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Sallie Mae Sells Final Round of Student Loans (ECASLA)


In 2003 the Ensuring Continued Access to Student Loans Act (ECASLA) was put into place as a method to stabilize the student loan industry and insure lender participation from year to year. Basically, ECASLA was a piece of legislation that allowed education lenders the opportunity to sell off their loan portfolios each year to the Department of Education.  The money garnered from the transaction was then put back into the financial institution’s lending pool and doled out to students again in the form of education loans. This process kept lenders in business and students with access to federally backed education loans….until now.

Starting this year, banks and financial institutions are no longer part of the federal student loan process and all loans come directly from the Department of Education via StudentLoans.gov. Great debates and discussions have challenged the pros and cons of taking the “middle man” out of the federal student loan process but the end result is that they are now missing from the equation.

Based upon this, Sallie Mae recently announced that they will be selling off their final round of qualifying loans to the Department of Education on October 12th under the soon to expire ECASLA. This is certainly a monumental moment in the world of financial aid and student lending as this final transaction marks the end of an era in which banking institutions profited off of the federal student loan program.

The following is the eligibility criteria put into place by the Department of Education that depicts which loans they will purchase (and which ones they will not):

  • Were first disbursed between May 1, 2009, and June 30, 2010.
  • Have a loan period that includes or begins on or after July 1, 2009.
  • Are fully disbursed by September 30, 2010.
  • Have no borrower benefits other than a 0.25 percentage point interest rate reduction for auto-debit.

Sallie Mae will be contacting all affected borrowers prior to the sale and informing them of the change in where their loan will be housed. If borrowers don’t meet the loan criteria above, they will continue to make their payments directly to Sallie Mae.

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Your New Best Friend for Education Loans – StudentLoans.gov


Did you get your student loan yet this year?  If you did and it was a federally backed student loan, then you probably are very familiar with StudentLoans.gov.  It is the new portal that was introduced this year by the Department of Education to process federal education loans for students (and parents) from beginning to end.

Through StudentLoans.gov, you have access to the following types of education loans:

  • Direct Subsidized Loans: These loans are for students that have demonstrated financial need via the FAFSA. No interest is charged while the student is in school at least half-time, during the grace period, and also at anytime the loan is in deferment. Interest starts accruing at the time of repayment and currently the interest rate is fixed at 4.5%
  • Direct Unsubsidized Loans: These loans are for students and are not based upon financial need (however a FAFSA is still required). Interest accrues while you are in school, in a grace period, and in deferment. The current interest rate on this type of loan is 6.8%.
  • Direct Plus Loans: These loans are eligible for parents of dependent students and the current interest rate is 7.9%. Parent’s can borrow up to the amount left over after all financial aid is applied toward educational expenses (otherwise known as Cost of Attendance).
  • Direct Consolidation Loans: This is for borrowers that want to combine (consolidate) their federal student loans into one loan program. The interest rate is typically a blended rate of all the loans being consolidated.

The Department of Education imposes the following loan limits for the Direct Student Loan Program:

Year Dependent Undergraduate Student (except students whose parents are unable to obtain PLUS Loans) Independent Undergraduate Student (and dependent students whose parents are unable to obtain PLUS Loans) Graduate and Professional Degree Student
First Year $5,500—No more than $3,500 of this amount may be in subsidized loans. $9,500—No more than $3,500 of this amount may be in subsidized loans. $20,500—No more than $8,500 of this amount may be in subsidized loans.
Second Year $6,500—No more than $4,500 of this amount may be in subsidized loans. $10,500—No more than $4,500 of this amount may be in subsidized loans.
Third and Beyond (each year) $7,500—No more than $5,500 of this amount may be in subsidized loans. $12,500—No more than $5,500 of this amount may be in subsidized loans.
Maximum Total Debt from Stafford Loans When You Graduate (aggregate loan limits) $31,000—No more than $23,000 of this amount may be in subsidized loans. $57,500—No more than $23,000 of this amount may be in subsidized loans. $138,500—No more than $65,500 of this amount may be in subsidized loans. The graduate debt limit includes Stafford Loans received for undergraduate study.

How Do You Apply For These Loan Funds?

The steps for a student are fairly simple:

  1. Complete the FAFSA (Free Application for Federal Student Aid)
  2. Sign into your account at StudentLoans.gov using the same PIN number that you utilized on the FAFSA
  3. Complete the MPN (Master Promissory Note)
  4. As long as you are a registered student at your college, they will certify the loan and schedule a date for the funds to be disbursed against your tuition accounts.

