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So Long Federal PIN, Hello FSA ID – Starts May 10th!

So Long Federal PIN, Hello FSA ID – Starts May 10th!

For a number of years, college-bound students (and their parents in most cases) across the country would be required to utilize their uniquely assigned Federal PIN to electronically sign and submit their FAFSA (Free Application for Federal Student Aid). In addition, this Federal PIN would serve as an electronic signature for any education loans accessed through the website. The Federal PIN was versatile and opened a number of doors when it came to accessing education information/services provided by the Department of Education (,,, etc…).

The Federal PIN has served us well but it is now time for it to retire and allow a new age of technology to take its place and be the gatekeeper to all things good when it comes to college affordability and accessibility for future generations of students.  This new technology is known as the Federal Student Aid ID or FSA ID for short. Beginning Sunday May 10th, 2015, the FSA ID replaces the PIN as the new way in which you will identify yourself with the Department of Education. Below is a nice visual of the simple 6-step process required to get your new FSA ID (on or after May 10th). I hope you find this information helpful as you continue to achieve your education goals!



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The Scary World of Scholarship and Financial Aid Scams

The Scary World of Scholarship and Financial Aid Scams

scamFamilies that are paying for college are facing one of life’s biggest expenses. To make college affordable, students often search for scholarships to help themselves pay for school. Unfortunately, although many legitimate and generous scholarship opportunities exist, there are also scammers that prey on vulnerable students and their families.

Online financial scams are getting more and more common. In fact, people who earn a Certificate in Financial Crime Investigation often spend their careers rooting out online fraud. To read more about using due diligence before paying someone who approaches you over the Internet, visit this page. Then, before you commit to a school, familiarize yourself with some of the most common scholarship and financial aid scams.

“Come to Our Free Seminar!”

If you get a direct mail or email invitation to a free scholarship seminar, you’re usually better off staying at home. When you show up to the seminar, you’re more likely to hear about annuities, insurance and other investment products than scholarships. Presenters might also ask for money to enroll you in a scholarship matching service, or they might offer student loans with exorbitant fees and interest rates. Always verify the identity of the company that’s hosting the event. If the company doesn’t list a legitimate phone number, it’s a scam.

hooray“You’ve Been Pre-Qualified for a Scholarship”

Scholarships are competitive, and there are usually many qualified applicants. No scholarship has to try to recruit students via email. If you receive an email saying that you’ve been pre-qualified for a scholarship, delete it immediately, and never click on any of the links.

Also, beware of pop-up windows that say, “Congratulations! You’ve just won a $10,000 scholarship!” Be especially cautious if you’re told that scholarships are available on a first-come-first-served basis.

“Please Send Your Application Processing Fee”

Legitimate scholarships don’t ask for a fee when you apply, and neither do legitimate financial aid offers. If you’re asked to provide a credit card number or bank account number to hold your scholarship, never provide the information.

Most scholarships are paid directly to the university, not to the student. Even if the disclosure statement offers a money-back guarantee, never ever pay a fee to hold a scholarship or student loan.

“We’ll Do All the Work”

Some companies offer to help you apply for grants, work-study, loans and other kinds of aid. They say that they’ll fill out your paperwork for a “nominal upfront fee.” The only way to get federal student loan funds is to fill out a FAFSA, and you never have to pay to submit your FAFSA. Also, don’t be duped by testimonials praising the company’s amazing service. Most of the time, companies pay for these testimonies, or they make them up entirely.

Other Signs of a Scam

The scams described here are just some examples of potential scenarios. Fraudsters are dreaming up new kinds of scams all of the time. However, by recognizing some of these additional warning signs, you can steer clear of almost any scholarship or financial aid scam.

  • “You won’t find this information anywhere else.” Legitimate scholarship programs are transparent about what they offer, and they’re eager to give away their funds. If someone promises special insider scholarship information, then it’s probably a scam.
  • “You’re a finalist — even though you never entered the contest.” Scholarships have a competitive application process. People who award scholarships probably aren’t going to cold call you or send you an unsolicited email.
  • “You get a scholarship, or you get your money back.” Some legitimate services do enter your name and qualifications into a database and match you with available scholarships for a fee. However, no legitimate service guarantees that you’ll win a scholarship or get your money returned to you.
  • “This offer won’t last long.” Most scholarship applications have strict deadlines, but you’re not going to be pushed to apply. If a salesperson is pressuring you for money for a limited-time opportunity, then the salesperson is probably shady.

