FAFSA blues
May 4, 2012 9:02 PM Subscribe
Help my friend get financial aid again.
I have a friend here in Minnesota that would like to go back to school but she just found out that she is ineligible for student aid because she is in default for her previous loans of about $5K. She is unemployed and is under 24 (but her parents can't contribute to tuition), so she is not an independent student. What options does she have to become eligible again? She knows if she was able to make payments for 6 months, she'd be eligible again, but would like to go back to school sooner than that.
I have a friend here in Minnesota that would like to go back to school but she just found out that she is ineligible for student aid because she is in default for her previous loans of about $5K. She is unemployed and is under 24 (but her parents can't contribute to tuition), so she is not an independent student. What options does she have to become eligible again? She knows if she was able to make payments for 6 months, she'd be eligible again, but would like to go back to school sooner than that.
Assuming your friend has defaulted on a federal student loan, she has no other options except to find a way to make some payments somehow. The Department of Education has a page for people who are in default and want to go back to school with financial aid. All of them involve making at least three payments (by using the loan consolidation program, the third bullet point on that page) prior to eligibility being restored.
posted by fireoyster at 9:18 PM on May 4, 2012 [1 favorite]
posted by fireoyster at 9:18 PM on May 4, 2012 [1 favorite]
$5000 is a pretty small loan, considering. Has she tried contacting the federal student aid... contact number? I don't have personal experience with them, but often-times a human being can bend the strict policy a bit and make things happen.
posted by DoubleLune at 9:57 PM on May 4, 2012 [1 favorite]
posted by DoubleLune at 9:57 PM on May 4, 2012 [1 favorite]
Best answer: There are two options for students in default: loan rehabilitation and loan consolidation.
If she chooses loan rehabilitation, she will have to make between 9-11 monthly payments on time in a row. After she finishes 6 of those payments she'll be eligible for financial aid again. After she finishes the 9-11 payments, she will officially be out of default and the delinquent loan will be wiped from her credit score. Because her loan is relatively small, she may not be eligible for rehabilitation.
Benefits:
- removes defaulted loan from credit reports
- after 9-11 months, loan is eligible for deferment, forbearance and income-based payment plans
Drawbacks:
- requires set minimum payments of no less than 1% of balance
- takes at least 6 months
- if you miss one monthly payment, you are ineligible for loan rehabilitation
-
The other option is loan consolidation. If she has never consolidated her loans before, she is eligible for this option. Basically, she'll take out another federal loan from the government that will pay the principal and the interest on her defaulted loan, instantly* taking her out of default. The defaulted loan will still remain on her credit report though. This new consolidated loan is eligible for all of the perks that regular federal student loans receive. She is eligible for income-based and income-contingent payment plans that calculate her monthly payment based on her income instead of a percentage of the loan. If she's underemployed or unemployed, she may not have to make any payments at all for a while. She's also eligible for forbearance and deferment options. So, for example, the loan will automatically go into deferment while she's enrolled in school. If she's not planning on enrolling in school for a while, but doesn't have the extra funds to make payments on her loans, she can apply for a temporary hardship forbearance.
Benefits:
- eligible for financial aid within 30-90 days
- instantly eligible for deferment, forbearance and income-based repayment plans
- monthly payments are not immediately required, depending on income
Drawbacks:
- new consolidated loan is subject to current interest rates
- can only consolidate once
- defaulted loan remains on credit report until paid in full
Given that she wants to start school as soon as possible, I would consider the loan consolidation option. Unless she's planning on making a major purchase in the near future, she's probably not terribly worried about her credit score, so there's no need to do loan rehabilitation.
I do not suggest that you use any for-profit third party organizations to help you. There are plenty of scammy sites that will charge a ridiculous amount of money for something that you can get for free. I suggest that you contact the William D. Ford Loan Consolidation Department directly. The department is *very* particular about the way they need the paperwork filled out, so it's probably a good idea to get some type of assistance.
I have worked closely with one individual at the Federal Loan Consolidation Dept. who has been an excellent resource to my students who are in the same situation as your friend. If you would like his contact information, please MeMail me and I'll pass it on to you to give to your friend.
As far as financial aid goes, she'll have to use her parents' tax info, even if they can't contribute to her education. It's a frustrating rule, but it is what it is. Loopholes do exist, but they are usually for students who have endured emotional or physical abuse and have no contact whatsoever with their parents. If she talks to the financial aid office, she may be able to take out an additional unsubsidized loan if her preliminary financial aid package isn't enough to cover tuition.
If her parents refuse to give her their tax information, she may still be able to obtain that info online via the IRS Data Retrieval Tool, as long as she has at least one parent's SSN, date of birth and the address they used to file their taxes.
I wish your friend the best of luck. Please feel free to contact me if either of you have any questions.
posted by chara at 10:34 PM on May 4, 2012 [4 favorites]
If she chooses loan rehabilitation, she will have to make between 9-11 monthly payments on time in a row. After she finishes 6 of those payments she'll be eligible for financial aid again. After she finishes the 9-11 payments, she will officially be out of default and the delinquent loan will be wiped from her credit score. Because her loan is relatively small, she may not be eligible for rehabilitation.
