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It is a daunting task to analyze, interpret, and implement federal financial aid regulations these days. Hopefully the information I provide will help you understand and locate the financial aid you need to earn your online degree.
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Darn it! I wasn't home for the President's State of the Union address last Wednesday, and forgot to use my new DVR. This post is based on a transcript of his speech. Let me first start by saying that I still have high hopes for the President in the area of education. Why? Because he wasn't born with the proverbial silver spoon in his mouth. He is young, and has young children who also rely on a good education. But, it will most definitely take time to make dramatic changes, and he has to choose his education-funding battles wisely. President Obama wants a bill that will end taxpayer subsidies to banks and student loans, thus allowing for a $10,000 tax credit for four years of education and an increase in Pell Grant. What this means is the end of student loans through the Federal Family Education Loan Program. Instead, all student loans will be processed through the federal Department of Education. Not necessarily a bad thing because it will mean consistency for all student borrowers. On the downside, jobs will most likely be cut in the lending industry as student loan representatives will no longer be needed. Some say that lack of competetion leaves it wide open for our government to do whatever they want. More tax credits are appealing to families, but rest assured there will be caveats tied to these credits. For example, the credits may be prorated, or even eliminated, depending on a family's income. However, the income threshhold should be pretty high. Increasing Pell Grants will only help those who qualify for this grant. A total reform of the Free Application for Federal Student Aid (FAFSA) and the federal formula that determines Family Contribution when calculating Pell Grant eligibility needs to be done. The President's comment about only paying 10% of student loan debt is the new Income Based Repayment (IBR) Plan, which is already in place. There are two loan forgiveness plans: one after 25 years, and the other for Public Service Loan Forgiveness. My last post described the Income Based Repayment Plan. In summary, IBR helps the student in the now, but overall interest payments will be more the longer it takes to repay the loan. Overall, I wasn't impressed with the focus on education in the President's speech. Of the two main points I've listed, one (IBR) is already in place. The President does want to start a middle-income task force that will enable families to save for their child's education, but how does that help you as a student now? Don't get me wrong, Pell Grant increases and tax credits are helpful, but it's not enough. The President does also charge colleges with reducing their costs. Personally, I agree, but what I'm seeing in my state is a freeze on hiring and training rather than weeding out unnecessary high-income positions and wasteful spending. Finally, I hope that some of the President's changes affect you positively.
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Students who borrow federal student loans, which include Stafford (either through Direct Lending or Federal Family Education Loan Program) and Grad PLUS loan, have the option of taking up to 10 years to repay the student loans. Now, there's a new option that may be more appealing. The federal Income Based Repayment Plan could definitely assist families with lower income, but don't assume the program is automatically in your best interest. The Income Based Repayment Plan works best for students with high federal student loan debt in relation to family size and income. You may qualify for Income Based Repayment if you have Stafford, Grad PLUS, or consolidated loans. Parent PLUS loans, consolidated loans that paid off a parent PLUS loan, private alternative loans, or defaulted loans do not qualify. A formula is used to calculate your monthly payment by using the difference in your adjusted gross income and 150% of the Department of Health and Human Services Poverty Guidelines based on your family size. The difference is then divided by 12 to get your monthly payment. That monthly payment is then compared to the payment you would have if you were under the regular 10-year repayment plan. You'll then be put into the lowest payment plan of the two. Advantages: - Payments may be lower than the traditional repayment plan. The monthly payment will be adjusted each year based on your income and family size.
- If your monthly payment through the Income Based Repayment Plan is less than what you are accruing in loan interest, the government will pay that interest for you. This will continue for up to 3 years. After that, any interest will be tacked on to your principal to calculate future interest, which you'll have to repay if at some point you no longer qualify for the Income Based Repayment Plan.
- If you continue to repay your loan using the Income Based Repayment Plan, you may have any unpaid debt cancelled after 25 years if you meet the criteria.
- This plan is also subject to the 10-year Public Service Loan Forgiveness program for students who work in public service and meet the criteria.
Disadvantages: - You must submit documentation of your income and family size to your lender each year. Failure to do so will make your repayments automatically revert to the standard 10-year repayment plan, which doesn't consider income.
- You are paying more interest overall. Remember, the advantage of having the government pay your interest is only if the monthly loan repayment amount is less than interest that's accruing. In most cases, you'll be paying both principal and interest. Because you're extending the length of time you're repaying your loan, the interest will be higher the longer you take to repay.
- If by chance you don't repay your loan completely and meet the criteria to have unpaid debt cancelled in 25 years, you'll have to report any cancelled debt as income on your tax return after the 25 years. May not seem like an issue now, but it could result in an inflated income down the road.
The whole loan repayment process can be very confusing. Keep in mind that the Income Based Repayment Plan may not be for everyone. The forumula is very important because your loan debt ratio to income and family size determines eligibility. A Q & A on the Income Based Repayment Plan can be found on the StudentAid website, as well as a calculator to see what your payment would be under this plan. I encourage you to check out both sites, and work with your lender in determining which repayment plan is best for your situation.
