If you are in school, than surely the FAFSA is your friend. If you are out of school, welcome to the land of student loan payments.
The “F” Word
The FAFSA, or Free application for federal student aid, is the online document that you need to complete to see how much money the federal government will give you for your student loans.
FAFSA sets the amount of aid needed by calculating the cost of attendance less the “Expected Family Contribution” (EFC) or the minimum amount a family is expected to pay toward the costs of college.
Financial aid comes in two flavors need and non-need based aid. Examples of need based loans would be Pell Grants, Subsidized loans, Perkins Loan and Federal work-study. Non-need aid is un-subsidized loans, Teach Grants and Federal Plus Loans.
Let’s break it down even more. An unsubsidized loan means that the loan doesn’t require you to prove your financial need and the school determines the amount you can borrow based on cost of attendance. You pay all interest costs during this period. Get it…you are paying for all costs.
Subsidized is the preferred type. The US Department of Education pays the interest on these loans while you are in school and during the first six months after you leave school PLUS during deferment. This is what you want if you qualify for it.
I recently spoke with Rick Castellano, who is VP of Communications with Sallie Mae. Sallie Mae is one of the biggest providers for student loans.
He’s got 4 go-to FAFSA tips:
- To fill out the fafsa you are going to need your parent’s 2014 tax information. Of course taxes aren’t due until April 15th , but you can estimate based on their 2013 taxes. Just don’t wait to fill it out based on taxes.
- Let’s talk Pin- you are going to need that to fill out your fafsa. Coming in the spring of 2015 is a long-awaited revision to this tired pin system. Fafsa is going to simplify, hooray, and offer a standard username and password. Until then, you’ve got to know your pin.
- Remember the 3 “I”’s – income, income tax, and investments. While you might want to feel high and mighty and overstate your income to your friends, it’s best not to do this on the FAFSA. Also, your home is not an investment…it’s a home, an asset, but not an investment. Things like values in life insurance, annuities and pension plans don’t count either. That’s good news.
- File online always – you will get your student aid report back in a quick 3-5 days versus 2-4 weeks via mail. Who even uses mail anymore anyway?
FAFSA & Scholarship Money
Think of the FAFSA and Scholarships as a 1-2 punch. You’ve got to fill out the FAFSA to see how much money you will get in support. Once you’ve got that number, than you can go scholarship shopping to try to fill in the rest.
Scholarships aren’t just merit based for those brainy ones. Whatever skill or talent you have, there is a scholarship out there for you. Always check with your school first, because there are a lot of unclaimed scholarships right under your feet. Plan to invest a few hours a day searching for scholarships for a week straight. Apply to anything that might be a possible fit.
Remember the key to being smart financially? Free money is always simply free money. Never pass up free money!
If you are lucky enough to be in the payback period of your student loans, then you need to know these 5 Key Student Loan Secrets.
1. Your payments don’t begin until 6 months after you graduate. That means you have time to save. Even just kicking your coffee addiction for a few months can generate some extra cash you can use for your payments. Let’s say you like your $5 Starbucks latte three times a week. If you save that money for 6 months to put towards your loan payment, you will have saved $360. That’s just one example.
2. There are many payment options. Be sure you TALK to your student loan holder and find out all of their options. The most common is a standard repayment with usually a 10-year repayment period. This is the option where you will incur the least amount of interest.
3. This might not work with your income and expenses though. Another popular option is the graduated payment option or income based repayment, which means your payment increases over a few years in hopes that your income did as well.
4. If you are thinking about going to grad school, know that in most cases you can defer your student loan payments while you are in grad school. Again, always talk with the loan provider, but this is a nice option.
5. If you want to win at the student loan repayment gain, think about these two tips.
First, if you split your monthly payment up into 2 payments, or a bi-weekly payment, you will end up making one extra payment a year, since there are 52 weeks in a year. This means that your student loan is getting paid off faster than if you were just making one monthly payment.
Second, simply pay more than the min payment, even if it is an extra $15 or $20. Take the savings you have from cutting your lattes back and put that towards paying this debt off faster.
Now, many of you might be wondering about the government student loan forgiveness program. As with anything, there are a ton of loopholes and to qualify for this you need to fit the EXACT mold.
If you have a loan that was in place after October 2007, you can qualify. First though, you need to be working a public service job – like a teacher or for the government. You need to make the first 120 qualifying payments while employed as a public service employee. That’s 10 years of payments – you heard that right.
Really, this doesn’t apply for a lot of people since they might have already paid off their loans by the 10-year mark. Not to mention, you have to work as a public service employee that ENTIRE time. 10 years is a long time for millennials to stay in one job for sure.
Now, it’s quite possible that you can have multiple student loans. You might take out one loan for a year or semester and then get another. You might have loans with different lenders. So when you graduate it looks like you’ve borrowed from every lender possible.
Student loan consolidation might a good thing. This means that you will literally roll all your student loans together, and only have to worry about making one payment.
You might also be able to stretch out your payments to as long as 30 years. Before you go jumping for joy though, remember your frenemy known as interest?
The longer you have to pay back your loans the more interest you will accumulate which means the more money you have to pay back.
Companies like SoFi have created a cool option for refinancing your student loans. They are a private company and can set their own rates. If you have good credit and a good job you might want to check them out. They even have a payback option for entrepreneurs, not to mention they have some serious hook ups with professional mentors and networking. When you are an entrepreneur, you can use all the help you can get.
Consolidation isn’t a one-size fits all option. You really need to put on your millennial money thinking caps and first go to your current student loan lenders. Find out all the ways you can save money on your payments with each of those first.
Find out the bottom line. Get your facts in order.
Then, if you are considering consolidation or refinancing, find out all the details with that option too. You are smart, and you can do this. Compare the two and make an educated decision.
Don’t just do what your friends are doing. Be smart with all your money decisions.
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