Bad News and Good News
First the good news:
Recently while the media went into a frenzy with their best Chicken Little impersonation selling their doom and gloom claiming that educational loan interest rates would double. The Federal Government just announced that federally backed educational loan interest rates would go down. Over the board all of these loans dropped .37%.
This means parents that use the PLUS loan to borrow for their children will pay 6.84%, instead of 7.21%. Parents that borrow $20,000 loan during the 2015-2016 school year will save around $558 in interest on a 10-year repayment plan.
||Loans first disbursed on or after 7/1/14 & before 7/1/15
||Loans first disbursed on or after 7/1/15 & before 7/1/16
|Direct Subsidized Loans
|Direct Unsubsidized Loans
|Direct Unsubsidized Loans
||Graduate or Professional
|Direct PLUS Loans Parent PLUS Loan
||Parents and Graduate or Professional Students
*Perkins Loans (regardless of the first disbursement date) have a fixed interest rate of 5%.
So that is the good news, educational loan interest rates are reduced. Maybe they are anticipating another crash. Time will tell.
On to the Bad News:
While the Feds announced the lower interest rate they have also reduced the Income Asset Protection Allowance by a bewildering 85%. Headlines read: Feds reduced the Financial Aid Asset Protection Allowance by 85%!
Some basics on financial aid, the income protection allowance (IPA) is a modest allowance for basic living expenses( or your emergency funds). The IPA or Asset Protection is a dollar amount of money that is not counted in the financial aid formula. The federal government says that a family of 4 is allowed to have $XXXX. in savings, checking and other exposed assets. Every dollar above this number is calculated into the Expected Family Contribution number thus reducing the aid given.
If a family of 4 has $20,000 above the asset protection allowance, then that $20,000 of exposed money will reduce the amount of aid the student is eligible to receive.
With the age of the older parent at 45 and married; the protection allowance is $6,300. At age 46 the allowance is $6,400, at 50 it is $7,100 at 55 it is $8,100 etc.
Last year the Protection Allowance for a married family with the older parent age 45, it was $30,700. Last year a family that had $30,699 in their checking/saving account was below the protection allowance threshold. This year this same family now has $24,399 of exposed money that will reduce their aid package by 10% to as much as 20%. This family will receive 10% less financial aid and will be forced to take out more educational loans.
It is more important than ever to reduce your exposed assets and move the money into sheltered products just so that you can get what you should have received.
This makes me angry! While diligent families do their best to save for college it only backfires because the money they saved was exposed and counts against them. You must learn how the financial aid system works so that you can legally and ethically take advantage of the system while you stack the deck in your favor. Yes, save money for college but it must be done in such a way that it does not hinder your chances or reduce your overall aid package.
Ask me in person or off line why the federal government is doing this. Without stirring up a hornets’ nest, you’ll be shocked to find out the real reason.
Get your [financial] house in order so that your student qualifies for everything they are entitled and graduate debt free or near debt free. Contact me now.