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Nellie Mae Scholarship Secrets Update

Posted On: 2005-10-05
Length: 31:46

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Good morning. It is Wednesday, October 5th, 2005. It is episode 84 of the Financial Aid Podcast. My name is Chris. Welcome aboard. If you're just joining us from the Daily Source Code or from the other sources such as My Space, welcome aboard. It's a pleasure to have you. Got a great show today. Got a lot of stuff to cover including how you can possibly save yourself a thousand bucks. Let's get started with the news.

(break music)

Topping the news today, a study from Nelly Mae, the student loan company investigates the impact of credit card debt on students and releases some really, really interesting credit card statistics. Including 76% of undergraduates in 2004, which is the year of the study, began the school year with credit cards. The average outstanding balance on undergraduate credit cards was $2,169. This is an unpaid balance. More than half of undergraduate students with credit cards carried balances over, over $1,000. Undergraduates reported freshman year as the most prevalent time for obtaining credit cards, with 56% reported having obtained their first card at the age of 18. As students progressed through school, credit card usage swells. Starting from a balance of about $1885 all the way up to senior year, when the credit card balance average is $2864. Undergraduates reported direct mail solicitation as the primary source for selecting a credit card lender. 21% of undergraduates with credit cards reported that they pay off all credit cards each month. 44% make, said they make the minimum payment but generally can't afford the balance and 11% said they make less than the minimum payment. So, you have a total of about 55% of students who are either making the minimum or less than the minimum on that enormously large balance. So, let's talk a little bit, just briefly about how much that, that $2864 balance is actually costing you. The minimum payment, the minimum payment here is scheduled at around $71 a month on that, on that credit card debt. It will take you 191 months to get rid of your debt. That is close to sixteen years. In that time, you will pay $2,011 in interest. So if you, it's really, the compound interest game is, is a money losing game for you. If you have credit card debt, if you have a balance, you absolutely, positively have to get that off as quickly as possible; paying off to the principle. If you can make extra payments, if you can add a little bit more into the payment every month, you will be ahead of the game. For example, and this is the most recent example here. I calculated the minimum payment out to be $71 a month. If you made a $75 payment, it would be paid off in fifty months instead of 191 because you would be staying ahead of the interest just by a little bit. That would only cost you $852 in interest. So, obviously, the more that you can devote towards paying towards the principle, the better off you're gonna be. Let's do one more scenario here. I need to get my calculator warmed up. If you had that same $2864 debt, the same 13% interest rate and instead of making the minimum payment of $71 a month, you were able to, you know, tighten down, make an additional, you know, $29 more a month; basically we're saying $100 a month as your payment instead of the minimum payment, you'd be done with this debt in 35 months; just under three years and you'd only pay $583 in interest. So, clearly, you know, 35 months, 191 months, $583 in interest, $2000 in interest, there's really no comparison, so every little bit that you can put towards the principle of a debt, is gonna help get that debt down faster. There's a number of ways you can do it. Obviously, the most obvious one is to, to cut spending; to cut your expenses so that you have more money to devote towards financing the debt. The other thing is that in addition to cutting expenses, bring in more income. You know, raises, second jobs, contract work, you know, even being an entrepreneur and starting a small business of some, some kind on the side; all of those little things will help you to get your debt down and that's absolutely vital if you want to escape this. 13% is a pretty modest interest rate when it comes to student credit cards. If you were to run the same numbers again, but using the more typical, you know 20% interest rate, you're talking about stretching out repayment terms, you know, until the cows come home. 468 months in, man that's like 44 years if you're just making the minimum payments. So, clearly you need to get behind your, your interest rate, your interest financing and start paying down the principle on your debts as soon as you can. So, that was probably the most interesting piece of news when it comes to student finances this morning and clearly, it's a little bit alarming. If you have nearly three grand in debt and you're graduating, you've gotta monthly payment of about eighty bucks and that's not count, including things like student loans. So, like I said, pay it down. Get some help paying it down if you need to get some help, borrow some money from a parent or friend to, because chances are they'll charge you less interest than the bank is going to. So, that is today's news. Let's go on to some Podsafe Music.


