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Student Loans, Financial Aid Both Rise in 2009-10

Wednesday, December 8th, 2010

Student Loans, Financial Aid Both Rise in 2009–10

According to a new report by the College Board, both student
loans and other types of college financial aid rose in the 2009–10 academic
year, although this increase in student aid was largely offset by rising
college costs, which increased by about 6 percent.

The College
Board
, in its annual “Trends in Student Aid” report, estimates that a
total of $154.5 billion in student financial aid was distributed in
2009–10. Grants now comprise about 50 percent of student financial aid
from all sources, both federal and private sector.

In 2009–10, the average undergraduate student financial aid
package was worth nearly $11,500. This figure includes more than $6,000 in
grants and more than $4,800 in government-backed federal student loans.
Graduate students received slightly more financial assistance, on average, in the
form of grants — nearly $6,400 — but also borrowed more
heavily. The average graduate student took out more than $15,700 in graduate
student loans.

 

Grants

Compared to student financial aid figures for 2008–09, grant
aid to undergraduate students increased by 22 percent, while federal
student loans increased by 9 percent. The 2009–10 academic year also
saw a 16-percent increase in the average federal Pell Grant award to $3,656,
the largest one-year rise in the program’s history. Only about one-fourth of
all Pell Grant recipients, however, qualified for the maximum grant amount of
$5,350.

 

Student Loans

Private student loans —
college loans issued by private lenders rather than by the federal government —
represented about 8 percent of all student loans in 2009–10, a
decrease from 25 percent in 2006–07.

Federal subsidized Stafford student loans made up about 35 percent
of all student loans in 2009–10, an increase from 31 percent in 2006–07.
Unsubsidized federal Stafford student loans accounted for 42 percent
of the combined federal and private student loans taken out in 2009–10, an
increase of about 12 percent from 2006–07.

Subsidized Stafford loans,
which are available only to students who demonstrate financial need, are
government-backed college loans on which the government will pay the interest
while the student is in school or in a period of approved deferred payments. Unsubsidized
Stafford loans are available to students regardless of financial
need. Although students, as on a subsidized loan, may defer payments on a
federal unsubsidized college loan while they’re in school or in certain other
authorized circumstances, the student, not the government, will be responsible
for paying all the interest that accrues on an unsubsidized loan during those
periods of deferment.

According to the College Board, about 65 percent of
all undergraduate students in 2009–10 did not accept Stafford loans of any type.
The majority of students who did accept Stafford college loans ended up taking
out both subsidized and unsubsidized student loans. The average Stafford student
loan debt load in 2009–10 was $6,550.

In 2008, Congress authorized increases in the maximum annual
and lifetime federal lending limits for Stafford student loans. The expanded
loan amounts were approved in part to discourage students from taking on the
burden of private student loans, which tend to carry higher interest rates and
fewer borrower protections than federal student loans.

Currently, dependent undergraduate students can borrow up to
a maximum of $31,000 in Stafford college loans throughout their undergraduate
college career. Independent undergraduates, as well as dependent undergraduates
whose parents do not qualify for a federal parent loan, can borrow up to a
maximum of $57,500 in Stafford college loans.

Graduate students may also be awarded both subsidized and
unsubsidized Stafford student loans, up to $20,500 a year and up to a total lifetime
maximum of $138,500, including both their undergraduate and graduate Stafford
loans.

Graduate students may obtain additional student loan funds
through the federal Grad PLUS graduate student loan program. However, whereas
Stafford student loans don’t require either a credit check or a co-signer, Grad
PLUS loans have modest credit requirements. Even so, the number of graduate
loans issued through the Grad PLUS program has steadily increased since
Congress introduced the program in 2006–07. About 5 percent of all
student loans issued in 2009–10 were Grad PLUS graduate student loans.

 

Parent Loans

In contrast to federal student loans, federal parent loans,
known as PLUS loans, are being used less frequently, with 20 percent fewer
parent loans issued through the PLUS program in both 2008–09 and 2009–10 than
in previous years. The volume of federal parent loans peaked at 11 percent
in 2004–05 and 2005–06.

Since PLUS loans, unlike Stafford loans, are credit-based
loans, one reason for the decline in PLUS loan volume may be that the number of
parents who qualify for a PLUS loan has dropped due to the recession. Under current
PLUS loan guidelines, parents who are more than 90 days past due on at least
one bill or who have declared personal bankruptcy or been subject to a
foreclosure proceeding within the last five years do not qualify for parent
loans through the PLUS program.

Read the full report from the College Board: “Trends
in Student Financial Aid 2010

 

 student loans, report:
Trends in Student Financial Aid 2010
<img src="http://www.articlesfactory.com/pic/x.gif" alt="" border="0", more
College Board higher education reports

Article Tags:
Stafford Student Loans, Student Loans,, Student Financial, Federal Student, Graduate Student, Undergraduate Students, Loans Issued, Student Loans, Stafford Student, College Loans, Stafford College, Federal Parent, Grad Plus

Jeff Mictabor is an enthusiast on the topic of student loan
issues in the news. He has been writing for the past 10 years for a variety of
education publications. He now offers his writing services on a freelance
basis.

