Month: March 2020

Why the sudden interest in my interest? (Coronavirus Update 2)

moneyman

It has been quite a week. I’m sure you feel the same. I’m trying to balance my need to be updated constantly with the latest news with a desire not to be constantly inundated with what’s going on.

Last night I took a break and watched a great old movie. It was just the break I needed; light and comedic, and just fun. What are you doing to try to find time to balance? What tricks are you using if you are working out of the home (in a gas station, restaurant, grocery store) to relax, and if you aren’t able to work right now, what relaxation tip works for you? I’m interested!

Right now it may be hard to find balance. How are you doing it?

Speaking of interest, today’s update focuses on some interesting news: what is happening with student loan interest. As you may be aware, the President has put a temporary hold on interest for all Federally held educational loans (this includes Direct Subsidized Loans (in repayment), Direct Unsubsidized Loans, Direct PLUS Loans (both for parents and for graduate students) and Direct Consolidation Loans.

But what does this really mean for student (and parent) borrowers? And what do you need to do in order to make sure that your loans are taken care of during this crisis? Well, moneyman has you covered.

According to the announcement by Secretary of Education, Betsy DeVos, interest on education loans held by the Federal government will be set to 0% for a period of at least 60 days. This means that for students still in school, interest will not accrue for their Unsubsidized Loans. For students in repayment, their loans will still have the same monthly payment amount, but their regular monthly payment will be applied entirely to their principle.

For borrowers in repayment, there is an ability to suspend repayment by asking for a forbearance. This means that (especially if you are struggling right now or need some relief for payment) you can qualify for a suspension of payments and during the time of that suspension of payment no interest will accrue. You must request a forbearance from your servicer (the company that processes your payments); don’t simply stop making payments (although borrowers who are 31 days late or more will automatically be placed on forbearancee). If you are possibly going to qualify for Public Service Loan Forgiveness you also don’t want to stop making payments since you need to have 10 years of repayment (120 months) to qualify.

Well interest keeps on building in student loan interest so here is some breaking news. As I was working on this post, some details are coming out about the $2 trillion stimulus package passed today by Congress. According to CNN, the law includes a provision suspending student loan payments without payments for 6 month (through September 30). Stay tuned for more details as we know them. Another article specifies a few other financial aid related items which are part of this bill: 0% interest during these 6 months, the ability to keep unspent Pell Grant or student loans due to withdrawals, and the waiver of any penalties for further financial aid due to these withdrawals.

More information will be coming I am sure. For now, though, let me know how you are finding balance in these days. I will be watching some silly old comedies.

This Corona (update) is for you…

moneyman

Hello all,

What a strange world we are all living in! Just a week and a day ago, I was writing you about credit history and how it impacts loans. I was on Spring Break (as I am assuming some of you were) and I was watching the news about the Coronavirus situation. I was looking forward to being back on campus and I had a few conference trips planned in the next few months

Our strange new world!

How quickly everything changes. I am now working from home, managing moving all our employees home and making sure they have access to work remotely, coordinating financial aid delivery to our students from our individual personal residences, supporting our students who were not prepared to move completely online with their coursework (and their faculty who were also not prepared), and doing it all with grace, patience, and love.

So, you might be wondering what does this all mean for you? Great question. This will be my first Coronavirus update post, but I am sure not my last. This is a time when I really mean it. I know you have lots of questions. Ask them. I want to help you, but I don’t know what your questions are until you ask them.

Here are some of the things I imagine you want to know right now.

