Sometimes this question will come up. Answer seems simple, right? You fill out a loan, then it's in your name. Since it's in your name, then it's your responsibility. But the question most often comes up because of type of loan as well as the age of the student.
First, the type of loan. If a student fills out a Master Promissory Note (MPN) and loan request for a Subsidized and/or Unsubsidized Direct Loan, then it is the responsibility of the student. If a PLUS Loan is completed, that is the responsibility of the parent. The easiest way to remember that is to remember who actually completed the MPN for each loan. The student completes the Direct Loan MPN, whereas the parent completes the PLUS Loan MPN. Remember that federal Direct Loans do not ask for cosigners, so only the student completes any part of it. Also remember that just because the loan is in the student's name, it doesn't mean that the parent can't help with payment or even pay the whole thing. It just means that the student will be held accountable if it isn't paid back.
Second, the age of the student. The Higher Education Act makes an exception for students under the age of 18 to take on a federal student loan without needing a cosigner even though it is a contract. Why is this relevant? Because of their age. It is legal for a business in most states to enter into a contract with a minor, but it's a dumb thing for the business to do so. Why? Because the minor has the right to back out of the contract and not be held liable. (The exception is if they committed some type of fraud, then most likely they will have to pay restitution.) If the minor had a cosigner, like a parent, then the contract is legally binding for that minor. But with the exception in the HEA, students are responsible for their student loans, even if they are not 18.
Students should always read and study as much as they can about their student loans, especially if they are private loans from a bank. They don't always work the same as the federal loans and usually have a lot more fine print. When in doubt, your best action is to ask questions, either to your loan servicer or your FA office.
Monday, 17 June 2013
Monday, 10 June 2013
Why Do I Have to Reapply for FA Each Year?
Many students come into the FA office and wonder why they can't just fill out the necessary paperwork once and have it done. But as with many things in FA, things aren't that simple.
The main reason you have to reapply is because the foundation of your FA (you FAFSA) is based on income, and income may change from year to year. The FAFSA has to be filed every award year (the period between July 1 and June 30). Your Direct Stafford loan eligibility is dependent on your FAFSA results, so without a FAFSA, there are no Direct Stafford loans.
As far as Direct Stafford loans are concerned, some schools are able to allow students to sign a two-year prom note and some only allow a one-year prom note. Master Promissory Notes (MPNs) are only good for a certain amount of time before they have to be completed again. Some schools are only allowed to use one-year prom note, which means you'd have to complete new loan paperwork each year.
Another reason you have to complete new paperwork each year is because of of your Satisfactory Academic Progress (SAP) calculation. Colleges have to monitor your SAP and make sure that you are successfully completing the courses in a manner that is leading you to completion of your program with good enough grades and in a timely fashion. Most often, you should finish with no less than a C average and finish in no more than 150% of the program's published length (so for a 2 year program, no more than 3 years). When this calculation is completed depends on the school, but before you can take out your next year's FA, your calculation will have to be completed. If you are not meeting SAP, that may affect your FA eligibility.
Even though many students would rather just fill out their FA once, it's actually a good thing to stop into the FA office to refill out your paperwork. This way, you will become more familiar with your own FA and terminology. It's a great time and place to ask questions, and a great time to understand your situation.
The main reason you have to reapply is because the foundation of your FA (you FAFSA) is based on income, and income may change from year to year. The FAFSA has to be filed every award year (the period between July 1 and June 30). Your Direct Stafford loan eligibility is dependent on your FAFSA results, so without a FAFSA, there are no Direct Stafford loans.
As far as Direct Stafford loans are concerned, some schools are able to allow students to sign a two-year prom note and some only allow a one-year prom note. Master Promissory Notes (MPNs) are only good for a certain amount of time before they have to be completed again. Some schools are only allowed to use one-year prom note, which means you'd have to complete new loan paperwork each year.
Another reason you have to complete new paperwork each year is because of of your Satisfactory Academic Progress (SAP) calculation. Colleges have to monitor your SAP and make sure that you are successfully completing the courses in a manner that is leading you to completion of your program with good enough grades and in a timely fashion. Most often, you should finish with no less than a C average and finish in no more than 150% of the program's published length (so for a 2 year program, no more than 3 years). When this calculation is completed depends on the school, but before you can take out your next year's FA, your calculation will have to be completed. If you are not meeting SAP, that may affect your FA eligibility.
