Changes to student loan terms coupled with a nasty post-recession economy are causing many students to have more trouble paying tuition bills.
Students across the U.S. have encountered problems obtaining Parent Plus loans since changes were made to the system in 2011.
Students who had received deni- als to Parent Plus loans have often been due to parents’ problematic credit standing such as a recent bankruptcy filing or home fore- closure. Changes made in 2011 included the denial of Plus loans to parents who recently had a loan go into collection.
This forced more students to find alternative ways to fund their tuition.
Jane Dessoye, Director of Enrollment Management, said these circumstances are impacting students more frequently.
“It’s true that in other years we have had many more approvals in the Plus loans. Students whose parents were approved in the past all of a sudden find themselves ineligible,” said Dessoye.
Students can appeal a negative decision before they seek alternative options.
“It’s an instant gratification. The family knows immediately if they are approved or denied and if they are denied they are immediately offered the opportunity to appeal that decision,” said Dessoye.
Sylvia Maas and Kathy Pesta, both of Student Financial Services, said students who receive denials for Plus loans often have other government resources.
If a student’s parents are denied, the student will become eligible to receive additional unsubsidized federal loans. The amount offered will vary depending on how many credits the student has earned.
They may obtain private loan.
“Private loans that come from different lenders typically with higher interest rates are less flexible or have less desirable repayment terms,” said Dessoye.
Maas and Pesta said students should educate themselves on the terms of private loans, and they urge students to ask questions of the private lenders so the students understand interest rates and repayment options.
Sometimes, denied students can find a different cosigner, but if the cosigner is not a parent, they must seek an alternative loan route.
“Our recommendation is that an alternative loan be a last-ditch effort because of the interest rates and repayment terms being so undesirable. Another thing I recommend students to do is to make certain at the front end that they have absolutely exhausted grant eligibility before they even look at loans,” said Dessoye.
Grants are awarded on both the federal and state level and can help subsidize students’ tuition.
Maas and Pesta said the university also offers payment plans to students whose tuition is not covered by financial aid. Students can set up an interest free payment plan with Sallie Mae, but this plan includes breaking up the remainder of the tuition into three payments, pay- ments that aren’t always possible for students to make out-of-pocket.
For many students who already have loans – interest rates are rising.
“The interest rate right now is tied into the ten-year Treasury note, and experts claim that the value of that note will go up. Now, how much it will go up is being debated hotly,” said Dessoye.
Dessoye said one of the only good thing about rising rates is they cannot change again for a year.
“Once they set it for a year the rate for that year is locked in. It won’t change. At least you’ll know, going into the process, what the current rate will be,” said Dessoye.
Interest rates won’t have an immediate effect on students, but they will lead to higher payments when the bills come due.
Federal officials are considering requiring students who take loans to complete a more intensive education program during both entrance and exit counseling. Now, students are required to take entrance counseling before first applying for federal loans, and they complete an exit counseling program when they leave school.
Dessoye questions how effective counseling is because students seemingly complete it without a lot of thought.
“It’s really not a very good system in that a student simply checks boxes and say, ‘Yes I agree to these terms’ and you really have to wonder how closely they look at those terms. We fear that students go into the process not being very educated,” said Dessoye.
Another proposal for entrance and exit counseling is to require universities to become more hands-on with helping students fully understand what they are agreeing to.
This would require the financial aid office to provide more education to students.
“For instance, there’s a suggestion that colleges should be required to give information relative to student loan balances, interest rates, repayment terms, repayment options, those kinds of things,” said Dessoye.
Dessoye believes that if universities are required to spend more time educating students about student loan terms, students would benefit.
“Anything, any information that’s shared more proactively with a student to teach them about their rights and responsibilities as a borrower are really good ideas,” said Dessoye.
Maas and Pesta want students to know that there is no such thing as too much information when it comes to borrowing.
Students who are unable to make ends meet with their tuition bills are told to check out alternative scholarship websites as well. These sites can provide students with scholarships tailored to their exact specifications. Dessoye recommends FastWeb.com.
“Through FastWeb a student completes an online autobiographical sketch that talks about things such as what they are majoring in, extracurricular activities, leader-ship roles they have had. When a student submits the profile then FastWeb gives the student a printable list of scholarships that either identically match or generally match the profile,” said Dessoye.
It should be noted that going through such websites is the student’s responsibility.
Another proposed change would allow students to dispute the amount owed on their federal loans, a right they do not have now. If a student defaults, they are required to repay the amount specified regardless whether the amount is accurate.
“So the one proposal is that if a student does dispute the amount that is claimed to be owed then they have the opportunity to have that proved to them – that this is a valid debt,” said Dessoye.
A similar proposed change could lower payments for students who default. Currently, students must pay a 1% rate, but the change would tie repayment to students’ incomes.