The steps for a Direct Parent Loan is a little more involved but still done with ease:

  1. Complete the FAFSA (Free Application for Federal Student Aid)
  2. Sign into your account at StudentLoans.gov using the same PIN number that you utilized on the FAFSA
  3. Complete the Loan Application (Unlike the student loan, this loan is subject to a credit review before being approved)
  4. Complete the MPN (Master Promissory Note)
  5. As long as you have no adverse credit and the student is a registered student at the college you are requesting the funds to be sent, a financial aid administrator will certify the loan for the dollar amount requested (or the dollar amount eligible if you request more than what you are allowed) and schedule the disbursement of the funds to the school.

Some Inherent Problems / Mistakes That You Should Try To Avoid…

I have talked with some financial aid administrators and the following list of problems seem to be topping the charts and causing problems for them (and their families) in getting these loan funds processed.

  • Confirmation Woes: Just because you get a confirmation at the end of the process on Studentloans.gov, it doesn’t necessarily mean that you did everything correct. Apparently, the confirmation page is given to anyone that makes it to the end of the online process regardless of accuracy in filling out the boxes… The only way you will know something is wrong, is if the school calls and notifies you or if your loan seems to be taking an extraordinary amount of time for processing (meaning that it is probably being held up for some technicality)
  • No Dashes and No Slashes: Even though we love to use these things on calendar dates, you should refrain from using them on StudentLoans.gov. If used, it will ensure an immediate delay in your loan being processed.
  • Double Check Social Security Numbers: Hard to believe but it actually appears that StudentLoans.gov does not verify the social security number of the student (especially if it is the parent doing the Direct Parent Loan).
  • Time Delays: If a parent is doing the Parent Direct Loan, they will need to wait a little bit before going through the steps if the student just completed the student direct loan MPN. If the parent starts the process too soon, the system will error out.
  • Pin, PIN, PIN: Student should use their PIN for their loans and parents need to use their PIN for their loans. You can ‘t interchange them…
  • Complete ALL The Steps: Apparently, the parents are able to complete the MPN and get a printout confirmation without ever actually doing the application part of their loan. Even though the system permits this, make sure you complete BOTH the application and MPN.

The education loan process can be quite a daunting task but I am hopeful that the information above helps to guide you through the appropriate steps in a timely manner and without errors. If you know of anyone else that may be able to benefit from this information, please feel free to use the “share tab” below to pass this along.

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Student Aid and Fiscal Responsibility Act (SAFRA)


The following article is provided by the good folks at The Real College Guide. We are pleased to have them as a Contributor for CheapScholar.org. This article provides a good foundation for the information covered by SAFRA. If you have additional questions or would like me to provide additional details on any aspect of this legislation, don’t hesitate to drop me a line.

Understanding SAFRA and What It Means To You

The college tuition system has been turned upside down now that the Student Aid and Fiscal Responsibility Act (SAFRA) is law. The Student Aid and Fisc-huh?!?

SAFRA is legislation President Obama tacked on to his infamous health care reform bill.

“The White House succeeded in not only getting the health care bill passed, but in making a huge change to the college loan system,” says Eric Yaverbaum, education expert and author of Life’s Little College Admissions Insights. “It’s gone largely unnoticed because it’s seemingly unrelated to the blockbuster changes in the health care industry.”

There’s been some controversy surrounding the issue of combining student aid reform with the seemingly unrelated matter of health care reform. But political views aside, let’s see how SAFRA affects students:

No. 1: You’ll get loans directly from the government — without a middleman.
While some schools have participated in the Federal Direct Loan Program since its inception in the early ’90s, SAFRA requires that all federal student loans now be originated through the U.S. Department of Education. This means funds come directly from the federal government, which provides the loans at a low interest rate.

“It’s so advantageous to students,” says Yaverbaum. “My daughter is about to enter her freshman year, and as a parent I couldn’t be more excited about it. College students are really going to benefit. Paying back college loans kills kids forever. Now it doesn’t have to be such an awful experience.”

Your credit score and employment status are not factored into your application for a direct loan … unless you have extreme adverse credit (say, your car got repossessed or you’re more than 90 days past due on that Urban Outfitters account). If you get denied, you can appeal or get a qualified co-signer.

No matter where you are in the borrowing process, visit StudentLoans.gov to find out if you qualify for one of the four types of Federal Direct Loans:

1. Federal Direct Subsidized Stafford Loans are based on financial need. The government pays the loan interest until you’re out of school.