Even though many students would rather just fill out their FA once, it's actually a good thing to stop into the FA office to refill out your paperwork. This way, you will become more familiar with your own FA and terminology. It's a great time and place to ask questions, and a great time to understand your situation.
Monday, 3 June 2013
Unusual Enrollment History (UEH) Flag
New for the 2013-14 FAFSA is the UEH error flag. Normally when a student completes a FAFSA, they receive a Student Aid Report (SAR) that contains their Expected Family Contribution (EFC) which helps the FA office determine their FA awards. This EFC can come back with an asterisk (*) by it which means their FAFSA information needs to be verified. Sometimes, there will be a "C" next to the EFC. A C code means that there is some problem that needs to be resolved before anything can be done. As long as the information gathered isn't conflicting, a verified SAR isn't a big deal. But a C code is much more serious and usually requires more care.
This is the case with the UEH. If a UEH flag comes up on your SAR, you will have a C code. The school receives a similar report called an ISIR, and on the ISIR, it will give either an error code of 359 or 360. Depending on your enrollment history, you will probably have to provide school records from previous schools and explain what your situation was in your previous enrollments. One example of what might cause a UEH flag is if you attended 3 or more schools in the past 2 years. The Dept of Ed doesn't understand why you are going to multiple schools in a short amount of time. They also don't understand if you went just long enough to get a refund check.
The goal of the UEH flag is to point out the students who have odd patterns of enrollment at schools and make that student be accountable as to why they feel they should have another chance. This is still new and there will be more information as we get closer to July 1 when the award year begins. But in the meantime, there may be some students who are fine this year who will lose eligibility for next year. Should be interesting how it turns out!
This is the case with the UEH. If a UEH flag comes up on your SAR, you will have a C code. The school receives a similar report called an ISIR, and on the ISIR, it will give either an error code of 359 or 360. Depending on your enrollment history, you will probably have to provide school records from previous schools and explain what your situation was in your previous enrollments. One example of what might cause a UEH flag is if you attended 3 or more schools in the past 2 years. The Dept of Ed doesn't understand why you are going to multiple schools in a short amount of time. They also don't understand if you went just long enough to get a refund check.
The goal of the UEH flag is to point out the students who have odd patterns of enrollment at schools and make that student be accountable as to why they feel they should have another chance. This is still new and there will be more information as we get closer to July 1 when the award year begins. But in the meantime, there may be some students who are fine this year who will lose eligibility for next year. Should be interesting how it turns out!
Monday, 27 May 2013
New Direct Subsidized Loan Limits for 2013
Beginning July 1, 2013, some changes are coming to the Direct Subsidized loans. A new law called Public Law 112-141 has established loan limits for the Direct Subsidized loans. This law affects new borrowers after July 1, 2013, and a new borrower is defined as a person who does not have any balance due on any outstanding loans on or after July 1, 2013.
The new new limitation puts a 150% cap for loans of a program. So, if you are in a 2 year program, then you are only allowed to receive Subsidized loans for 3 years. If you go over that, then you can only receive Unsubsidized loans. Since Satisfactory Academic Progress states you must complete in 150% of the program's length, it doesn't sound like that big of a deal, right? Think again.
The hardest part of this seems to be switching programs. If you are in a one year program, and switch to a two year program, then you are fine: you basically went from two years or eligibility to three years. But let's say you spend three years in a two year program, and you decide to go to a lesser program. This lesser program has few of the same classes, and will take you a year to complete. You've already used 3 years of eligibility even though you switched programs, and your new program has a max of two years of eligibility. You've already used it up, so you are not eligible for more Subsidized loans.
Confusing? Yes. The only way to get around this is if you start in a program and finish in that program, and you do it in the amount of time it's supposed to take you. And that is what the government is trying to get more students to do.
Keep in mind that as long as you have enough lifetime Unsubsidized loan eligibility, then any part of the Subsidized loans you don't qualify for, you can receive in Unsubsidized loans. However, also remember that Subsidized is better for you since interest doesn't build on the Subsidized loans while you're in school. The less Unsubsidized loans you have, the less interest you will owe, which will help your financial future.
The new new limitation puts a 150% cap for loans of a program. So, if you are in a 2 year program, then you are only allowed to receive Subsidized loans for 3 years. If you go over that, then you can only receive Unsubsidized loans. Since Satisfactory Academic Progress states you must complete in 150% of the program's length, it doesn't sound like that big of a deal, right? Think again.
