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Preparing for FAFSA: Parent Edition

October 28, 2019

If you plan on sending your child to college, you’ve probably given some thought to financial aid. When you think of financial aid, the FAFSA may come to mind first. 

 

Already know what FAFSA is? Skip ahead to the next paragraph. 

 

The FAFSA, or Free Application for Federal Student Aid, must be submitted for your child to apply for federal and state financial aid for college, such as federal grants, work-study programs, and student loans. This application must be submitted each year that your child will require financial assistance. College admissions officers recommend that you complete the FAFSA application even if your child may not need financial aid. Some private scholarships at certain colleges even require the submission of the FAFSA application. Each school that you have listed on the FAFSA will receive your financial information after you’ve completed the form. 

 

When it comes to preparing your child for college, it’s important to understand the FAFSA process and the steps you should take when submitting it. Here are the things you should keep in mind when submitting the FAFSA with your child.

 

Submit the FAFSA Early

While this isn’t common knowledge, financial aid is awarded on a first-come, first-served basis in some states, specifically when it comes to Federal Supplemental Educational Opportunity Grants (FSEOG grants) and federal work-study programs. Because of this, it’s important to find out your prospective or current college’s priority deadline and submit your FAFSA application before it. 

 

While filing after the priority deadline won’t impact your child’s eligibility to receive federal student loans, they may end up taking out more in student loans due to missing out on other federal aid and even money from the institution. You can start the FAFSA application here. Find out some other important reasons why completing the FAFSA early is critical.

 

Create Your Federal Student Aid (FSA) ID

The U.S Department of Education replaced the Federal Student Aid PIN with the FSA ID in 2015. Your FSA ID will be the username and password you will use to access certain federal student aid websites, including fafsa.gov, studentloans.gov, and even the myStudentAid mobile app

 

If your child is a dependent student and submits the FAFSA online, both you and your child will need to create an FSA ID. An FSA ID is required to sign the online FAFSA application, and you and your child cannot share an FSA ID since it serves as a signature and must be unique to each person. You can create your FSA ID here.

 

Use the FAFSA on the Web Worksheet

Before your child files the FAFSA online, it’s smart to check out the FAFSA on the Web Worksheet. This worksheet consists of the questions you’ll see on the FAFSA so you can know the information your child will need when filling it out. 

 

Keep in mind that the FAFSA on the web worksheet is not part of the FAFSA application and will not be submitted – it’s simply a helpful guide for knowing what to expect on the FAFSA so you can organize your information. The questions are listed in the same order as they appear on the website and the app.

 

Gather Your Documents

When filling out the FAFSA, your child will be asked for basic personal information as well as information about your family’s financial situation. Depending on your situation, you and your child may need the following documents while filling out the application: 

 

  • Your child’s driver’s license and Social Security card
  • Income tax returns from the prior-prior year
  • W-2 forms and other records of money earned
  • Current bank statements
  • Records and documentation of other untaxed income received such as welfare benefits, Social Security income, veteran’s benefits, AFDC, or military or clergy allowances
  • Records of stocks, bonds, mutual funds, and other investments
  • Current mortgage information
  • Business or farm records (if applicable)

 

Most of the above-mentioned steps can be completed before October 1st, which is the earliest your child can submit the FAFSA for the following academic year. By being prepared, you can help ensure that your child’s FAFSA will be filed on time so he can get as much aid as possible for your family’s financial situation. For more information on the FAFSA, check out our blog, “What is FAFSA? And Why You Should Care,” and watch our quick video, “FAFSA 101: What You Need to Know About Paying for College.”

 

While financial aid and grants are certainly helpful methods of paying for college, sometimes they don’t cover the complete cost of school, meaning that additional expenses will need to be covered out-of-pocket or through student loans. When considering applying for federal or private student loans, it’s important to look at the details to determine which type of student loan will be best for you and your child’s future. 

 

If you need assistance in working through your options, contact ELFI. We have years of experience devoted to helping students realize their college dreams, so don’t wait – give us a call today.*

 


 

*Subject to credit approval. Terms and conditions apply.