2. Federal Direct Unsubsidized Stafford Loans are not need-based, and students are required to pay all interest charges.

3. Federal Direct Parent PLUS Loans (“PLUS” stands for “Parent Loans for Undergraduate Students”) allow parents to borrow money to help pay for their child’s education.

4. Federal Direct Graduate PLUS Loans offer the same terms as Parent PLUS for graduate and professional-degree students.

No. 2: You can consolidate loans you already have.
Federally guaranteed student loans will no longer be made by private lending institutions through what many of you already know as the Federal Family Education Loan (FFEL) Program.

What to do if you have an existing FFEL loan? For a one-year stretch — from July 1, 2010 to July 1, 2011 — current students who have FFEL loans can roll those into the Direct Loan program. The benefit is that you’ll only have to deal with a single lender (the Direct Loan Servicing Center) which means paying one monthly payment for all loans. Plus, your minimum monthly payment on a consolidated loan may be lower than the combined payments for FFEL loans.

No. 3: You’ll pay back less per month (and overall) and be done in fewer years.

Carrie Meyer, a rising senior at Ohio State University, has had to rely on three loans to cover her college tuition over the years: federal subsidized, federal unsubsidized and a personal loan. Meyer, a hospitality management student who currently works part time, still worries about paying off her loans after graduation: “With what I want to do, you don’t start out getting a big salary.”

Direct Loan borrowers can choose from several friendly payment plans, depending on needs — and you can switch to a different repayment plan if your situation changes. Beginning in 2014, the Income Based Repayment option will cap monthly loan payments at 10 percent of income and forgive remaining balances after 20 years of repayment. Sound like a lot? Actually, this is a major improvement from the current terms of capping repayments at 15 percent and 25 years, respectively.

No. 4: You could save big-time on loan payments if you go into public service.

Public Service Loan Forgiveness provides incentive for students to enter into full-time public service employment. The program forgives the remaining balance of a Direct Loan after a borrower has completed 120 monthly payments (that’s 10 years) while employed full time in public service. This includes government jobs, military service, safety professions, law enforcement, health care, social work, legal advocacy and some teaching positions.

No. 5: Maximum Pell Grant amounts will increase with inflation.

While SAFRA does not change the process for applying for federal grants, it does increase the amount of money awarded through the ever-popular Pell Grant program, which provides financial aid to low-income undergraduate students. For the 2009 to 2010 school year, the maximum Pell Grant was $5,350. The max will be upped to $5,550 for 2010 to 2011 and will gradually increase based on inflation costs beginning in 2013.

Students interested in applying for aid should complete a Free Application for Federal Student Aid at Fafsa.ed.gov or call 1-800-4-FED-AID. Keep in mind that this is not a one-time thing — students who want to be considered need to apply for aid for every school year, so it’s important to stay on top of application procedures.

A recent report released by the College Board found that millions in financial aid are left untouched by community college students. In the 2007 to 2008 academic year, 58 percent of Pell Grant-eligible students who attended community colleges applied for federal financial aid, compared with 77 percent of eligible students at four-year public institutions.

No. 6: Community colleges and minority schools will get big bucks for improvements.

Says College Board President Gaston Caperton: “Community colleges are a critical part of the education system, serving nearly half of all undergraduates in the United States.” The terms of SAFRA reflect this sentiment, as $2 billion is being committed to improving educational programs and updating facilities at community colleges. In addition, SAFRA has earmarked $2.55 billion to be invested in historically black and minority institutions.

Talk It up!

What do you think about SAFRA and its impact on the college student aid system?

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Choosing The Best Private Education Loan For College


I need to preface this article by stating that I would never recommend a private education loan to cover your college expenses. That being said, if you have exhausted all of your other options available through the federal loan program (including Parent PLUS), maximized all your scholarship opportunities, and hit up your network of friends and family for financial support, then it is probably time for you to look at a private education loan.

Many of the banks that used to be in the private eduction loan market have long since dropped off of the charts and no longer actively participate in providing loans to students. Key Bank is one of the more recent ones that quickly comes to mind as leaving the educational loan sector. The following is a comprehensive list of all the private education lenders that I know to still be actively originating new loans. Surprisingly, your local credit unions are also a good source of private loans. If you know of others that are in the market, please feel free to share their information below in the comment section.