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The Free Application for Federal Student Aid (FAFSA) is now available for 2010-11. The online FAFSA is what must be completed to apply for federal and state financial aid. While the Department of Education has streamlined the online process, there are still some common mistakes that students make when filing. Here are some tips for completing the FAFSA properly: - Don't leave questions blank. If something does not apply to you, enter a '0' or 'not applicable'. Not only will this continue the flow of the application, but it will prevent your financial aid office from having to go back to you later to ask for the answer.
- Don't use a comma or decimal point! These will skew your answer. Always round to the nearest dollar.
- Make sure you use your correct Social Security number. There's nothing worse than putting down the wrong number because your application won't successfully match Homeland Security, the Social Security Administration, or your college. Fixing the problem usually requires you to submit a copy of your social security card, and possibly a birth certificate, which is a hassle.
- Make sure you answer the drug-related question. Failure to answer, or answering incorrectly, could prohibit you from receiving financial aid until corrected.
- Be sure to enter your tax information correctly. All too often, students don't report the correct tax paid amount. It's not the amount withheld from your pay, but rather the calculated amount from the tax return instructions. Also, wages is usually not the same as the Adjusted Gross Income. Wages are what you (or your parents) earned from work.
- Remember to list all of the colleges for which you want the FAFSA information sent. Schools will not receive your results if you don't list them in the college selection section.
- Sign and date the FAFSA! You can electronically sign your online application by using your PIN. If you do not have a PIN, you have the option to have one assigned to you right away. The same applies to your parent if parent information is required. Failure to sign the FAFSA will get your application rejected.
The FAFSA isn't nearly as complicated as it used to be. In fact, the Department of Education has done a pretty good job of making the application easier to navigate for 2010-11. There are many safeguards in place to help you complete the online form, but you still must be careful that you complete the information properly.
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Rather than try to navigate the FAFSA yourself, would you like a little face-to-face with an expert? That may be possible. The Lumina Foundation (and Indiana Student Financial Aid Association and Lilly Endowment, Inc) has funded College Goal Sunday for several years now. What is College Goal Sunday? It's a national effort to promote in-house assistance in filing the FAFSA. The drive behind College Goal Sunday is for institutions across the United States and Puerto Rico to offer face-to-face help for families trying to complete the online Free Application for Federal Student Aid (FAFSA). However, the help isn't limited to Sundays. Many states offer a FAFSA Completion Night on days other than Sunday. Most events are held in February. So, you're an online student. Are you asking yourself how this applies to you? The best part of these events is that it doesn't matter what college you're going to! College Goal Sunday and FAFSA Completion Nights are for all students, regardless of what school you're attending. These events are often held at local high schools, recreation centers, and libraries, among others. The purpose of these events is to help families file the online FAFSA, so there's no admissions recruiting or pressure to apply at a certain college. Usually, financial aid experts from several non-affiliated schools come together to help. College Goal Sunday does have its own website. However, the sites listed are not all-inclusive. What I suggest is that you contact a college or high school in your area to see what's offered. Search the internet to see if your state has its own state financial aid funding, as usually their homepage will have information about these events. If a College Goal Sunday or FAFSA Completion Night event is not available in your geographic area, you do have other options for assistance: - FAFSA on the Web has operators standing by. You can call 800-433-3243 to get help. If you are filing online and need help, you can also click on "Live Help" to get immediate assistance.
- TuitionCoach offers free Webinars in January to provide step-by-step assistance on completing the FAFSA.
- The FAFSA on the Web Worksheet is highly recommended before filing the actual FAFSA. You can print this worksheet, which is identical to the online form, to complete before completing online FAFSA. This way, you'll have all of the information you need before filing.
Take advantage of the free advice that's available. Keep in mind that some events may require a reservation to ensure enough experts are available, so be sure to ask if reservations are required. Also, by checking with the event host, you'll be given instructions on what you should bring with you.
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An announcement came through my email today from the national financial aid association. Scholarship applications for 2010-11 are now available for students from foster care. Application deadlines vary, so it's important to apply now if you meet the qualifications. The Orphan Foundation of America is offering approximately 75 scholarships for undergraduate students, and a limited number for graduates. To qualify for the undergraduate Foster Care for Success Scholarship, you must meet the scholarship criteria of foster care (or orphaned under a certain age), be under the age of 25 on March 31, 2010, and be enrolled or accepted into an accredited post-secondary program at the undergraduate level. Students do not have to be U.S. residents, but had to live in the U.S. while in foster care or when orphaned. Go to the Orphan Foundation of America to get application instructions and apply. You will need to supply documentation.The deadline is March 31, 2010. For graduate students, the Casey Family Graduate Scholarship is a renewable merit-based scholarship for up to $10,000. It too is offered through the Orphan Foundation of America. The criteria is relatively the same as the undergraduate scholarship, with some exceptions. The deadline for this scholarship is also March 31, 2010. The Education Training Voucher (ETV) is another type of assistance that awards grants to current and former foster students. However, the criteria varies by state, and not all states may participate. Check out the ETV website for additional information. If you have ever been in the foster care system, or are orphaned, I strongly encourage you to check out these scholarships. But remember to complete the Free Application for Federal Student Aid (FAFSA) too!
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