focuses on one critical COA category, IMG_1280 but federal rules also require postsecondary institutions to communicate other sets of costs:

  • Room and board;
  • Books and supplies;
  • Transportation; and
  • Miscellaneous.

Colleges often determine these costs by sampling local prices or surveying current-students. These methods typically cause them to publish average costs, which means some students spend more while others spend less in each category. Hopefully, your student can be often among those who spend less.

Unfortunately, colleges may also deliberately downsize amounts they disclose so their published COAs appear to be lower than those of their competitors. And sometimes institutional administrators simply believe students shouldn’t be allowed to spend what their own research shows students are spending in certain categories.

Here are some commonly played games in COA categories other than tuition and fees:

Room and Board: This is usually based on what the school’s housing and food service department charges to live on-campus with a roommate for up to nine months. Such departments object to giving “extra” financial aid to help students reside off-campus, so colleges often apply their on-campus amounts to students who dine and rent off-campus — largely under leases landlords require to be for 12 months.

Books and Supplies: This category normally divulges average book and supply expenses for all students. But some majors have extraordinary high book and supply costs, so this amount could be way too low.

Transportation: This figure commonly reflects what in-state students spend to travel between campus and home a few times each academic year. It seldom covers long-distance travel expenses for out-of-state students or costs for students who must drive to and from off-campus jobs.

Miscellaneous: This covers personal purchases — clothing, entertainment, snacks, etc. But institutions are particularly likely to “lowball” the costs disclosed in this category.

So determine whether you can actually afford a college even with the financial aid it’s offering. Do your own research about its COA — speak with current students and their parents, examine on-campus dorm prices, sample off-campus rents, independently calculate your student’s transportation expenses, etc. Doing so can avert financial disaster for you and your student!

College Affordability Solutions helps parents and students decipher financial aid offers. Call (512) 366-5354 or email collegeafford@gmail.com if you need a no-cost consultation for this purpose.

Before and During College: Parent Loans — Helpful Today, But a Potential Curse Tomorrow

IMG_1169Federal Direct Parent PLUS Loans. They’re often the way families fill the gap between their resources, financial aid, and costs their undergraduates incur at college. But parent PLUS loans have their pros and cons.

Parent PLUS loan advantages:

 

  • There’s no PLUS borrowing limit other than the cost of attendance for the student for whom you borrow (i.e. your “beneficiary”) minus her other financial aid.
  • The interest rate on each academic year’s PLUS loan is fixed so, unlike this rate on many private loans, it’ll never go up.
  • The only fee is a 1.069% federal loan fee.
  • Amounts you repay within 120 days of disbursement reduces principal and IMG_1150cancels interest and loan fee on that principal.
  • Your payments may be deferred while your beneficiary is enrolled at least half-time and during her 6-month post half-time grace period.
  • Payments may also be postponed under other federal deferment and forbearance programs.
  • Should you die or become totally and permanently disabled, or if your beneficiary dies, your PLUS debt will be discharged.

Parent PLUS loan downsides include:

  • The highest interest rate of all federal college loans. Currently 7.0%, this rate’s expected to rise on PLUS loans borrowed for the next few academic years. But with fixed rates, PLUS interest is still likely to be lower than variable rate private education loans.
  • To borrow a PLUS loan, you (or a cosigner) must have a sound credit history. IMG_1152Your credit history isn’t “sound” for PLUS if (1) when your credit report runs, you don’t owe over $2,085 that’s 90 or more days delinquent, or (2) for five years before your report runs, you’ve had no charge-offs, bankruptcies, defaults, foreclosures, repossessions, tax-liens, wage garnishments, or write-offs.
  • PLUS debt isn’t legally transferable to anyone else unless it’s privately refinanced.
  • Parent PLUS debt isn’t easily forgiven. Bankruptcy generally won’t discharge it, and it’s not eligible for the federal teacher loan forgiveness program. But, in addition to the discharges described above, it is eligible for Public Service Loan Forgiveness.

IMG_1151Borrow parent PLUS loans only as a resort, especially if you’re approaching retirement. Why? The Government Accountability Office recently found 17% of 65-74 year old parent borrowers had defaulted on such loans — subjecting themselves to expensive collection fees and the confiscation of their Social Security benefits and tax refunds. So while PLUS can be helpful today, it can be a curse tomorrow.

Note: College Affordability Solutions will be on “spring break” next week and so won’t be posting a blog. But look here again on Wednesday, March 21, for another post on issues related to keeping college affordable.

Contact College Affordability Solutions at (512) 366-5354 or collegeafford.gmail.com if you’re looking for a no-cost consultation on strategies for minimizing college costs.