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Changes in Appropriations For Federal Student Aid

Posted On: 2005-09-16Length: 26:26

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Good morning, it is Friday, September 16, 2005. We've got a lot to talk about today including some housekeeping chores before we begin. First of all I am going to be getting a new microphone hopefully either today or Monday so hopefully the spoken words portion will sound better than it does with the cheap Logitech headset. As I noted on the Podcast 411 interview is the crackling, popping sound whenever I say certain things or when I move my head a certain direction with the headset. So, hopefully the new microphone will take care of that. The second thing is that next week, next Friday and the following Monday I will be at a conference, I will be out of the office so the shows for those days are probably going to be the New Music Shows. We're going to do back to back you music from the Podsafe Network. So hopefully they'll be really great shows but they won't be the usual financial aid stuff. Just be on the lookout for that.

Alright let's get to the news. This morning, an article at the Cavalier Daily and newspaper of the University of Virginia, takes a look at the Higher Education Act now that it has moved through both the Senate and the House and is going back to the revisions through the committee. It does a really good job of comparing the two versions side by side and even had a couple things in there that I didn't have information on. So it was a very good article. I'll put a link in the show notes. The summary, the short version of the articles, basically talks about the changes in appropriations for federal student aid. The key provision noted is the change in the Pell grant. An increase, at least in the Senate version of the higher Education Authorization, changes the upper limit for the Pell grant from $4050 to $5100. Which ones do you go. It also raises the automatic income eligibility from $20,000 from $15,000. So if you are a member of a household where a household income is less than $20,000 a year, but about $15,000, where you previously would not have qualified for a Pell Grant now you will; at least in the Senate version of the bill. The two bills, as is the case with how our government works, have to be reconciled and then both the a full House and the full Senate will vote on them and send them to the President who will either find it or veto it or line item veto it for items that he does not want to have approved. The Senate bill also has a very interesting little twist, it will be putting hurricane relief, out of financial aid, will be basically pay for financial aid proceeds. The specifics of that apparently are that he Senate bill is going to increase the have to come the maximum interest rate on Plus Loans which are parent loans for undergraduate students, it will be those extra proceeds that will be donated to hurricane relief. So have a really interesting way of doing it. There are two things that are interesting about that. For one thing, Plus Loans already have higher interests rate then Stafford loans on the premise that parents can afford to borrow more than a student can and therefore can afford to pay higher interest rate. For example, the Plus Loan is 3.1% above the T-Bill whereas the Stafford loan is 2.3% above the T-Bill. So there is already about a 8/10 of a percent of the Senate bill. The article does not have any specifics about exactly what the extra margin will be so that that one consideration.

The second consideration is that Plus Loans are credit-based loans that are given, well that parents can apply for that are federally backed but a have different limit then Stafford loans and Perkins loans do. They are basically based on the credit worthiness of the parent. So Plus Loans generally tend to be much larger than Stafford loans, which have these limits to them. That means that in addition to paying more in the interest rate, parents will be paying more totally because the more money you borrow on a loan the more interest you pay on it. So, I guess the Senate decided that the parents are better able to handle the financial shock of extra payments to pay for hurricane relief, and so select that this is the way to go. Personally, I would actually rather see that The Department of Education put together a separate loan package. You can call it the Hurricane Relief Loan but make it something that students and parents and anyone who wants an education can opt in instead of them making it a mandatory requirement of existing Plus Loans. I realize they're doing it because they want to leverage the existing Plus Loans but I think there's a ton of people who have enough social awareness, who have enough generosity that they would actually willingly sign up for the loan but it should be a choice. It should be something you opt in to rather than something that you just don't have a choice in. So it's an interesting article . I'll put it a link to it in the show notes at www.financialaidnews.com/blog or just on our main homepage www.financialaidpodcast.com.