The hardest part of this seems to be switching programs. If you are in a one year program, and switch to a two year program, then you are fine: you basically went from two years or eligibility to three years. But let's say you spend three years in a two year program, and you decide to go to a lesser program. This lesser program has few of the same classes, and will take you a year to complete. You've already used 3 years of eligibility even though you switched programs, and your new program has a max of two years of eligibility. You've already used it up, so you are not eligible for more Subsidized loans.
Confusing? Yes. The only way to get around this is if you start in a program and finish in that program, and you do it in the amount of time it's supposed to take you. And that is what the government is trying to get more students to do.
Keep in mind that as long as you have enough lifetime Unsubsidized loan eligibility, then any part of the Subsidized loans you don't qualify for, you can receive in Unsubsidized loans. However, also remember that Subsidized is better for you since interest doesn't build on the Subsidized loans while you're in school. The less Unsubsidized loans you have, the less interest you will owe, which will help your financial future.
Monday, 20 May 2013
New Loan Fees Announced, Starting July
As is common with a new award year, loan fees are changing for the Direct Subsidized, Direct Unsubsidized, and PLUS loans. Currently, there is a fee on these loans of 1.0% for the Subsidized and Unsubsidized loans, and 4.0% for PLUS loans.
The rates are going up to 1.051% for Subsidized and Unsubsidized loans, and 4.204% for PLUS loans. Just like with the fees currently, this is the amount of your federal loan that will not come in to the school.
The sequester took effect in March 2013, and the requirements it calls for were to take effect then. However, this fee is not included in the necessary items to take effect immediately. Dept of Ed announced that this fee would not be enforced until they had released more guidance. The announced in April that it would be enforced beginning on July 1.
The other thing you should know about this is that it affects new loans on or after July 1. If at least one disbursement was made before July 1, then your remaining disbursements on that loan will be at the lower rate. But if your loan's first disbursement is any day after July 1, then it will be at the higher rate.
The rates are going up to 1.051% for Subsidized and Unsubsidized loans, and 4.204% for PLUS loans. Just like with the fees currently, this is the amount of your federal loan that will not come in to the school.
The sequester took effect in March 2013, and the requirements it calls for were to take effect then. However, this fee is not included in the necessary items to take effect immediately. Dept of Ed announced that this fee would not be enforced until they had released more guidance. The announced in April that it would be enforced beginning on July 1.
The other thing you should know about this is that it affects new loans on or after July 1. If at least one disbursement was made before July 1, then your remaining disbursements on that loan will be at the lower rate. But if your loan's first disbursement is any day after July 1, then it will be at the higher rate.
Monday, 13 May 2013
What Is a Federal Direct Loan Servicer?
Back in 2010 as part of the Healthcare legislation, a small part of it actually dealt with federal student loans. At the time, there were two federal student loan programs that were very similar: Direct Loans and FFELP loans. FFELP loans were federal student loans that were serviced by a bank or a student loan company, both of which received federal subsidies to participate in the program. The Healthcare legislation ended the FFELP loans, which meant the only federal student loans of this type could be Direct Loans.
The way the Direct Loan program works is you complete a Master Promissory Note (MPN) that says 'Direct Loan' on it. But once you have your loan originated and disbursed, your correspondence probably won't have 'Direct Loan' on it. Instead, it will have other names on it. The Direct Loan program will transfer your loan to a student loan company that it selects to handle your loan needs. Your contact for information on your loan will become the company assigned to your loan. Who will it be? It's not up to the student or the school. The Direct Loan program picks it out for the student.
When the switch over in 2010 began, there were just a handful of servicers, but the number has grown to meet demand. The Dept of Ed picks who these servicers are, and these servicers must continue to meet the expectations of the Dept of Ed in order to continue to be a servicer.
So, who are these companies that you may be working with? Below is the list of servicers:
- Aspire Resources, Inc.
- Cornerstone
- COSTEP
- Direct Loan Servicing Center
- EDGEucation Loans
- EdManage
- Educational Services of America, Inc. (Edsouth Services)
- FedLoan Servicing (PHEAA)
- Granite State
- Great Lakes
- KSA Servicing
- Missouri Higher Education Loan Authority (MOHELA)
- National Education Loan Network (Nelnet)
- OSLA Servicing (OSLA)
- Student Loan Marketing Association (SLMA or Sallie Mae)
- VSAC Federal Loans
As I tell all students, when you receive mail or emails, make sure to check it out. Just because you don't recognize it, doesn't mean it isn't important. Also, the most important advice I can give is if you are not sure if it's important or not, be sure to ask your financial aid office about it. They will be able to tell you for sure if it's something you should worry about or not.
