SAFRA – Big Reform in the Student Aid Industry

On March 30, 2010, President Obama signed the Student Aid Fiscal Responsibility Act (SAFRA) into law. This landmark piece of reform legislation is intended to reboot the floundering student loan industry by redirecting all new federal loans through the Department of Education, bolstering several pro-financial aid initiatives, and ending the hotly-contested Federal Family Education Loan (FFEL) Program. I would like to walk you through these changes, explain how they will affect the average student, and attempt to answer any burning questions you may have about them.

FFEL, and Why It’s Going Away

The Federal Family Education Loan Program was established in 1965 as a way to provide access to college for students requiring financial aid. At the time, the government was not participating heavily in the origination of student loans, but recognized the need. In order to create a less credit-heavy lending option for students, the government began to allow private banks to originate loans for students that were backed with federal funds. Essentially, this created a near risk-free environment for private banks to lend money to students and earn interest on the borrowed funds. Further, these banks have been paid subsidies as an incentive to create these loans; the result is them getting paid by the government to make a student loan that is guaranteed money for the bank, even if the borrower defaults. The long and short: the banks win on both sides of the equation, and make a ton of money doing very little.

To add insult to the injury, many FFEL lenders have been accused of purposely providing poor customer service in an attempt to increase delinquency rates. This difference can be easily seen when one looks at the default rates for 2009: 7.2% for FFEL, 4.8% for the Direct Loan program (data sourced from ED.gov.) This activity supposedly is overlooked due to the much larger commission a FFEL bank’s collection department is authorized to take for recovering a defaulted FFEL student loan; in some cases it has been reported to be as high as 38.5% of the loan’s balance (The Huffington Post).

The effect of the SAFRA bill is these subsidies and current relationships between private bank and the federal government dissolve. Ideally, this will liberate up to $61 billion over the next 10 years to be reinvested in other initiatives (such as the Pell Grant program) and potentially pay down some of the federal deficit. Keep in mind that much of this is sensationalism however, considering the fact that our total deficit is currently in the region of $12.7 trillion; the estimated $10 billion would be a drop in the bucket toward paying down our national debt, but every bit counts.

Federal Student Loan Restructuring

As of July 2010, all new federal student loans will be originated through the Department of Education’s Federal Direct Loan Program (FDLP). In the past, FFEL banks were allowed to originate federal loans, but due to the issues listed above and shady practices, Congress has reached a consensus that the program is overdue for the guillotine and needs to end. Thus, the relationship between private bank and government is set to change in a way that is mostly invisible to the borrower. This difference is in the execution: although new loans will be created by FDLP, the government will now require private banks and non-profit entities to compete in order to service them. They plan to make this attractive to their former FFEL partners by paying premium and competitive market rates for the first 100,000 loans serviced per bank. The end result is this: the Department of Education makes your loan, but the customer service is handled by a private bank or large non-profit. Supposedly this will provide a higher quality experience for borrowers, but the reality of the change is yet to be seen.

As someone with a lot of experience with finance and the business world, I personally do not understand why a private bank would want to service federal loans. It can’t be lucrative enough to make the entire process worthwhile, and no extra funds appear on the banks’ balance sheets because the government is handling the money on both sides of the equation. My sixth sense says there are other kickbacks in place for the banks involved (possibly tax breaks, or something similar.) It is likely that lobbyists and media will be keeping a very close eye on whatever transpires in this arena; if you are interested in following how this process is evolving, check a trusted news source (such as the Wall Street Journal) regularly.

If you are currently a student or parental borrower, your existing federal loans will remain unchanged by this switch. The only difference you may see going forward is if you attend a FFEL school; they will be migrating to the Direct Loan Program in the next six months. Originally, most schools were one or the other exclusively depending on what type of benefits they could get for their students from each institution. After July, any new loans you take out will all be through FDLP, at a lower interest rate, and with a more flexible array of repayment plans.

Improvements to the IBR Program

Income Based Repayment (IBR) is one of the best things to ever happen to student borrowers. Essentially, if your total payments for the year equate to higher than 15% of your annual income, you are eligible to have your payments drastically lowered. For instance, under IBR, an income of $15,000 (for a household size of one) or less would make your monthly payment on all federal student loans $0. That’s right, no payments at all. As the household size increases, the maximum income level to qualify for IBR rises as well. The Student Loan Network has assembled a great chart on Income Based Repayment information that presents the data in an easy-to-digest format.

