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Student loan chat with Betsy Mayotte

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August 7, 2008

American Student Assistance's Betsy Mayotte took readers' questions about student loans and educational financing. Here's a transcript of the discussion.

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Betsy_Mayotte: Hello and welcome to our online chat on student loans! I'm Betsy Mayotte and I write several newspaper columns on the subject. Oh - and I also had student loans myself! So if you have questions regarding getting a new loan, or perhaps you are a recent graduate with questions on paying back your current loans - either way you're in the right place. Well, I see we already have quite a few questions queued up so let's get started.
meg__Guest_: with everything going on after MEFA
Betsy_Mayotte: Hi Meg. Your full question was, "With everything going on at MEFA, what are students going to do?" Well, some families were caught off guard by the recent announcement by MEFA but I think the advice they gave to those affected families was sound. Mainly, approach your financial aid office first to discuss your full eligibility for Federal Loans. If you still have tuition needs your financial aid office will also be able to help you explore other private loan options. Bottom line, yes finanicial aid might be a little more time consuming this year, but there are still many loan options available.
Yankees_Fan__Guest_: With all the problems in the lending industry now, and the new legislation passed by Congress, are students and partents better off seeking Direct Loans from the Dept. of Ed. or from FFELP Lenders, or from private lenders?
Betsy_Mayotte: Actually, your school chooses whether they will work with Direct Loans or FFELP loans - but either way, both federal programs are almost identical so it doesn't really matter. I would however, exhaust your federal loan options before looking into private loans as the federal loans often have more benefits and options than the private loans do. Thanks for the question, it is one that many consumers have.
ccbmom__Guest_: My daughter applied for a $10K student loan from RISLA (RI equivalent of MEFA) which I co-signed. We were denied b/c we did not have $5K cash in the bank as savings. They said that they had so many requests from MA that they had to be incredibly strict about who they would loan to. Will MEFA, if funded, have these same restrictions. If I had an extra $5K in the bank I wouldn't have asked for a $10K loan!
Betsy_Mayotte: Wow, I see your frustration! At this point we can't really say what, if any, additional restrictions MEFA might have once they are up and running again. Have you explored the Federal PLUS loan? There is no debt to income ratio for those.
destitute_parent__Guest_: I have been approved for a Parent Plus Loan for this year. I see Gov. Patrick is trying to help MEFA secure loans. Will I be able to cancel my Plarent Plus Loan and apply for a MEFA loan (at a lower fixed rate) if the plan goes through?
Betsy_Mayotte: Thanks for your question. I think it will depend when that happens. If it's during the same academic year, my guess is that you would likely be able to do that.
BigSister__Guest_: I read an article about peer-to-peer lending sites like Virgin Money, and am wondering if it might be a good option for my younger brother who doesn't get much financial aid at his college? I might be willing to lend (or maybe another relative would be) if I knew he would pay me back : )
Betsy_Mayotte: Hi. Has your brother filled out the FAFSA form? I'd make sure there are no other standard financial aid options out there before exploring these alternatives. With that said, we have been hearing a heck of a lot more about these peer to peer lending sites of late. I think time will tell whether they are something that will be a solution for folks.
pat__Guest_: We were waiting for MEFA status to resolve and just recently applied for private loans. Should we wait any longer??
Betsy_Mayotte: Tough call. Part of it will depend on your schools deadlines. I'd also ask your "new" lender if you can return the funds mid-year if you find alternative funding. (with no penalty of course)
Bostongirl123__Guest_: Hello, I am 25 years and old and am currently enrolled at a local community college for Associate's degree. I work full time and go to school part time and have no dependency on my parents whatsoever. Starting January, I am hoping to start working on my Bachelor's Degree. At that point, I know I would need to come up with financial assistance, as tuition will cost much more than what it is now. What is the best way to approach this, what are my chances of getting financial aid that is not loans? If necessary, I will be willing to get a student loan, however I know nothing about them and what the best ones to get etc... Please help!
Betsy_Mayotte: Bostongirl - the very first and most important step is to fill out the Free Application for Federal Student Aid (FAFSA) which you can do online at www.fafsa.ed.gov. That will determine what federal grants (and loans) you will be eligible for. From there you will need to work with your schools financial aid office to see how much you qualify for and if there are any other state or private scholarships you might be eligible for. Finally, look into free scholarship searches such as the one at www.finaid.org. Good luck!!
jess__Guest_: Is there any way to consolidate commercial student loans?
Betsy_Mayotte: By commericial student loan I assume you mean a private student loan? If so I am not aware of any private consolidation programs, but I'd approach whomever holds your current loan to see if they offer other extended programs. PS: You should NEVER consolidate your federal loans with your private loans or you will lose all those fun federal benefits.
mike__Guest_: is it more beneifical to pay off all of a student loan at 4.5, or to invest it? i hear its "good debt", though with masters and bachelors degrees i have quite a bit....should i keep the debt and focus on financial vehicles, or pay it down now?
Betsy_Mayotte: You know, now's a good time to mention that I'm not a qualified financial planner! ;-) With that said, I think it's always good to pay off debt. Keep in mind that depending on your salary, the interest on your student loans is tax deductible and unless you are finding investments with higher returns than the 4.5% you might not be doing yourself as much good as you think.
Bostongirl123__Guest_: What is the difference between federal grants and loans?
Betsy_Mayotte: To put it simply - you do not have to pay grants back - you do have to pay student loans back - with interest generally.
