Posted On: 2005-11-22
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Good Tuesday it is November 22, 2005. This is Financial Aid Podcast episode 121 and my name is Chris Penn; a welcome to you on a rainy Tuesday morning here in the Boston area. It's so rainy and dark out it almost looks like its a couple hours earlier, which is funny because at the moment I am actually running about two hours behind schedule. I had to make an early morning tech support call to our CEO's home to get a bunch of different machines up and running. He's practically got his own Beowulf cluster at home; if Beowulf clusters could run windows which they don't. We got to talk about today, got some education stuff to go over, some information in the news, of course a scholarship update and we'll probably tap into the mailbag and of course you can't leave out the Podsafe music. Let's dive in with the news.
Quick takes on the news today, the United States Government has decided that funding Science is not so important. The support for Science ... with the 2006 Budgets that barely increase support for Scientific Research if not cut it back. New data from the National Science Foundation, suggested the rapid expansion of Federal Research Funding in recent years has already begun to ebb. The amount of money the National Science Foundation including departments like Health and Human Services, NASA, and the NSF as well as the Department of Energy, Defense and Agriculture are looking at flat or reduced budgets for their Research and Development initiatives. You can make a lot of different points about budget cutting and things like that but one of the things that is so important about the National Science Foundation is the number of grants it provides for research that while important is not necessarily commercially marketable, not right away. If they continue to cut back things like grants from the National Science Foundation, a lot of things that initially were not particularly seemingly but eventually can be important will not be developed in the future and that is vitally important. So hopefully they will restore that.
In Utah the Alternative Diploma, the financial aid is being questioned. What this means is schools in Utah as well as other states where mandatory testing's such as the MCAS in Massachusetts the Board of Region Exams in New York state, and now in Utah, the what is their exam here called; The Utah Basic Skills Competency Test. Effectually if you take this exam and you fail it after five tries you can receive what is called an "Alternative Completion Diploma," which is I guess their way of saying that you finished High School, but you couldn't pass the basic skills test. I don't want to be disparaging to the students who receive that but if you have got all the way through High School and you can't pass the Basic Skills Competency Test that indicates one or two things that's wrong. Either the school system has drastically failed you or you have absolutely no interest in passing the test. One of the two regardless, the Department of Education has issued some questions about the legitimacy of the High School Diploma that does not involve basically passing this competency test and has further gone on to say that if you have this Alternative Completion Diploma, it may not qualify as a High School Diploma in which case you maybe ineligible for Federal Financial Aid. The State Department of Education in Utah is attempting to figure out how to get this resolved with the Department of Education because Federal Financial Regulations define a equivalent High School Diploma as a GED or State Certificate Awarded following High School Equivalency Test. It makes no mention of an Alternative Completion Diploma but I would imagine that if you can not pass the Basic Skills Competency Test you also can not get a GED because the exam for that is equally difficult as the competency test. If you are or you know someone who is involved in this kind of situation your best bet is to contact both the Utah Department of Education and the United States Department of Education to seek clarification about whether you are eligible for Federal Financial Aid or not.
Finally Bloomberg, the investment company is now advising at least for some of their columnists are, advising-instead of picking a college and trying to figure out how to afford it, they're actually breaking what is a long held financial aid advice which is to find-their advice is to find a college that you can afford, or a series of colleges you can afford and then pick the best of the lot. One thing that is controversial about that is that in the past, educators have basically said, "Find a college that offers what you want to study and you and the college and scholarship advisors and things will figure out how to make that affordable." Well Bloomberg has got to the point where they are saying, "You have a limited amount of money to work with and it's in your best interest to find the best school that offers the financial aid package that you need." That is a very pragmatic view, it's not necessarily a inspirational view but given the way college costs are going, it may become the prevalent view which would indeed be a shame if you had you heart set on a program at a certain school and the financial realities of that school are not happening the way you want them too. Interesting news there from Bloomberg and that is going to be today's news. There is actually a few other news items but their not terribly exciting so let's make a transition now into some Podsafe music, we will start off today with Jennifer Lane with "Delivery."
"Delivery," by Jennifer Lane from the Podsafe Music Network at www.podsafemusicnetwork.com. All right let's talk a little bit about interest rates. Yesterday the auctions of the Treasury Notes and Bills went through and we have some new rates for you, the 91 day T-Bill rate is now up to 4.034% which is an increase of about 3/100ths of a percent from last week so slightly less of an increase than the rates have been going up the last couple of weeks but still significant. If student loan rates were set today based on the 91 day T-Bill rate Stafford loans in the repayment plan would be at 6.334%, PLUS loans would be 7.134%. What's interesting about this if you think about it, is the PLUS loan rate now, if it were set to the T-Bill rate that we just mentioned would actually be higher than a number of forms with other financers. For example 30 year fixed mortgage rate is around 5.8% right now. Home equity loans, if you were looking at a home equity line of credit, for $30,000 you are talking about 6.54%, for a $50,000 HELOC you are looking at 6.36%, home equity loans themselves the fixed rate loans are still higher, they are still in mid to upper seven's. Those are still not a deal. Credit cards rates remain extremely high, there would be not point in financing and education with a credit card if you didn't have to because-I mean gosh a 13% interest rate on average per credit card would be insane. No one in their right mind would want to pay that if they didn't have too.
