2012-13 Pell Grant

So it's been announced already how the 2012-13 Pell Grants (which begin July 1, 2012) will change. I often mention that Financial Aid itself is like a car model, and each year the new edition is released with some changes from the previous years. Sometimes it changes a little, and sometimes it's not recognizeable from the previous year. Fortunately, there are fewer changes this year than in previous years.

First, let's start out with the good news.

The good news is what is being reported in all the media outlets and on most websites. And it's true. The Pell Grant's maximum will remain at $5550 for this next award year. And really, in a time when the government is trying to find places to save money, they haven't lowered the Pell Grant, which is amazing considering it's money from the government which doesn't get repaid typically.

And now for the bad news.

The bad news is what isn't being reported. In order for the Pell Grant to stay at the same level, something has to change, and there's a couple things. A couple other grants (such as SEOG) are being reduced, which will help pay for the Pell Grant. A major change is the way Pell Grants are figured. Currently, they are based on a family income of $30,000, but that will drop to $23,000. For those whose income didn't change, this means that it won't be as easy to get as much Pell as you received the previous year, and people who were borderline Pell Grant recipients will lose Pell starting in July. Also, the lifetime eligibility for earning Pell Grants has been reduced from 18 to 12 semesters. This is cut down on the students who keep attending and never obtain degrees or keep deferring their loans (some call these professional students or perpetual students). One more change was that a student must have a high school diploma or a GED to be eligible for Pell. (What this change means is some schools allow students to begin attending if they take an ATB [Ability to Benefit]Test. Metro Business College never allowed entry for students with this, and a high school diploma or GED was always a requirement.)

Really, the bad news isn't all that bad. The only change that may be a problem is the reduction of how the Pell is figured. This will make it a little harder for people to qualify for as much Pell as they did the previous year. So, even though the Pell stays at the same level, it won't be as easy for some students to get. We'll see how the year goes.

Entrance and Exit Counseling

Entrance and Exit Counseling are requirements for anyone taking out a federal student loan. Even if you've had one before, then you are required to do it again.

The purpose of Entrance and Exit Counseling is so that you understand how your loans work before you run into a problem. Entrance Counseling is required for your loan to even go through at the beginning of your loan. This is because you still have time to decide not to take out the loan if you understand the loan better in the Entrance Counseling process and decide you don't want it. Exit Counseling is required before you graduate from your program because you should know what to expect before you are out in the real world. If you drop from your program, Exit Counseling is still a requirement for you to complete.

Many schools allow you to complete Entrance and Exit Counseling online. Some schools choose to do Entrance and Exit Counseling in person as a group. The purpose of this is to allow people to ask questions instead of just clicking buttons without actually reading or understanding your loans. Either way that it's done, it's still required. Many schools even require you complete exit counseling in order to graduate. So, it's important that you do that.

Consolidation

If you consolidate your student loans together, it's very similar to consolidating other loans together: taking more than one loan and combining them. There are a few good reasons to consolidate, such as if you have to make more than one payment to different lenders/servicers. Anyone who falls in this category is a good candidate for a consolidation. It's much easier to make one payment for all your loans than three payments because it's easy for one of your loans to fall between the cracks.

There are a few things to consider if you're interested in consolidating. Firstly, you have to be approved for your consolidation. Now, the Direct Loan program is the only program consolidating federal student loans, so they will have to approve you. Secondly, your interest rate will change. Because you are going from several loans with differing interest rates into one loan with one rate, an average rate of your existing interest rates will be created. Thirdly, your monthly payment will likely decrease. If you have three payments of $50, then you will be paying a total of $150 plus interest. If you consolidate, your payment may drop to $100. If that's the case, then you'll be saving yourself $50 a month. Fourthly, the length of your loan might change, and you may end up paying more in the end due to the change of interest.

Usually, there are three factors that go into deciding whether you want to consolidate or not:

1. Do I want a lower monthly payment now
2. Am I willing to owe more over the life of the loan
3. Should I combine the loans to make them easier to handle

These are questions that you should think about and discuss with your servicers/lenders. Also, if you have questions, you can research at loanconsolidation.ed.gov.

What if I have a FFELP loan?

As part of the massive healthcare bill, the government discontinued funding for FFELP loans. Many of these loans were sold (at least once, and sometimes twice) from the original lender to a new servicer. These loans went into the Direct Loan program and are referred to as PUT loans. With these loans, there was mass confusion because of the breakdown of communication between the government and the borrower, as well as the fact that not all loans from a borrower became PUT loans.

If you still have a FFELP loan, and you only have FFELP loans, then as long as you have no problems, you have nothing to worry about. If you have a FFELP loan and a Direct Loan and/or a PUT loan, then you should really consider consolidating. You will have only one payment and will be able to track your loan payments better. For the first six months in 2012, the government is offering a special interest rate for people who fall into the category of having one or more FFELP loans and one or more Direct Loans/PUT loans. Contact your lender/servicer if you are interested in consolidating or go to loanconsolidation.ed.gov.

(As originally published in Metro Business College Arnold's January Newsletter.)

Vacation Break!

The world of financial aid never stops. There are changes that happen all the time and demand attention every day. However, The Financial Aid Blog will take a short break as all four of the Metro Business College campuses are on vacation this week.

Thanks for following the posts, and remember: if you have any questions you'd like answered, email me from the About Me page (or look for my email in the introduction section). I can't wait to see what you all are wondering!

I hope that this blog posting finds you healthy and happy in this holiday season. Take care of yourself, and we'll see you in 2012!

What if? Scenario 1

"What if I don't like the education or I can't find a job when I graduate? What happens with my loans? I don't feel as though they are my responsibility."

Well, the Dept of Ed's rules on this are very specific. The Master Promissory Note for your loans, your information that you receive when a loan disbursement is made, on your borrower rights and responsibilities, and in the entrance and exit counseling, it clearly states that you understand that you are still under obligation to repay your loans even if you are unsatisfied with the education you received or if you can't find a job.

These loans are federal student loans, meaning they come from the federal government. If you borrow from the government, then they will want their money back. They aren't concerned with your feelings or your outcome: they just want their money back. Since you filled out the loan, it is you that is responsible for it. Think of getting a Big Mac, eating it, then being unsatisfied with it. Will McDonald's not charge you? No, because then everyone would be unsatisfied with it, and no one would pay anything. That's just one of many examples.

I'm Verified

Verification is a process dealing with Pell grants. After you will out a FAFSA, you will be notified on your SAR (Student Aid Report) that you have been verified; your school will probably also notify you. This means that in order for your Pell grant to go through, the school has to document that the information on your FAFSA is correct. This means copies of taxes, a verification form, and any other copies of documents that are needed to support information that had been reported on the FAFSA.

Sometimes, you are verified because there is a mistake in the info that was reported in the FAFSA. Maybe your AGI was entered wrong or the tax wasn't right. Sometimes, you are verified even if the information is correct because the Dept of Ed wants the Financial Aid Dept to take a close look at your information to make sure it's all right. This has been mentioned at meetings before and the response was "there is something in the student's history that warrants a second look at their information". However, sometimes I really believe it is random.

Beginning in 2012, every student that is selected for verification has to be verified. Before, the rule was that 30% of those selected had to be verified. Our school always verifies everyone that is selected, so it's no big deal for us. If you are selected and you refuse to turn in the selected materials, then you cannot receive a Pell grant or have Stafford loans. It's best to take care of the verification as soon as you can to avoid unnecessary problems.