Benefits:
- removes defaulted loan from credit reports
- after 9-11 months, loan is eligible for deferment, forbearance and income-based payment plans
Drawbacks:
- requires set minimum payments of no less than 1% of balance
- takes at least 6 months
- if you miss one monthly payment, you are ineligible for loan rehabilitation
-
The other option is loan consolidation. If she has never consolidated her loans before, she is eligible for this option. Basically, she'll take out another federal loan from the government that will pay the principal and the interest on her defaulted loan, instantly* taking her out of default. The defaulted loan will still remain on her credit report though. This new consolidated loan is eligible for all of the perks that regular federal student loans receive. She is eligible for income-based and income-contingent payment plans that calculate her monthly payment based on her income instead of a percentage of the loan. If she's underemployed or unemployed, she may not have to make any payments at all for a while. She's also eligible for forbearance and deferment options. So, for example, the loan will automatically go into deferment while she's enrolled in school. If she's not planning on enrolling in school for a while, but doesn't have the extra funds to make payments on her loans, she can apply for a temporary hardship forbearance.
Benefits:
- eligible for financial aid within 30-90 days
- instantly eligible for deferment, forbearance and income-based repayment plans
- monthly payments are not immediately required, depending on income
Drawbacks:
- new consolidated loan is subject to current interest rates
- can only consolidate once
- defaulted loan remains on credit report until paid in full
Given that she wants to start school as soon as possible, I would consider the loan consolidation option. Unless she's planning on making a major purchase in the near future, she's probably not terribly worried about her credit score, so there's no need to do loan rehabilitation.
I do not suggest that you use any for-profit third party organizations to help you. There are plenty of scammy sites that will charge a ridiculous amount of money for something that you can get for free. I suggest that you contact the William D. Ford Loan Consolidation Department directly. The department is *very* particular about the way they need the paperwork filled out, so it's probably a good idea to get some type of assistance.
I have worked closely with one individual at the Federal Loan Consolidation Dept. who has been an excellent resource to my students who are in the same situation as your friend. If you would like his contact information, please MeMail me and I'll pass it on to you to give to your friend.
As far as financial aid goes, she'll have to use her parents' tax info, even if they can't contribute to her education. It's a frustrating rule, but it is what it is. Loopholes do exist, but they are usually for students who have endured emotional or physical abuse and have no contact whatsoever with their parents. If she talks to the financial aid office, she may be able to take out an additional unsubsidized loan if her preliminary financial aid package isn't enough to cover tuition.
If her parents refuse to give her their tax information, she may still be able to obtain that info online via the IRS Data Retrieval Tool, as long as she has at least one parent's SSN, date of birth and the address they used to file their taxes.
I wish your friend the best of luck. Please feel free to contact me if either of you have any questions.
posted by chara at 10:34 PM on May 4, 2012 [4 favorites]
She will need to show at least one tax return where she lists herself as a dependent (and her parents do not do so).
I think she can achieve the status if she is truly financially self-supporting and her parents can't (or refuse) to help.
This is erroneous. I have been doing the above for the past five years, and the only thing that lets me claim independent status for next school year is (finally!!) turning 24 in 2012. Talking to the financial aid offices at two different state schools netted me approximately 0 effective results, even despite being a high school senior at the time with extremely strong academics/standardized testing scores.
Also see: http://www.finaid.org/otheraid/parentsrefuse.phtml
(excerpt)
Independent Student Status
The Federal requirements for independent student status changed in 1992. Since then, the student must satisfy at least one of the following criteria to be considered independent:
The student is 24 year of age or older by December 31 of the award year.
The student is an orphan or ward of the court or was a ward of the court until the student reached the age of 18.
The student is a veteran of the Armed Forces of the United States.
The student is a graduate or professional student.
The student is married.
The student has legal dependents other than a spouse. (Dependent means receiving more than half the individual's support from the student.)
posted by Estraven at 1:42 AM on May 5, 2012
I think she can achieve the status if she is truly financially self-supporting and her parents can't (or refuse) to help.
This is erroneous. I have been doing the above for the past five years, and the only thing that lets me claim independent status for next school year is (finally!!) turning 24 in 2012. Talking to the financial aid offices at two different state schools netted me approximately 0 effective results, even despite being a high school senior at the time with extremely strong academics/standardized testing scores.
Also see: http://www.finaid.org/otheraid/parentsrefuse.phtml
(excerpt)
Independent Student Status
The Federal requirements for independent student status changed in 1992. Since then, the student must satisfy at least one of the following criteria to be considered independent:
The student is 24 year of age or older by December 31 of the award year.
The student is an orphan or ward of the court or was a ward of the court until the student reached the age of 18.
The student is a veteran of the Armed Forces of the United States.
The student is a graduate or professional student.
The student is married.
The student has legal dependents other than a spouse. (Dependent means receiving more than half the individual's support from the student.)
posted by Estraven at 1:42 AM on May 5, 2012
I applied and was granted independent status at age 21. It is completely legitimate.
I had to initially show that I was filing my own taxes, utilities in my name, etc.
