Student loans are something you get when you are going to college or university. These loans are used specifically for college tuition and books and might also provide enough money to pay for all or a portion of living expenses while you are in school.
The interest rate on student loans is substantially lower than other loans and the payment schedule can be deferred while you are in school. Paid back over a longer period of time, a student loan usually accrues interest while you’re in school and you rarely have to pay for the loan until you’ve been out of school for a few months.
Tip Number One
File for Federal Student Loans first, through the free online Federal Application for Federal Student Aid or FAFSA. Without this application and the Student Aid Report (SAR) that tells you what you qualify for, you won’t have access to federal student loans. Many of the federal student loans are not based on need or your income.
The federal government in the United States has a federally guaranteed student loan program. The program also includes a complete financial aid package that could include scholarships, grants, or work study options. Most US students qualify for some type of federal student aid, it is important that every student start with the federal student aid and loan program.
To fill out the FAFSA, first you need a pin number. The pin is used to sign the Free Application for Federal Student Aid or FAFSA if you apply online. If you mail in your application, you can still use the pin to access and correct a processed FAFSA at a later time. Go to www.pin.ed.gov and set your pin number. If your parents’ information is going to be included on the FAFSA, you will need one of them to sign the application as well. Your parents should get their own pin number.
The FAFSA site is at www.fafsa.ed.gov. Follow the process, there is no fee to do this and you should never pay someone to fill out the FAFSA. It is a free government form. Once you’ve submitted the application, eventually you’ll receive a Student Aid Report. This report will list your availability and approval for all student aid; including approval for government funded and partnered loans.
Tip Number Two
Always use federal loans first. The federal loans are know by names like the Perkins, Stafford, and PLUS loans. These lower, fixed interest rate loans will often have more favorable terms than private student loans. If you are looking at private loans, look at all the costs. Private loans can have higher interest rates, different ways of compounding interest, and origination fees.
Because private student loans are based on your credit score, know what it is. Most private loans will have interest that fluctuates over time. Read the information and know what all the charges and rates are.
Tip Number Three
Make sure you know if your loan has borrower rewards and what the specifics are on your loan if there are borrower rewards.
What are borrower rewards?
These rewards or loan discounts are reductions and waivers that can save you money on your loan. Some of these discounts you get just because of the type of loan you have, others you earn. Sometimes there are rules to follow to get the discounts, like having your payment taken directly from your bank account or making all your payments when due.
A sample of the type of rewards or discounts are, rate reductions, fee waivers, principal reductions, cash rebates and a possible waiver of final payments.
These discounts or rewards can make a big difference on your monthly payments and total cost. One example of a possible savings is a loan that gets a 3.75% reduction on principle if there were 36 on time payments. Another lender gives a .25% interest rate reduction if there are automatic payments for paying the loan.
When you are checking out student loans, look for these features and benefits and make sure you understand what you need to do to get the rewards. Then make sure you follow the rules and get these rewards. The lenders offer it as a benefit, and then hope you won’t use them. Figure it out and follow through for better pricing. If you already have a student loan, call your lender and get a list of the rewards.
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Student loans are used to pay for college tuition and books. Sometimes they will cover all or a portion of living expenses while you attend college or university. These loans have substantially lower interest rates and the payments can be deferred while you are in school. The loan can be paid back over a longer period of time, and even thought the interest accrues when you are in school, you don’t have payments until six to twelve months after you’ve left school.
The federal government has a student loan program, and there are private student loan programs available. The latest news on student loan programs focuses around some new tax changes, the federal program for limiting student loan payments on federal student loans, and the private student loan sectors downturn.
Private Student Loan News
Private student loans have been affected by the downturn in the economy and problems with loan practices. Because of these problems Student Lender Analytics or SLA forecasts a decline in private student loans of 24% in the 2009 – 2010 year. SLA is, “an independent research and advisory firm focused on finding the best lenders for students.” The information on the decline in loan origination is targeted toward the major national and regional lenders.
This 24% reduction for the coming year is on top of last year’s drop of 50% in private student loan origination. Across the board loans are harder to get, that fact alone affects the private student loan sector. The Citibank Student Loan Corporation, one of the largest of the private lenders, reports that they will be noticeably reducing their borrowing limits.
But the news isn’t all bad. Other loan companies are stepping things up or entering the market. Wells Fargo, Chase and some credit unions are planning to grow their number of loan originations in 2009 -2010. One of the new companies in the student lending field is Discover. The SLA has estimated that this year Discover will grow the fastest as far as the amount loaned for private student loans.
Credit Unions that offer student loans often have one of the lowest, private loan interest rates. But many people don’t realize that some credit unions provide this service. But the news is, some do.
Student Loan Federal Tax Credit News – American Opportunity Credit
In 2009 the Stimulus Bill expanded the existing Hope Tax Credit and changed the name to the American Opportunity Credit. The new terms affect the 2009 and 2010 tax years. Instead of getting a tax credit for two years of college tuition as in the Hope program, now the credit has been extended to four years and has expanded income eligibility. There are new guidelines and amounts which are noted below:
- There is a $2,500 maximum annual credit, per qualifying student.
- The credit is only available if the student is enrolled in school at least half-time.
- The student must be enrolled in a program leading to an undergraduate degree, or one that leads to ‘legitimate education credentials.’
- Any and all family members can receive the credit; there is no limit if they meet the other requirements.
- If the credit exceeds a taxpayer’s total tax bill, $1000 of the credit can be refunded to the taxpayer.
- Parents and guardians can claim the credit for a dependant child’s college expenses if they are listed as a dependant on the tax form.
- The credit will phase out, starting at $80,000 – $90,000 adjusted gross income on a single tax return, double that for a joint return.
- There are additional student credits available to students in targeted Midwestern disaster areas.
More information on the American Opportunity Credit can be found in IRS Publication 970. The title of this publication is Tax Benefits For Education.
Federal Student Loan News – Income-Based Repayment (IBR) Program
The government started a new program that took effect on July 1, 2009 that allows those with federal student loans to ask the government to limit the amount they pay in monthly payments to less than 15% of their income. This new program is called the Income-Based Repayment (IBR) program. Many of the people who qualify for this program will pay much less than 15%.
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