  1. What’s happening with my financial aid? All of your financial aid offices are moving their operations off of their campuses and planning on working remotely. This means that there may be a delay for things to get “back to normal”. I know at my campus we had to institute a one-week hold on financial aid refunds because we needed the time to get people set up. If you are expecting a refund and it is delayed, give the office a week (extra) and then if you haven’t heard anything call or email them.
  2. What happens with my Federal Work Study (FWS) job? In situations like this, colleges and universities are given the option to pay their students for the hours they were scheduled to work if the campus is closed and no one can come in to work. This doesn’t mean that every college or university will choose this option, so you want to find out what your school plans to do. If you had a job which was paid for by institutional funds (and not FWS), then the school will decide if they want to pay you; there is no Federal guidance for this.
  3. What happens to my financial aid if I withdraw / if my study abroad trip is cancelled? All good questions. BE careful about withdrawing; if you leave all of your classes too early in the term you may owe some of your financial aid money back. In addition, remember the conversation we had about SAP; one things schools have to measure is the percentage of classes you earn of those you attempt. This means if you withdraw too many times you might put your future financial aid in jeopardy (of course you could appeal if this happens, but be careful!). If your study abroad program is cancelled you want to talk to your school to see if they are planning to refund your costs and not consider you enrolled or if they have some kind of distance learning program they are offering to make up the difference in credit hours for you.
  4. What if I need help with issues like getting Wifi, paying for food and housing, or other emergency situations? Your college or university likely has a list of emergency resources available to students. In central Florida, Valencia College has created a curated list of sources for emergency help.
  5. What if I lost my job / my parent(s) lost their job? If you have an emergency situation and need financial support, talk to your financial aid office. Many schools have emergency aid programs to help with small cash grants to help in urgent situations. Also a college may be able to perform a “professional judgment” and change your FAFSA information if appropriate to grant you more financial aid. Be prepared to document your situation (copies of your “lay off” notice or other information).

So if you have more questions, ask. I know there is a lot of moving pieces here, so I will try to update as I know more. Together we will get through all of this.

Puzzled about Student and Parent Loans

moneyman1 Comment

I am a logic puzzle fan. I enjoy solving puzzles like The Lady or the Tiger, or figuring out Nonograms. So when I logged into my browser this morning and this article popped up (“The Logic Puzzle You Can Only Solve with Your Brightest Friend”), I was happy to waste spend a few minutes playing my way through it. Go ahead; try it. I’ll be right here waiting for you when you get back.

Have fun figuring out the puzzle!

So, did you solve it? I admit, I needed a little help on that one. Just like you might need a little help with today’s blog post – all about Parent and Student loans and the impact of your credit history on them.

Let’s start with some definitions. There are two main types of loans for education: parent loans and student loans. As you might guess, the main difference between them is who is defined as the borrower. For parent loans, the parent (or parents) borrow for the student (and sometimes, depending on the loan, the student may be a co-borrower). For student loans, the student borrows (although for many private loans, a parent or other “adult” must be a co-borrower). So you can see, often the main difference is simply who’s name is listed as the main borrower.

The second important piece to know is who is doing the lending: is this a Federal or Private loan? In the case of Federal loans, the Federal government is the lender; these are called Direct Loans (Direct Subsidized Loans, Direct Unsubsidized Loans and Federal PLUS Loans). For Private Loans, the lender could be a bank, a credit union, or a state financing agency; Private Loans come under various names and have lots of different terms and conditions.

Federal Direct Student Loans (Subsidized and Unsubsidized) have loan limits, depending on a students grade level (the farther along in your career, the more you can borrow per year). For Graduate Students, the only Federal Direct Student loan available is Unsubsidized. The main difference between Subsidized and Unsubsidized Loans is who pays the interest while the student is in school or in grace period: if Subsidized, the Federal government covers the interest payments during the in school, grace and deferment periods, while for Unsubsidized Loans, the student is charged the interest and can either pay the interest off each month while in school or can defer the interest until payments start, but the interest will be added to amount owed at that point. Students borrow these loans with no cosigner. In addition, note that to qualify for these loans you must complete the FAFSA,

The other kind of Federal Loan is the Direct PLUS Loan. There are two types of these: Undergraduate PLUS Loans for Parents, and Graduate PLUS Loans for Students in graduate degree programs. These loans are available up to Cost of Attendance minus other aid. The interest rate for these programs is higher than the rate for Direct Student Loans, and interest charges begin immediately; there is no interest subsidy.

So what about credit? Does your credit history matter when it comes to Federal Loans? There is no credit check for Direct Student Loans (Subsidized or Unsubsidized). As long as a student has not defaulted on a previous Direct Loan, and does not owe back an overpayment for a Federal grant, then she can receive a Federal Direct Loan. Even a student in default on a previous loan can make a limited number of payments to rehabilitate their loan and qualify for future loans.