That was "Opaque" by Sierra Dawn. New from the Podsafe Music Network. Alright, let's talk a little bit about, let's talk some more about this whole FAFSA business 'cause I really want to, I really want to dig into it today. Yesterday, we covered the first three, I guess, secrets of the FAFSA. If you don't know what the FAFSA is, it is the Free Application Federal Student Aid. It's a fairly, ugly piece of paperwork, now done electronically on the Web, which qualifies you for federal financial aid of all kinds from grants and scholarships to loans, work study, opportunity grants; all sorts of stuff in the, in the FAFSA, all sorts of stuff you need to fill out in the FAFSA in order to get access to many schools and state financial packages also require you to fill out the FAFSA as well. So, it's important to do that. It doesn't cost you any money unless you choose to go the professional preparation route. The, there are agencies and companies out there. We have, we work with one, the Student Loan Network that will help you just like H&R Block basically helps you with your taxes. These companies can help you with your FAFSA if you're having some trouble. But clearly, you know, one, one of the best things to do is to kind of give it a shot on your own and if you run into trouble then you obviously will want to see someone; get some consultation and some assistance with it. But, it's not, it's not as complicated as your income taxes. Just one thing that's kind, kind, kind of a misconception about the FAFSA is that you need to have your taxes done in order to fill it out, which is not true. You can actually fill out your FAFSA as early in the year as possible, and we'll cover that in a, in a little bit; and then use estimates for your income. That will help you get your FAFSA in faster. So, picking up where we left off yesterday, let's look at FAFSA Online Secret #4: Make lemonade. For both students and parents, the FAFSA will ask you about your investments and their net worth. If you're investing and you happen to have bought a real stinker, you know, a good example is Lucent Technologies in the 90s or First Marblehead, the student loan company as of like this week, you've lost a ton of money; it's not a good thing, but you can use it to offset other investments. Ideally, you know, when it comes to filling out anything like income taxes, FAFSA stuff, you want the net worth of any investments to basically look like a big ole' zero without actually being a zero. So, the best advice is if you have bad investments, you know, things that just went south, you know, sell them off, take the loss and reap the benefits of the losses as well as having the investment as well as the net worth off the books. That will also help you with you, your FAFSA gross income because you will be able to take that out in your taxes. #5: Assets, saving and cash in the students name carry weight, much more weight than assets, savings and cash in the parent's names. The breakdown is roughly 35% of a student's financial net worth is, is taken into consideration when your expected family contribution is computed vs. 6% on the family side. So, what this means is very simply is saving in a student's name is a bad thing. It seems counter-intuitive, but basically the way the FAFSA's structured, and the federal financial aid is structured is, you don't want to have no money. You wanna have, basically see that there's no savings, there's no reserves that you can draw on, that would then help pay for the cost of education. And so, federal financial aid would, would basically come in to assist you. So, if you're a parent, save in your name and not in your student's name. If you're a student, ask a parent, ask a relative to help basically save money, in, on your behalf. Obviously, the same tips from yesterday qualify today when it comes to, you know, trustworthiness of the person you're working with. Make sure it's somebody you have rock solid trust with because they theoretically could ups gone with all of your savings. The same is true, believe it or not, with work study and working and jobs. When you're in school, if you're working at a job, that is income that is coming into you that will then be taken into account as part of your taxes next year. So, it, while it's important to graduate with as little debt as possible, it's also, the system's a little screwy; it basically penalizes you for working to graduate without debt, by qualifying you for less federal financial aid because, you see, you have money. Alright, #6: In the, in the FAFSA tips. The worst thing that could happen to your FAFSA application is for it to be rejected, you know, immediately. How does this happen? The number one thing: errors. Errors will disqualify you from aid faster than you can say "typo". Your best defense is to double-check, triple-check everything that you do. Have someone else look over, have a friend, have your parents, if you're filling out on your own. If you are a parent, have your student look at it, have your accountant, whatever. Before you start the FAFSA process, gather up all of your documentation and I mean all of it. And, download a sample copy of the paper FFSA and worksheets to practice on. You can actually get a copy of the draft from our website: FAFSA Online Dot Com. Now remember, it's a draft, you can't actually submit it and if you do, they'll just throw it out. But, it'll, it's a worksheet that'll help you figure out what you, what documentation you need to have on hand. When it comes to the FAFSA, and this is something that is not true of the IR, of taxes and of the IRS 1040, but it's true of the FAFSA. If you don't know the answer to something on the FAFSA, do not leave it blank. Put a zero there instead. If you take nothing else away from all these, you know, FAFSA tips, remember that a blank space is your worst enemy and a zero is your best friend. Do not leave things blank. Put zeros if you're not sure. Here's a list, really quickly of what you should have on hand. You gonna need basically your records of income earned in the year prior to when you're going to be starting school, or prior to when your, your kid is going to be starting school. You'll also need records of parent income, if you're a dependant student; if you're an independent student, obviously that does not apply. You'll need your social security number, your driver's license, or W-2 Forms in the previous year if you worked. Your IRS or 1040. And if you don't file an IRS/1040, you should. Even if you don't make any money, you still should file your tax forms. For two reasons: One because, you need to fill out your tax forms; it's kind of required. And two, by having records that basically say you've earned no money, this will go a long way towards helping you with your federal financial aid. So, make sure that you have your tax forms filled, completed and filed and stuff like that. If you don't, check in with your IRS local regional office about filing back tax forms for yourself. Just basically to say, "Hey, I have no money, I have no money" and so on and so forth. Excuse me. Your untaxed income records, so your social security, temporary assistance to needy families, welfare, veteran's benefits, anything like that, anything where you have income, you basically need to document; you, you need your current bank statement because the FAFSA asks you how much money you have. You're going to need any investment and mortgage information that either you have or your parents have and stuff like that. Business information if you're self-employed. Farm records if you work, if you come from a farm. Stocks, bonds, you name it. And, if you are not a US citizen, you will need your alien registration and permanent residence card. So, all of these things come into play. Alright, the last one, let's see how we're doing for time, here. Actually, you know, let's just finish this up today. Let's just nail this down. #7: Timing is everything. You know, we always recommend that students apply for as many scholarships and grants as possible because you know, scholarships, hey, free money. Free money good. There's a "gotcha" to that strategy. If you apply for a scholarship and you get it before you file your FAFSA, guess what? It counts against your federal financial aid. So, your best strategy is to do your scholarship research year round, apply for scholarships; preferably with deadlines in, you know, mid-January or whatever. So, you can file your FAFSA appearing to be broke, and then you get your scholarship money which will then be invisible from the FAFSA, at least for, at least for that year. Now obviously next year will be taken into consideration, but you'll at least squeak by with just once. Speaking of which, when should you apply for your FAFSA? In the first sixty seconds you're eligible to do so. So, which means New Year's Day. Why? Because FAFSA applications controls, the FAFSA controls your access to student loans and grants. The earlier you get your FAFSA in, the earlier it gets processed, the earlier it gets done, and the, the sooner you'll, you may get access to the, that shrinking pool of money that's available for grants and you know, and scholarships and stuff like that. It, stuff like that, all grants and things, including subsidized loans, are first come, first served so get your stuff in. I think, you know, if you had to choose between applying for scholarships and filing your FAFSA and in turn taking a federal financial aid hit, I would say definitely fall on the side of the scholarships because free money is free money. It doesn't really matter, you know, one way or another. #8, in the list of secrets. Take your FAFSA for a test drive. We have, like I said, we have a document on our, our website: www.FAFSAOnline.com. Go ahead and try it out. You know, go through this. You can even, if you are so inclined, there are calculators on the Web that will help you guess at what you expect your family contribution is. The formula for determining it is about 39 pages of complex math. I, I, it makes me eyes bleed and gives me a headache when I look at it but, if you're really, really good at math you could actually do your own computations and see what you come up with vs. what the government says you come up with. But, at the very minimum, download the sample FAFSA worksheet and try it out. Just so that you get experience with filling out the forms and you know, if you make mistakes or whatever, it's not gonna immediately slam you. And the last one is, if all of this FAFSA stuff is just a pain in the butt to you, and you just don't want to deal with it, remember that things like private student loans and scholarships are not tied at all to the FAFSA. So, make sure that you take advantage of both. Do as many scholarship applications as you've possibly can; we've talked about this, you know, hundreds of times, so definitely look at the back catalogue of our podcast for scholarship stuff. But, scholarships don't require the FAFSA and neither do student loans, alternative student loans. If you are so inclined, if you wan to skip the FAFSA process and then just go straight to the alternative student loans, you can certainly do so at our website at Act Education Loans Dot Com, or by calling our private student loan help hotline: 866-229-8900. One nice thing about private student loans that is not true with federal student loans is that they tend to de-fund a lot faster than federal student loans. Not always, but they, they for the most part they do. They can fund in as little as five business days after you've submitted a completed application. If you are, midway through the semester, and you find yourself in a really bad crunch, you can take out a private student loan, and then ideally what you would do is you would apply for a bunch of scholarships, you know now that you've bought yourself some time. Try and nail those scholarships down, then use the proceeds from the scholarships to pay off the loan. Ideally. You now, it doesn't always work out that way, but it would be great if it did. So, definitely take a look at that. For more information, or to see these tips in writing, visit our website: FAFSA Online Dot Com. Or, you can also see it also at FAFSA Dot Net. Both of those are Student Loan Network sites. And take a look at them, read them, review them. Remember that on our sites, for our professional help one, the, the filing of FAFSA is free. If you choose the professional help option, it which, you know we do have out there, just be aware that that part is not free. Wanna avoid confusion between the two. And, it's pretty clearly marked when you file your FAFSA. It says, "Here's your free option"; "Here's your not free option", and hopefully that will avoid any confusion. Alright, so let's finish up with some Podsafe Music here to tie off the FAFSA section.


