The last few weeks have been hectic in the BFP household as we had a combination of the holiday festivities and my wife’s applications for graduate school. She’s applying to Ph.D. programs, so she’s been researching graduate programs, writing applications, preparing for the GRE, and taking the GRE these last few weeks. Fortunately, one problem she hasn’t had to tackle was how to pay for the Ph.D. because they often get tuition covered by the school, plus a stipend.
I graduated undergrad with about $25,000 in student loans, a paltry sum when compared to some of my friends who had upwards of $50,000 and $80,000 in student loans. Also, the majority of my loans were low-interest deferred Stafford loans. I was only able to get those loans, and other grants, because I filled out a FAFSA form… something 25% of families fail to do.
I was amazed when I read a press release from Sallie Mae that stated 25% of families didn’t even complete the FAFSA application! Sallie Mae is another one of those former government sponsored entities that privatized a few years ago (like Freddie Mac and Fannie Mae) and they deal strictly with student loans and college savings plans. The FAFSA is the Free Application for Federal Student Aid.
How do I apply?
You can either fill out a paper form or you can apply online. Applications can be submitted starting January 1st (so you can do it now) and the deadline is June 30th.
Why is the FAFSA so important?
It’s used to determine everything in federal aid. Need- and non-need-based grants, scholarships, work-study and low-cost student loans – they all use the FAFSA to determine who gets what. Last year, $163 billion dollars in student aid was awarded and 40% of them were grants that do not have to be repaid. That is free money. If you don’t complete a FAFSA, you are not eligible for any federal financial aid. No Stafford loans, no Perkins loans, no PLUS loans, and not even unsubsidized Federal loans. Zero. Zip.
I heard student loans are really hard to get this year.
That may be true, but if you don’t spend the hour or two to fill out the FAFSA, they will be nearly impossible for you to get because you won’t be eligible for any of the federal loans.
What are the interest rates on subsidized loans?
The Stafford loan is probably the most popular subsidized loan as it has the most favorable interest rates, it’s a need-based loan and the rates are schedule to be (all loan rates are listed on Sallie Mae):
- July 1, 2008–June 30, 2009 the interest rate is 6%.
- July 1, 2009–June 30, 2010 the interest rate is 5.6%.
- July 1, 2010–June 30, 2011 the interest rate is 4.5%.
- July 1, 2011–June 30, 2012 the interest rate is 3.4%.
- Beginning July 1, 2012 the rate is 6.8%.
Those rates may not look incredibly favorable now but remember that interest is tax deductible if you earn under a certain amount and the interest is deferred until after graduation.
I recognize that some part of that 25% of families may not be eligible for federal financial aid on a need basis, but there are plenty of non-need related federal financial aid options that everyone should try to apply for.
I am extremely thankful that I was able to get federal financial aid (and some grants directly from Carnegie Mellon) and it all starts with filling out and submitting a FAFSA.