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Sallie Mae Rate Hikes

Posted On: 2005-12-29
Length: 26:26

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Good Thursday, December 29, 2005. Welcome to episode #140 of the Financial Aid Podcast. My name is Chris Penn welcoming you back to yet another episode. Alright, we've got a lot to talk about today. We're going to cover some news from California. Some more stories on the student loan rate hikes coming up, an interesting quote from Sallie Mae, two pieces of mail from the mailbag, a scholarship update on how you can get 85% of your loans dismissed and some Podsafe Music from Matthew Ebel and Whirl.

Let's get started with the news. Topping the news today, from California, governor Arnold Swarchzenegger has submitted a new budget for the State of California with enough money for the University of California and California State University systems to rescind tuition increases planned for the next academic year. Tuition increases have been projected at 8% for undergraduates and 10% increased for graduates. So hopefully this will mean level funding for them.

In other news, the Budget Reconciliation ACT for 2005 is continuing to pick up press and steam in the newspapers. Especially in the major media journals. There was an article this morning in USA Today about consolidating your student loans. Time to do so is now. The article talks specifically about Congress and it's rate increases. No normally you don't find out about rate increases until the last auction of the T-bill in May of each year. That's when the rates were previously set. However, this new legislation overrides that; overrides the previous way rates are set and has already set them in stone to begin July 1, 2006. Consolidating those loans is going to be very important between now and then. A couple things have changed that will go away as of July 1st. If you are in school you will no longer be able to consolidate in school. If you have a partner and you want to consolidate your loans together that will no longer be available after July 1st as well. Like what happen last year, Congress announced the rate change and at this time last year a lot of borrowers rushed in on June 29th to file consolidation. The Department of Education was very kind and gave people amnesty, basically if you applied for consolidation before July 1, 2005 and submitted what they called a substantially complete application, which is where you submit all your personal information with the intent to consolidate you could get the lower interest rate even if your consolidation was not complete until after July 1st.

This year, record increases again, last year we said sharpest increases in the history of the program, well this year its' even bigger. Last year it was a 1.93% increase, this year 2.1% for Stafford Loans, 2.4% for Plus Loans. Students who are in school paying an interest rate of 4.7% should go up to 6.8% on July 1, 2006. Parents with Plus Loans are currently paying an interest rate of 6.1% which will jump to 8.5% on July 1st. Both interest rates are being set by the Department of Education as mandated in the act. Interestingly enough, and this is something worth mentioning, the act is supposed to help lower the deficit by making it harder for students to consolidate and raising everyone's interest rates. So there's a good chance that the Department of Education may not offer an amnesty period like they did last year for two reasons: 1) they want to try and save as much money as possible and sot they jack rates up as quickly as possible on as many borrowers as possible, and 2) unlike normal years where you have about a month between the T-bill rate and the student loan interest rate change, here you've got about 7 months time so you need to file consolidation now before the rest of the crowd. If you don't do it within the last month, your consolidation may not complete before the deadline. Do it now before the rest of the pack. This is what it will mean for you as a student or a parent; here are a couple of examples. Let's say you have $30,000 in Stafford Loans, at today's in-school current rate you'd be paying about $314 per month. If you consolidate your loans today you'd be paying $194 per month. After July 1st and you don't do anything, you'll be paying $345 a month, $230 if you don't consolidate. The difference between consolidating and not consolidating before July 1st is $151 a month or about $1800 a year. That's a lot of money to shovel out the door for no good reason. It's important to realize that. That's a really, really, really nice laptop each year you'd basically be giving it away because you didn't consolidate your loans in time.

Finally, an interesting quote from Sallie Mae spokesperson, Tom Joyce says that, this legislation, the wonderful thing that it is, he says, "Restores the original content of the consolidation program. It was never intended to be a refinance bonanza. It was never intended to be a windfall for graduates who have already benefited from the tax payer subsidies of the Stafford Loan program." Well, Tom, here's the thing. Responsible student loan companies, I'm not necessarily saying that yours isn't, but at the Student Loan Network, our philosophy is that the more accessible college is the more people can afford to pay for college and attend college, the more students will graduate from and be contributing members of society. If you intentionally go after and try to make a quick buck off of people instead of encouraging people to gain access to college, yeah you'll raise short-term profits which is important for full private companies like Sallie Mae now, instead of being a government sponsored enterprise which it used to be, you'll make that short buck but in the long term you hurt the overall interest of your company and of the country as a whole. It's better to encourage and make college as affordable as possible and give students, even after they've graduated the option to continue to restructure their fiancés. No other industry other than student loans actively goes after its' customers and tries to prevent them from reconsolidating their finances. You can do it in the mortgage industry. You can do it in the credit card industry. You may not necessarily get a good deal but you can do it. Only in the student loan world is that the case. So, clearly it's a bit of protectionism there. I can kind of understand it but at the same time it's not good for the country either. That was the news for today. Let's move onto our first piece of Podsafe Music. We're going to do a mash up of stuff put together by Matthew Ebel to promote his album Beer and Coffee. So here it is, Mattew Ebel's Drive Away, the enhanced Podsafe Version.

(music)

Matthew Ebel's Drive Away sent to me by Mattew Ebel over the long weekend to play for the show. You can find the song on the Podsafe Music Network at www.music.podshow.com or at www.matthewebel.com.

