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.

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.

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.

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.

College Payment Plans

Payment plans are good for students who wish to pay for their tuition balance but don't want to take out loans. But how do they work? Like many elements of financial aid, the answer varies based on the school.

The way a payment plan works is whatever amount of schooling you wish to pay for out of pocket, you may. Typically, any aid that you can receive that you will not owe back (such as grants and scholarships) is applied to your tuition first. If there is a remaining balance, then that is the amount you pay.

Many schools have a fee for using this service. These same schools will often use an office for you to pay or even allow electronic payments. At Metro Business College, we do not have any electronic service for this, but we will also not charge any fee for any payment made to the school while you are enrolled. Many schools will put you on a term-based payment schedule (such as make a payment every semester). We allow the flexibility to suit your needs by allowing you to have a weekly, biweekly, monthly, quarterly, or even the whole lump sum payment.

If your amount at Metro Business College hasn't been paid off by the time you graduate, then you will either have to take out a federal loan (if possible) or take out a Central Finance Loan. The Central Finance Loan is considered an institutional loan that you make arrangements for when you are in your last quarter. There is a 3.5% interest rate with this (which is less than the federal loan rates).

Some schools require these payments to be made in whole before you graduate. Remember to always check with your Financial Aid office to ask questions about a payment plan for you if you are interested. It may not always be possible for you to make payments, but after the grants and scholarships, self-payments are the best way of helping your financial future by avoiding unnecessary debt.

2013-14 Verification Worksheets

Remember that the 2013-14 Pell Grant Verification will be broken into five categories (V1-V5), with each one requiring a different number of items to verify? Over the last few months, the question has been how will the worksheets work? Do you have one worksheet for independent students and one for dependent students, with each section that has to be completed marked? Or do you have five for independent students and five for dependent students?

We finally have the Department of Education's response as to their recommendations. They are not releasing a template this year for the verification worksheets, which they have done in years past (up the current year). The templates for verification worksheets were optional as long as the school required the same information on their worksheets. But without a template for at least some guidance, what does a school do?

The Dept's recommendation is to have five different verification forms for independent students and five different forms for dependent students. The reason for this is actually a simple, logical reason. If a school has one form with all five categories listed on it, and the FA Administrator marks two sections that the student has to fill out, and the student fills out all five, then those extra items have to be verified. With verification, the rules read that if information is volunteered by the student, then the FA Administrator has to verify it, even if it wasn't initially asked for.

To avoid this, it's better to just have five forms that only ask for specific information that won't end up giving too much information. Another reason for this is sometimes when the student gives too much information, it can possibly open the door for conflicting information, which has to be resolved before any FA funds can go through.

So, hopefully soon, we will have our ten worksheets ready (five for independent, five for dependent). Should make for an interesting verification year!

Why Should I Complete a Fafsa?

This is a question that comes up sometimes. Remember that the Fafsa is heavily based on income, so if you have a higher income, there's it's quite likely that you won't qualify. So why should you fill it out? There are several reasons:

1. You don't know you won't qualify until you complete it. There are many elements of the Fafsa that impact your Pell Grant eligibility. Some examples would be if you're married, have dependents, or earn income other than from work (such as certain types of government assistance). 
2. You have to complete a Fafsa, even if you know you won't qualify for any Pell Grant, in order to fill out federal loan paperwork. So if you want a subsidized or unsubsidized Stafford loan, then a Fafsa must be completed.
3. There are times when your FA administrator can work with your income to help you Pell Grant eligibility. The Department of Education stipulates that the Fafsa is dependent on your most recently completed year's income, but if it's not an accurate representation of your present situation, there are times when that can be taken into account. Some of the rules for Fafsa can bend, and some can't. Be sure to talk to your FA administrator about any situation that might impact your Fafsa. (Remember: you must fill out your Fafsa 100% accurate the first time, and only the FA administrator will know how or if your Fafsa can be worked with.)

In the end, you should always fill out the Fafsa for the above reasons. Even if you qualify for the minimum amount, that's still going to be a small amount that you won't have to worry about paying back. Since it's a grant, your Pell Grant will help you take some of the burden from figuring out how to pay for your tuition. Why not try for it? The worst thing that will happen is you won't get any. It costs nothing to complete the Fafsa, so go for it!