PLUS loan rates are continuing to edge up and that is alarming because it basically means that the PLUS loan is becoming less and less affordable and less attractive as a form of financing for education. Here is something else to think about that we've heard a lot about PLUS loans and parents, especially, parents are interested in getting financial aid for their children, they are interested in getting loans for them but they are not necessarily interested in taking on the obligation in their name as the primary borrower, they would rather be a co-signer on a loan. If that is the case for you, you may be interested in Alternative Student loans the alternative student loan, one of the features of it is that the loan is principally in the student's name. The parent is a co-signer on it but the loan itself the obligation is primarily the student's obligation as well. In the future we may be able to-we may see developments in that to let a co-signer out of the loan after a certain amount of time. So we'll see what happens with that. The important thing is that Alternative Student loans are not the parent's obligation principally. Now if the student defaults on it, or neglects to make payments then the co-signer does become responsible for picking up the loan, but the obligation is primarily not on the parent. For a lot of parents that is very appealing. When it comes to interest rates if we look at the alternative student loan, the ACT Education loan, the current rate is LIBOR index plus a margin of 4.65%. Right now the BBA LIBOR, let me see what it is because I don't have it right in front of me. Why was I doing this, I was just doing this on a site the other day and I can't remember where-oh the Student Loan Network Mortgage site, I forgot about that. We were working yesterday to try and get a mortgage page up for people who are interested in re-financing their mortgages. So if you want more information about that you can go to www.www.studentloannetwork.com/mortgage ; the LIBOR rate is 4.35%, so if you do the margins for the ACT Education loan you are coming around eight and change for the interest rate which is not that far off from the PLUS loan. They is not that much of a spread anymore which is a little disturbing because the PLUS loan is supposedly the better loan and Alternative Student loans, the extra feature of the obligation of being in the student's name does make it a lot more appealing to families. Either products is good for financing for education, either product will get the job done. If you want more information about PLUS loans you can go to www.parentplusloan.com, if you want more information about the ACT Education loans you can go to www.acteducationloans.com either site will provide a ton of information about these loan products for what you want to do and that is the interest rate update. I am going to hopefully-once the remaining notes and bills are published we can see what the yield curve is doing this week because I mentioned on the show notes blog for our show here on Saturday that the Treasury Yield curve itself is flattening out which is a bad thing because when you have long term investments and short term investments have incomparable interest rates it essentially means that investors think the short term investments are better bet than the long term investment and that means the economy is softening. Investors don't have confidence that their money will have as good a return on the long term investment or they see economic conditions are so unstable that they can't afford to have their money locked up for a long period of time so they will go ahead and invest in the short term securities instead. We will see what the Yield curve says and maybe we'll do a quick update about it tomorrow in tomorrow's show so stay tuned for that. All right enough of the interest rates let's move on to some Podsafe music, Delphinium Blue with "Joy."
"Joy," from Delphinium Blue from the Podsafe Music Network. All right let's talk now about co-signers and co-signing loans because a frequent question we get especially on the international student loan side of the Student Loan Network is where do I get a co-signer? Let's first explain what a co-signer is and why they are so hard to find. A co-signer is basically a guarantor they are an individual who agrees they are will pay a debt if the primary borrower is unable too. If you are trying to get out an alternative student loan, as an example and your credit is insufficient to get you the loan by itself and with international students, this almost always the case because they don't have established credit within the United States credit system. The co-signer basically agrees to completely pay the loan if the primary borrower can't or doesn't or if they flee the country or something like that then the loan obligation still needs to be paid so the co-signer is the one who would have to pay it. The co-signer leverages their credit rating and reputation on behalf of the borrower to allow the borrower to obtain credit they might otherwise be unable to get. Very often co-signers are parents or other family members assisting children to obtain their first line of credit. Most lenders will not lend to people with a bad credit history, most lenders will not lend to people with no credit history. Co-signers can't use the loan like-they are not a joint account borrower, they merely are guaranteeing that the debt will be paid. When it comes to finding a co-signer because the co-signer is the one who will be left holding the obligation if the student does not pay it; very often it's family members or someone that really, really trusts you, because if you default on the obligation, if you default on the loan, they end up holding it. They are fully liable for it, in it's entirety including making all the payments for it which is why if people are asking where do I find a co-signer, how do I find a co-signer, well it really has to be somebody who really trusts you. More times than not, it's going to be a family member, if you don't have anyone who is a U.S. citizen or a permanent resident who is willing to co-sign on the loan for you, the chances are very small that you are going to find some stranger off the street or what ever to sponsor you to co-sign a loan for you. I certainly know that all the folks that I work with and really everyone I know in the loan industry, American's are leveraged so far in debt as it is that co-signing on a loan for someone we don't know would be probably the furthest thing in the world from our minds.