Alright, let's tackle the mailbag. Our first question comes from Darlene about Nursing Loan repayment programs. She said she heard that Pennsylvania has a program to forgive up to $37,000 in student loans for people in nursing programs and wonders if there is anything for the state of Ohio. Well, it just so happens that today's scholarship update is the Nursing Education Loan Repayment Program. Let's do that now.

The Nursing Education Loan Repayment Program is sponsored by the Department of Health and Human Services. It's basically to encourage people to enter the nursing field and to stay in the nursing field by offering Registered Nurses substantial assistance to repay education loans in exchange for servicing critical shortage facilities like, disproportionate share hospitals, nursing homes, federally designated health centers, federally designated migrants health centers, public health centers and rural health clinics. By eligibility you have to be a Registered Nurse, not an LPN, have received a degree in nursing either a baccalaureate, associate or graduate degree at an accredited school of nursing. You have to have unpaid qualifying loans obtained for nursing education leading to a degree. You have to have completed your degree. You must be a citizen, a national, or permanent legal resident of the United States, be employed full-time, 32 hours or more per week at a critical shortage facility and have a permanent unrestricted license as an RN in the state you intend to practice.

People who are not eligible for the program are people who have judgments or liens against their property, people who have an existing service obligation such as a sign-on bonus that will not be satisfied by the application date, people who have a breech in professional obligations or ethics on record, people who are in default on federal debts such as federal student loans or taxes, nurses who work for nursing staff agencies or travel nurse agencies. Nurses who work as an add-on or as needed basis, people who have a temporary or inactive RN license, LPNs or vocational nurses, graduates who are not licensed by the application due date, or a nursing faculty and other nurses who work at educational institutions. The way the program works, for two years of service the program will pay 60% of your total qualifying loan balance. If you agree to extend your contract for an additional 3rd year, they'll pay an additional 25% of the total qualifying loan balance so you can get up to 85% of your loans dismissed in three years if you go through this program sponsored by the Department of Health and Human Services. You can find a link on our scholarship website at www.studentscholarshipsearch.com and of course they'll be a link in the show notes at www.financialaidpodcast.com to that specific scholarship entry. Alright, let's move onto another piece of podsafe music before we get to the rest of the mailbag.

(music)

Reborn by Whirl on the Podsafe Music Network at www.music.podsafe.com. Now let's move onto the second piece of mail in the mailbag. Now that we've got the scholarship update out of the way. It's from Richard about the FAFSA. Richards writes to say that his granddaughter is living with him, he's supporting her and her father is passed away and her mother's whereabouts are unknown. Where does she put her name on the FAFSA or does she put her name as an independent student. This actually dovetails nicely with the information on the FAFSA we tackled yesterday. The Department of Education provides this definition of an independent student, you have to meet one of these conditions: you have to be born before January 1, 1983 or be enrolled in a graduate program beyond a baccalaureate degree or be married, or have children or dependents who receive more than half of their support from you, or have both parents deceased or are a ward of the court, or be a veteran of the U.S. armed forces with an honorable discharges. Without more information from Richard, I don't know whether his granddaughter would qualify as an independent student or not, as stated by the Department of Education. So, when she goes to file her FAFSA, probably the best thing to do would be to check in with her school's financial aid office. Her school's financial aid officer is aloud what's called professional judgment which allows them to change the status of a student's dependent to independent under unusual circumstances. She'll have to provide some documentation but that doesn't sound like it should be a problem and this should allow her to qualify for aid as an independent student rather than a dependent. Additionally, if she's allowed to qualify as an independent student, she'll actually qualify for more aid because her parents income effectively won't be on the application. So before she goes another step, make sure she talks to her financial aid officer before she files her FAFSA and that will be the best way to take care of that. If it turns out that things go south and nobody knows what to do I'd say file it as an independent student and then deal with the Department of Education on an as needed basis, but the best advise I could give there is to check in with the Financial Aid office. The financial aid officers are extremely well versed in all these different situations and they are just a wealth of resources and a wealth of information. So, make sure you check in with your school and they will be able to help.

Alright, that's going to cover the mailbag for today. Let's see if we can hit another piece of podsafe music before we hit the door. Let's do Run Away With Me by Jessie Commisso.

(music)

Run Away With Me by Jessie Commisso from the Podsafe Music Network. Alright folks, that's going to do it for today's show; this Thursday's Financial Aid Podcast. Tomorrow of course is Friday and we are always happy to see Friday even on a short week as this. Show notes you can find on www.financialaidpodcast.com. Questions or comments, or audio files, or anything at all, give me a ring or drop me a line at financialaidpodcast@gmail.com. That's the best way to get in touch and have your stuff answered on the show. If you're not subscribed, get subscribed. It's easy, you basically download the latest copy of iTunes and go to our website and click on the add to my iTunes button and your done. That way you'll never miss an episode and you'll also get a free copy of the Scholarship Search Secrets e-book, the 10 page PDF we published this summer about how to use search engines to find scholarships and other free money online. So, make sure you are subscribed as well. We're going to doing a press release on consolidation and the new loan interest rates so look for that coming up soon. And of course the January Newsletter for the Financial Aid News will be coming out shortly. We are just finishing up the last couple of articles. Of course, if you're a regular listener of the Financial Aid Podcast, you'll find that some of the content is what we talked about on the show here we just do a quick few updates to the scholarships and things like that. So definitely check that out. You can find that at www.financialaidnews.com or on the www.financialaidpodcast.com as well. So, until next time, stay tuned, stay subscribed and we'll see you tomorrow for Friday. Take care.

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