PHEAA Encourages Smart Financial Aid Planning
Federal Loan Program Remains Strong in Assisting Students
Harrisburg, PA (November 24, 2008) - PHEAA is assuring Pennsylvania's students and families that federal student loan funding is available despite continued disruption in the financial markets.
PHEAA encourages college-bound students and their families to research all available financial aid programs prior to committing to a particular program. Students should first exhaust all possibilities of gift aid such as scholarships and grants, which do not need repaid. Federal and state work-study programs allow students to earn money for their education while gaining valuable work experience, providing them an additional advantage when they enter the workforce following graduation.
“Financial aid packages are often comprised of various forms of aid with different benefits,” said Representative William Adolph, Chairman of the PHEAA Board of Directors. “It is important for students to understand that there is help available that does not need to be repaid. Ideally, we want students to take on as little debt as necessary to afford their education.”
If additional aid is required to meet the cost of tuition, students and families should consider a low-cost loan from the Federal Family Education Loan (FFEL) Program, such as Pennsylvania's KeystoneBEST Stafford Loan program. Low-cost loan funding continues to be readily available through this program. Congress recently reinforced the FFEL Program by ensuring that lenders have access to a stable source of capital. The U.S. Department of Education has also been taking action to support the FFEL Program for the long-term benefit of America's students. This includes the Department's November 8th announcement that it will replicate for the 2009-10 academic year the loan purchase and participation interest programs that have been put in place for 2008-09 school year, which ensures continued access to federal loan funding.
“Recent actions taken by Congress and the Department have stabilized the program, allowing the continued availability of FFEL loans,” said Senator Sean Logan, Vice Chairman of the PHEAA Board of Directors. “When every opportunity for gift aid has been investigated, students should then turn to a FFEL Stafford Loan. These loans offer affordability and low interest rates, ensuring that graduates enter the workforce unburdened by unmanageable debt.”
There is also strength in numbers and the FFEL Program is comprised of a large network of lenders, providing choice and diversity to students and access to quality customer service for the life of the loan.
In the case that gift aid and Stafford Loans do not fully cover the cost of tuition and parents want to help their child, PHEAA encourages them to consider a Parent PLUS Loan. Through this program parents can borrow up to the total cost of their child's education minus other student aid that their child has received. Parent PLUS Loans offer a low fixed interest rate, no income requirement, flexible repayment, and no prepayment penalty.
Alternative loans should only be considered as a last resort for students and their families. Not only do they have higher interest rates during repayment, they can also have stringent credit requirements which borrowers may find difficult to meet in today's tightening credit markets. As a result, alternative loans can be difficult to obtain and can be an unreliable source for covering the cost of higher education.
“Students could be taking a gamble with their future when they rely on alternative loans,” said Jim Preston, PHEAA President and CEO. “Not only are they more costly, they can be difficult to obtain. If a gap remains between funding and the cost of tuition, Stafford and PLUS Loans are the most affordable, most available option.”
FFELP borrowers are also able to take advantage of PHEAA's excellent customer service staff throughout the life of their loan. PHEAA's default prevention efforts have proven successful year after year, as demonstrated by its low cohort default rate. PHEAA has earned a cohort default rate of 3.4 percent for FY 2006, the most recent report, 35 percent below the National Default Rate of 5.2 percent.
The cohort default rate measures the percentage of borrowers who have defaulted on their student loans within 12 to 24 months of entering into repayment, which is generally six months after the borrower leaves school. When a borrower enters into default, federal taxpayers pay the consequences since the loan is federally guaranteed. PHEAA's consistently successful cohort default rate results in savings for taxpayers year after year.
Students and their families who have questions about finding student aid should contact their high school counselor to obtain a schedule of financial aid nights in their area. These events provide one-on-one opportunities to ask questions about choosing the right form of student aid and the correct way to complete the Free Application for Federal Student Aid (FAFSA).