For PLUS loans (both for parents of undergraduate students and for graduate students themselves), a credit check is run, but as long as the applicant does not have “adverse credit history” they will qualify for the loan. Adverse credit history basically means being 90 days or more past due on a current obligation, or having other more serious examples of repayment difficulty (see the link above). Note that nowhere above does the definition refer to credit scores; and any student who is approved gets the same interest rate and terms. There is no reward for better credit history from the Federal government, but neither is there any punishment for lower credit scores (as long as you do not meet any of the definitions above). If you do have an adverse credit history, you may be able to add a cosigner or explain the situation that caused your adverse credit history and still qualify.

Private loans on the other hand absolutely look at your credit score. The better your credit score, the better interest rate will be offered to you (and sometimes the rate could be better than the Federal government’s interest rate on their loans), the more flexibility you will have around length of repayment, and the less likely you will need a cosigner. Private loans may also look at your ability to repay (using a debt-to-income ratio) to ensure that you can afford your monthly obligations (and they will likely use your credit report to determine what loans and other obligations you currently have).

So, long story short, most Federal loans don’t require perfect credit, and if you have significant credit issues you can work through them; however interest rates can be higher than private loans, and terms aren’t generally as flexible. Private loans can be a better choice for student or parent borrowers with excellent credit, but these loans don’t have as many benefits as Federal Loans (more about these in a later post), and for student borrowers will generally require a cosigner.

So what did I miss? What questions do you have? Let me help you solve this puzzle!

Extra Credit

moneyman2 Comments

So let me be VERY clear from the beginning: nothing in the process of qualifying for financial aid (specifically grants, scholarships, or work awards) have anything to do with your or your parents’ credit history. When it comes to qualifying for these types of financial aid, we don’t care if your parents have declared bankruptcy, if there is a 90 day delinquency in payment in your past, or if you have a tax lien.

BUT… your credit history is really important for lots of other reasons (including some student and parent loans, qualifying for some jobs, renting an apartment, buying a car, or qualifying for a credit card…). So we are going to spend some time talking about credit.

Who wants extra credit?

I am going to begin this week with an assumption that you may know nothing about credit or your credit history. What is a credit history? And where does it come from?

Your credit history shows a record of your payment of loan or debt obligations. Whenever you take on a debt, an entry is made in your credit history showing how much you borrowed, your current balance, and your history of payments. There are three main credit bureaus (organizations that track your credit history). Each company has a slightly different way of reporting your history, and while generally banks and lenders report your information to all three of the bureaus, they may have different reporting schedules (and some lenders may not report to all three companies).

The three major credit bureaus in the US are Equifax, Experian, and TransUnion. While there are not worldwide credit bureaus, other countries around the world have their own companies providing credit history.

Every consumer is allowed for free – once a year – to obtain a copy of their credit history from the three bureaus. This site allows you to receive them. You can also obtain a copy for free if you are declined credit, or you can pay the three bureaus to have regular access to your credit history.

While you can get a copy of your history for free from the bureaus, you are never able to get a copy of your credit score for free. What is a credit score? In 1989, the credit score was introduced as a way to provide an easy way to measure an individual’s creditworthiness. The credit score is a three digit number (usually from 300 to 850) with the higher the number representing a more creditworthy individual.

Whether or not you qualify for a loan can be based on your credit score. Your interest rate, how many months you are allowed to repay your loan, any fees you are charged, all can be based on your credit score. Your credit score is an important indicator of how much you will spend on credit.

You can pay to get access to your credit score, or (better yet) you can get a copy of your free annual credit bureau report (CBR) and make sure the information is correct. You can dispute information that is wrong on your CBR, and the credit bureaus are required to correct any errors.

So we are going to spend a lot more time this month talking about credit — how credit impacts loans, how to improve your credit score, and how credit cards work (among other personal loans).

But for now I have an extra credit assignment for you! Was this information helpful? What didn’t we cover about credit that you want to know? What questions do you have about credit that I can answer?