Okay let's go to a scholarship update. Actually let's do some Podsafe music then we'll go to a scholarship update,

(Music)

Great new Podsafe music from Noblesse by the Podsafe music network. That was Noblesse's song, Map Your Face. One thing I forgot to mention about the previous segment about Plus Loans and higher interest rates is that if you have Plus Loan the right now, they are already in repayment because Plus Loans don't have a grace period. So if there's a chance the Senate bill for the Higher Education Act version is going to go through as it is or that Plus Loan revisions for higher interest rates is going to go through unchallenged and chances are that it will because it's a sensibly in support of hurricane relief which of course has everyone's attention right now. Which, in many ways it very well should but not at the expense of the people who are already pretty strapped for cash. If you have Plus Loans right now you may want to give some serious thought to consolidation. Consolidating your Plus loans will lock in your interest rates now, before any interest rate changes in the legislation go though, before any changes in the interest rate go through. Now keep in mind that education bills, general speaking, they take effect in the following academic cycle. So even if Congress passed the bill today, the interest rate changes would not go through until next July. However, as everyone knows from this previous July's consolidation madness, if you wait till the last moment, there's a good chance it will get fouled up. Since Plus Loans are already in repayment, you don't get any advantage by waiting any longer. So, consider consolidating your Plus Loans and the best place to do that is on one of the Student Loan Network's sites, www.plusloanconsolidator.com. I'll put a link to that in the show notes.

Ok, let's do a scholarship update. We've got a really interesting scholarship. It wouldn't be an official scholarship update without Tom Cruise shouting, "Show me the money" from Jerry McGuire. Today's scholarship was emailed to me by the scholarship's promoter. It is the Motorola Forward Scholarship.

The MotoFWRD Scholarship is a $10,000 cash scholarship; an opportunity to participate in an 8 week internship with Motorola's Chief Technology Office. It also includes a product package of Motorola stuff at $1500 worth of stuff and a Bluetooth enabled car, probably something very straightforward. The rules and how to enter for this scholarship are on their website. There will be a link in the show notes for it. It's basically www.motorola.com/fwrd. Here's how you enter, full and part-time college students studying in any field can submit their visions of seamless mobility (I guess they want to see how the world would look if you had wireless mobility everywhere) through one of the following genres, essays, white papers up to 1500 words, short stories, fiction up to 1500 words, a short film or animation up to five minutes, a comic strip up to 20 frames or digital art including graphics, photos, or schematics up to 10 frames. You could enter through any one of these. I'm guessing you could enter through more than one. The entries will be judged on five criteria: depiction of seamless mobility vision, I'm assuming you're going to want to promote Motorola's products in doing so, creativity of entry, and feasibility and sophistication of ideas. Judges will select the grand prize and three runners up. The grand prize I've mentioned, the runners up prize is a $2,500 cash scholarship and Motorola product package ($250 worth). The information will be on the show notes. It doesn't say anything about residency or requirements other than you have to be a registered full or part-time college student. So, presumably international students could apply for this as well. Check out the show notes at www.fianancialnews.com/blog or www.financialaidpodcast.com. Look for today's show notes. That is our scholarship update for today, the badly misspelled MotoFWRD Scholarship.

Alright, time now for some additional Podsafe Music, I'm going to Lorena Mire, Everything from the Podsafe Music Network.

(Music)

