February kicks of Financial Aid Awareness month, a time when current and soon to be college students must follow through on the time honored tradition of completing the Free Application for Federal Student Aid aka The FAFSA. The FAFSA is the first stop for students looking for financial assistance to help cover the high costs of college.

Go to www.fafsa.ed.gov

Filing the FAFSA is critical for students looking to start college in the Fall of 2012, as financial aid awarded is a major factor for students considering which college to attend.

It is equally critical for continuing students to complete their FAFSA renewals in a timely manner to retain financial aid eligibility for next academic year as well.

Quick FAFSA filing tips:

1. Know your deadline so you can file ahead of schedule: Each school and every state may have a different date as to when a FAFSA must be filed in order to qualify for maximum funding eligibility review. Common dates can range from March 1 into April, but some schools require the FAFSA to be filed as early as February 15. Make sure to file the FAFSA early so there is no question of timely delivery.

2. No tax return, no problem!: The FAFSA requires parent tax and asset information along with the student if they also file a tax return. However, this early in the year, many families have not yet completed their taxes. This does not jibe well with early deadlines for the FAFSA, however this is easily manageable. If your 2011 tax return is not yet ready, go ahead and file the new FAFSA using estimated numbers. If in 2011 your earnings are about the same as what they were in 2010, you may be able to use your old 2010 taxes to guide estimations. Once the actual tax returns are filed, you can log back onto the online FAFSA to make corrections and adjustments.

3. Remember your pin to renew your FAFSA every year: In order to electronically sign your FAFSA you must first authenticate your identity and get registered for a personal identification number, aka a PIN. You must register for this PIN by completing a 3 step process at www.pin.ed.gov. This PIN can be used to electronically sign each FAFSA every year, so make sure to remember your four digit number to easily renew the application.

If you see this mainpage, you are at the right place to register for the PIN

4. Master the fundamentals, data input them correctly: Make sure you personal information is completely accurate, and re-check it with a different set of eyes. (Parents and children need to work together to help each other) You would be shocked if you knew how many FAFSA’s were filed using incorrect birth dates and social security numbers. When this happens, it creates great confusion in the processing of your application, and will result in a verification request, adding more work for you and leading to my next point…

5. Be prepared for verification: Anywhere from a quarter to half of college students get selected for a process called verification. This is when the school must check the actual tax returns compared to the data originally submitted on the FAFSA, and to correct any discrepancies so that the information is accurate. Be advised that financial aid eligibility may change based on the results of verification review. If the information originally provided on the FAFSA is quite different from the information on the actual tax return, this may cause grants to be canceled. If the request to submit verification documents is ignored, all financial aid will be canceled. The best way to be prepared for this process is to keep copies of all the required forms in a neat folder next to your home computer, so in the event a verification request it can be responded to quickly and efficiently. Some schools will penalize a student for taking too long to submit verification documentation, even if it turns out all the data was accurate. Forms that may be requested in the verification process include but are not limited to:

• Social Security Card
• Driver’s License
• W-2
• Federal income tax returns: 1040, 1040A or 1040EZ
• Foreign tax returns
• Untaxed income records
• Current bank statements
• Current investment mortgage information (Rental property)
• Business and/or farm records
• Records of stocks, bonds and other investments
• Alien registration or permanent resident card (if not a U.S. citizen)

Student loan forbearance is a loan repayment option made available to borrowers having difficulty making payments towards their loans. It allows for the borrower to greatly reduce the payment due, or to suspend any payment on a loan until a future date.

Forbearance is typically requested when a borrower is facing financial difficulty. Most commonly this is a result of lack of employment, a decrease in income, or illness or disability that prevents the borrower from working.

Important points about forbearance:

1. When a loan goes into forbearance, any accrued and unpaid interest is capitalized and added back into the total outstanding loan. A loan balance will continue to increase as long as the payments are suspended. In this way a forbearance does not make the loan “go away”, it’s just a temporary relief from having to make payments, but the loan will need to resume normal repayment at a future date. This can increase the total cost of loan repayment once normal payments resume.