The benefits of IBR don’t stop there. In addition to potentially having your monthly payments significantly reduced (or eliminated), you actually can have the loans forgiven if they are in good standing and all payments are made on time for a certain amount of time. In some cases, federal student loans will be forgiven after 10 years (this is based on a “hot fields” list of desirable professions) and 25 years for everyone else. If you are wondering what is exactly meant by loan “forgiveness”, it means your loan gets cancelled, and you no longer have to pay it back or have the debt sitting on your credit history.

So what are the technical changes to this program? Thanks to a $1.5 billion infusion of funds provided by cutting the FFEL program, eligibility requirements are going to be relaxed further and loan forgiveness will be accelerated. Assuming no amendments or further changes to SAFRA, starting in 2014, the payments to income ratio for eligibility is being dropped to 10%. This is fantastic given the amount of debt the average student graduates with (federal and otherwise) and allows for greater ability to manage finances and afford living costs. Additionally, instead of the previous 25-year period before loan forgiveness, the program is being accelerated to 20 years. This is an absolutely major win for responsible student borrowers.

Ongoing Pell Grant Enhancements

The Pell Grant program is widely appreciated in the financial aid industry as a resource of funds for low-income individuals to help afford the cost of education. Although the purchasing power parity of this type of grant has fallen sharply over the years — largely due to inflation and the rapid growth of tuition costs — it is still a significant help to needy students that does not require repayment. The majority of the cost savings from cutting the FFEL program are planned on being redirected to the Pell Grant program, infusing an estimated $49.5 billion over the next 10 years.

The effects of this investment are adding at least a million more recipients per year, raising the award amounts, and linking future grant awards to popular economic indicators in the future. Currently, the maximum Pell Grant award is set to be $5,550 for 2010; the new legislation increases the award up to $5,975 in 2019. In addition, the Pell Grant program is going to be linked to the Consumer Price Index (CPI) starting in 2014, which will help the grant awards keep pace with inflation and maintain their buying power.

What The Changes Mean To You

As a current or future student borrower, the massive overhaul probably seems intimidating and difficult to understand. The bottom line of the legislation is to improve access to financial aid and make school more affordable for all levels of family income. For low income families, this comes in the form of increased grants; for everyone else, improved repayment programs and a simplified loan application process. Very little will be different on the front end for most students and parents, and again, there will be no change to existing loans.

If you are concerned about finding money for school, keep in mind that there are options other than federal aid available too. Scholarships are an excellent resource because they do not need to be paid back and you can find them in amounts ranging up into the thousands of dollars. Websites like StudentScholarshipSearch.com and ScholarshipPoints.com are quite popular for finding scholarship money and cost nothing to join. In the end, affording college is always a balance of savings, smart borrowing, and maximizing the amount of scholarships and grants possible to finance your education. It is entirely possible to get a degree without putting yourself into insane amounts of debt, so take the time to read informative financial aid literature and educate yourself on finding money for school.

Scholarships For Single Moms – Suze Orman’s Tips For Single Moms to Get Financial Aid Revealed!

To be a single mom today is like one of the toughest thing to face in the world. One of the hardest things to do is to pay the huge bills. Dept is a hard reality for everyone but it turns out to be even harder for a single mom. Scholarships for single moms to get financial aid are a must these days. Looking at this, Suze Orman gives you some tips to get financial aid easily. Obama’s government has made this procedure quite easy in the year 2009.

You may begin this by consulting non profits around your resident who offer government financial aid for single moms. These organizations happen to offer assistance in employment, housing and even tuitions. State government also has offered programs to give help to single moms when they are in need. You may refer to TANF; it’s a program that helps you with food stamps, job training and assistance in placements. You can also take help from LIHEAP to give you assistance with the heating bill.

According to Suze Orman, Government assistance programs have certain criteria to give grants. Basic is that a single mom should be very poor in order to qualify for scholarship for single moms.

* Her income should not have many resources as well as they will just prove to be hurdles in her way.

* Some of the single mothers even have to resort in order to get a second job.

* Single mother is also offered to get counseling session to get over stress and frustration.

ASEAN organization gives scholarships for single mom to do their post graduation study. The fact that single parent households are getting increased in number day by day and the head is women leads to the fact that women should be independent and be financially settled. This organization makes it easier for single moms to get their post graduation degree and help them to take care of family side by side. University of waterloo deals with under graduation study and offers scholarships to single mothers.