What If You’ve Been Scammed?

If you’ve been victimized by a scholarship or financial aid scam, file a complaint with the Federal Trade Commission, and contact your state attorney general’s office. You might feel embarrassed to admit that you’ve become a victim, but your report might help someone else to avoid the same fate.

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Eeks! Poor Choices With Student Loan Funds Can Damage Your Wallet

Eeks! Poor Choices With Student Loan Funds Can Damage Your Wallet

Broke GuyApproximately 60 percent (12 million) of the nearly 20 million students attending a four-year college or university in the United States on an annual basis take out student loans to cover their costs. 37 million borrowers who currently are, or were, students have an outstanding loan balance, with federal and private student loan debt looming at or more than one trillion dollars. The amount of loan balance outstanding per capita is a little more than $24,000, with 1% owing $200,000 or more; 3% owing between $100,000 and $200,000; 10% owing between $54,000 and $100,000; and, 25% of borrowers owing $28,000 to $54,000.

Student loan dollars are typically sent to the financial aid department of a college or university and used to offset the cost of tuition, fees, room and board and other associated costs. If the amount borrowed exceeds the amount needed to meet your expenses as a student, the remainder balance will be given in the form of a check. This may take place either at the beginning of the year in a lump sum payment or at the beginning of each semester, as funds are disbursed to the institution.

The Student Loan Conundrum

The problem with the way student loans are disbursed to you as a student is that it creates a false sense of wealth. Imagine an 18 to 19 year old student who has never seen a check for $1,000, $5,000 or $10,000 dollars. It becomes tempting to use these funds to invest in a new wardrobe, killer shoes or a brand new entertainment system for their dorm room. The unfortunate downside to this type of use of excess student loan money is the negative effect it will have on your future financial habits and your ability to qualify for other types of loans, such as home and auto. What is the true cost of those $99 shoes and did it lead you to become a member of “Generation Debt?”

Typical Student Loan Expenditures

With their newfound wealth, where is the money from student loans going if it isn’t being used to pay for school or being invested for the future? For some borrowers, excess student loan money is being used to fund a lavish lifestyle and the excess of youth, without regard to the future and what may come. Cars, parties, vacations, starting a business are some of the more typical expenditures made by students with their excess funds. Such spending is well within the rules as there is no current monitoring performed by the U.S. Department of Education or a school’s financial aid or bursar’s office once these funds have been distributed to the student.

The Cost of Student Loans

Resisting the temptation to use your student loan money in a frivolous way can result in major savings in the long run. Here is a simple illustration of how saving a portion of your excess student loan funds can save you on interest alone:

You borrow a total of $50,000 toward your education costs to fund a 4-year bachelor’s degree (which took 5 years to obtain) at $10,000 per year. You only needed $5,000 toward your education costs, yielding a windfall of $5,000 each year you worked on that degree. You begin to repay the loan at the end of the fifth year under a standard loan repayment schedule of 10 years. You will pay back the $50,000 borrowed, plus an additional $16,600 plus in interest (at a hypothetical 6% loan interest rate). In addition to this, add a 6% interest to all purchases made with your loan money (or, an additional $60 in interest for every $1,000 worth of purchases).

Now, pretend that you set aside half of your newfound money ($2,500) each year in an interest bearing account (at 6.5% compounded monthly) over the five years before you start paying back the loan amount. Instead of an interest payment of $16,600, you have a lump sum amount of $15,247 to apply toward your loan balance, lowering the balance to $34,000 and some change and a total interest of $11,547. You trimmed your interest costs by nearly one-third by setting aside merely one-half of your excess distributed funds. It goes without saying, but using money earned from a part-time job on extra purchases (rather than loan money) will eliminate the need to pay of interest on those expenditures.

Making Wise Choices with Student Loan Funds

Making better choices about student loan funds and how to use them will make life easier for you and improve your financial future. There are great tools that can help you determine how much interest you will pay, the amount of loan payments you will make and counseling programs that can help you avoid the pitfalls of generations before you. Consider this: those with the most student loan debt currently are those who can least afford that debt. Information from the Pew Research Center and Federal Reserve that 58 percent of student loan debt outstanding is held by households with a net worth that is less than $8,500.

