Student Aid Tree

New program may help you repay federal student loans

2009-07-04T00:00:00-05:00

Consumers struggling with federal student loans have a new option open to them in the form of an income-based repayment program - but it's not for everyone.

Under Income-Based Repayment, your required monthly payment is capped at an amount that's intended to be affordable based on your income and family size.

Federal student loans eligible under the plan:

Stafford loans - the main federal loan for students.
Grad PLUS loans.
Most federal consolidation loans.

Loans not eligible:

Parent PLUS [Parent Loan for Undergraduate Students] loans.
Federal consolidation loans that include Parent PLUS loans.
Private loans.

All eligible loans must be in good standing.

"We know many graduates are concerned about their ability to repay student loans in the current economic environment," said Secretary of Education Arne Duncan. "This new plan addresses the issue head-on by giving them the option of a monthly payment tied to their income."

The new repayment plan caps the monthly payments at a percentage of a borrower's discretionary income. The payment amount is adjusted yearly, based on changes in annual income and family size.

Specifically, the program caps payments at 15 percent of the amount by which your adjusted gross income exceeds 150 percent of the federal poverty line for your family size.

Here's an example from Mark Kantrowitz, a national expert on student financial aid and publisher of FinAid.org and FastWeb.com:

Say a single borrower has $40,000 in federal education loans and an adjusted gross income of $30,000 a year. The 2009 poverty line for a single person is $10,830, and 150 percent of that is $16,245.

The repayment cap on monthly payments would be 15 percent of $13,755 ($30,000 minus $16,245) divided by 12 months, or $171.94 a month.

"This is considerably lower than the $460.32 a month which would be required under standard 10-year repayment or the $277.63 a month which would be required under extended 25-year repayment," Kantrowitz said.

Income-based repayment is best for borrowers who have high debt relative to their income, but even borrowers with a lower debt-to-income ratio may benefit.

Even though the program is a good deal for financially strapped borrowers, you should understand other effects of the plan.

"It increases the repayment term up to 25 years, which increases the total interest paid over the life of the loan," Kantrowitz said.

However, after 25 years of making the lower payments, borrowers' remaining loan balances, including interest, will be completely forgiven.

For borrowers who enter public service fields, such as nursing, public interest law or nonprofit work, their debts will be forgiven after 10 years of service and loan payments.

"This is the first time in the Federal Family Education Loan Program that there is forgiveness for a borrower's unpaid balance after the 25 years of payments," said Patricia Scherschel, vice president at Sallie Mae, the nation's largest student loan lender. "The plan has the ability to offer a low payment - a payment as low as zero dollars for those folks who really have low income compared to what their monthly debt burden would be for those loans." To apply, contact your lender or your loan servicing company, which collects your loan payments.

Student Lending Would Change Under Senate's Budget Plan

2009-04-30T00:00:00-05:00

Washington — The U.S. Senate last night gave final approval to a budget blueprint that sets the stage for an overhaul of student lending.

The plan, which Congressional appropriators will use as a guide when they draw up spending bills for the coming fiscal year, instructs the committees that oversee education to shave $1-billion from programs under their jurisdiction through a process known as budget reconciliation. Lawmakers are likely to seek those savings through major changes in the bank-based guaranteed-loan system, perhaps even eliminating it altogether, as President Obama has proposed.

The inclusion of reconciliation instructions in the spending plan, which follows similar action on Wednesday in the House of Representatives, is a win for the Obama administration because reconciliation bills, unlike normal bills, are filibuster-proof in the Senate. That means the president’s proposal could pass with only 51 votes, nine fewer than it takes to overcome a filibuster.

However, the plan also makes clear that many lawmakers remain wary of efforts to end guaranteed lending. In a nod to those lawmakers, Democrats included “sense of Congress” language specifying that any changes in the student-loan programs “should include some future role for the currently involved private and nonprofit entities.” The nonbinding language also alludes to job losses that could occur if bank-based lending were abolished.

The plan gives the education committees until October 15 to identify the $1-billion in required savings.

Lenders are urging Congress to hold hearings to consider other ways of remaking the student-loan system. “Now is the time for Congress and the administration to begin examining various options that fully leverage the capacity, experience, and dedication that nonfederal actors — including nonprofit and state-based agencies — bring to the table,” said Peter Warren, president of the Education Finance Council, which represents nonprofit lenders, in a statement.