2. Forbearance is provided as an alternative to regular monthly payments. A borrower may be able to make a partial payment on their loan each month that is lower than the minimum payment. For example, a borrower may be responsible for a $400 monthly payment, but can only afford $100 while they are searching for a new job. Making a $100 payment is better than making no payment at all, as some of the interest can be covered each month. The forbearance request will specify if you can make a partial payment or no payment on your loans.

3. Under forbearance, a lender agrees to halt required loan payments for a specific amount of time. Typically a single forbearance request can extend for 6 months, with an option to reapply and extend forbearance further. Most lenders can extend forbearance up to 18 months if continually approved for each 6 month segment. Confirm your forbearance time frame directly with your lender.

4. Can forbearance affect credit score? Forbearance is a better alternative to just missing payments. Because forbearance is not recorded as a missed payment due to an official arrangement made with your creditor, the information is not reported negatively on the credit score. However, a loan in forbearance will continue to grow by accumulating interest over time, and can have in impact on an individuals debt-to-income ratio.

5. What should I do to apply? Every lender/creditor may follow different application requirements to process a forbearance. The application may ask for detailed information about employment history, alternative income sources, and living expenses and must be fully completed before formal review. If incomplete, a forbearance can be rejected. Be advised that a request for forbearance may take several business days to process before being approved or denied.

6. Avoid the last minute, but late is better than never. If a payment is due within just a few days, there is no guarantee a forbearance request will be processed in time to avoid that payment. A forbearance request should be submitted well in advance of an upcoming payment due to give enough time to be approved, or if denied it can be determined what additional information is required to move to approval. A forbearance request may be activated retroactively, so if a borrower has already missed some payments, they should submit the request ASAP so the lender can update repayment status. A retroactive approval can help to avoid a negative impact on the borrowers credit report.

7. Forbearance is basically a short term cash flow solution for borrowers under financial distress. The temporary relief is only offered to help the borrower get back on their feet, and is not meant to be a permanent solution.

Judith Scott-Clayton features statistics on average student loan debt totals including details on where and how long students attended. Some of the info is eye opening, especially with the topic getting a lot of attention with Occupy Wall Street. Check out the full article.

Comparing loan applications feels like tedious work until you realize that taking a few minutes to compare your options will save you thousands of dollars. It’s amazing how most people will agonize for hours over buying clothes or electronics, but when it comes to loan shopping there is no effort. Learning about what’s available is simple and you will not need a finance degree to figure it out.

It’s easy to use a loan calculator online to quickly compare loan applications. Determining what your monthly payment would be is a good start. But when dealing with a private loan you will be faced with variable interest rates that can change year to year. This is why you need to zero in on debt elimination as part of your plan.

The three most important areas of consideration when comparing loans are:

The interest rate

The repayment term (10 years, 15 years etc)

The total cost of repayment

Rule of thumb is that the lower the rate, the less the loan costs. However this depends on how long it takes you to repay the loan. A lower rate loan that takes more years to repay could end up costing a lot. This is when a loan calculator comes in handy. The following will help illustrate some scenarios you can encounter. I used a loan calculator on Mapping Your Future for $10,000 loans with ten and fifteen year repayment schedules and 8% or 5% interest respectively.

Think of the big picture; what will this loan cost to repay in full?

As you can see, the loans with a 15 year repayment schedule had lower monthly payments but ended up costing the most to repay. A low monthly payment might be helpful to fit in your current budget but you unknowingly keep yourself in debt for too long and waste thousands of dollars on interest. Many borrowers are more concerned about the monthly payment than anything else, as they want to control their budget to have extra money available for other spending, but using this logic may lead to making only minimum payments each month and can increase the total cost of repayment. When comparing loan options, you need to know what the total cost of a loan will be after you finally pay it off. The loan that costs you the least amount to repay is probably the best one for you.