Understand that learning about money and the cost of money are important life lessons to learn as early as possible. Regardless of whether you are a person who comes from financial means or who has never been exposed to large sums of wealth, poor finance decisions may provide an immediate benefit but become a lifelong detriment. Instead, take the time to educate yourself about your loans and the consequences of your spending—it’s a move that your future self will surely appreciate.

This article was contributed on behalf of Smart PrePaid Electric, your number one choice when looking to cut down on your home or apartment bills. Check out their website today and see how they can help you save more!

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Public Service Loan Forgiveness Program – What You Need To Know

Public Service Loan Forgiveness Program – What You Need To Know

TeacherPublic service workers fulfill a vital role in the communities in which they serve, yet many still have student loans that are currently in repayment. According to The Huffington Post, the Consumer Financial Protection Bureau recently revealed that up to a quarter of the United States workforce is currently not taking advantage of a program designed to provide student loan relief to public service workers. This means that members of the military, firefighters, teachers, and others who dedicate their lives to serving the public should be made aware of the opportunities that exist through the Public Service Loan Forgiveness Program (“PSLF”). Here is an overview of how the program works along with the information that every public service worker should have to determine their eligibility, track service hours and complete the application process to have their loan forgiven.

General Eligibility Requirements
The PSLF program is designed to encourage graduating students to enter into their public service positions and continue to work full-time as they serve their communities. Therefore, the eligibility requirements are established to reinforce the importance of the services provided by these workers. To be eligible to have their loans forgiven under this program, a person must be working full-time at a recognized public service organization while making 120 full payments by their scheduled due dates under a qualifying repayment plan. It is also important to note that this program is only available for those making payments on a loan received under the William D. Ford Federal Direct Loan Program. Other types of loans may be consolidated into a William D. Ford Loan; however, only the payments a person makes on the new Consolidated Direct Loan will be counted as the 120 payments required for eligibility.

Types of Employment Qualified for the Program
According to the U.S. Department of Education, a qualifying place of employment for this program can be any non-profit organization, government agency or entity that has been declared as tax-exempt by the IRS. For these types of organizations, there is no stipulation regarding what types of services must be provided for the organization to qualify. Some private not-for-profit employers that are not tax-exempt may still qualify provided that they perform specific services for the public. Examples of these would be the military, public education and health services, law enforcement agencies and services provided to those with disabilities or the elderly.

The type of job doesn’t matter when it comes to eligibility—as long as the employer is employed by a public service organization. So, everyone from managers and teachers to support staff may apply for loan forgiveness.

Determining Full-Time Employment
Under the PSLF program, applicants must be employed for as many hours as their organization considers a full-time position. However, these hours must equal 30 or more per week. For those who work in religious organizations, time spent on providing religious instruction or worship may not be counted among these hours. Educators who work under a contractual basis that includes specific months of time off may still be considered for loan forgiveness provided they work at least 30 hours a week during the contractual working period. Those who work part-time at more than one organization may also be eligible if their hours combined are equivalent to 30 or more hours a week.

How to Track Employment and Loan Payment History
Under most repayment plans, it will take at least ten years before a person has made 120 on-time full payments. For this reason, the Consumer Financial Protection Bureau recommends for public service workers to complete the Employment Certification for Public Service Loan Forgiveness form which can be used to help keep track of a person’s qualifying employment and payment history. The form consists of three sections, with the first two being filled out by the person applying for loan forgiveness and the last to be completed by the employer. Many public service organizations are familiar with this process and may already have a plan in place for initializing the process of tracking employment hours. Those who change employers at any point during their repayment period will need to resubmit the form and update their information to include the new employment history.

Completing the Application Process
After a public service worker has made their 120th payment on their student loan, they can submit their application for loan forgiveness. It is important to note, however, that the applicant must still be working full-time with the qualifying organization at the time they file the application. During the time that the application is being processed, the PSLF servicer may request additional information to document a person’s employment or loan payment history. Prompt submittal of any requested documentation will help to ensure that a decision is made in a timely manner.