Student groups, meanwhile, are celebrating passage of the spending plan. In recent weeks, they have sent more than 4,000 letters and made roughly 1,000 phone calls urging lawmakers to support the president’s proposal to end guaranteed lending and use the savings to make Pell Grants an entitlement.

“We are pleased to see Congress acting in the best interest of young people in America after playing such a huge role in the 2008 presidential election,” said Carmen Berkley, president of the United States Student Association, in a written statement.

Congress had been rushing to complete work on the spending plan by Wednesday, to deliver one last legislative victory to the president during his first 100 days in office. —Kelly Field

Gates Grants Aim to Help Low-Income Students Finish College

2008-12-08T00:00:00-05:00

With concerns growing that the recession will make it even harder for low-income students to remain in college, the Bill and Melinda Gates Foundation on Monday announced nearly $70 million in grants as part of an ambitious initiative: to double the number of low-income students who earn a college degree or vocational credential by age 26.

The foundation hopes to encourage other nonprofits, religious organizations and the federal government to join its mission to help low-income students get the education required for steady employment in higher paying jobs, said Hilary Pennington, who will direct the Gates Foundation’s postsecondary effort.

The statistics behind the initiative are stark. While growing numbers of students in this country enroll in college, most of them never graduate. With large numbers working full time to pay for college and a lack of institutional support for struggling students, only about 25 percent of low-income students earn any kind of postsecondary degree, experts say. The rate for black and Latino students is about 20 percent.

“We console ourselves that we’re going to be fine in the world because we have this great higher education system and all our kids are going to college,” Ms. Pennington said. “But they’re not finishing. That is enormously debilitating for young people.”

And the lack of a higher education degree or credential is particularly debilitating in a recession, said Anthony Carnevale, the director of the Center on Education and the Workforce at Georgetown University.

“The people who survive the best have always been and continue to be the ones with postsecondary education,” Dr. Carnevale said, adding that the unemployment rate for people without a college education was generally four times as high as for those with a two- or four-year degree.

Most of the foundation’s money would go not directly to students but to programs intended to help them make it through college.

The Gates Foundation said that doubling the numbers of low-income students who earned a postsecondary degree or vocational degree by age 26 would translate into an increase of about 250,000 graduates each year.

The goal is attainable, said Dr. Carnevale, whose research shows that each year there are 560,000 students who graduate in the top half of their high school class — and have the test scores that show they could succeed in college — but who fail to earn a two- or four-year degree within eight years of graduating.

The vast majority of these students are from families earning less than $85,000 a year.

Included in the Gates Foundation’s initiative are $33.2 million in grants for improving postsecondary education, so lower income students can quickly learn the skills they need to succeed at college.

A second set of grants is intended to strengthen institutional support for low-income students, including a $13 million award to MDRC, a nonprofit education research organization, to expand its performance-based scholarships for low-income college students. These scholarships will be delivered through three colleges in Ohio, two in New York City, one in New Mexico and statewide in California.

The Gates Foundation’s announcement came a week after a report from the National Center for Public Policy and Higher Education concluded that the spiraling cost of college — even before the recession — threatened to put higher education out of reach for most Americans, with the greatest burden falling on low income families.

The share of income required to pay for college, even with financial aid, has been growing especially fast for lower-income families, the report found.

“The timing could not be better,” said Richard Kahlenberg, a senior fellow with the Century Foundation, in Washington, who is an expert on income inequality and education, referring to the Gates Foundation’s announcement.

“With college endowments declining and states cutting higher education budgets,” Mr. Kahlenberg said, “low-income college students will be more squeezed than ever, and attrition rates are likely to increase. The Gates Foundation can’t address the financial burdens by itself, but its focus on what types of programs work best may help spur action by the federal government.”

The Gates Foundation, the world’s largest philanthropy, has in the last eight years become a leader in secondary education reform, spending close to $2 billion to improve high schools, from New York City to Boston to Los Angeles, and raise their graduation rates and students’ college preparedness.

While the foundation has spent an additional $2 billion on minority college scholarships, the new grants represent its first major push in the area of postsecondary reform.

The foundation will continue its work with high schools, said Vicki Phillips, who directs that effort, though with a greater emphasis on strengthening teaching and the curriculum.

