Special Bulletin: Congress Considering Cuts to Student Aid Programs

On Monday the White House released its budget proposal for Fiscal Year 2019, which begins this coming October. The prospective budget is similar to HR 4508, the “Promoting Real Opportunity, Success, and Prosperity through Education Reform” IMG_0890(PROSPER) Act. This is a bill designed to revamp federal higher education programs. It will soon to be debated in the House.

If your student is now or likely will be a federal financial aid recipient, contact your  U.S. Representatives and Senators to let them know your thoughts on the proposed budget and HB 4508. Why? If Congress passes either as written, several federal student aid programs would be reduced or eliminated.

Subsidized Federal Direct Loans: Currently, no interest is charged on these loans until six months after their undergraduate borrowers leave college. But they would end for those first borrowing on or after July 1, 2019. Even at current interest rates, which are expected to rise, this would increase the cost of borrowing the $27,000 maximum allowed over 4 academic years by at least $2,800.

Income-Driven Repayment: Four repayment options would be replaced by one repayment plan requiring ex-students to pay 12.5%, instead of the current 10%, of their discretionary income toward their federal college debts. The repayment period would last 15 years instead of 20 to 30 years for undergraduates, and 30 years for graduate students. Discretionary income is the amount a borrower’s income exceeds 150% of poverty-level.

Public Service Loan Forgiveness (PSLF): Any student first borrowing a federal loan on/after July 1, 2019 would be ineligible for PSLF.

Federal College Work-Study (FCWS): The budget would reduce FCWS funding by 49.5%. FCWS currently helps over 630 thousand students earn more than $1 billion a IMG_0891year to pay college costs. Graduate students would become ineligible for FCWS.

Federal Pell Grants: College costs keep rising, but the budget proposes to limit Pell Grants to the same amount as in FY 2019 as this year.

Pell Grant eligibility would be extended to students in short-term programs providing certificates, licenses, or other credentials for “in-demand fields”. For-profit vocational schools usually offer such programs, but their certificate earners average 1.5% higher unemployment rates, 11% lower earnings, and $5,000 more in student debt than students earning similar certificates at community colleges.

Federal Supplemental Education Opportunity Grants (FSEOGs): The FSEOG program, which provides extra grant dollars to approximately one million of the nation’s neediest Pell Grant recipients, would be eliminated.

Contact College Affordability Solutions at (512) 366-5354 or collegeafford@gmail.com for a no-cost consultation you have questions about how to pay for college.

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After College: Things to Do As Your First Student Loan Payment Comes Due

If you graduated from college last spring, chances are your obligation to begin repaying your Federal Direct Loans has begun. If you’ve not yet heard from the student loan servicer Washington hired to collect your payments, you need to contact it immediately (see below) because you’ve got some important things to do:

Choose Your Repayment Plan. Your servicer sent you a notice by email, U.S. Mail,IMG_0410 or both. This notice invites you to select the repayment plan that works best for you at this point in time. If you don’t select a plan, you’ll automatically be assigned a Standard Repayment Plan under which you’ll pay off your Federal Direct Loans within 10 years by paying the same amount every month.

No matter what your repayment plan, you can change it by contacting your servicer. However, if you’re paying under an income-based or income-contingent plan, you can switch only after making payments for at least three months.

Decide How to Pay. You may pay by cash or check. But the most convenient way to pay is to give your servicer permission to draw your monthly payment out of your bank account via “electronic funds transfer.”

Your Payment Due Date. Your notice will also tell you the date on which your first payment is due. This date is in January for most spring graduates.

Payment must arrive at your servicer within 15 calendar days of this date or you’ll be behind in your payments. But remember, if you’re mailing your payments, assume it’ll take the post office about 10 days to deliver them.

IMG_0411You’ll have the same payment due date every month. However, if at any time this date doesn’t work for you, you may contact your servicer and request a different payment due date provided you’re not behind in your payments.

If You Can’t Afford to Make Payments. Call your servicer. Describe the issues affecting your ability to pay. Ask if you qualify to postpone your payments through a deferment or forbearance. But remember, postponing payments often IMG_0412generates additional interest on your Federal Direct Loans, so you’ll spend more to repay them in the long run.

Contacting Your Servicer. Access your records in the National Student Loan Data System to find your loan servicer’s contact information.

You’ve got lot’s of options. Make well-informed, wise choices to help set yourself up for a smooth and successful repayment experience.