Student loans have made it possible for many public service workers to provide quality services to their communities using the latest research-based techniques for helping others. Today, the U.S. Department of Education has made it possible for millions of public service workers to find relief from their student loan debts by continuing to serve full-time at qualifying organizations. By understanding how the Public Service Loan Forgiveness Program works and what constitutes qualifying employment and repayment, many public service workers can have their remaining loans forgiven so that they can continue to use the their skills to help those in the communities they serve.

 About the Author:

Today’s guest article comes from Greg Mitchell, a freelance financial and real estate blogger, contributed this article. He enjoys sharing his money-saving tips with recent college grads and young entrepreneurs as they navigate complex financial decisions such as federal loan forgiveness, business tax credits, and office leasing.

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FAFSA: New Regulations Recognize Same Sex Parents

FAFSA: New Regulations Recognize Same Sex Parents

FAFSA_iconThe U.S. Department of Education has recently announced new regulations for the 2014-15 academic year that impact how students filing for federal financial aid will complete their Free Application for Federal Student Aid (FAFSA) from this year forward. Furthermore, these changes play a strong role in how a dependant student’s family income will be used to determine eligibility.

Although the U.S. government’s decision to recognize same-sex and unmarried parents on the FAFSA marks an achievement for many, some families may be concerned about how it could affect a student’s financial aid. Here is an overview of the new regulations to keep everyone informed of what to expect when completing their FAFSA this year.

Impetus Behind the New Regulations

According to Inside Higher Ed, the new regulations are the result of a Supreme Court decision made in June of 2013. This decision declared invalid the portion of the Defense of Marriage Act that prohibited federal agencies from providing legal recognition to same-sex marriages. Now that this policy change has been made, the federal government is free to apply the same treatment to same-sex marriages as they have been to heterosexual marriages in past years. It is also important to note, however, that prior to this decision, the U.S. Department of Education already had changes put into motion to make the switch to gender-neutral language on future FAFSA forms so that both parents from unmarried couples who live together could be used to determine household income.

New Requirements for Dependent Students

There are several factors that determine a student’s status as either dependent or independent. While individual circumstances can play a role in this determination, most undergraduate students under the age of 24 are declared as dependent if they are unmarried and not raising children of their own. In the past, dependent students who lived with same-sex or unmarried parents only had to claim the income of one of their parents. On the new form, students will be instructed to include household income using gender-neutral language that also takes into account recognized same-sex marriages and unmarried couples so that all of a household’s income can be used to calculate a student’s estimated family contribution.

How Do the FAFSA Changes Impact Students and Families?

According to a letter released by the U.S. Department of Education, the new regulations are expected to affect only a small percentage of students due to the fact that over 60 percent of FAFSA filers are classified as independent. Out of the remaining filers, an estimated 20 percent will not notice the changes because their parents are classified as heterosexual married couples and have already been recognized on the application in past academic years. The remaining students will find that their family dynamics will affect the determination of their estimated family contribution. For some of these students, the additional income could reduce the amount of aid they receive through federal, state and privately-funded financial aid programs. Other students may find that the addition of an extra family member generates an increase in the amount of aid they can receive. While this does represent a shift in how financial aid is distributed, the federal government maintains that this will ensure fairness among all families who apply for aid.

Changes in the Application Process

When students and their families complete the FAFSA for this academic year, the most obvious change will be the use of gender-neutral language. Instead of using the terms “mother” and “father,” students will be instructed to list the income of each “parent.” For the purposes of the application, both biological and adoptive parents who live in the same home as the student must be included. Students who live with heterosexual married parents will continue to complete their application as it has been done in the past; however, those who live with same-sex parents who are in a marriage legally recognized by their home state or foreign country will list their parents’ marital status as “unmarried and living together”. Follow-up questions to this response will then include the new gender-neutral language.

Completing the New FAFSA

Now that same-sex married and unmarried parents are to be included on the FAFSA, some questions will arise when it is time to submit tax return information. The current IRS Data Retrieval Tool is unable to provide separate financial information for parents who file separately regardless of their sex or marital status. Therefore, special instructions will be provided during the application process for students who have separate tax forms filed for their parents that pertain to how they should answer questions regarding tax filing status and adjusted gross income for the family.