Barack Obama opines on student loans

2008-11-05T00:00:00-05:00

With just a few days to go before the election, Senator Barack Obama spent part of his day on Saturday discussing issues important to young voters with MTV: one of the topics was, not surprisingly, student loans. Here's what he had to say in response to a question from a viewer:

"I went to college having to take out student loans, went to law school having to take out student loans. Michelle took out student loans. When we got married, I think together our total loan payments every month was more than our mortgage when we bought a house, and that lasted for about 10 years. And I meet students - I think the average student is taking out $25,000 to $30,000. That's a huge burden, especially in a time when wages and income are not going up. So here is what we want to do: increase the Pell Grant program, eliminate banks as middlemen from the direct loan program - they're taking out billions of dollars in profits - take that money, apply that to increasing the number of loans that are out there and reducing the rates, and then what I want to do is provide a $4,000 tuition credit for every student, every year, in exchange for national service. If they participate in Peace Corps, working in their community in some fashion, obviously joining the military. We are going to make sure that they can afford their college tuition. And in certain areas, like teaching, where we really need teachers, especially in math and science, and nursing, where we really need nurses, we will potentially provide them with even more than that in order to get the high-quality teachers and nurses that we really need."

Asked about relief for graduates who have already accumulated student loan debt and are realizing it's no pink tea, "As I said, what we are looking at potentially is being able to consolidate some of the loans, and if they are part of a broader pool, we may be able to lower interest rates on the debt that they already owe. But the key is going to be going forward, making sure that young people in the future are able to afford to go to college."

Obama has some good ideas for improving the situation facing college students dealing with soaring costs, a tight lending environment and parents with decimated retirement portfolios. But ultimately, any long-term solution to the problem will have to come from parents and students saying no to huge student loans, and making the sacrifices necessary to avoid debt: like starting a community college while working full-time and saving before transferring.

Source

Loans in the Time of Facebook

2008-10-31T00:00:00-05:00

If ever there was a time to ask friends and family — and strangers — for a college loan, this is it. You don’t have to be an economics major to see that turmoil in the financial markets has made loan money scarce and expensive.

My Rich Uncle, Campus Door (owned by Lehman Brothers), the College Loan Corporation and Education Finance Partners have eliminated or cut back on private loans. Tim Ranzetta, founder of Student Lending Analytics, which evaluates student loans for financial aid offices, estimates that lending capacity for private student loans has shrunk 20 to 27 percent since last year. That means up to $5 billion that students could borrow in 2007 is no longer available.

With this bleak backdrop, “social lending” or “peer-to-peer lending” (P2P if you’re hip) might be the Facebook generation’s answer to the crisis. Peer-to-peer lending has been around for several years for buying cars and starting businesses. In recent months, a half-dozen companies have applied the approach to student loans, aiming to help fill the gap between government financial aid and the cost of college.

The idea is to connect students who need cash with people who will lend it to them. The sites deal with the paperwork and servicing (no confusion about when that payment is really due). And a student might be able to get a lower interest rate than those available through traditional loans, because lenders are willing to look beyond conventional criteria for a chance to earn better returns on their money. The lender may also be swayed by a connection with the student. Think alumni, fellow bass guitar enthusiasts or computer science majors.

Because peer-to-peer student lending is so new and so little data is available, it’s impossible to know how many students are getting loans or to predict whether this option will ever be a major source of money for college. That’s certainly not likely for many years, says Mark Kantrowitz, publisher of FinAid.org.

The companies take different approaches. Virgin Money (virginmoneyus.com), Richard Branson’s foray into lending, focuses on formalizing and servicing loans among friends and family members. On Fynanz.com, strangers are the target lenders, and student profiles — brief and jazzy personal statements and photos — the lure. (Tip from the C.E.O.’s: sob stories don’t work.)

Lenders can spread their money around, offering as little as $50. Click around and weigh the merits of lending to Keith, the Occidental College student seeking $17,000 for a semester in Chile; or the 42-year-old single mother who needs $7,000 to go back to college to become a nurse; or the Columbia freshman Dominique, who has plans for medical school but right now needs $5,500 for books and expenses.

Of course, the loans are unsecured and few students have credit track records, so lenders must judge the likelihood of a default. GreenNote.com, whose interest rate is fixed at 6.8 percent, does not do credit checks but disburses money only to the college.