"In My Dreams" by Natalie Brown. New from the Podsafe Music Network. Actually, it's not that new 'cause it's been out there for a little while, but it's still a great piece, so, I will play it. Alright, let's do a quick scholarship update, here. We're actually going to do a supplementary key phrase to the Scholarships Search Secrets Guide, which is available only to subscribers of the Financial Aid Podcast. If you're not subscribed and you have no idea what I'm talking about, if you're using iTunes or any of the RSS podcatchers or you want to, you'll find in the feed a PDF, a ten-page PDF called the Scholarships Search Secrets Guide, which details how to use free search engine tools, online, to find scholarships. And, this is a great way to find tons and tons of stuff that's out there without having to shell out a lot of money. Conversely, if you wanted to save some time, and shell out some money, you certainly can do that with our paid scholarships search service and it's available at www.GotScholarships.com. And, I'll put a link in the show notes, of course to that as well. It's really a trade off; spend the time and not the money, spend the money and not the time. Pretty, pretty straight forward. Today's update is a key phrase, that you can use in your search and that key phrase is "opportunity grant". When you search for just scholarships or something like that, you tend to get results back that, you know, tons of commercial services and things like that, which you know, aren't necessarily, quite what you're looking for. Maybe they are, maybe they're not. But by using combinations of different key words, you can help weed out a lot of stuff that you may not be looking for and target the things that you are looking for. So, as a supplement to the guide, today's key phrase is "opportunity grant". You can combine that with really just about any of the key words. So, if you wanted to look for something like oppor, you know just anything like, opportunity grant in Boston, add just Boston to it and now I suddenly see, here we have grant opportunities for groups in Boston, Cambridge, Summerville, Chelsea. Got some stuff here that's not as relevant because grant is a more broad word than scholarship. So, let's change that out now. Let's actually try it just for fun, let's try "opportunity scholarship". That is a really, OK, you know what? Today's key word instead is going to be "opportunity scholarship". That is such better results. Again, tie that in with any cue, I just typed it in with "opportunity scholarship Boston" in Google. And, here we have fellowship and scholarship opportunities at Boston College, Thurgood Marshall Scholarship Fund, Book Builders of Boston Scholarship Program, you know, just tons and tons of stuff. Oh that is, that is great. So, forget the grant business. Go straight to "opportunity scholarship" in your search for scholarships online. Phenomenal. Wow. Alright, let's tie off this show with one more piece of Podsafe Music.