Every student and their family applying for financial aid using the FAFSA this academic year should be aware of the changes that will affect how they should respond appropriately to questions regarding their current living arrangements and dependent status. While the recognition of same-sex married and unmarried parents on the FAFSA will impact the amount of financial aid that students receive, these new changes are meant to provide a more accurate report that will ensure fairness for all students who can benefit from having financial aid to fund their education.

About the Author:

Today’s guest article comes from Greg Mitchell. He is a freelance financial blogger and proud resident of Houston, Texas. He encourages all local families to carefully look at how recent developments in their lives, such as new marriages or divorces in Houston, could impact their FAFSA applications.

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Teachers – Everything You Need To Know About Loan Forgiveness

Teachers – Everything You Need To Know About Loan Forgiveness

TeacherStudent loans make it possible for educators to obtain the degrees and certifications that are essential for their career. After graduation from a degree program, repayment of these loans is the first step a person will need to make on the path to greater financial security. Fortunately, this step has been made easier by government programs that are designed to encourage more people to enter the teaching profession by helping to alleviate some of the burden that may be incurred by student loans. Here is an overview of how the Teacher Loan Forgiveness Program works along with how a person can get started on determining their eligibility for having their loan balances forgiven.

General Requirements
According to the U.S. Department of Education, the Teacher Loan Forgiveness Program is open to any teacher who has provided direct classroom instruction full-time to students in schools that are designated as serving low-income families for at least five consecutive years (sometimes called “Title I-eligible schools”). Those interested in the program must have no outstanding balances on their account from October 1, 1998 and up to the day the loan was obtained. Anyone who is currently in default on their loan must have a satisfactory arrangement for repayment in place before they will be considered for the loan forgiveness program. It is also important to note that at least one of the five years of required teaching must have been completed after the 1997-98 academic year.

Loan Amounts Forgiven
The Teacher Loan Forgiveness Program offers up to $17,500 in loan forgiveness; however, the amount that a person may have forgiven will depend upon several factors. The amount forgiven will vary according to the years of a teacher’s service along with their level of qualifications. Those who completed their years of service before October 30, 2004 may be eligible for up to $5,000 of loan forgiveness provided that they served full-time as a general education instructor in an elementary school or taught a secondary-level course in the field of their major. If a teacher is designated as highly-qualified in their classroom field, then the amount may be increased to as much as $17,500. For those who taught after 2004, the potential amount forgiven for a highly-qualified elementary teacher is $5,000. Special education and highly-qualified secondary teachers can be eligible for as much as $17,500.

How to Determine Eligibility
In addition to obtaining certification regarding one’s credentials as a highly-qualified instructor with over five years of full-time teaching service, a person will need to make sure the school in which they taught is designated as low-income for the purposes of the program. The school in which a person served must be qualified for Title I funds under the Elementary and Secondary Education Act of 1965 and must have been selected by the U.S. Department of Education based upon the decision that 30 percent or more of the students enrolled qualify for services provided by Title I. These schools are all listed in the Annual Directory of Designated Low-Income Schools for Teacher Cancellation Benefits.

Application Process
The first step toward having one’s loans forgiven is to fill out the Teacher Loan Forgiveness Application. Before filling out the application, one will need to compile a list of each school in which they taught along with any certifications or degrees that can support their designation as a highly-qualified teacher. On the application, the chief administrative officer for each school in which a person taught will need to complete a section that verifies a teacher’s years of service. After the form has been completed, it will need to be submitted to the loan holder or servicer responsible for a person’s student loans. Those who have obtained loans from multiple providers will need to file a separate application with each one.

Follow-Up Procedure
After the application has been submitted, teachers will be contacted regarding the status of their application. In some instances, it may be necessary to provide additional documentation regarding one’s years of teaching service. For example, those who were unable to complete a full year of service may be able to have it counted if they send proof that they were on active duty or covered by the Family and Medical Leave Act during the time of their absence. Promptly following-up on any additional requests for documentation will help to reduce the processing time of a person’s application and offers the best chances for receiving the full loan forgiveness amount. Once the application has been processed, a statement will be sent to the teacher that provides the amount that will be forgiven along with a brief explanation for how the amount was determined.