As does Fynanz. But Fynanz has developed its own rating system for borrowers: students must have a credit score of 640, and are graded — and their interest rates set by a calculation that includes year in college (the closer to finishing, the better), G.P.A. and college attended. Fynanz guarantees 50 to 100 percent of the loan depending on a student’s grades. (Less risky students give investors more peace of mind but lower returns.) The average interest rate, says Chirag Chaman, who runs Fynanz, is 8 to 9 percent.

Prosper.com, the nation’s largest peer-to-peer site, is currently tweaking its model. Because peer-to-peer sites will undoubtedly attract more would-be borrowers than lenders, Prosper is hoping to grow by creating a market in which lenders can sell the loans they make rather than having to hold them to maturity, following the lead of a rival, the Lending Club. Until Prosper receives regulatory approval, it announced last month, it is not processing any new loans.

Most companies won’t disclose the dollar amounts committed; the exception, Virgin Money, reports assisting with $12 million in student loans since June, when it began offering them.

Robert Shireman, president of the Institute for College Access and Success, calls the whole idea “potentially interesting” but says that because of the high risk of lending to a student, “the peer-to-peer approach only really works if there is some level of charity.” As for borrowers, he urges students to look carefully at fees. There’s generally no listing charge, but often a flat fee, or a fee based on a percentage of the loan, or a transaction fee with each payment.

Perusing the lending sites also makes clear how many students needing support are not finding it. At GreenNote, for example, page after page shows students with zero progress — in early fall, the tail end of the loan season, the sites featured as many as 1,000 profiles.

The ability to find a lender may also reflect a student’s connections. Akash Agarwal, GreenNote’s founder, says on his site, “A lot depends on the person’s social network.”

For some that’s a problem. Bakari Pace, a sophomore at Morehouse College who plans to go to law school, would seem a good bet for success. He gets federal and institutional aid and worked last summer at both a law firm and at a Costco, where he gave out samples of a new energy drink. One of five children in a family that survives on donated food, Mr. Pace was short of money. In August, he put his profile on GreenNote, seeking a $10,000 loan, but received no offers: none of his contacts have any money, either.

Mr. Pace went to school this fall with $4,000 on his bill and no money for books or a meal plan. Financial aid officers eventually found scholarships to cover his costs — for this semester.

For students like Mr. Pace, peer-to-peer lending may not be the best answer.

“I hope this takes off and works well,” says Richard Toomey, head of financial aid at Santa Clara University in California. With some students paying 10 to 20 percent interest for private loans, he sees GreenNote as a cheaper option; its rate is the same as a federal Stafford loan. Mr. Toomey says 26 Santa Clara students have profiles on GreenNote, and four have received loans. He personally “invested” $100 in a student whose story he found compelling.

The peer-to-peer C.E.O.’s say students are more likely to get money if they ask for less. “If you write that I am only looking for $4,000 to pay for X, Y and Z, it sits a lot better than if you try to get $15,000,” Mr. Chaman says. Three New York University alumni, he says, have committed to making $500,000 in loans to N.Y.U. students through Fynanz, which started up in June.

Crystal Gnemi, a University of Kansas senior majoring in arts and architecture, credits her snappy profile for helping her get a $7,000 loan in 48 hours on Prosper, which uses an eBay-like bidding system for interest rates.

Lenders offer amounts at particular interest rates; those with the lowest rates get in on the deal. Ms. Gnemi wrote that she planned to get a master’s in architectural engineering and that she had a 3.6 G.P.A. “while working 30-hour work weeks while taking 18 credit-hour semesters.”

Ms. Gnemi, whose father is an architect and mother a substitute teacher, does not qualify for need-based aid. Though she works as a lifeguard and interior designer, she needed a loan to cover tuition and costs. While she was willing to pay up to 10.92 percent for the loan, so many lenders — 221 — bid in amounts from $50 to $480 that the rate dropped to 8.95 percent (in the end, 123 lenders participated). A bonus: e-mail notes from 17 Kansas alumni. “I have zero friends and zero family investing,” she says. “It is fully funded by people I do not know, but have become friends with since.”

Student loan rates to rise this month

2008-10-08T18:00:00-05:00

College graduates and students with private student loans should prepare themselves to be shocked by higher interest rates.

Beginning this month, average rates on some private student loans will reset from a current 10% to 11% range to as high as 12% to 14%, said Mark Kantrowitz, publisher of FinAid.org.

