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Student Loans

Types of Student Loans

Like any other loan, student loans are borrowed money that must be repaid with interest. Both undergraduate and graduate students may borrow money. Parents may also borrow to pay education expenses for dependent undergraduate students. Maximum loan amounts increase with each year of completed study.

Federal Stafford Loans are made to students through two loan programs:

• Direct Loan Program: participating schools allow their students to borrow directly from the federal government.
• Federal Family Education Loan Program: private lenders provide the funds.
  • Perkins Loans are offered by some schools to provide the neediest students with low-interest loans.
  • Federal Plus Loans are made to qualifying parents of dependent undergraduate students.

Some of the requirements to receive aid from the federal SFA programs are that you must:

• Be a U.S. citizen or eligible noncitizen of the United States with a valid Social Security Number;
• Have a high school diploma or a General Education Development (GED) certificate or pass an approved "ability to benefit" test;
• Enroll in an eligible program as a regular student seeking a degree or certificate; and
• Register (or have registered) for Selective Service, if you are a male between the ages of 18 and 25.

Applying for Student Loans

1.  Complete the FAFSA (Free Application for Federal Student Aid). The FAFSA lists deadlines for federal and state aid. Check deadlines! Schools and states may have their own deadlines for aid.

You must fill out a new FAFSA for each year you plan to be enrolled in school. The best time to apply for aid is between January 1 and March 1, since most schools award aid on a first-come, first-served basis. About six weeks after you submit your FAFSA, you will receive a student aid report that will give you an opportunity to correct previously reported 'incorrect information' before the form goes from the Department of Education to your school.

You may get a FAFSA from:

• a high school guidance office;
• a college financial aid office;
• a local public library;
• the Federal Student Aid Information Center at 1-800-4-FED-AID (1-800-433-3243); or
• you can apply online at: http://www.fafsa.ed.gov/.

2.  One to four weeks after you submit your FAFSA, you will receive a Student Aid Report (SAR). The report confirms the information reported on your application and will tell you your Expected Family Contribution (an amount you and your family are expected to contribute toward your education, although this amount may not exactly match the amount you and your family end up contributing).

3.  Contact the school(s) you are interested in attending and talk with the financial aid administrator. They will review your SAR and prepare a letter outlining the amount of aid (from all sources) that their school will offer you.

• Some colleges have their own institutional forms, in addition to the FAFSA.
• Some colleges require the CSS/Financial Aid PROFILEŽ to apply for non-federal aid. You can apply online and learn more at:

http://www.collegeboard.com

Even if you don't think you qualify, fill out the FAFSA anyway

Even if you don't think you're eligible for federal assistance, definitely fill out the form, because the FAFSA is used by many non-government aid programs in order to determine your eligibility for the scholarships, loans, and other programs they offer.

Here are the items you need to help you fill out the application:

• Your Social Security card and driver's license
• Your W-2 Forms or other records of earned-income along with your federal income tax return (and your spouse's, if you are married). You'll need IRS Form 1040, 1040A, or 1040EZ and any 1099 forms you received.
• Your parent's federal income tax return (unless you are filing as independent)
• Records of other untaxed income you received, including AFDC or ADC, child support, welfare benefits, social security benefits, TANF, veteran's benefits, and military or clergy allowances
• Your current bank statements, mortgage information, and records of stocks, bonds, and other investments
• Medical and dental expenses for the past year that weren't covered by health insurance
• Your business or farm records, if applicable
• Your alien registration card (if you are not a U.S. citizen)

Expected Family Contribution

The EFC is a measure of your family's ability to pay for college based on student and parent income and asset information, your state of residence, household size, and number of household members in college. You can request a free copy of the EFC Formula by calling 1-800-4FED-AID and requesting the current SFA Handbook.

Since you most likely don't have a copy of the above booklet in your hands, we will attempt here to briefly explain how the EFC is calculated. The EFC is the sum of the student contribution and the parent contribution. Some schools (mostly private) expect both natural parents to contribute to their children's educational expenses, regardless of a divorce or any court orders to the contrary. In cases of divorce where the custodial parent remarries, the financial information for both the custodial parent and the step-parent must be included on the FAFSA as well as any child support and/or alimony received from the non-custodial parent.

The calculation of the expected student contribution is generally 35 percent of the student's assets and 50 percent of the student's prior year (including summer) earnings. (The federal calculation is 50 percent of the net earnings above $2,200 and 35 percent of the student's reported assets.)

A few things to note about the needs assessment formula: (1) student assets are assessed more heavily than parent assets; (2) student income is assessed more heavily than parent income; and (3) in most cases the EFC will go down when the number of family members in school goes up.

The school you attend establishes a Cost of Attendance (COA). The school's COA will include tuition, fees, room and board, books and supplies, travel, and personal and incidental expenses. In many cases there is a standard fixed budget amount for some of these categories. But the budget amount for travel may vary depending on the student's home state. Likewise, room and board expenses may be reduced and travel expenses increased for commuter students.

