Consider the poor old FAFSA (Free Application for Federal Student Aid): for decades it’s been a reviled part of the student financial aid process. People complain about its length. They complain about the level of details it requires. One of the biggest gripes has been the timing: many colleges require submitting the FAFSA in January with inclusion of tax details from the just-ended year. It’s a real scramble for families to file their taxes before many of the forms and elements are even in hand. And that’s before they work through the FAFSA itself.
However, starting in the fall of 2016 two key things have changed for the better. First, families can use the so-called “prior, prior” year’s taxes when completing the FAFSA. And second, families can file the FAFSA starting on October 1st of the year prior to entering college. That means that beginning on October 1, 2017 families have been able to file the FAFSA for the 2018-19 academic year using tax details from 2016.
While the FAFSA itself is still a cumbersome questionnaire, at least the process doesn’t present as much of a logistical squeeze.
Note that colleges have different deadlines and windows during which they will accept their financial aid forms. Make sure to check with your financial aid office for your particular deadlines.
It’s late spring in student loan land! That means it’s time for the federal government to announce the fixed interest rates that will pertain to new federal student and parent loans taken out over the course of the next academic year. July 1, 2017 – June 30, 2018, to be precise.
The rates will be:
- Direct Student Loans, both subsidized and unsubsidized, for undergraduates will have a rate of 4.45%
- Direct unsubsidized loans for graduate students will have a rate of 6.0%
- Parent PLUS loans (for parents of undergraduates) and GradPLUS student loans for graduate students will have a rate of 7.0%
Each of these rates is 0.69% higher than for borrowing during the academic year ending June 30, 2017 because the interest rate instrument used to set these rates has risen that much over the past year.
Though rates have gone up, keep in mind that these federal loans are (generally) a pretty good deal. Why? Three key reasons:
- For undergraduates in particular the rate is toward the low end of what you might find from a private lender – and most private lenders won’t make loans at all to undergraduates without a co-signer.
- These rates will be fixed for the life of the loan. If rates generally continue to rise in the rest of the market, it could be advantageous to have locked in these rates.
- Federal loans have very flexible forbearance, deferment and repayment provisions.
Nonetheless, you should be aware that lower cost loans might be available from private lenders. Remember that these federal loans also involve fees: currently 1.069% for Direct Student Loans and 4.276% for PLUS loans. When you include the impact of fees in the cost of borrowing, the resulting APRs (Annual Percentage Rate – the metric that bakes in most loan costs) can be considerably higher than the interest rate alone. Private lenders will make student loans (usually a co-signer is necessary) with APRs that start below 3% and range higher depending on the credit strength of student and co-signer. Graduate and Parent borrowers, in particular, might very well find lower borrowing costs via private programs than via the federal programs. (One more note: the lowest private loan rates will be on variable rate loans – those rates will go up and down over the life of the loan).
Remember to only borrow if you must. Borrow from the cheapest and/or most flexible source first. And always, shop around, compare your options, and talk to your financial aid office about the best configuration of your financial aid.
Federal Student Aid, an office of the U.S. Department of Education, has put together this nifty infographic for students who are wondering whether or not they qualify for federal student aid. The good news? Most students qualify. Check it out.