Monday, 6 May 2013
New Proposed Changes for 2014-15 FAFSA Announced
Is it too early to think about the 2014-15 FAFSA? The Dept of Ed is hard at work already trying to determine their new changes for the FAFSA that will take effect July 1, 1014. Announced last week, the two changes will be published in the Federal Register for public comment. The changes deal with dependent students only. The two changes are adding a parent's marital situation of "unmarried but both parents living together" and replacing gender-specific terms like father/stepfather and mother/stepmother with the terms 'Parent 1' and 'Parent 2'. These seem like small changes, so what's the big deal? Actually a lot.
Firstly, the 'unmarried but both parents living together'. Currently, in order to figure out a student's EFC, a dependent student must use their parent's financial information. If both of their parents are not married but they live together, then the student only has to use one parent's information. With this new choice, then a dependent student will have to use both parents' information even though they are not married. As the rule has been proposed, this does not supersede the choice of 'divorced', which will still be the same manner of compiling financial information as it is currently.
Secondly, the gender-specific term replacement. Currently, the FAFSA refers to parents as being father/stepfather and mother/stepmother, and uses the term 'spouse'. When reviewing the Higher Education Act, it actually refers more to 'parent' and 'parents' than the other terms. So, it was decided that going to 'Parent 1' and 'Parent 2' doesn't break the Higher Education Act.
For states who allow same-sex marriages, the 2014-15 FAFSA is the first time in FSA that their union is accepted. The federal government does not recognize same-sex marriages, and since the FAFSA is goes through the federal government, neither does the FAFSA. But according to the FAFSA, same-sex marriages can use the choice of 'unmarried but both parents living together', and then use Parent 1 and Parent 2 for their income information.
Some of the details have to be worked out for the FAFSA on the Web (FOTW). It is believed that if a dependent student checks that their parents are 'unmarried but both parents living together', then it will essentially work similar to how the system currently treats 'married but filing separately'. It is believed that the system will instruct students on how to complete the rest of the FAFSA just like it does for the 'married but filing separately' for this year.
It is estimated that few students will actually have to deal with this. According to a letter from the Dept of Ed, 60% of FAFSA filers are independent students, so they won't have to deal with it. 20% of FAFSA filers are dependent, but their parents are married which means they have to include both incomes anyway. The vast majority of the rest of the 20% don't have unmarried parents living together. So, as of right now, the estimated impact is small. However, for the dependent students that this does affect, it will be a big change in more ways than one.
Firstly, the 'unmarried but both parents living together'. Currently, in order to figure out a student's EFC, a dependent student must use their parent's financial information. If both of their parents are not married but they live together, then the student only has to use one parent's information. With this new choice, then a dependent student will have to use both parents' information even though they are not married. As the rule has been proposed, this does not supersede the choice of 'divorced', which will still be the same manner of compiling financial information as it is currently.
Secondly, the gender-specific term replacement. Currently, the FAFSA refers to parents as being father/stepfather and mother/stepmother, and uses the term 'spouse'. When reviewing the Higher Education Act, it actually refers more to 'parent' and 'parents' than the other terms. So, it was decided that going to 'Parent 1' and 'Parent 2' doesn't break the Higher Education Act.
For states who allow same-sex marriages, the 2014-15 FAFSA is the first time in FSA that their union is accepted. The federal government does not recognize same-sex marriages, and since the FAFSA is goes through the federal government, neither does the FAFSA. But according to the FAFSA, same-sex marriages can use the choice of 'unmarried but both parents living together', and then use Parent 1 and Parent 2 for their income information.
Some of the details have to be worked out for the FAFSA on the Web (FOTW). It is believed that if a dependent student checks that their parents are 'unmarried but both parents living together', then it will essentially work similar to how the system currently treats 'married but filing separately'. It is believed that the system will instruct students on how to complete the rest of the FAFSA just like it does for the 'married but filing separately' for this year.
It is estimated that few students will actually have to deal with this. According to a letter from the Dept of Ed, 60% of FAFSA filers are independent students, so they won't have to deal with it. 20% of FAFSA filers are dependent, but their parents are married which means they have to include both incomes anyway. The vast majority of the rest of the 20% don't have unmarried parents living together. So, as of right now, the estimated impact is small. However, for the dependent students that this does affect, it will be a big change in more ways than one.
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