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Mother and daughter discussing cosigning a student loan
2020-10-02
5 Things to Know Before Cosigning a Loan

With interest rates on student loans at historical lows, 2020 offers the opportunity to obtain student loans at desirable interest rates, along with the ability to refinance student loans to a lower interest rate. Receiving a lower interest rate allows you to save money when repaying student loans by decreasing the amount of interest that you will have to pay over your loan term.   While it is appealing to take advantage of these lower interest rates, meeting the eligibility requirements to obtain a student loan or refinance student loans can be a barrier to obtaining these lower rates. One option for individuals who don't meet the credit score or income requirements for obtaining a loan is adding a cosigner who does meet the requirements to guarantee the loan. However, consigning a loan comes with responsibilities. Here are several things to know before consigning a student loan or a refinanced loan.  

You are held responsible for the entire loan

While cosigning a loan can seem like a simple favor to help a friend or family member, it actually means that you are held responsible for the entire loan amount. Cosigning a loan means that you are obligated to make payments on the loan if the primary borrower is unable to do so. While the borrower may be financially able to make consistent payments now, it's important to keep in mind that their situation can change for the worse, whether it be through losing employment, unwise financial decisions, or simply being irresponsible.   Before cosigning a loan, be sure to take stock of your current and potential future financial situation to ensure you will be able to make payments if the primary borrower cannot.  

Your credit is at stake

When you cosign a loan, the loan and payment history shows up on your credit report as if the loan is your own. When you first cosign, the lender will conduct a hard credit pull, making an immediate impact on your credit score. The overall amount of debt will also be added to your credit report, which can also affect your credit score.   This means that any missed payments will affect your credit score negatively. Since payment history is one of the biggest factors in your credit score, it's important to make sure the primary borrower is making their payments and that they are aware that a missed payment affects your financial future as well.   Additionally, since cosigning a loan adds to your total debt, cosigning a loan may affect your access to credit in the future. Creditors will take this debt into consideration before approving you for additional credit. It's recommended to keep an eye on your credit report after cosigning a loan to make sure it's still in good shape.  

You can be subject to legal action by the lender

Depending on the state you live in, lenders can pursue legal action against you on debt that goes unpaid for a significant period of time. If several missed payments occur, you may be liable to be sued for nonpayment. This typically occurs when the debt goes unpaid for 90 to 180 days, but the law varies in different states, and protocol varies by lender.   If legal action commences, the cosigner will be responsible for any and all costs, including but not limited to lawyer fees. While this doesn't typically occur, keeping in mind the worst-case scenario is still important.  

Removing yourself as the cosigner can be difficult

Another consideration to have when cosigning a loan is that it's not always easy to remove yourself as a cosigner down the road. If you need to eliminate the liability of the cosigned debt in order to receive a personal loan, mortgage, or another type of credit later on, you may find yourself wanting to be released as the cosigner.   Refinancing a loan is one way to remove a cosigner, however, the primary borrower will have to qualify for the new loan in order to do so. Typically, lenders will require the primary borrower to establish a history of on-time payments before they assess whether the borrower can responsibly take on the loan themselves.  

Your relationship could be at risk

While not a major financial risk, cosigning a loan can cause a divide in your relationship with the primary borrower if repayment doesn't go according to plan. While the primary borrower may have all plans to responsibly manage the loan, if things worsen and you as the cosigner aren't made aware, you may be fairly bothered by how the borrower's actions have affected you. It's important to establish a trust that the primary borrower will be transparent with you so that the loan doesn't cause a problem with your relationship with them down the road.  

Bottom Line

When it comes down to it, cosigning a loan comes with risk, and should only be done when necessary and if you fully understand the consequences if things don't go according to plan. If you're looking to release yourself as the cosigner of a loan, read our blog, Cosigners and Cosigner Release: What You Need to Know  
  Notice About Third Party Websites: Education Loan Finance by SouthEast Bank is not responsible for and has no­­­ control over the subject matter, content, information, or graphics of the websites that have links here. The portal and news features are being provided by an outside source – the bank is not responsible for the content. Please contact us with any concerns or comments.      
Dad with Parent PLUS loans hugging daughter
2020-09-16
Should You Refinance Private Parent Loans in 2020?   