Need advice about your student loan payments? Contact College Affordability Solutions at (512) 366-5354 or collegeafford@gmail.com for a no-charge consultation.

During College: Strategies for Your College Finance Plan

Your College Finance Plan (CFP) needs strategies for you and you student toIMG_9592 implement before, during, and after college. Let’s look at the “During College” phase.

Research at a major university indicates that, looking back, almost 4 out of every 10 seniors conclude part or all of their student loans weren’t essential for their educations. Therefore, some of these strategies focus on personal money management so students can spend and borrow less of the interest-bearing educational debt that, over time, increases college costs. These include:

IMG_9555Also, the faster your student gets her degree, the less cost and debt she’ll incur. Still, the latest national data show that only 39.8% of undergraduates earn their bachelor’s degrees within 4 years. Here are some strategies that’ll help your student graduate on-time, if not before:

 

Look here for why you need a CFP. You can find summaries of strategies for your plan’s “Before College” phase here. And next Wednesday there’ll be samples of “After College” strategies for your CFP here.
Beginning October 16, check this website every Wednesday for a more detailed account of a strategy you may want to use in your CFP’s before, during, or after college phase.

Special Bulletin: Proposed Federal Budget Would Reportedly Makes Big Cuts in Programs for College Students and Graduates

The Washington Post reports it has received what a U.S. Education Department staff member described as “near final” documents showing the administration will IMG_6510recommend a 13.6% reduction in federal education spending next week. The budget proposal would reportedly affect federal financial assistance for college students as follows:

  • Child Care for Enrolled Parents: End a $15 million program helping to make child care affordable for low-income parents attending college.
  • Federal Direct Subsidized Loans: Make as yet unannounced cuts that could end this program, which currently serves financially needy students. If this happens, all federal loans for such students would be unsubsidized and begin compiling interest the day they are made — significantly increasing student borrowing costs.
  • Federal Pell Grants: Hold Pell Grants for the nation’s neediest undergraduates at their current levels ($606 to $5,920 for fall and spring combined). Due to inflation, this would decrease Pell’s future “purchasing power.” Some good news is that the budget would fund an extension of 2017’s summer Pell Grants in future years.
  • Federal Work-Study (FWS): Cut FWS funding by $490 million (almost half), significantly reducing federally subsidized on and off-campus jobs that financially needy students use to pay for college.
  • Income-Driven Repayment: Close down all current income-driven repayment plans available to federal college loan borrowers. These plans offer loan forgiveness for balances remaining after borrowers pay 10% to 20% of their incomes over 20 to 25 year periods. They would be replaced with a new income-driven option requiring payments equal to 12.5% of income and limiting loan forgiveness to balances still outstanding after 30 years of such payments.
  • Public Service Loan Forgiveness (PSLF): Eliminate PSLF, which offers tax-free debt cancellation on federal student loan balances owed by ex-students in public service jobs after 10 years of on-time payment. Over 550,000 federal, state, local, and nonprofit employees are already registered for PSLF. It’s not yet clear whether they or public servants not yet registered would be cut off from It.IMG_6511

Presidents propose federal budgets, but Congress ultimately decides them. So if you support or oppose any of these proposed cuts, call or write your U.S. representative and senators to tell them how you feel.

College Affordability Solutions will post more bulletins on this website as additional information becomes available.

Special Bulletin: Status of IRS Data Retrieval Tool

A key tool used by students seeking financial aid borrowers applying for income-driven repayment plans on their federal student loans is still offline. However, a new government announcement outlines a schedule for getting it back up and running.

In March, the government shut down the IRS Data Retrieval Tool (DRT), expressing concerns about the need for extra system security. Here’s where things are now according to a recent status announcement from the U.S. Department of Education —

DRT in October for Student Financial Aid Applicants: For the next 5 months, students will need to keep finding and using recent federal tax returns for themselves and their parents in order to accurately complete their Free Applications for Federal Student Aid (FAFSAs). The government’s announcement says it’ll be October 1 when a new, more secure DRT will become available to them.

DRT on May 31 for Student Loan Borrowers: Parents and ex-students seeking to certify their eligibility for one of the 4 federal student loan income-driven repayment plans will again be able to access to the DRT beginning May 31, the announcement says. Until then, they’ll need to keep submitting alternative documentation when applying for these plans. Alternative documentation could be paper copies of their federal tax returns or pay stubs.