Society survival in the United States may be dependent on the survival of single mother only. Scholarship for single moms is becoming easier to get provided you fulfill the conditions. This aid proves to be a safeguard for them.

Accredited Online College Degree and Financial Aid

Online College academic degree programs have now become a respectable way for otherwise meddling individuals to acquire a distinguished degree to help improve their careers.

The advancement of technology has opened up a lot of new opportunities for people all over the world. In the field of education, many top colleges and universities in the country today has open their doors to pupils who want to study online.

One still needs to go through the usual application and student selection process of these top colleges and universities to be able to enroll in their accredited online college degrees. However. the fact that one can now study in the comforts of his or her home is already a huge reward. This is particularly true for students who are living in far away areas and could afford to relocate near the college or university. You can attend a college or university from any state in the United States or even from Canada. Your classroom work can be completed on your own time by accessing the class work online. Your professor or instructor will be available through e-mail and you will be able to convey and exchange ideas with your classmates through e-mail, instant messaging, chat rooms or blogs. You will be able to turn in assignments and take tests through the Internet.

Eligibility for Student Grants and Assistance

The price of an online degree is often more affordable than at the actual college or university and out of state costs are not usually incurred. Think how much you can save on gasoline or public transportation alone! You may be qualified for scholarships, student loans or Pell grants to help with the cost of your education. If you are accepted to an accredited online college degree of a college or university in the country, you are eligible to apply for study grants and financial assistance. Note that just because you are studying online does not mean that you are not considered as a regular student of the college or university so you can still make use of whatever study grants and student financial assistance available.

Since most colleges and universities now offer online applications for student grants and financial assistance, you do not need to visit the campus to enroll for these student assistance programs. All you need to do is go online and log-in to the college or university’s website and go to the page for student financial assistance. Use your student number to apply for student grants and financial assistance. Your application will now be processed by the college and university.

Since you are enrolled in accredited online college degree program of the college or university, the sum of financial assistance that you can get may vary from the assistance given to students who are studying in campus. In most cases, students that are enrolled in accredited online college degree programs acquire a fraction of the financial assistance given to students who are studying in campus.

The reason behind the decrease in the amount of assistance that you can get is that since you are not living and studying in campus, you are supposed to incur lesser amount of expenses compared to those students that are living and studying in campus. However, the good news is that you will still enjoy the same rate of interest and payment schemes for student loans enjoyed by those students who are living and studying on campus.

To further your career aspirations, an online degree is the best feasible choice. However with quite a large number of universities offering online courses and degrees, choosing the one which is right for you can be a difficult process. The abundant development and enhancement of internet technology leads to the rapid growth of online education. The increasing popularity and creditability of the online universities influences more and more people to take up online courses and get geared up for life!

Earning a valuable and degree sitting at the comfort of your home or office seems to be quite alluring idea and finding an appropriate college or university is free, fast, and easy! Simply fill in the blanks to find the school for you. After you have identified the type of program and degree you are looking for, we will furnish you with information about several colleges and universities that offer options you can select from. You will have access to a live advisor who can explore different options with you. This personalized service is free to you once you fill out for more information.

Financial Aid Applications Are Time Sensitive – Get Money For College Early Or Not at All

The U.S. federal government provides a limited amount of financial aid every year. The exact amount is set by legislation and the primary qualification is for a student to demonstrate actual financial need. Unfortunately, a lot of eligible students don’t actually get any help paying for tuition.

With school costs constantly rising at record speeds, there is never enough for everyone regardless of how much extra financial aid is voted into the system every year. Since not everyone who needs the money can have the amount promised, it all comes down to who asks first and follows all of the directions.

The Free Application for Federal Student Aid (FAFSA) become available on January 1st of every year, but you need some information before you can complete the application and turn it in. First, you need to have a PIN – a Personal Identification Number – with the federal FAFSA system. These can take a day or a week to process, so it is usually a good idea to get one ahead of time. The other major documentation that will be required for a complete application is in regard to the prior year’s income. If the student is 24 or younger, he or she will need access to parental financial and income statements – if the student is older, they will only need their own financial records.

When the PIN and financial documents are available, a FAFSA can be completed online for no cost through the official government website located at: http://www.fafsa.ed.gov/index.htm

Time is of the essence! All eligible applications are honored – until the money runs out. When the government receives your application they pass it on to the college, and the college starts assigning financial aid and student loan funding. So the longer you wait to file the application, the less likely it is you’ll get a share!