Federal Student Loan Overview Tips

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Have you heard about the Federal Direct Loan Program?

Federal Direct Student Loans

The Federal Direct Loan Program (FDLP) is a U.S. Department of Education program that provides students with loans to help pay for college. With a direct student loan, the Department of Education acts as the lender for Stafford and PLUS loans.

The Federal Family Education Loan Program (FFELP) is offered through private lenders and institutions, but is federally guaranteed.

Schools will participate in either the FDLP or FFELP, however, according to the Department of Education, they may not participate in both. The school may choose which program is best suited to help its students.

The FDLP was one of the first pieces of legislation signed by President Bill Clinton when he took office in 1993. Funding for this program was just over $7 billion in 2006, though it has dropped dramatically to $509 million for 2008.

In order to qualify for a direct student loan you must be registered at least half-time in school, complete the Free Application for Federal Student Aid (FAFSA) and fill out a Master Promissory Note. The MPN explains the terms and conditions of the government student loan.

Do you know what you can deduct on your taxes?

Education Tax Deductions

Every little bit of money you can save during college helps. When it comes time to do your taxes for the year, you have the opportunity to save money that many people are not aware of.

Education expenses can be deducted from your taxes and give you a bigger return at the end of the fiscal year. Tuition, travel expenses, books, and a lot more required for your higher education can be factored into your tax return.

If you are not sure what expense you can deduct check with a tax professional or your financial aid adviser at school. They can tell you exactly what is deductible and how much you can end up saving.

If you work a part or full-time job while attending school there are business expenses that may be deductible as well. Learning how to file your own taxes and what you can write off is very valuable to those who can use any extra help that is out there. That extra money could pay for a month's rent, your textbooks for a semester or anything else that you need. Interest on private and government student loans may be deductible too.

Do you know what the disbursement dates are for your loans?

It's a Date!

Read through the terms and conditions of every loan (federal and private) that you are applying for. One very important item to take into account is the set disbursement dates. Many federal student loans have set dates, sometimes one month after a semester begins, sometimes before.

If your chosen school requires that tuition be paid prior to the start of the semester in order to attend classes, make sure this won't be a problem. Most private loans can be disbursed within five business days of your application being approved.

You should also check to see how the loan is disbursed. Some lenders will send the funds directly to you in the form of a check. Others might send the funds to the school, but then require the borrower to sign a form or disbursement check and return it to the financial aid offices.

Each of these steps requires some time. If not taken care of promptly, you could end up being withdrawn from your courses and may not be able to return for the semester. Coordinate these dates with your school's financial aid adviser and the lender so that all deadlines are taken into consideration.

Did you lose some federal aid when you got more scholarship money?

Financial Aid Catch-22

When planning your college career and expenses, remember to take into account any scholarships or grants you receive after your financial aid package. While credit-based loans will not be affected, assistance based on financial need may.

Any need-based federal student loans are subject to changes in your financial situation. If you are awarded outside sources of money that are not repayable your federal loans may be decreased. This is because it is determined that those outside sources will cover a portion of loans given to you due to financial need. An increase in money available for your education means your need has gone down. It is the financial Catch-22.

Sources of financial help like academic and athletic scholarships are the best choices for college funding because you do not have to pay them back. Take notice, however, that they will take the place of loans based on your financial needs before private loans based on credit.

More money through grants and other non-repayable sources means fewer loans and less interest to pay back once you graduate.

Does it sound to good to be true?

Watch Out For Scams

Unfortunately, like everybody else in the world, students and their families are often targeted by scams aimed at stealing their money. So here are some things to look out for so you don't end up losing money that could have paid for your education.

Remember that FAFSA stands for Free Application for Federal Student Aid. So if any organization offers a service where you pay them to file the FAFSA for you, report them to the Better Business Bureau (BBB). You can easily file this form yourself, either online or through the mail.

Another trick to watch out for is any financial aid seminar that requires a fee or offers to file your FAFSA at the end for you. Check out any seminars like this you come across with the BBB to make sure they are legitimate. There are so many free sources of information and guidance on financial aid for college that these seminars often turn out to be scams.

If it sounds too good to be true, it probably is. So if an organization says that they guarantee scholarships and federal student loans or will give you your money back, don't believe it. No one can guarantee a scholarship, loan or grant for you, nor should they be charging you money to get one.

All the information you need is available to you and there is no point in paying someone else to do things for you.

Did you know loans are meant to cover certain living expenses too?

Money For Living Expenses

When you receive aid in the form of private and federal student loans, these are meant to cover the cost of attendance at your school. This doesn't just mean tuition. They cover room and board, transportation and other related expenses.

If you live in off-campus housing and have rent to pay every month it can get expensive. Some of that money you were awarded is earmarked for such expenses, regardless of the type of housing you live in. Once your tuition is covered for the academic term, any extra money will remain in your school account and be applied to the next semester.

With most loans you or your parents have the option to request that those funds be released to you. You can then apply the money to your remaining expenses. This can stop you from falling behind on rent and other bills, though you should be careful when doing this. You want to make sure that after taking this money out there is still enough left to cover your next academic term.

Always be aware of what you need to pay the school you are attending and what you need for other costs of attendance. Never take more than should be dedicated to non-tuition costs. Otherwise you may find yourself unable to take your next round of classes on time.

Does it feel like you are rushing through a ton of information?

Pace Yourself

College is a marathon, not a sprint. Financing your education is no different. You will be inundated with information about loans, scholarships and grants. It can all get very confusing and overwhelming in no time.

The important thing to remember is not to rush. Take your time to make sure you understand your options and the process. The earlier you get your financial aid situation settled, the better off you will be. However, getting your situation settled means getting it right. Being done before everyone else won't help you if you make mistakes or miss things that could have helped.

So slow down. Ask questions if you have them. Don't think you have to take the first option that presents itself. One of the most common causes of students struggling to make it from year to year in college is that they rushed through the financial aid process and didn't find what was in their best interests.

Hurrying through all this information because it gives you a headache will only give you an even bigger one later on. Take the time to understand the private and federal student loans out there. You want to be the tortoise, not the hare.

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