When your parent's income/assets are not counted in the EFC

If you are classified as an independent student, only your (and your spouse's) income and assets are considered. To qualify as an independent student, you must meet at least one of the following criteria:

• be at least 24 years old
• be an orphan
• have a dependent other than a spouse
• be a graduate or professional student
• be a veteran of the Armed Forces
• be married
• be a ward of the court

Eligibility for Student Loans

As you can see from the definitions given above, the COA and the EFC may be different for every school. However, once these are calculated, every school uses the same formula to determine how much Federal financial aid to award to students:

COA - EFC = Financial Need

In order for you to receive need-based aid, your COA must be greater than your EFC.

As you probably have guessed, most schools only have money to help out the most needy of students. The financial aid office at your school will use the need-based resources they have available to try to meet your Financial Need.

Here are Esteban's calculations for financial aid:

Esteban filed his FAFSA online in January 15. He received his Student Aid Report (SAR) a few weeks later, which had calculated his EFC on his SAR to be 0800 (which means $800). Esteban and Sarah, with the help of the university financial aid office, figured the COA for the university to be $15,000.

Therefore, Esteban figured his financial need to be:

$15,000 - $800 = $14,200

Because of his relatively high financial needs, Esteban was able to get two grants through the university:

• $1,000 Institutional Grant
• $1,550 Federal Pell Grant

He was also able to get approved for 2 student loan programs:

• $1,000 Federal Perkins Loan
• $4,500 Federal Subsidized Stafford Loan

Making his total financial aid: $8,050

DEFAULTED STUDENT LOAN INFORMATION

Unfortunately, many students find themselves in the terrible position of defaulting on their student loans. Because of this, student loan borrowers in default now have more options than ever before to repay their student loans.

When is a loan considered in default?

For student loans authorized under Section 435(i)Title IV of the Higher Education Act, default occurs on a FFEL loan after a default has persisted for 270 days in the case of a loan repayable in monthly installments or 330 days in the case of a loan repayable in less frequent installments. The change is effective for loans for which the first date of delinquency occurred on or after October 7, 1998. During the delinquency period, the lender must exercise "due diligence" in attempting to collect the loan; that is, the lender must make repeated efforts to locate and contact you about repayment. If the lender's efforts are unsuccessful, it will usually take steps to place the loan in default and turn the loan over to the guaranty agency in your state. Lenders may "accelerate" a defaulted loan, which means that the entire balance of the loan (principal and interest) becomes due in a single payment.

If the loan is placed in default, the loan is then turned over to the U.S. Department of Education (ED).

Determine which type of loan you have

Federal Family Education Loans (FFEL) These include Federal Stafford and Federal PLUS loans. When placed in default, these loans are first assigned to a guaranty agency (an organization that administers the FFEL Program for your state) for collection. Periodically, guaranty agencies assign loans to ED for collection.

Direct Loans Federal Stafford and PLUS loans are also offered through the William D. Ford Direct Loan Program. When placed in default, these loans are assigned to the ED's Debt Collection Service.

Federal Perkins Loans When placed in default, Perkins Loans may remain with the school or be assigned to ED for collection.

If you are not sure what type of loan you have, check your promissory note. If your loan is not one of the loans listed above, the information listed above does not apply to you.

Repaying Student Loans Held by the U.S. Department of Education

If you default on your student loan, the maturity date of each promissory note is accelerated making payment in full immediately due, and you are no longer eligible for any type of deferment or forbearance. However, all guaranty agencies and the ED will accept regular monthly payments that are both reasonable to the agency and affordable to you.

If your defaulted student loan is held by ED, you should establish a repayment arrangement with Debt Collection Service or the collection agency currently administering your account on behalf of ED. Failure to repay the loan may lead to several negative consequences for you:

• The U.S. Treasury may withhold your payments toward repayment of your loan.
• You may have to pay additional collection costs.
• Also, you may be subject to Administrative Wage Garnishment, whereby the Department will require your employer to forward 10% to 15% of your disposable pay toward repayment of your loan.
• Federal employees face the possibility of having 15% of their disposable pay offset by the Department toward repayment of their loan through the Federal Employee Salary Offset Program.
• The Department may take legal action to force you to repay the loan.
• Finally, credit bureaus may be notified, and your credit rating will suffer.

In addition, you may not receive any additional Title IV Federal student aid if you are in default in any Title IV student loan.

Statute of Limitations

By virtue of section 484A(a) of the Higher Education Act, statute of limitations of no kind now limits ED's or the guaranty agency's ability to file suit, enforce judgments, initiate offsets, or other actions, to collect a defaulted student loan. Regardless of the age of the debt, statutes of limitation are no longer valid defenses against repayment of a student loan.

Online Information

To obtain more information and to download student loan default forms, go to the website:

http://www.ed.gov/

Contact Sallie Mae:

Address:
Sallie Mae
P.O. Box 9500
Wilkes Barre, PA 18773-9500