Sallie Mae Smart Option Loan: http://go.salliemae.com/

Discover Student Loans: http://www.discoverstudentloans.com/

Chase Student Loans: http://www.chasestudentloans.com/

PNC Student Loans: http://www.pnconcampus.com/

Sun Trust Student Loans: http://www.suntrusteducation.com/

EdAmerica Student Loans: http://www.edamerica.net/

Citizen’s Bank Student Loans: http://www.citizensbank.com/student-services/

Tips For Choosing The Right Private Education Loan

  • Check Interest Rates: What is the interest rate today?, Is the rate fixed or variable?, If it is variable, what is the maximum percentage that it can reach?
  • Repayment Benefits?: Does the loan carry repayment benefits for so many on time payments? Some loans used to give you a 1% capital reduction after 36 on time payments.
  • Do I need a co-signer?: Chances are yes! In the past a co-signer was not usually required but the education loan market has changed and you better count on having a co-signer in place before applying for a private education loan. Besides, they usually give you a better interest rate and reduced origination fees if you have a co-signer.
  • Read The Promissory Note: I know this is hard and your eyes are quickly going to glaze over as you look at the promissory note but this is a legally binding document and you want to make sure that you are not committing yourself to more than you thought.
  • Shop Around: Lenders of private education loans are required to hold their loan offers open for a period of at least 30 days. This gives you time to check out the competition and make sure you are getting the best benefit.
  • Don’t Pass on Federal Loans: I said this above but it is worth mentioning again. Don’t take a private student loan unless you have already exhausted all the loan monies available to you via federal programs. Statistics show that one in five students pass up less expensive federal loans for the private alternative just because they thought it was easier to apply for or they were not aware of all their loan options.
  • Check out the Repayment Terms: Meaning, how long do you have to pay back the loan? (10 years, 15, 20?) Is the loan able to be deferred if you go to graduate school? How often is the interest capitalized? (once a year is pretty typical) Are forbearance privileges available? (if you are unable to secure employment)

I hope you find this information helpful as you are looking over different loan options to cover your tuition expense for the coming year. If you think this article was useful, please feel free to share it with others using the “share tab” below.

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Choosing The Right Student Loan


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Sallie Mae & Direct Lending In The Headlines… again


salliemaeYesterday, I wrote a nice article about how Sallie Mae is doing great things to help educate families and students about the FAFSA and the Financial Aid process. For the most part it was a warm and fuzzy, all is roses, type of article.

In order to be fair to our reader base and keep you fully educated on the world of financial aid, I probably should devote a little attention to some of Sallie Mae’s other activities.

Right now, Congress has been working on legislation that will help to streamline the way federal loans are delivered to deserving students. Currently the loans are backed by the federal government but the private banking system takes care of funding and administering the loans to the schools who then apply to the tuition accounts of millions of students nationwide. I could go in greater detail on this whole process but you would probably stop reading after 2 sentences and reach for the Tylenol.

Anyway.. Congress is/was looking to take the banks out of the equation and go through a process called Direct Lending. Basically the federal government would provide the funding and administering of the loans directly to the schools and drop the banks out of the process.  Trust me.. there are pros and cons to each of these methods but my personal opinion is that Direct Lending is probably the way to go if we are to simplify and streamline the process in which students receive federal loans. However, my personal opinion holds very little weight and it is probably driven by the fact that I think Direct Lending is coming whether we want it to or not.

By leaving the banks out of the lending process, the Department of Education estimates that it will save approximately 80 Billion dollars (yes that is a “B” and not a “M”). The goal is to utilize this savings to help pump money into some other successful education programs like Pell and Perkins.

As you can imagine, Sallie Mae, being one of the largest education lenders and loan processors in the nation with 22 billion dollars in student loans under their belt, is not too keen about the new proposed legislation. They are so unhappy with the education bill that they have spent nearly 8 million dollars in 2009 to lobby against it. My guess is that they will spend even more in 2010.

Sallie Mae’s position on the legislation is not necessarily wrong, they just feel that the banks need to remain involved in the process because they play a vital role in educating students and families about the loan process. In addition, their top notch customer service is being marketed as being far superior to anything the government will be able to provide(and they may be right…). Also, the banks help to provide a competitive market for education loans and offer different borrower discounts to try and persuade a student from choosing one bank over the other. These discounts come in the form of reduced fees, interest rate and principle reductions, etc..

As I said, there are multiple sides to this story and each one carries their own conviction for why their position is best. Here is the latest article from the New York Times on the topic. If you are really interested, or having trouble falling to sleep, start researching Sallie Mae, Direct Lending, the Department of Education and all the related legislation and proposals. You will be sure to find out more than you ever wanted to know… In the meantime, if you just want to figure out how to make college affordable, keep checking back here at CheapScholar.org and we will do our best.

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