Wednesday, January 28, 2015

Student Loan Series: Dropping Classes Affects Financial Aid

The New Year has begun and so has a new semester.  You’re getting a feel for your classes and schedule, but may be a bit overwhelmed.  Maybe you’re even considering dropping a course.  While dropping a class may help you academically or allow you to manage your schedule better, it may have a negative effect on your financial aid or scholarships.  Since scholarships vary, be sure to check the terms of your scholarship or with the person or agency that granted the scholarship to see if you will be disqualified for dropping credits or a certain curriculum.
For federal loans, you’ll need to watch that a dropped course or courses doesn’t cause you to fall below full-time or half-time enrollment depending on what is required of your loan terms (hereinafter “enrollment requirement”).  Falling below the requirement can result in aid adjustments or even ineligibility for loans the next semester or year.
The amount awarded may be adjusted if you fall below the enrollment requirements.  For example, the amount granted is typically prorated for Federal Pell Grants.  Most schools require students to be responsible for the rest of the amount owed after the loans have been adjusted.  This may cause you to get private loans, which likely have higher interest rates, fewer flexible repayment plans, and require more repaid over the life of the loan.  Additionally, dropping below enrollment requirements may kick-start your grace period.  Federal loans allot a grace period (which usually begins upon graduation) which allows you to get your finances in order and a repayment plan scheduled before your first payment is due.  If you drop below your enrollment requirement, your grace period may begin and therefore repayment may become due despite continuing to take the rest of your classes.
You may also want to consider whether the change in credits will affect your estimated graduation date.  If the class is required for graduation and isn’t offered again until the next year, this could push your graduation back, costing you more tuition money among other opportunity costs.
 For these reasons, it is important to check with your advisor as well as your financial aid office first to see how a drop will affect you.

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Until Next Time,
Jenny L. Maxey
Author of Barrister on a Budget:  Investing in Law School...without Breaking the Bank

    Wednesday, January 21, 2015

    Student Loan Series: Credit Score Affected By Student Loan Debt

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    We hear about establishing good credit or see the commercials about checking your score on a regular basis, but what does it mean?  A credit score is a number based on several aspects of your individual financial history.  This number is used by lenders to determine approval of a loan and the interest rate – a high score can sometimes get you a lower interest rate.  But lenders aren’t the only ones who may review your credit history.  Sometimes employers, leasing agencies for apartments or cars, or even your character and fitness review for bar admission can include a credit score report to determine your reliability and ability to manage debt.
    But when do your student loans factor into your credit score?  Technically, as soon as you are granted them.  Debt diversity adds 10% to your score, and student loan debt is different than other forms of debt.  Student loan debt also increases the time span of your credit history, which accounts for 15% of your total score.
    Your score isn’t truly affected until you begin making payments or when your payments become due.  This sounds like the same thing, but it’s not.  While you are in school, during your grace period or in a deferment or forbearance your score will be unaffected.  This is because there is no payment history to report.  However, new lenders can still consider your student loan debt when deciding whether or not you are a good candidate for a loan.
    35% of your score depends on your payment history.  Therefore, making student loan payments on time can positively affect your credit score.  But, due to the varying repayment plans, the amount of the payment can change your score in other ways.  30% of your score is based on the total amount owed to lenders.  Therefore, if you are making interest-only payments or interest plus payments towards the balance, then your score will be affected positively because the amount owed is staying the same or is going down.  However, if you are on a repayment plan that doesn’t meet the full interest and your outstanding balance grows, even though your payments are on time (which keeps that portion of your score positive), your score may be affected negatively for the part based on amount owed.
    The most obvious way to affect your score is by missing payments, making late payments, or going into default on your student loans.  These will damage your score and a default will damage your score significantly.  Therefore, it is very important to work with your lenders to make manageable payment plans that you can keep up with in a timely manner.  Reports typically span over seven years, so even a blemish on your payment history can take a long time to correct.

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    Until Next Time,
    Jenny L. Maxey
    Author of Barrister on a Budget: Investing in Law School…without Breaking the Bank

    Wednesday, January 14, 2015

    Student Loan Series: The Law School Scholarship Scam

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    Barrister on a Budget just wrapped its four-part series on applying to law school, and with most of your admission applications in, it’s now time to start filing your FASFA applications and figuring out how to finance your education.  However, there’s more to think about than just applying for loans.  Over the next three weeks, we’ll discuss false scholarships, how some loans can affect your credit score, and what happens to financial assistance if you drop a class.  Stay informed with this three-part series on student loans.
    As interest in law school continues to dwindle across the country, schools are attempting to ignite more attention – or at least hook the best in the small pool – by offering substantial scholarships upon admittance to the program.  However, despite even your best efforts, you may lose these scholarships after the first year or even the first semester!
    These scholarships – gaining notoriety as “exploding scholarships” or “bait-and-switch scholarships” – come with conditions.  Some may require you to maintain a certain GPA or achieve a specified rank in order to keep the scholarship and not just after one semester or year, but for every semester until you graduate.  Many students – as great as they may have been with their undergraduate education – cannot reach or maintain these harsh standards in law school and lose their scholarships.  Already invested in their education, students are trapped in deciding between paying for the rest of their law school education or dropping out.  Thus, the bait-and-switch.
    Don’t assume that this can’t happen to you.  Sadly, there are many top LSAT-takers who end up in the bottom-half of their class, losing their precious scholarships in the process.  Be absolutely clear with the law school what the terms are for a merit scholarship; try to negotiate for an irrevocable scholarship—or go elsewhere.  After all, if they really want you because of your stellar LSAT score, chances are others do, too. No one will look out for your interest. You need to do that.

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    Until Next Time,
    Jenny L. Maxey
    Author of Barrister on a Budget: Investing in Law School…without Breaking the Bank