If and when more information about this problem becomes available, College Affordability Solutions will post another bulletin.

After College: Give a Graduation Gift Worth More Than It Costs

About 2 million undergraduates will receive their degrees this year. Almost 70% of them will graduate after having borrowed, on average, over $30,000.

That’s a lot for someone just beginning his adult life and career. But the worst thing is, it probably isn’t all the debt students owe at commencement. Most undergraduates must borrow Federal Direct Unsubsidized Loans — which begin accumulating interest the day they’re made — to supplement their Federal Direct Subsidized Loans and meet their college expenses.

This interest keeps accumulating during each student’s 6-month post-graduation grace period. Students may pay down interest while in school and their grace periods, but most can’t afford to do so. And when the grace periods ends, outstanding interest is capitalized — i.e. added to principal — inflating the principal amount on which future interest gets charged.

Let’s say you’re giving a graduation gift to a fairly typical student who’ll receive his bachelor’s degree later this month. He borrowed the maximum amount of subsidized and unsubsidized loan for each of his 4 years — not unusual given the financial need of students from even middle-income households. By commencement, he’ll owe $19,000 in subsidized loan principal and $8,000 in unsubsidized loan principal.

But when his grace period ends in November, he’ll also owe almost $1,500 more in accumulated unsubsidized loan interest. If all that gets capitalized, he’ll repay a total over $34,000 for the $27,000 he borrowed. And that’s if he uses a 10-year standard repayment plan — the repayment plan that yields the smallest total amount repaid.

This is where your gift comes in. Give your graduate money to pay down some of the interest accumulated on his unsubsidized debt. You’ll actually help him reduce the total amount he repays on his total college debt by more than what you give. Take a look . . .

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The easiest way to do this? Specify that he use your gift solely to pay down outstanding unsubsidized loan interest, which he can look up on the National Student Loan Data System, and send that amount to his loan servicer (also identifiable through NSLDS) with a note saying he wants it all applied to his unsubsidized debt. Your gift will immediately be applied to lower interest on that debt.

Not a “sexy” graduation gift, but it’ll provide value in excess of what it costs, and that’s not a bad deal for you or your student!

For more strategies to minimize what gets paid on student loans, contact College Affordability Solutions at collegeafford@gmail.com or (512) 366-5354.

Before College: Make Decisions Now That Will Minimize College Debt

Soon after the upcoming college commencement season you’ll begin hearing it. “Who got me into all this debt?” or “My school made me take out all those loans!”

There’s truth in this. College costs keep rising. Grants and scholarships aren’t keeping up. But two other parties also contribute to rising collegiate debt — the student and, often, his parents.

Is your student spending conservatively — e.g. buying used textbooks from an online discount bookstore, not buying all his textbooks but accessing some through the campus library’s ebook collection?

Many off-campus residences sell themselves as “high amenity” facilities. But they’re IMG_5814also high rent. Is living in a new high-rise with a rooftop pool and granite countertops really necessary? Can your student survive someplace that’s older, plainer, and less costly? Can he split rent with one or more roommates, eat out less often, put a brown bag lunch in his backpack and cook more meals at home?

Does he absolutely need an automobile at school? He’ll likely pay hundreds to put it in some remote, vandalism-prone parking lot. Instead, can he use campus shuttle buses and municipal transit lines? Can he share rides home?

Can he work part-time? Contrary to popular belief, students who work 10-14 hours per week while enrolled perform better academically than students who don’t work at all.

Parents? You probably think your Expected Family Contribution (EFC) is too high. But EFC is based on a reasonable assumption — that you’ll max out your own financial 20091030family5049resources before asking your neighbors to pay for financial aid to send your student to college.

So can you downsize your vacations; maybe even turn some into “staycations?” Can you get another few years out of your car? Do you really need to hire out the house cleaning or yard work? Or can you redirect such discretionary spending to support your student?

Most colleges offer the maximum loan amounts for which students are eligible. But your student need not accept all that debt. Minimize his costs and maximize your EFC, then reject any loan amount you don’t expect to need. If you miscalculate, what you turn down can be reinstated later.

Remember, students who borrow to live like professionals while in college often live like students while paying off their debts after college! Keep this from happening to your student by downsizing or rejecting loan offers now.

College Affordability Solutions helps families identify strategies for minimizing higher education debt. Contact us at collegeafford@gmail.com or (512) 366-5354 to learn more,