If you want to accelerate your debt freedom, look for a loan that does not have a pre-payment penalty. A prepayment is when you pay more than the standard monthly amount due towards the balance getting yourself out of debt faster.

Ken’s Tip – If you are taking out loans to go to college you need the right tools to make the right decision. Fortunately, loan calculators are readily available on the internet. Smart debt management starts with choosing the right loan. Trying to keep a low monthly payment will end up costing way more to repay. Focus on the total cost of repaying the loan and choose the one that costs you the least.

Were your mid-term grades lower than expected? Have you been unable to keep up with class thus far in the semester?

Why?

Well if you are having a hard time in college classes right now, it may be because you are not studying very much. You may need to increase your focus on your school work.

This is where things can get tricky. There are a lot of distractions in college life. There is always another party, another event, another video game or any number of things to do other than what appears to be very dull and boring curriculum. Doing nothing or just sleeping is more appealing than some subjects.

However, it is during November that many students are confronted with a dilemma. The prior months of September and October were spent mostly having fun, but during November projects are due and very often there are exams looming just before or just after Thanksgiving break. Students may find themselves unprepared to successfully handle the work now due.

Worst of all, there is a major issue with attitude. After getting used to two months of comfortable living, suddenly trying to study for an exam feels like a huge amount of work, even if in reality it requires minimal effort. Often times the perception of the challenge of school work is much more severe than the actual work required. It’s easy for a student to simply give up, and say “Hey this is too much for me” or “I will never be able to get this done” or “It’s not worth it, I will just go party more as usual.” These excuses are quickly produced, exams and papers are completed in a shoddy state, and another learning opportunity is extinguished. Don’t let this happen to you.

If studying or preparing a report feels overwhelming, and you are about to quit on trying any harder, try reading this excerpt from the book “Success Is Not an Accident: Change Your Choices; Change Your Life” by Tommy Newberry, and get back out there and give it the real college try!

A recent survey from Sallie Mae and Gallup asked American families how they would cover college expenses. 24% of parents responded they would dip into retirement savings to help with their child’s tuition costs. This is an alarmingly high number and also a sign that families are keeping education a high priority. Of course families that do this have all the best intentions in mind, however their efforts are poorly managed. Here’s why.

1. In general taking early withdrawals from retirement accounts are liable for a 10% tax penalty in addition to any normal taxes due: It is financially prudent to allow retirement savings to grow on their own and preserve their tax deferred status. Pulling money out early does more harm than good.

2. You CAN borrow for college but you CAN’T borrow for retirement: When parents reach retirement age, time has run out to save more money. Once savings are used for other expenses they are gone forever and all the tax incentives for saving all these years go with it.

3. How many semesters can you cover with retirement savings?: Savings will run out faster than you think. If savings can only pay for a few semesters, how will the tuition get paid in the later semesters?

From a College Planning perspective, parents should not rely on retirement savings to pay for tuition. The right source for college savings would be in a 529 plan, with tax incentives for saving money for college.

However it takes several years of saving to build up any substantial 529 account. If a family has been unable to save money in a 529 plan, then they should look into student loan options to cover the rest of the bill.

One option is the Parent Plus loan offered by the Direct Loans Program. The Parent Plus loan offers a fixed rate and is a popular option with many families. The loan is only in the parents name and begins full repayment immediately while the student is in school.

A private student loan is another alternative. Using a private loan enables the student to pay for college now and handle repayment over time. Rather than depending on the parents to use retirement money, the student takes an active role in handling their own tuition. Parents can cosign with their children to help get them credit approved while in school. Many private lenders allow for the cosigner to be released from the loan if the primary borrower makes a certain number of payments on time.