The Teacher Loan Forgiveness Program is beneficial for educators who need a solution for managing their student loans and is effective for encouraging highly-qualified teachers to enter and continue to work in their chosen profession. By understanding how the forgiveness program works, educators can take advantage of loan forgiveness so they can better manage their finances while still enjoying the benefits of higher educational opportunities that can enhance their effectiveness for providing quality education to every student in their classroom.

About the Author:

Today’s guest article comes from Julie Moreno. She knows how important it is for teachers to find the resources they need. In addition to Loan Forgiveness programs, aspiring teachers can check out for more information on teaching salaries, career paths, and Master’s degrees in Education. 

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Are Schools Using Aid to Lure Wealthy Students?

Are Schools Using Aid to Lure Wealthy Students?

moneybagA recent CNBC report highlights a quiet, but growing, concern in the higher-education community: schools may be offering more scholarship money to wealthy students and less to students from lower-income backgrounds.

While the study shows that schools—most especially private institutions—must operate as businesses, it also highlights the importance of scholarships and grants for higher education.

The Study

The 2013 Sally Mae study, titled “How America Pays for College,” surveyed undergraduate students (aged 18-24) and found a couple changes in payment methods for students and their families over the last several years. Based on their observations and interviews, the researchers found that:

  • Parent spending has declined post-recession (27 percent in 2013 compared to 37 percent in 2010) and the average parent contribution has declined by 15 percent since 2010.
  • More students depend on scholarships and financial aid.
  • A greater number of families take out additional actions to make college affordable (e.g., taking out a second job, seeking out grants, etc.)
  • Despite a recent recession and growing costs, the majority of American families surveyed still believe in the value of college.

The increasing significance of grants and scholarships for student expenses is highlighted by the study, which proclaims that “the post-recession reality appears to be that grants and scholarships have replaced parent income and savings as the major contributor to paying for college.” The majority of scholarships come from colleges themselves (61 percent of families surveyed received scholarships this way).

The most interesting finding of the study, though, focused on the distribution of scholarship money from institutions. As noted by CNBC, “36 percent of students from wealthy families received scholarships averaging $10,213 for the school year, while 35 percent of students from families earning less than $35,000 a year received scholarships worth an average of $7,237.”

Granted, this data may be affected by a number of different factors—merit-based scholarships do not typically take family income into account, for instance—but the research is upsetting enough to leave some educators and families wondering whether universities are targeting and enticing wealthy students with scholarship aid, while not offering as much funding to students in need.

Are Lower-Income Students Being Left Behind?

Despite the findings of the study, lower-income students still receive a large amount of financial aid from schools. In this past year, 19 percent of high income families (those making more than $100,000 per year) received federal grants that averaged $5,757. On the other side of the spectrum, a whopping 63 percent of low income families (those making less than $35,000 per year) received federal grants that averaged $6,170.

Scholarship amounts offered by schools are painting a different picture, however. Because scholarships can be granted by the institution—not by the government—the school is not obligated to take financial considerations into account. As such, most schools offer myriad “merit based” scholarships (presumably to students most deserving based on their academic, and not their financial, standing). When these scholarships are taken into account, it would appear as though colleges are granting more aid to those who least need it.

Schools as Businesses

While this makes matters more difficult for students from low income families, it’s hard to fault the academic institutions too heavily. Universities are simply trying to continue a successful cycle. This is especially in the case with private schools.

Private universities rely on donations from alumni and families, so “investing” in high-income families is a smart move. In an exploration of this concept, the New America Foundation issued a study titled “Undermining Pell: How Colleges Compete for Wealthy Students and Leave the Low-Income Behind,” which asserted that scholarships for the wealthy are part of an institution’s “relentless pursuit of prestige and value.” According to CNBC, schools may also be using these scholarships to entice “highly-qualified” students (or, students with outstanding scores, competitive academic honors, etc.) who may even be from higher-income families and who may not qualify for need-based grants.

The New America Foundation also makes the point that it is more profitable for a school to provide four $5,000 scholarships to affluent students than one $20,000 scholarship to a single low income student. This places universities in a tricky situation as they try to balance future resources with current academic integrity and rewards.