Student Loan Default – How to Avoid Default

Saturday, August 14th, 2010

Who Provides Student Loans?

Student loan programs, administered by the Federal government and private lenders, have traditionally helped youngsters attend both, graduate and undergraduate school. Federal loans, administered under the Federal Student Aid Programs, are of the following types: Federal Stafford Loans, which are available to students, and Federal Parent PLUS Loans, meant for parents and guardians interested in financing their child’s undergraduate education. Of course, the latter would require the parents/guardians to have a good credit history. Both, Stafford and PLUS loans, can be obtained directly from the government, or from private lender’s whose loans are federally guaranteed. Low interest loans are offered to students by schools participating in the Federal Perkins Loans Program. Sallie Mae, a giant lender in the realm of student loans, was created in 1972 as a government enterprise. It was privatized in the year 2004, and the company provides both, private loans and federally backed loans. Private banks and non-profit agencies like Student Loan Corp also provide student loans.

Consequences of Student Loan Default

Repaying student loans provided under the Federal Student Aid Programs usually begins 6 to 9 months after a person graduates or drops out of school. In case of ‘The Smart Option Student Loan’, provided by Sallie Mae, the borrower is expected to pay only interest when he is in school, while after graduating he has to make both principal and interest payments.

Lenders have their own repayment schedule, and any delay in making payments can have serious consequences. For instance, in case of Federal loans, which are repaid in installments, default on even a single payment can result in accelerating the repayment schedule for the remaining amount of the loan. The government can take away or ‘garnish’ 15% of a students disposable income as penalty. A portion of social security retirement benefits and disability benefits might also be withheld. Access to other Federal loans may be restricted. Of course, both government and private lenders can sue a person for defaulting, not to mention the impact of such a default on credit scores. A student loan default can remain on record for 7 years. Hence defaults should be avoided at all costs.

How to Avoid Student Loan Defaults

Alternative Repayment Plans: There are various repayment plans for Federal Loans. A student can consider switching between repayment plans, in case he feels that he is likely to default. Currently there are 4 such plans: Level, Graduated, Income Sensitive, and Extended. The level plan requires a person to pay the same amount of interest and principal during the term of the loan (usually 10 years). In case of graduated plans, a person starts with a lower payment and gradually increases the amount of payment every 2 years. This plan requires a minimum bank balance of $2500. Income based repayment plans will come into effect on 1st July 2009, and these may be appropriate for people with low income, since the amount of repayments cannot exceed 25% of their gross salary. The minimum payment can be as low as 4% of the gross salary. For people who borrowed before October 1998, the extended repayment plan can allow them to extend the term of the loan by 25 years.

Consolidating Federal and Private Student Loans: Consolidation student loans result in reducing the interest rate on several loans by replacing them with one loan that has an extended repayment period, and consequently, a lower rate of interest. Consolidation is an option that can be considered both, before and after default. Federal government allows consolidation of loans in case of Federal Family Education Loans (FFEL) and Direct Loans. In order to qualify for a FFEL consolidation loan, a person needs to make 3 voluntary on-time payments after defaulting on student loans.

Seeking Forbearance: Forbearance refers to a situation wherein the borrower is exempted from making payments on student loans for a certain period of time. During this period interest accumulates on the loans. Forbearance on federal loans can be requested in case of poor health, if monthly payments exceed 20% of the borrower’s monthly income, or in case a person is unable to pay the loan within 10 years. Private lenders generally grant forbearance in case of extreme hardships, while non- profit organizations like Student Loan Corp may grant forbearance up to a maximum period of 12 months at no additional costs.

Deferrals on Student Loans: A deferral is similar to forbearance since both result in postponing the repayment of the loan. However, in case of forbearance, interest continues to accumulate, while in case of deferral, interest does not accrue on the loan during the deferral period. Deferrals can be obtained under the following conditions: temporary disability, enrollment in a rehabilitation program, unemployment, receiving public assistance due to economic hardships.

Canceling: A federal student loan can be canceled in case of permanent disability, military and other uniformed service, or by teaching lower strata of society. Volunteering for Peace Corps may also result in canceling the loan. Sometimes nurses and resident physicians can also get a cancellation on their student loans. Canceling a student loan is harder than obtaining a deferral on the loans.

Rising unemployment due to worsening economic conditions has resulted in a number of student loan defaults. In the last 5 years, the cost of obtaining a college degree has increased by 30%. Rising cost of education, coupled with increasing unemployment, has left most students with no option but to drop out of school. The good news for college drop outs is that, returning to school and studying part time can help them obtain a deferral on most student loans.