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Student Financial Services

Announcements

By federal law, students convicted of drug offenses committed while receiving Title IV federal financial aid may be ineligible for federal financial aid for one or more years from the date of conviction.

The law does not apply to juvenile records, and students may regain eligibility by completing an acceptable drug rehabilitation program or by having their convictions overturned.

Students who have been convicted of or who have pled nolo contendere or guilty to a crime involving fraud in obtaining Title IV federal financial aid are not eligible for additional federal aid until they have repaid the fraudulently obtained funds.

Deducting Student Loan Interest

My friend has told me that you can deduct student loans. I told him it was just the interest that you can deduct, but he says you can deduct both. Which one is it? Can you deduct student loans?

Tell your friend that you’re correct — you can deduct only the interest. But you may be able to take a decent-sized write-off.

You can deduct up to $2,500 in student-loan interest paid in 2007 if your income for the year was $55,000 or less if single, or $110,000 or less if married filing jointly. Single people can take a partial deduction if they earned up to $70,000 for the year, or $140,000 if married filing jointly.

You can take the deduction regardless of whether you itemize. You may even qualify to take the write-off yourself if your parents paid the interest on a loan for which you were legally liable (your parents, however, cannot claim the deduction if they weren’t liable for the loan). You cannot deduct student-loan interest if you are being claimed as a dependent on your parents’ tax return.

For more information about deducting student-loan interest and other education-related tax breaks, see Tax Breaks for Education. Also see IRS Publication 970, Tax Benefits for Education.

For other ways to lower your taxes, see The 13 Most Overlooked Tax Deductions and the Kiplinger Tax Center.

Families whose kids will be attending college soon — or who are there right now — can find help with the bills in Everything You Need to Know About College Aid.

All Contents © 2008 The Kiplinger Washington Editors

The New Business of College
Student Finance Pitfalls

The struggle to pay for college makes for big business. The U.S. Department of Education estimates there are now more than 6,100 post-secondary institutions, more than 3,200 lenders, 35 guaranty agencies and countless contractors involved in distributing, monitoring and funding financial aid, which, in the 2004-05 academic year, totaled about $129 billion.

That leaves lots of wiggle room for opportunists looking to make money off of first-time borrowers. Most of what these companies pull off is legal, but it still ends up costing students big bucks.

In Pictures: How To Avoid Student Finance Pitfalls

One of the most common money-making schemes, according to the U.S. Federal Trade Commission, is perpetrated by financial aid consultants who charge for help that students can get elsewhere for free. These consultants typically claim that millions of dollars of scholarships go unclaimed every year, and they charge fees–from $50 to more than $1,000–for performing scholarship searches and filling out financial aid forms like the Free Application for Federal Student Aid (FAFSA), which can usually be filled out at no charge with the help of a school’s financial aid counselor.

In many cases, consultants set up seminars in hotels or schools, where they offer free seminars on how to pay for college. Mark Kantrowitz, publisher of the financial aid info site FinAid.org, says these seminars usually draw 100 to 150 students, who are then cornered into a hard sell at the end of the seminar and convinced to pay for unnecessary services.

Numerous Web sites also offer financial aid services that can be found elsewhere at no cost. One, FAFSA.com, charges $79.99 for first-time FAFSA applicants.

Marc Alexander, vice president of Student Financial Aid Services, which runs FAFSA.com, says there is a need for his service, given the complexity of the FAFSA form. Larger universities with thousands of students may only have access to a handful of counselors, he says, and FAFSA.com provides services to students for a “reasonable price,” the way H&R Block helps people with their taxes.

Other sites charge a fee to help students uncover scholarships, but most of the scholarships these Web sites turn up are also available on free scholarship sites like FinAid.org, FastWeb.com, CollegeBoard.com, Petersons.com and PrincetonReview.com.

Still other scholarship services send letters to students by mail, telling them they have been selected as “finalists” for an award, but that an upfront fee or a credit card number is needed to hold the scholarship. “If you’re asked any of that stuff, run, don’t walk,” says Tim Joyce, spokesperson for Sallie Mae, one of the largest student loan lenders in the country.

Students also need to be wary of inflated interest rates on their loans, or too-good-to-be-true borrower incentives. Many lenders “conveniently forget to mention financial aid or applying for federal loans” in the hopes that students will borrow more, says Ellen Frishberg, director of student financial services at Johns Hopkins University. “We’re seeing loans for families that should never be allowed to borrow, and they get themselves into terrible situations with high fees.”

Borrowers also need to be concerned about identity theft, where a student’s name, Social Security number or other personal information is stolen and used to apply for loans. Rare but on the rise, these cases pose a major risk to students seeking financial aid, said Department of Education Inspector General John P. Higgins in congressional testimony last May.