Are you a parent who took on student loans for your child to attend school? If so, you are not alone. As of 2019, over 3.4 million people have Parent PLUS loans. The payment of the loans may become burdensome as the desire to save and enjoy retirement approaches. If extra money in your budget could help, Parent PLUS loan borrowers may want to take advantage of the current low rates and refinance the student loans they took on for their children.  

Types of Parent Loans

Before you decide whether refinancing is beneficial for you, it’s helpful to know what types of loans you have. Parents may have private parent loans that are borrowed through a private lender such as a bank, or Parent PLUS loans that are borrowed through the federal government. Parent PLUS loans are also known as Direct PLUS loans. Here’s a breakdown of how the two types of parent loans differ:
  • Interest Rates: Typically private parent loans will have a lower interest rate than Parent PLUS loans. Parent PLUS loans can have an interest rate as high as 7.06% in recent years, whereas private parent loans can have an interest rate of around 4%.
  • Loan Terms: Private parent loans can also have a fixed or variable interest rate and have a loan term from 5 to 25 years. Parent PLUS loans have a fixed interest rate and an origination fee. The loan term can last from 10 to 25 years.
  • Additional Benefits: Since the Parent PLUS loan is through the federal government it is eligible for an income-contingent repayment plan, meaning the payment is based on your income and family size.
 

Current Benefits for Parent Loan Borrowers

Currently, Parent PLUS loans are eligible for benefits through the federal government due to the CARES Act passed by Congress on March 27, 2020, in response to the COVID-19 pandemic. The benefits are set to expire on September 30, 2020, however, an executive order was issued on August 8, 2020, directing the benefits to continue through December 31, 2020. The protections provided by the CARES Act, and continued through the executive order, for Parent PLUS loans include:
  • The interest rate on the loan is temporarily reduced to 0%. No interest will be accruing on the loan during this time. However, interest will begin accruing again at the previous interest rate on January 1, 2021.
  • Administrative forbearance - This provides for a temporary suspension of payments during this time. Payments are set to resume in January 2021. This means you can save money to make a lump sum payment on your Parent PLUS loan when payments resume. Alternatively, you can use the money as an emergency fund if payments become difficult to make.
  • Stopped collections - Any defaulted loans would no longer be subject to collections during this time period.
 

How to Know Whether You Should Refinance

With these benefits currently in place, it is fiscally responsible to take advantage of the federal protections provided for Parent PLUS loans rather than refinancing at this time.  However, private parent loans are not eligible for any federal protections, making them prime candidates for refinancing. Currently, interest rates for refinancing are at an all-time low because of the Federal Reserve lowering interest rates in response to the pandemic. This makes it a great time to take advantage of these low interest rates for private parent loans.   Refinancing rates for private parent loans are as low as 2.39% for a variable interest rate and 2.79% for a fixed interest rate as of September 14, 2020. This new rate could lead to significant savings depending on your current balance, rate and loan term. At ELFI, you can prequalify to see what rate you would be eligible for. You can also use our Student Loan Refinance Calculator to get an estimate of your savings based on a range of interest rates.*   Not only does refinancing private parent loans save you money monthly by securing a lower interest rate, but refinancing to a lower interest rate also saves you in interest costs over the loan term. In addition, the other benefits of refinancing private parent loans are:
  • Combining multiple private and federal Parent PLUS loans into one loan with one payment
  • Changing the loan term length by either shortening it to save on interest costs or lengthening it to lower your monthly payments
  If refinancing sounds right for you, it’s important to know the eligibility requirements. These will make you more likely to qualify for the best rate at ELFI:
  • A strong credit history, with a minimum credit score of 680
  • Steady employment with a minimum income of at least $35,000
  When you refinance student loans at ELFI there is never an application fee or origination fee. You will also never pay a prepayment penalty.