Money Perspective: People take a different approach to making financial decisions based on who is actually paying the bill. When someone else pays for something on your behalf, the intrinsic value of that good or service is easily ignored. However when you personally pay for something you know first hand what value is exchanged. It is no different with college students. It is wonderful when someone else can pay for tuition, but when one pays for tuition using their own resources they tend to take that education much more seriously. Quite simply, you appreciate things/goods/services when you invest your own resources in them, and less so when someone else does the paying.

Students need to hold themselves accountable for their educational experience. Because students know first hand what goes on at school, they can truly weigh the value of their education versus the debt they incur. They can learn how to decide for themselves what is worth while. This means carefully evaluating colleges and majors, choosing what fits best. The point of going to college is to build a career and life for the future. If a student is able to do this as a result of a college education, then incurring and managing debts is a reasonable expense. It is vital that the student take ownership over their own education and determine what debts are appropriate and what debts are far too high to incur.

Parents should take heed. Save your retirement savings for retirement. Parents can best help their children during the college and major selection process by encouraging an objective comparison. Part of this comparison should include a calculation of debts. Then the student will know and value what opportunities they truly have for college.

After much anticipation for the announcement from Obama about adjustments to federal student loan repayment plans, some borrowers are feeling a bit underwhelmed.

While the plan offers some positives as mentioned in my post yesterday, not every borrower will benefit.

Financial aid expert Mark Kantrowitz wrote in the New York Times…

“Recent college graduates, for example, will not benefit. Instead, the new income-based repayment plan will be available to new borrowers since 2008 who have at least one loan that originated in 2012 or later. Borrowers with loans from 2007 and earlier will not be eligible. Likewise, borrowers who don’t have at least one loan from 2012 or later, like students who graduated in 2011 or earlier, also won’t be eligible. Borrowers who are already in repayment will not be eligible.”

Kantrowitz estimated that between 1.6 million and 5.8 million borrowers may benefit out of the 36 million borrowers in federal loan repayment now, still leaving many accounts unchanged.

So while it’s great to hear that some borrowers can get relief, there is only so much the federal student loan program can do given the sheer number of borrowers and volume of money.

Dear FOX news; please fact check:

In response to this announcement, FOX news released a new article criticizing the repayment program as being another government backed boondoggle, and the President for taking political credit for a measure that will impact student borrowers to help boost voter sentiment. Drudgereport.com really got into it by posting the story on their front page:

Problem is that the article uses the wrong numbers when explaining how this program may benefit students. From Chris Stirewalt;

“Take this example: If Suzy Creamcheese gets into George Washington University and borrows from the government the requisite $212,000 to obtain an undergraduate degree, her repayment schedule will be based on what she earns. If Suzy opts to heed the president’s call for public service, and takes a job as a city social worker earning $25,000, her payments would be limited to $1,411 a year after the $10,890 of poverty-level income is subtracted from her total exposure. Twenty years at that rate would have taxpayers recoup only $28,220 of their $212,000 loan to Suzy.”

The aptly named “Suzy Creamcheese” in this article is NOT eligible to borrow $212,000 from federal loans to pay for an undergraduate degree, plain and simple. A dependent undergraduate student is eligible for up to $31,000 in federal Stafford loans. An independent undergraduate can receive up to $57,500. It’s one thing to criticize a measure, it’s another thing to use completely false facts doing it.

Additionally, the article assumes that a borrower will keep flat income for the entire 20 years of the repayment schedule. This program is more or less designed to provide relief to student loan debtors facing limited job and income prospects today, but as their income (hopefully) increases they will be able to afford larger payments as a percentage of income. This is a much better alternative to ignoring the debt without intention of repayment. However, because the article uses incorrect numbers, readers would be confused. The article paints the picture of “Suzy Creamcheese” as being a deadbeat for borrowing money to go to college, and not paying it back at a higher rate, but the reality is that this program can offer some students a modicum of relief while they get on their feet during this recession.

Bigger political issues aside, when it comes to facts people need valid information.

President Obama is set to announce some changes in the Federal Direct Loans program that may help alleviate some of the financial distress that some student borrowers are facing.

