FAP564: Financial Aid Podcast Starter Pack, episode 3 of 5

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Welcome to Episode 3 of the Financial Aid Podcast Starter Pack, a 5 episode miniseries designed to help you get started on the path of paying for college, as well as introduce you to the podcast and the Student Loan Network. My name is Christopher Penn, founder, host, and producer of the Financial Aid Podcast.

If you haven’t already done so, please subscribe to the podcast. Subscribing to the podcast is easy and free, especially if you use iTunes for the Mac or PC, which you can get at www.iTunes.com for free. Subscribing lets you receive the podcast automatically, delivered to your digital doorstep whenever a new episode is available. To add the Financial Aid Podcast to your daily routine, just install iTunes, then visit www. FinancialAidPodcast.com and click on the Add to iTunes button on the left hand side.

This miniseries contains 5 episodes. Episode 1 is about scholarships and grants. Episode two is about the FAFSA, the free application for federal student aid Episode three, which you’re listening to now, is about federal student loans. Episode four is about private student loans. Episode five is about student loan consolidation and career stuff, things you do after you graduate. Let’s roll right into federal student loans.

Federal student loans began more or less in 1965 with the Higher Education Act. Since then, they’ve become an industry in their own right. Some characteristics of federal student loans are that loan funds are sent to the school directly, students with drug offenses are not eligible for the loans if the offenses occurred while receiving federal aid, most federal loans require the FAFSA to have been filed, and most require you to demonstrate financial need.

There are three fundamental types of federal student loans - the Stafford Loan, the PLUS loan, and the Perkins Loan. Let’s review each quickly.

First and foremost, to qualify for most federal loans, you must have filed your FAFSA. Check out Episode 2 for more details if you haven’t listened already.

The Perkins Loan is a 5% fixed rate loan which is awarded to students based on financial need. Perkins loans have no fees and a 9 month grace period, or period between when you’re in school and when the first payment is due.

The Stafford Loan is a 6.8% fixed rate loan which comes in four types - subsidized or unsubsidized, and undergraduate or graduate. Stafford loans are by far the most popular of the federal student loans. Subsidized Stafford loans are loans in which the interest on the loan is paid by the government while you’re still in school. Unsubsidized Stafford loans accrue interest while you’re in school. There is a limited amount of funding available for subsidized Stafford loans, which is why it’s important to file your FAFSA quickly at the beginning of each year. The difference between undergraduate and graduate Stafford Loans is mainly in loan limits. Graduate students, because of the cost of graduate school, can borrow more than undergraduates. Stafford loans also require no cosigner and no credit check. You can get more details at StaffordLoan.com

The PLUS Loan is an 8.5% fixed rate loan which comes in two types - parent and graduate student. Both types share rates and terms, but the graduate PLUS loan requires a FAFSA on file, while a parent PLUS loan does not. PLUS loans have no loan limits - you can borrow up to the cost of attendance. PLUS loans are also credit-based; while your credit score is not used, an adverse history with defaults, judgements, liens, or other significant negative credit events in your history.

Let’s talk now about the process of getting a federal student loan. First and foremost, you need to have filed your FAFSA. Your school’s financial aid award letter will detail how much of each loan you can borrow. Once you know that, you can apply for the Stafford and PLUS loans online at www.StaffordLoan.com, www.ParentPLUSLoan.com, or www.GradLoans.com, depending on which loan you want to apply for. Your application is received by a lender like the Student Loan Network, and your application is sent to your school’s financial aid office for certification. The school effectively certifies that you’re a student at the school and that you’re borrowing the maximum amount you’re allowed to borrow, and not more, as a way of protecting you from overborrowing beyond what you need to attend the school. Many schools certify loans differently - some certify loan applications as they come in, while others put them in a pile and certify batches at a time.

After the school certifies your loan, it’s sent back to the lender for processing and funding. The lender then sends a check to your school’s financial aid office, where they apply the loan proceeds to your account at the school. If all of the school’s bills are paid, such as tuition, room and board, and other fees, then any remaining money is delivered to you by the school as a check or account credit for your use with miscellaneous educational expenses.

After school is over, repayment begins, in 6 or 9 months for Stafford or Perkins loans respectively. Most federal student loans have a 10 year repayment term. If you find that you have trouble making payments, you can apply for deferment, forbearance, or consolidation. Consolidation reduces your monthly payment - we’ll talk more about that in episode 5. Deferment and forbearance are essentially pause buttons for your loan payments - interest continues to accrue, but you are not held liable for any payments while your loan is deferred or placed in forbearance. Deferment and forbearance must be applied for through the lender.

Podsafe Music
- It’s traditional for the Financial Aid Podcast to have independent music in every show, and this miniseries is no exception.
- Rayko KRB

Get in touch with the Financial Aid Podcast!

Reminders
+ Join the Financial Aid Podcast Loyalists on Facebook
+ Make me your Facebook friend
+ Buy Virtual Hot Wings, the Matthew Ebel live bootleg album!
+ Private student loans available at any time - visit AlternativeStudentLoan.com
+ Stafford federal student loans at StaffordLoan.com
+ Student loan consolidation at StudentLoanConsolidator.com
+ FAFSA form tutorials and free help at FAFSAonline.com
+ Financial Aid Podcast Show Notes at FinancialAidPodcast.com.
+ The Financial Aid Podcast is a publication of the Student Loan Network.

Questions? Comments? Suggestions? Email me at financialaidpodcast {at} gmail {dot} com, visit http://www.FinancialAidPodcast.com, or call 206-350-1208. AIM: FinAidPodcast Add me to your iTunes by visiting http://www.FinancialAidPodcast.com/itunes/

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