It could mean an extra $40 a month on $20,000 in student loan debt. If high rates last, it eventually would add up to an extra $10,000 or so in interest on a $20,000 debt with a 20-year term.

"It's a fairly big jump," Kantrowitz said.

Credit crisis shakes index

It's yet another example of a credit market that's been practically in lockdown.

Some private student loans are pegged to what's called the LIBOR index -- or the London Interbank Offered Rate.

All the anxiety in the credit markets has thrown LIBOR for a loop.

More than half of adjustable-rate mortgages are tied to LIBOR and those homeowners who have adjustable-rate mortgages that are expected to reset soon could feel some pain as well.

The LIBOR index jumped from 2.6% in early September to 5.5% in late September. That's expected to translate into a 2% to 3% increase in private student loan interest rates this month, Kantrowitz said.

Some advice: Check into the kind of loan you've got. Some lenders peg the private student loan to the prime rate.

The Student Lending Tree Project

2008-10-01T09:00:00-05:00

When college financial aid officers got into trouble last year for accepting gifts from lenders, the moral of the story was clear: You could easily overpay for your student loan by simply borrowing from a college’s recommended lender without first shopping around.

Unfortunately, shopping around is easier said than done. With problems in the credit markets continuing to plague student loan providers, many lenders have limited their product offerings and worse yet, closed their doors altogether.

As a result, students and parents are now left wondering "who's left".

So here we are. A website that provides unbiased financial aid information. No one is sponsoring us. No one is paying us. We list financial aid sources for FREE.

As with any "social-media" website, the value is in the users - students and parents. Help yourself and help others. Use the site, comment about the sources, and tell us how we're doing. Together, we may end up building the best source for financial aid on the web.

Student Loan Providers May Get Government Help for One More Year

2008-09-22T00:00:00-05:00

With problems in the credit markets continuing to plague student loan providers, the U.S. House of Representatives overwhelmingly approved a year-long extension of the Ensuring Continued Access to Student Loans Act, which allows the secretary of education to buy student loans from cash-strapped lenders.

If approved by the Senate, the measure, which Congress originally passed last spring, would extend the education secretary’s loan purchasing power through July 1, 2010 to help ensure that students have access to federal student loans for the 2009–10 academic year. The bill was set to expire July 1, 2009.

The act gives the Department of Education the authority to buy student loans from third-party private lenders in the Federal Family Education Loan Program who have been unable to sell their loans to investors following fallout from the subprime mortgage crisis.

“Our rough economy is already dealing a huge blow to American families and we can’t allow trouble in the credit markets to further price students out of a college degree,” said Rep. George Miller, D-Calif., chairman of the Committee on Education and Labor (“House Moves to Protect Student Loans,” Associated Press, Sept. 15, 2008).

“With market conditions showing no signs of letting up,” Miller added, “it’s only prudent to make sure that students have every assurance that the federal student loans they need will be there next year.”

The measure would also extend the secretary’s authority to advance federal funds to guarantee agencies so those agencies can make loans, if necessary, as a “lender of last resort” for the nation’s colleges and universities.

Congress sends student loan extension to Bush

2008-09-17T00:00:00-05:00

WASHINGTON (AP) — Congress has approved through the 2010 school year a program that will allow students who rely on loans to continue their educations regardless of current difficulties in the private credit market.

The Senate on Wednesday passed the legislation by voice vote. The bill authorizes the secretary of education to buy loans from lenders in the federal guaranteed loan program when those lenders are unable to meet demand because of the credit crunch. It ensures that lenders will have reliable access to capital to make new loans.

The House passed the bill Tuesday, and it now goes to President Bush for his signature. The secretary's current lending authority expires in July 2009.

"Our rough economy is already dealing a huge blow to American families and we can't allow trouble in the credit markets to further price students out of a college degree," House Education and Labor Committee Chairman George Miller, D-Calif., said Tuesday.

"With market turbulence showing no signs of letting up, it's only prudent to make sure that students have every assurance that the federal student loans they need will be there next year."

The bill extends an act passed by Congress in May that assured students they would continue to have access to loans regardless of credit market conditions.

That act also increased limits on how much borrowers can receive in federally subsidized student loans, decreasing student reliance on more expensive private loans. It allows parents to defer loan payments until their children leave school.

The bill is H.R. 6889.