Great new Podsafe Music from Lorena Mire, Everything by the Podsafe Music Network. Ok. Let's see what's in the mail bag for today. Amidst a gigantic flood of emails hocking mortgage products, spam of every kind, spam advertising how to spam to their spam list, we actually have one very interesting situation that I'm going to read here. Kelly Hamilton says, "I have just checked my aid info on my schools website and seen that they had submitted a loan request on my behalf. In no way am I interested and when it asked me on my FAFSA if I was interested in receiving any loans. I've contacted my financial aid office in the past that I did not want to receive any loans. I have not given anyone permission to place an inquiry on my credit for a loan nor have I ever requested a loan." Now this was sent into the Stafford Loan mailbox. First of all, when it comes to loans of any kind, generally speaking you have to sign a promissory note, so if you are in a situation where someone is trying to submit loan requests on your behalf, they can not actually get the loan for you. You have to finally sign the master promissory note, which is a sheet of paper saying, "I know this is a loan that I must repay". You have to physically put your signature on that sheet of paper or digitally sign it online providing some sort of authentication like the PIN number from the Department of Education, which by the way you should never, ever, ever give out. In order for you to actually apply for a loan, because a promissory note for a loan is a binding contract. So someone can just sign up for this online on the internet and just say send me more information. Just like the school, in this case, it sounds like the SAR that came back for this person for the FAFSA probably qualified for a loan, Stafford Loan, and so they're going to get some information about it because the school's financial aid office probably has a deal worked out with one of the student loan lenders. I know there are a couple of big lenders out there that are known for working out deals with schools in exchange for their lending portfolios; getting schools to sign up. The rewards are quite nice. But, the loan itself can not be processed unless you put pen to paper or digital link plus your password from the Department of Education onto an application online. So, you don't' have to worry about that.

The 2nd thing, Federal student loans for the Stafford Loan, Perkins Loan, and the Loan Consolidation require no credit check. There's no credit check. There are no credit inquiries. Because a credit check's primary function is to see whether you have the ability to repay a loan and this is done by a bank to make sure they're not going to be out the money that they lent to you. Well when it comes to the federal student loans, those loans are backed by the federal government. They are secured by the federal government. So if you neglect to pay them, if you default on them, the government will pay the bank the amount that is owed and then the government will send it's collection service after you which is considerably less pleasant because they can do things much quicker than a private lender can such as seizing your wages or seizing any tax refunds and things like that. But, there's not credit loan. So even if someone applied for a Stafford Loan on your behalf there would be no effect on your credit rating. The only federal student loan that has a credit check build into it is the Plus loan, the parent loan for undergraduate students that we talked about earlier but that really is it. Again, you can not be given a loan unless you put pen to paper, unless you authorize it with a signature whether it's on paper or digitally with your Department of Education password. So, that's your insurance policy so you can be sure that you are not going to have loans taken out in your name. A very interesting situation. Hopefully it's just a case of some paperwork mistakes and not something more nefarious because it would be very disappointing to know that a college is trying to get as many students signed up for loans as possible. It would be very contrary to the whole helping students thing.

Alright, let's finish off today's show with one more piece of Podsafe Music.

(Music) Alright, new music from the Lascivious Biddies, Neighbor New York City, by the Podsafe Music Network. Well that's going to do it for today's show, folks. We are just about out of time here so what we're going to do next week, hopefully the podcast will sound much better if I can figure out how to operate a condenser microphone; the USB-based Samson CO1U...hopefully. We'll see how that works and I won't have to send it back. Also, next Friday and the following Monday will be new music. I think we'll call it a New Music Long Weekend. There's a lot of good stuff out there. There's a ton of Podsafe music. I've been using the Podsafe Music Network now for at least a couple of months and my queue is just back-logged with music so we're going to crank some of that out as well. If you have questions or comments about anything in today's show- financialaidpodcast@gmail.com. You can also leave me a voicemail on the Gizmo Project, username: financialadipodcast. Otherwise, stay tuned and stay subscribed. If your not subscribed get subscribed. Oh yeah! That was the one thing I forgot to mention at the beginning of the show. I put together a really quick 1-pager of what a podcast is and how people can get started so if you have somebody that you want to give them a kick start into how to listen to podcasts and how to tune in, I hope it's a helpful tool. It's a PDF and I'm going to put it in the RSS feed and it's already up on our website at www.financialaidpodcast.com. It's a one page PDF, prints out black and white. It should look good. Give it to people who haven't tuned in yet who you think would benefit from the 10s of thousands of podcasts that are out there. Let me know again what you think of that as well, financialaidpodcast@gmail.com. So, stay tuned. Stay subscribed. We'll see you next time. Take care.

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