In order to assist former students in the repayment of their federal loans, the following announcements are anticipated:

• A reduction in the maximum required payment on federal student loans from 15 percent of discretionary income annually to 10 percent. This is to be made available in 2012 instead of 2014.
• Under this plan, any remaining federal loan debt would be forgiven after 20 years of repayment, instead of the current 25 years.
• Borrowers with outstanding Stafford loans in the (now defunct) Federal Family Education Loan Program and the Federal direct loans program will be able to consolidate them together using the federal Direct Loans consolidation program. The consolidated loan would carry an interest rate of up to a half percentage point less than before.

Clarification of facts: This announcement will only affect Federal Loans, the majority of which are Stafford loans. If you are trying to get federal loans consolidated go to the Direct Loans web portal.

Private student loans are not part of the offered federal loan consolidation program, and would still require a separate private student loan consolidation.

I walked through my college book store and was in a state of price tag shock. World regional geography review book: $98. Physics textbook: $114. Anatomy and physiology text with nice diagrams: $188. A book for economics: $126. The expensive book about economics made me laugh because I made a decision not to buy it using theories right from the book. This was me in 2003, still finishing my undergrad. I wanted to compare prices in the book store to what I could get online. I was blown away because I could get the same book on Amazon or E-bay for 50% less. Some of my school mates from China and India even scoffed at that. A girl from Beijing told me she got a finance text book for $19…….$19. It retailed for $138. I was floored, but reminded that there is always a better deal somewhere.

Buying books online was a great way to save money in 2003. But at the end of the day, I still had to buy a book that would become obsolete after a new edition was published. Plus I’d have to lug around unnecessary weight and take up valuable desk space in the classroom. Not to mention all the resources used to create a book in the first place. But now there is a new alternative. Electronic Books are becoming a better option to traditional books. The New York Times featured a great article about the issue of college books and makes a great addition to the ongoing Revolution of Technology topic.

It’s the 21st century; knowledge delivery has expanded into the realm of the digital. Shouldn’t college textbooks catch up to this already? Flash forward to 2011 and a lot of things are still the same. Colleges reveal their inability to adapt and provide by not updating their method of delivery. Take a walk through a college bookstore and all those books are even more expensive. But some professors are moving to e-books.

The popularity of e-books is growing. E-books in the general market have seen a 200% increase in sales this year. The next big move should be in the classrooms where the cost of educational books could be radically reduced. Higher Ed charges too high a price not to innovate their teaching methods. Encouraging students to use digital based books in the classroom is the only logical step.

Colleges have no problem telling students to pay $700 -$1000 a semester for books, but an E-Book reader can go for $200 and last all the years of college. No longer do students need to be concerned with buying overly expensive books and then selling them back at the end of the semester. There would be no outdated books because the newest version can be easily downloaded. No more costs of carrying inventory at a book store. No more wasting time on a book store line only to find out it was the wrong edition. Plus a digital device can hold millions of pages in the palm of the hand. When all of these excessive costs are removed from the price of a book, the student can get the knowledge they need at a fraction of the cost with minimized waste. With the cost of college as high as it is, there is no excuse. It is a disservice not to innovate and provide superior value to students.

Until the time comes for colleges to adopt modern techniques, most college students will have to settle for old-fashioned text books. Here are some textbook tips:

1. Don’t buy books! Hold off on buying books for classes until you are absolutely sure of its need or use. This will vary from class to class. Some professors will list six or seven books on the syllabus as required for class but by the end of the semester only two were used. What a waste. Save your money and buy books only as necessary.

2. Maximize other resources: To avoid having to buy books you should use other alternatives. Utilize your library, or the internet for scholarly resources. Buying a whole book just to use one quote is a waste too. Chances are you can find whatever knowledge you need from a free source to complete whatever report or project is due.

3. Any books you buy should be put to use: Whether the book is on paper or electronic form, learning begins with your motivation. You should avoid waste and save money, but do not skimp on your learning experience.