Finding Support

So are students from lower- and middle-income families left facing a future without aid from competitive or private universities? Probably not. This general lean towards the affluent is only with regards to scholarships. Low income families still have pole position—as well they should—when it comes to federally issued student loans and grants. While policy makers and educators may need to refocus their efforts on finding ways to make higher education possible for people from all backgrounds, students should take from this new research a newfound reliance on performing a wide search when it comes to scholarships and aid.

About The Author:

Today’s guest article comes from Candice Mahoney. She is an engineering student and freelance blogger, currently residing in Houston, Texas. With help from a variety of scholarships, she has been able to pursue her dream education in the field of engineering project management, and is eager to apply her skills towards large-scale construction projects.

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What Every Student Ought to Know About Repaying Debt

What Every Student Ought to Know About Repaying Debt

student-loans-building-blocksStudent loans are a unique form of debt. Under heavy government intervention and complicated legislation, they follow different rules than car loans and mortgages. They can be daunting and confusing. And since you don’t have to pay them back right away – as long as you’re still getting a full-time education – it’s easy to put off thinking about how you’ll repay them. But it’s important to consider that up front because payment day will come, even if you don’t get your degree and even if you don’t get a job right after college.

Here are the most important points to consider about repaying your student loan debt.

Late Payments and Credit Scores

Student loans are like other loans in at least one way: Late payments will negatively affect your credit score. Both private and public lenders report your payment history to the credit bureaus, so the more you are late, the worse your credit will be.

While this may seem like a small problem now, if you still have a ways to go with college, it could end up costing you thousands of dollars later when you need a loan for a house or a car. Lenders will charge you higher interest rates because they will think you are “risky” and less likely than others to pay them back on time. Even worse, too many late payments or a default on a student loan will make you ineligible for some loans, meaning you might not be able to buy that house or that car a few years down the line because you didn’t manage your student loan debt.

Why Bankruptcy Is No Help

If you ever fantasize about never having to pay back your loans because you think filing for bankruptcy will clear all your debts, stop dreaming. While people do seek bankruptcy protection – as a last resort – when their amount of debt outweighs their ability to pay it back and can see a reduction in the amount they owe after negotiating with their creditors, this does not work with student loans. All student loans, even private student loans, cannot be discharged in bankruptcy. Private loans used to be able to get discharged, but Congress changed the law in 2005.

So what happens to your student loans if you declare bankruptcy? Nothing. They stay there, and you still have to pay them. They may go in default, but you will still have to pay the interest that accrues, whether you pay your monthly payments on time or not.

The only way to get out of paying student loans in the United States is to die (even then, depending on the type of loan, your co-signer or spouse may have to pick up your tab).

Deferment and Forbearance

Fortunately, there is another way to get some relief from student loans if your financial life collapses: Deferment and forbearance are two ways that lenders will allow you to postpone paying your student loan payments until you get back on your feet.

With public student loans, you simply need to fill out a form online. If you qualify, you can postpone your payments for a few months. You can qualify if you are unemployed and looking for work, if you are studying at least half-time at a college (or full-time in grad school), or if you meet the U.S. government’s standards for “economic hardship.” In special situations, you can request a postponement of monthly student loan payments even if you don’t qualify under the normal terms.

With private loans, deferment and forbearance is a little harder to get. Private student loan providers can defer loans at their discretion, so you will need to contact your lender and provide documentation and a good reason for why you want to defer your payments. Lenders will work with you, but be prepared to answer a lot of hard questions and have the documents to back up your request.

Income-Based Repayment Plans (IBR)

Students who are employed but earn less than $65,000 per year may qualify for a new government program called “income-based repayment,” which offers a sliding scale of monthly payments that are calculated according to your family size and annual income. You can use this calculator to see what your monthly payments will be.

IBR payment plans can help you if you are in a low-income household, but you will still have to make payments on your loans and enrolling in an IBR plan may mean it will take you longer to pay off your student loans.

Budgeting and Credit

While it’s good to know the consequences of not repaying your student loans on time – and the solutions for making up for any inability to pay – you’re much better off, of course, meeting your obligations. That’s why should get in the habit of spending wisely and coming up with a spending budget now, so you can be smart about your money – and your bills – when you do graduate. Spend this time building up a strong credit history, and you’ll be setting yourself up to repay your student loans in a fair amount of time.

Today’s guest article comes from Cassy Parker at

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