In one landmark identity-theft case, six family members from Cedar Rapids, Iowa, used 41 separate entities to fraudulently obtain over $400,000 in student financial assistance from 2001 to 2004 for their personal use. Sharon Lee Walker, who led the scam, was sentenced to 87 months in prison and $414,371.99 in restitution. Her mother, brother and three sisters were also sentenced in the case.

The good news is that fraud overall is less of a problem for students than it was ten years ago. Two pieces of legislation have cut down on fraud: the 1996 FTC crackdown on financial-aid fraud under Project ScholarScam, and the College Scholarship Fraud Prevention Act, passed by Congress in 2000. The advent of free Web searches for financial aid and scholarships has also cut down on fraud, financial aid officers say.

Applying for, paying for and managing financial aid is a tricky process, and reliable consumer information is limited. The best thing to do when an offer seems too good be true is to ask for help from a college or high school financial aid officer who is familiar with these schemes and financial-aid norms. “If it sounds too good to be true, it usually is,” says Wilma Hjellum, director of financial aid at Illinois Central College. Clichés are clichés for a reason.

Hitting the Books on Loans
Thousands of dollars are at stake, so read carefully and ask questions

The homework begins for today’s college students long before they set foot in a university lecture hall. The late nights start with poring over an increasing array of student- loan options. “A big part of getting to college and staying in college is figuring out who offers the best interest rate, who offers the best loan-repayment program, who has the best customer service when you ask them questions,” says Joshua Chaisson, a senior at the University of Southern Maine who estimates that he will graduate with $14,000 in loan debt. Bruce Gunther, a history teacher who attended a seminar on student loans at Franklin and Marshall College, where his son is a sophomore, says: “We’ve refinanced our home twice, and that is a piece of cake compared to the student-loan process.” Indeed, perhaps the only simple fact about student loans is that rates have jumped. As of July 1, interest rates on existing federal Stafford loans increased to 6.54 percent from 4.7 percent, and they rise to 7.14 percent when a student enters the repayment period. All new Stafford loans now carry a fixed rate of 6.8 percent, and rates on new plus loans for parents have also jumped (table, Page 84).

Here are some tips for deciphering the student-loan process.

Don’t look just at the preferred-lender list. Most colleges steer students to a list of preferred lenders. When John Szum, the chief financial officer of a healthcare system in Boston and the father of two college students, went to a university website for loan information, he found “it doesn’t necessarily offer the best financial deal for a parent.” But students and parents need not restrict themselves to that list of lenders. “A lot of kids mistakenly feel that if you don’t work with the preferred-lender list, you’re going to have a problem, and that’s certainly not the case,” says John Pearson, a cpa and certified college planning specialist.

Read the fine print. The federal government sets the maximum interest rates and fees on federal student loans, but some lenders will absorb costs to capture your business. Even with federal loans there are benefits to be had, especially for low-income families, says Melanie Corrigan of the American Council on Education. But borrowers need to figure out which perks are best for them -and how to get them.

Pay attention to origination fees. An upfront fee of up to 4 percent of the loan’s cost is usually charged when the money is disbursed, but some lenders will pay it for borrowers. On a $10,000 loan, getting a 4 percent origination fee waived will save you $400. But be sure to find out whether this fee must be repaid if the loan is consolidated with a different lender.

Get the best discounts. Many lenders will offer an interest-rate or principal reduction after a certain number of ontime payments-usually two to three years’ worth. But this benefit is often lost permanently if the borrower makes a single late payment. “Unless you are very diligent and very careful, you won’t get it,” says Dallas Martin, president of the National Association of Student Financial Aid Administrators.

You’ll also want to find out exactly what an on-time payment means to your lender. Does being one day late disqualify you? Fifteen days? Other questions: Do you need to request your interest-rate or principal reduction in writing? Is the discount calculated on the original or current principal? Must your loan have a minimum balance to get discounts? Will you lose your discount if your loan repayment is deferred or goes into forbearance?

Consider automated debits. Having your loan payment automatically debited from your checking account is probably the easiest way to get an interest-rate reduction. This should also ensure on-time payments. The discount, usually one quarter of a percentage point, would save you $215 on a $10,000 loan at the new fixed interest rate over 10 years. But you must always have enough money in the checking account to cover the debit. That’s not always easy for recent graduates trying to stretch an entry-level salary to pay for rent, food, utilities, transportation- and a loan payment.

Check the repayment period. Find out when loan payments must begin, when interest begins accumulating, the time period for repayment, and whether other repayment options exist.

Always ask questions. “You need to go into your financial aid office and start asking questions, get online, and call each one of the lenders that is on that list that is sent to you,” says Chaisson. “Speak to a junior or senior who is already in college and has been dealing with this for two or three years now. Who do they speak to and lend from?” Chad Sinclair, a junior at the University of Maryland-College Park who estimates that he will graduate with $60,000 to $70,000 worth of loans, says, “In the long run, you are the one who is going to have to pay these off, so you need to know what you are getting into.”