4. If you have to buy a book, buy it online: The bookstore at school is ALWAYS more expensive.

5. Try renting a textbook for the semester: This can cut costs dramatically. There are a number of textbook rental websites available online now, so get out there and look for a deal!

One of two things happens when anyone submits a loan application; either it gets approved or denied. This goes for auto loans, home loans, business loans and of course student loans.

Getting approved can feel good, but getting denied brings out the opposite side of the emotional spectrum; it feels bad.

When it comes to loans for education, the emotions can run high, especially when gaining access to the school of your choice depends on funding resources.

The following is an honest review of the options people have should they be denied the loan they need.

Using a cosigner other than the parent: There is only so much credit that an 18-22 year old can possibly have given the limited amount of time they have been an adult. With lenders becoming more restrictive in lending practices, it has become less common to see traditional undergraduate students get approved for a private loan without a qualified co-signer. The duties of cosigner usually go to the parents first, but many parents overextended with debt or suddenly unemployed during this recession have been unable to successfully cosign.

Students have turned to other people to cosign, like grandparents, aunts, uncles, and close family friends when the parents can’t do it. However, this can be a tricky proposition as the cosigner assumes responsibility of that debt liability until it is repaid in full. If something were to happen to the borrower and they were unable to pay the loan back, the entire debt moves to the cosigner, and student loans are not dis-chargeable in bankruptcy. Cosigners place great trust in the borrower to handle loan repayment, but beyond that there are two ways to help deal with the risk for a non-parent cosigner (or any cosigner for that matter). First, a private student loan consolidation can release a cosigner from a debt obligation. A student may have had insufficient credit as a college freshman, but by graduation their credit may have greatly improved. This may allow for a consolidation loan approval without a cosigner (or using a different cosigner), releasing the liability of the former cosigners to the old loan applications. Second, a common sense financial planning approach may include a life insurance policy on the student that would protect the cosigner if heaven forbid the student were to pass on. This is a new phenomenon in response to increasing private student loan balances for students and their cosigners as rates for life insurance are very low for young people.

Thoroughly review the credit report: When was the last time you looked at your credit report? If it has been a while, you may be in for a surprise when you finally take a look at it. Information on a credit report may be very inaccurate. This is especially true for cosigners that have had a long history of credit. For example, a credit card balance transfer from Visa to Discover may show up on the credit report as balances outstanding for each card in error. Credit can be adversely affected in such cases, and requires that the consumer take charge in correcting it. If denied for a loan, take a good look at the credit report and look for errors. Correct them by sending a letter to the reporting agency detailing the circumstances and clarifying the correct data. Read up on what to do on the Federal Trade Commission’s page “How to Dispute Credit Report Errors”.

Take a look at the Parent Plus loan: As offered through the Direct Loans program, the Parent Plus loan is a quality option. They follow a less stringent review of credit than private loans, and really only look for any delinquencies of 90 days or greater on the credit report before approval is confirmed. It’s all in the parent’s name, not requiring the student to sign on for this loan. Many borrowers are also comfortable with the fixed rate. However, it is a very high fixed rate at 7.9%, and there are no reductions or advantages for people with good credit, it’s the same rate for everybody. But it may be the only option to help get a student the funding they need, and is very much worth a look.

Take a step back and re-evaluate your circumstances: Maybe you have tried different lenders and different co-borrowers but still cannot get approved for the loan you need. If you are in this situation, do not freak out. Instead, acknowledge that this school is simply too costly and out of reach financially. If attendance to a particular school is completely dependent on financing, and you are unable to gain that financing, then you need to move on to a more affordable option. You should already have a short list of back-up schools that you can attend. A common strategy is to attend a community college for two years, and based on performance, consider transferring to a four years school to graduate from, cutting costs nearly in half. This is a more financially feasible route for many students, as attending a very expensive school as a freshman may backfire if unable to get approved for the loans needed to finish all four (or maybe five) years.