New Podsafe Music from Cheryl B. Engelhardt, "Talk, Talk, Talk" by the Podsafe Music Network. That is going to do it for today's show. It is, it's oh about thirty minutes in here, so we'll let, that should do it for today. As always, our show notes are available at www.FinancialAidNews.com/blog or as a link off of our home page from www.FinancialAidPodcast.com. Stay tuned, stay subscribed. If you're not subscribed, get subscribed. It's really easy. Just go to Financial Aid Podcast Dot Com and follow the simple, three-step instructions. If you're hearing this, for example, in Odio or Podcast Pickle where you don't have to subscribe, I recommend you do because there's stuff in the, in the feed that you don't get otherwise. If you like the show, or you don't like the show, or you have some questions or comments or, or you're confused about something with it comes to financial aid and college, send me an email: financialaidpodcast@gmail.com. I'll be more than happy to respond either on the air or privately, depending on your situation. I had one email that, I won't disclose any of the details but really, really just an awful situation. I'm sure the person who have not probably wanted on the air. If you do not want something read on the air, indicate so in your email. And, if you really like the show, get two of your friends subscribed. Show them the website, help them get iTunes set up, get them subscribed and let them listen into the "Less boring than it sounds" Financial Aid Podcast. Alright, that's gonna do it. Until next time, take care.

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