Practical Student Financial Aid Tips During a Recession

Private Student Loans

• Shop Around for a Lender. There are still many lenders offering private student loans, but interest rates and fees can vary significantly.
• Apply for Private Student Loans with a Creditworthy Cosigner. Applying with a cosigner not only increases your chances of getting the loan, but also results in a lower cost loan as the interest rates and fees are based on the higher of the two credit scores.
• Pay At Least the Interest During the In-School Period. This avoids capitalization – a form of negative amortization where interest is added to the loan balance – and may yield a lower interest rate or fees on the loan.

Ask for Help

• Talk to the Financial Aid Office.
  • If your financial circumstances have changed or there’s something unusual about your financial circumstances, ask the college for an adjustment to your financial aid package. Write a letter to the college summarizing the unusual circumstances and the impact on your ability to pay for college, and include photocopies of independent third party documentation of those circumstances. Ask the financial aid administrator for a “professional judgment” review, sometimes called a “special circumstances” review or a financial aid appeal.
  • If your parents are denied a Parent PLUS loan, the financial aid office can increase your unsubsidized Stafford Loan limits.
  • If you need help finding a lender, the college’s preferred lender list is a good starting point.
• Ask the Bursar about Tuition Installment Plans. These plans let you spread out college bills over 9-12 months for a one-time fee of $50 to $100.

Trouble Repaying Debt?

• Talk to the lender before you skip a payment. You will lose options if you default on your debt, so it is better to talk to the lender first. Ignoring the problem doesn’t make it go away, and just makes a bad situation worse.
• Look into deferments and forbearances. If you are experiencing a short-term financial difficulty, ask the lender about deferments and forbearances. These suspend the monthly payments for a short period of time while you are unemployed or experiencing economic hardship.
• Consider the new income-based repayment plan. Income-based repayment is a new repayment plan for federal education loans that becomes available on July 1, 2009. It bases your monthly payment on your discretionary income, not the amount you owe. Any remaining amount owed is forgiven after 25 years. (The forgiveness drops to 10 years if you work full-time in public service and consolidate your loans into the Direct Loan program.) Income-based repayment is particularly useful for borrowers with high debt and low income and for borrowers who are pursuing careers in public service.
• Also consider extended repayment. Extended repayment can increase the loan term on federal loans to 25 or 30 years. The 25-year version is available without consolidating your loans if you have more than $30,000 in debt with a single lender. Otherwise you can get up to 30 years to repay the loans depending on the amount owed if you consolidate your loans.
• Ask about discharge provisions. Federal education loans can be cancelled in a variety of circumstances, such as death, total and permanent disability, closed schools, and false certification. While private student loans don’t have automatic discharge provisions, many have a compassionate review process that considers special circumstances such as death or total and permanent disability on a case-by-case basis.