I'm sorry that Estraven had the difficulties he/she had. It makes me wonder if it's not done differently by state because in Arizona, in the early 2000's, I filled out an appeal for independent status and was granted the request.
The OP should at least try to find out if the appeal is available in her state at her school.
As far as the default, those options were explained very well, with the fastest return to school being the consolidation route.
Good Luck : )
posted by MansRiot at 2:53 AM on May 5, 2012
I had to initially show that I was filing my own taxes, utilities in my name, etc.
I'm sorry that Estraven had the difficulties he/she had. It makes me wonder if it's not done differently by state because in Arizona, in the early 2000's, I filled out an appeal for independent status and was granted the request.
The OP should at least try to find out if the appeal is available in her state at her school.
As far as the default, those options were explained very well, with the fastest return to school being the consolidation route.
Good Luck : )
posted by MansRiot at 2:53 AM on May 5, 2012
Response by poster: Thanks for all the info so far. The independent thing is not really an issue, I just included it to prevent people suggesting she get help from her parents. The issue is the default. The consolidation that chara mentions sounds like the best route.
posted by soelo at 8:55 AM on May 6, 2012
posted by soelo at 8:55 AM on May 6, 2012
Have her talk to a local community college financial aid office. Here in Washington there used to be (at least several years ago) programs where you could go back to school with special finaid if you were recently laid off or on state food assistance, even if your loans were in rehabilitation.
I have no idea what the situation is like in your area, but a local community college will have the knowledge about these kinds of programs. They are usually better at helping you find these programs than a 4-year school would be.
If she is ever late on a rehab program, it will start the clock over again. I'm talking late, not missing a payment, even being *late* because you moved or switched banks or whatever. If she really wants to go back, it's vital that she knows that, and loan rehabilitation is necessary, because other programs, if they're available in her area, will probably only pay for a quarter, or maybe two of school, or will only pay for certain types of programs, which may not be what she's interested in studying. Depending on what's available in her state, loan rehab may be the only option at all.
I will say that if she can afford to take even one night class on her own dime while waiting to be eligible for aid, it would be worthwhile, even if she can't afford to go back full or even part time on her own dime. I know people who did that, and even though it took ten years, they're done with school now.
posted by thelastcamel at 9:10 PM on May 6, 2012
I have no idea what the situation is like in your area, but a local community college will have the knowledge about these kinds of programs. They are usually better at helping you find these programs than a 4-year school would be.
If she is ever late on a rehab program, it will start the clock over again. I'm talking late, not missing a payment, even being *late* because you moved or switched banks or whatever. If she really wants to go back, it's vital that she knows that, and loan rehabilitation is necessary, because other programs, if they're available in her area, will probably only pay for a quarter, or maybe two of school, or will only pay for certain types of programs, which may not be what she's interested in studying. Depending on what's available in her state, loan rehab may be the only option at all.
I will say that if she can afford to take even one night class on her own dime while waiting to be eligible for aid, it would be worthwhile, even if she can't afford to go back full or even part time on her own dime. I know people who did that, and even though it took ten years, they're done with school now.
posted by thelastcamel at 9:10 PM on May 6, 2012
Ah, I just want to be clear that these special programs I mentioned that were available here were types of special state aid, unconnected to the federal financial aid, which made it a "loophole" where you could go even if you were in loan rehab for federal loans. There were conditions, and none of the programs would pay for more than a couple of quarters, and I think they were cut some time in the last couple of years from the state budget here, but it would be worth talking to her local community college to see if there is anything like that in Minnesota.
I know a friend of mine got funded for a quarter through something like that, largely because she was laid off from her job, and low-income. She was ineligible for federal finaid, and would not have been able to go without these programs.
She could also look into special scholarships--particularly scholarships for women. These are not always "merit" or grades-based. I'm thinking about things like the Talbots scholarship for women. Be aware that the deadlines for scholarships are usually a year before the school year starts, but these would be worth checking into even if she is hoping to get federal aid in the future. Not the quick start she'd be hoping for, but every little bit helps.
posted by thelastcamel at 9:17 PM on May 6, 2012
I know a friend of mine got funded for a quarter through something like that, largely because she was laid off from her job, and low-income. She was ineligible for federal finaid, and would not have been able to go without these programs.
She could also look into special scholarships--particularly scholarships for women. These are not always "merit" or grades-based. I'm thinking about things like the Talbots scholarship for women. Be aware that the deadlines for scholarships are usually a year before the school year starts, but these would be worth checking into even if she is hoping to get federal aid in the future. Not the quick start she'd be hoping for, but every little bit helps.
posted by thelastcamel at 9:17 PM on May 6, 2012
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I feel for your friend; I paid for community college out of pocket (one class per semester) until I was old enough to qualify for independence. My parents refused to even provide their information for filing. Apparently they thought I was so irresponsible that I would skip out on my student loans and leave the payments to them. Which is ridiculous.
Her other option is to become an employee of a college/university. Usually employees of colleges receive free tuition at said college. I did this after paying for close to two years of community college (as well as supporting myself) with student loans. I plan to graduate in two years from an Ivy League university with less than $20k in student loan debt.
posted by two lights above the sea at 9:16 PM on May 4, 2012