Bottom Line

Although interest rates are at a record low, it is advantageous to benefit from the current Parent PLUS loan protections for the time being. Then, in 2021, you can take advantage of the low interest rates if you choose to refinance. If you have a private parent loan, now is a great time to lock in a lower interest rate and start saving some money.  
  Notice About Third Party Websites: Education Loan Finance by SouthEast Bank is not responsible for and has no­­­ control over the subject matter, content, information, or graphics of the websites that have links here. The portal and news features are being provided by an outside source – the bank is not responsible for the content. Please contact us with any concerns or comments.   *Subject to credit approval. Terms and conditions apply.
photo representing financial aid options for middle income families
2020-02-10
Financial Aid Options for Middle-Income Families

It’s no secret that college comes with a hefty price tag. Every year, students and their families have to figure out how they’re going to pay thousands of dollars in school bills. While high-income families may have the resources to pay tuition, footing the entire bill just isn’t realistic for some families, especially if they have more than one child attending college. This is why many students rely on financial aid to fund their education.

 

It’s generally known that students from lower-income families can qualify for special scholarships and grants that help fill the gap to fund their education, but for families around the middle-income tier, financial aid options may be harder to come by and make them feel that their options are limited. Rest assured that there are options for middle-class families to receive the financial assistance they need – it just may take a bit more effort.

 

FAFSA

When it comes to looking for financial aid for college, the FAFSA is a great place to start. The Free Application for Federal Student Aid has no income cutoff for eligibility, so your child could still receive some need-based aid from the FAFSA, especially if he or she plans on enrolling at a higher-cost school. The FAFSA opens October 1 every year, and you can apply as early as the year prior to your child’s first day of college. The earlier you apply, the more likely your child is to receive financial aid. 

 

Scholarships

Researching and applying for scholarships has continually proven itself worthy of the effort. Many scholarships are merit-based instead of need-based, so your child may be eligible for many different scholarships depending on the qualifications. Start by looking for local scholarships – many locally-owned businesses and organizations offer scholarships for graduating high school students. If your child visits the school guidance office, they may have some applications on file. You or your spouse could also ask your employer if they offer any type of scholarships or financial aid for employees’ children. After exhausting local options, your child may want to research national opportunities. A quick web search could reveal countless free scholarships – Niche, Fastweb, and eCampusTours are a good place to start. Finally, many colleges offer merit-based scholarships and endowment scholarships. Make sure your child looks for institutional scholarships at the school he or she plans to attend. You may discover that if your child joins a club or raises a standardized test score by a couple of points, he or she could receive thousands more dollars of financial aid.

 

Tuition Discounts

If a family member, such as a parent or grandparent attended the same college or university you're enrolled in, you may receive a tuition discount. There may be additional requirements to qualifying for this discount, such as, your family member being active in the school's alumni association or maintaining a certain GPA.

 

Tax Rewards

Middle-income families are perfectly positioned to receive tax credits for college expenditures. For example, the Lifetime Learning credit has income requirements that exclude those who earn over and under certain amounts. Programs like this, as well as tuition savings plans, offer a few different ways for middle-income families to receive tax benefits.

 

Federal Loans

If you’ve taken advantage of all your financial aid options and find you still have more to pay, it may be time to consider loans. Non-need based federal loans such as the Unsubsidized Federal Stafford Loan for students and the Federal PLUS Loan for parents can bridge whatever gap you find in your aid and your expenses. Federal education loans generally have low interest rates or may be tax-deductible, so they’re a smart alternative to using a credit card, for example.

 

Private Loans

You may find that you still need financial assistance after exhausting all the options above. If that’s the case, private student loans may be for you. We always recommend you take advantage of grants, scholarships, and federal aid before taking out a private student loan. To learn more about ELFI’s private student loan options,* click here.

 

The cost of college can present a challenge for families at all income levels, but middle-income families often struggle the most to find good financial aid options because their finances fall between affording college and needing assistance. If your family is in this situation, don’t let it get you down. The options in this article are a good place to start searching for financial assistance. Don’t lose sight of the end goal – getting the degree you want and establishing a successful career. If you’re already looking for financial aid options, you’re well on your way.

 
  *Subject to credit approval. Terms and conditions apply.  

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