How do you finance then if you can't find a co-signer, if you can't find a loan to attend school? Well really your options are at that points are scholarships and grants. There is really no other form of financing that you can find because if you are turned down for a student loan because of credit issues, you are not going to be able to get any other kind of loan either because the same credit issues will apply only more so because student loans are relatively lenient when it comes to credit guidelines compared to things like credit cards and things like that. The only industry I think that has even more flexibility now is the mortgage industry and that's only because lenders are desperately trying to secure as much business as they can before interest rates go through the roof. Scholarships and grants are pretty much the option of first resort, and they are the option of last resort as well. Before you start looking for a loan, before you start looking for money to borrow you really should try looking for money that can be gifted to you. If you are an international student, the best way to find that is to go to www.internationalscholarships.com and then to www.internationalstudentloan.com both of those sites will get you where you want to go when it comes to studying abroad in a country that doesn't have financing for you. If you are U.S. student looking for a loan that has a co-signer, really the Alternative Student loan is probably your best bet. If you are a student who does not necessarily have access to a co-signer still the same rules apply, scholarships and grants come first but after that make sure you file your FAFSA, you can do so at www.fafsaonline.com and then you will figure out your eligibility for the Stafford loan, the Federal Stafford loan, the subsidized and unsubsidized portions. The proceed from that, at least at the undergraduate level are generally not enough to pay for a private four year college, but the proceeds from it will probably get you into a community college or a state school, depending on the state schools expenses and things like that. Those are also good options for U.S. citizens who are looking to study in the U.S. That's the short version on the co-singer. You can find more information about co-signers, credit references, joint accounts borrower and things like that by going to www.studentplatinum.com which is one our websites. It's a free information site where you can find all sorts of different stuff related to credit, because credit is, it's the 900 pound gorilla in the room that nobody is talking about, or is it the elephant. I can't remember. I don't remember how the cliché goes but if you don't understand credit, and you don't understand how it is and how it works and things like that then you could be in for a really nasty surprise when you try to any major financial transaction. No matter what it is you do not just education finance but even just consumer finance and things like that your credit rating plays a roll in insurance costs at least in Massachusetts, cell phones, cell phone bills, cable TV you name it. Credit is increasingly being leveraged as a way of determining how reliable a person you are. If you have bad credit, there are ways to over time improve it, if you have good credit there are ways to make it even better, you have awesome credit there are ways to maintain it. Although if you already have awesome credit, you are probably doing those things as it is. So definitely check out www.studentplatinum.com like I said it's a completely free site with tons of information about credit in all its myriad incarnations and well worth a few minutes reading. All right let's finish up today's show with; well what should we do, what should we do on a rainy day here. I want to do something fun, kind of spruce the mood up. You'll hear this later this week too, Todd Lerner's "Song, For Free," it's a great little tune.
"Song For Free," by Todd Lerner an appropriate song to talk about when we are talking about scholarships and things. By the way one last thing on that scholarship stuff, if you are a U.S. student looking for a scholarship definitely check out www.studentscholarshipsearch.com it's a free site that we run which has listings of scholarships and things like that, I've talked about it in the past. All right folks that is going to do it for today's show, it is coming up on 8:45 a.m. so I really have to get this show out the door. Reminder in nine days we are doing the drawing for Ipod Nano so if you are looking one for Christmas for yourself or for someone that you want to gift to be sure to enter, you can find information at www.financialaidpodcast.com for how to enter or you can also just apply for any Student Loan Network student loan product, there are any number of them. Show notes are at www.financialaidpodcast.com if you have questions or comments about anything in today's show; the e-mail address is email@example.com I will be more than happy to hear what you have to say. Audio feedback is certainly welcomed as well. Let's see anything else? If you are not subscribed, if you are listening to us on the website get subscribed using iTunes or Ipod or any pod catcher the reason for that you will get things that you won't get otherwise. When you listen on the website you are just listening to an individual episode you won't get the Scholarships Guide and things like that and plus you will never miss an episode. Tomorrow's show, not sure quite what I am going to do with it yet because I will be leaving very early in the morning for the Thanksgiving Holiday. I won't be back until Monday, so Thursday's show is going to be an all music show, it's already recorded and in the bag, we've got that done. Friday's show I might do a show mo' promo show. We are going to just do promo's to other great podcasts because I suspect there will be a lot of people who will be out of the office and will not be tuning in anyway and those who do tune in, you might some interesting podcast to listen too. I will almost certainly be marking that show explicit because a lot of promo's out there are for shows that well not necessarily safe and are family friendly but still worth listening too if you have the opportunity. Be sure to tune in for Friday's show mo' promos episode and find some great podcast to listen too. If you are a fellow podcaster be sure to e-mail me let me know where I can find your promo and I will be more than happy to play it. It would be kind of funny, a little odd but kind of funny to have a 40 minute show of just promos. All right folks that is going to do it for today, until next time stay tuned, stay subscribed and we will see you on Monday.