Betsy_Mayotte: I just want to take a moment to speak to you recent graduates who are starting to get those first bills and maybe panicking a little bit. The very best thing you can do is to contact your loan holders now and discuss what kind of lower payment option or even deferments they might have that will fit your situation. There is almost ALWAYS something that student loan borrowers can do to prevent their loans from going delinquent and eventually even defaulting. The biggest mistake I see student loan borrowers making is assuming there isn't any options for them. Ok - back to our chat!
Bostonidiot__Guest_: what are the possible ways of financing my education apart from robbing a bank?
Betsy_Mayotte: Have you considered a lemonade stand? Much less dangerous and tasty too! Seriously, I'd really get going and fill in that FAFSA form to see where you're going to end up from a federal benefits standpoint before considering a life of crime.
ccbmom__Guest_: Thanks. I did applied for a Direct Loan and was approved. The whole reason to co-sign the daughter's loan was so that it was her responsibility to pay back. I now have a $10K loan to pay that I really did not want. Oh well.
Betsy_Mayotte: You can always cancel that loan if you find another option that fits your needs better. You'll really need to do it before the academic year starts however as if you get too far into the year, the school is not necessarily required to return funds used to pay their tuition bills.
tinkertot__Guest_: Hi Betsy. Should a 529 f und for a childs education be in the kids name or the adult
Betsy_Mayotte: These are generally in the students name.
gradschool__Guest_: Hi Betsy, I'm considering going to graduate school. I don't need to go, but it would help me advance in my field. At the moment, I would have to borrow at least half the cost to go. I'm wondering if I should wait a year or two to see if the loan situation gets better. What do you think?
Betsy_Mayotte: Hi there. The loan situation is not going to change what the interest rates and other federal benefits are. Also, the federal student loan program is an entitlement program - that means that if you are eligible, you WILL get a federal student loan. There are still over 2000 federal student loan lenders out there ready to take your application. So, I'd approach your school aid office to see what lenders they may work with often to get some ideas where to start. As far as grad school goes - make sure you do a cost benefit analysis regarding your assumed salary increase versus the debt it sounds like you'll be taking on. Doesn't mean you shouldn't go to school - just means you might want to go part time and take out less loans.
DMK__Guest_: Betsy, I understand that a parent doesn't have to start repaying a PLUS loan until it's been fully disbursed. For me, that will be sometime in January. But, when does the interest start accruing?
Betsy_Mayotte: Great question. The interest begins accruing on the first disbursement when the money goes to the school - so - essentially right away. Note though that there is a new law that allows loans disbursed this year forward to postpone repayment until after the student leaves school - so check with your lender to see which of those options you may be eligible for.
Betsy_Mayotte: BTW - Graduate students with their own PLUS loans can postpone repayment as long as they are in school on at least a half time basis (as defined by the school). Interest still accrues however so it's a good idea to send in at least that much every month even if you're not being billed for it.
Betsy_Mayotte: Ok - time for another random student loan tidbit. The difference between a subsidized student loan and a non-subsidized student loan is that the subsidized loan does not accrue interest while the borrower is in school or a deferment period. Unsubsidized loans (including PLUS) accrue interest right from day one. While you aren't usually required to pay it while you are in school, if you do not, it will capitalize (be added to the principal) if you choose not to.
Bostongirl123__Guest_: Since there are currently not that many questions, I have another one... Is there a way to increase your chances of getting a grant, or subsidized loans... Is there a certain recommendation that you could give to students who are paying for school. Of course filling FAFSA is step one, but from what I am reading, there is not a lot of money around for education financing, and a lot of programs that used to be available are not getting cut due to current economy.
Betsy_Mayotte: Remember, the federal loans are entitlement programs so everyone who is eligible for a loan will be able to get one. I would approach some of those free scholarship searches for other sources of funding. I recommended one earlier in the chat but you can also try www.collegeboard.com.
Betsy_Mayotte: Grant eligibility is need based so the amount you get is generally based on your income and other information.
destitute_parent__Guest_: FAFSA is a very "black and white" process. There seems to be several companies out there that attempt to show you how to get more fin aid (beat the system). Do you know if there is any legislation that simplifies the FAFSA process and opens up the fin aid funding for the middle class? I am not sure how the EFC is determined, but FAFSA assumed I was a multi-millionaire!
Betsy_Mayotte: First off let me say that anybody that tells you they can get you more federal student aid for a "small fee" is generally not doing anything you cannot do yourself. There is legislation that will simplify the FAFSA process into one called the EZ-FAFSA but that will take several years. I also don't think that it will dramatically change the amount of estimated family contribution (EFC) that you end up with. With that said, you can always approach your financial aid office with additional information if you feel the amount you've been awarded should be considered again.
Miss_M__Guest_: My son is attending college out of state. We have applied for a stafford loan and the rest will have to be done through a private loan. Is there any advice you would give or things to look for in private loans. We will be using Sallie Mae
Betsy_Mayotte: Have you considered the PLUS loan? Otherwise, I'd just compare interest rates and terms with the private loans. Most of them are essentially similar.
Cindy__Guest_: also how can a student with no credit history get a student loan? I have a parent PLUS loan but would like my daughter to get her own loans
Betsy_Mayotte: Students with limited credit histories are generally required to obtain a co-signer for a private loan in their own name. If not, they can be given a loan - but with a much higher interest rate than those that do have the co-signers. Has your daughter looked into the federal Stafford loan? That also does not require a co-signer or credit check - however the loan amounts are limited.
Betsy_Mayotte: Looks like our time is up. Great questions everyone! If you are still concerned about where to find a lender please visit www.amsa.com for some additional tips. Also, if you think of other questions later on, you can email me directly at askbetsy@amsa.com. Thanks everyone!

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