This story appears in the September 18, 2006 print edition of U.S. News & World Report.

	December 8, 2005

Supreme Court Allows Government to Dock Social Security Checks to Repay Old Student Loans

The U.S. Supreme Court ruled unanimously on Wednesday that the federal government can deduct money from Social Security checks to cover long-overdue student-loan debts.

In an opinion written by Justice Sandra Day O’Connor, the court rejected arguments by lawyers for James Lockhart, a 67-year-old disabled man who said he depends on his monthly $874 Social Security check to pay for food and medical expenses.

For the past three years, the Treasury Department has been withholding at least $93 a month from his payments to try to recover a portion of the $85,000 that Mr. Lockhart owes for student loans he took out from the mid-to-late 1980s.

The court’s decision, issued barely a month after the justices heard oral arguments in the case (The Chronicle, November 3), was a victory for the Bush administration. The White House has made recovering the $7-billion in student loans that are in default a key budgetary priority, and administration officials strongly opposed Mr. Lockhart’s lawsuit, saying that the government’s debt-collection tools should not be weakened.

Consumer advocates, who were disappointed by the outcome, said that the government’s aggressive efforts to collect on loans were hurting many poor people who lack the money to pay back their loans.

The case, James Lockhart v. United States (No. 04-881), involved a confusing tangle of laws defining the federal government’s debt-collection powers and differing notions of the will of Congress at the time the various measures were passed.

At issue was whether revisions in the Higher Education Act that removed statute-of-limitations barriers to student-loan collection should be applied to Social Security checks. Mr. Lockhart’s lawyers had argued that, for Social Security recipients, Congress intended to keep the time limits in place.

In 1991 Congress amended the Higher Education Act to exempt government collection efforts from federal or state statutes of limitations. At the time, however, federal law forbade the government to reduce Social Security benefits to offset unpaid debts to the government.

Five years later Congress eliminated the restriction on docking Social Security benefits when it revised the Debt Collection Act, the law that allows the government to recover debt. However, it kept intact a provision preventing the government from reducing those benefits and others for debts that were more than a decade old.

In 2001 the federal government began deducting money from Social Security payments to collect on overdue student-loan debts, regardless of their age. Among those affected were Mr. Lockhart, who said in his lawsuit that the government was causing him undue financial hardship.

Mr. Lockhart was represented by lawyers from Public Citizen, the advocacy group founded by Ralph Nader. They argued that Congress, when it amended the Higher Education Act in 1991, did not intend its decision nullifying statutes of limitations to apply to Social Security payments because lawmakers didn’t allow Social Security payments to be docked at all until five years later.

But the government argued that Congress had made its intentions clear when, in drafting the 1991 amendment to the Higher Education Act, it stated that the measure would eliminate all statutes of limitations in the collection of student-loan debt “notwithstanding any other provision of statute, regulation, or administrative limitation.”

The Supreme Court sided with the government, stating that Congress had expressly forbidden setting any time limit on the collection of student-loan debt.

In the court’s decision, just four-and-a-half pages long, Justice O’Connor, who is retiring from the court, cited a 1991 Supreme Court decision that stated: “The fact that Congress may not have foreseen all of the consequences of a statutory enactment is not a sufficient reason for refusing to give effect to its plain meaning.”

Justice Antonin Scalia filed a concurring opinion.

© Copyright 2005 by The Chronicle of Higher Education

News from NASFAA

Department of Education Electronic Announcement

E-Mail Messages Not Reaching Some Applicants

You have told us that some financial aid applicants, after providing an e-mail address on their Free Application for Federal Student Aid (FAFSA) or Personal Identification Number (PIN) application, are not receiving e-mail correspondence from us. We have researched the issue and found that although the Student Aid Report (SAR) and PIN e-mail messages are being sent to the applicants as they should be, there are several reasons why an e-mail might not reach the inbox of an applicant:

• Bulk Mail Folders: Some e-mail accounts include a “bulk mail folder” or a “junk mail folder.” The SAR or PIN e-mail is sometimes perceived as unsolicited mail and directed into these folders.

Solution: Check all folders in the e-mail account to determine if this has happened. Some e-mail providers (for example, AOL, Earthlink, or Hotmail) may require an e-mail address to be listed in the e-mail address book before allowing delivery to the user’s inbox. To ensure that the SAR or PIN e-mail is delivered to the inbox, enter the following originating e-mail address into the address book: cpsnotify@cpsemail.ed.gov.

• Delivery Failure: Some e-mail does not reach its intended destination. This could be due to a failure on the Internet or heavy e-mail traffic that exceeds an e-mail provider’s bandwidth. In addition, because the SAR and PIN e-mail messages contain a hyperlink, the message may be perceived as unwanted e-mail or “spam,” and the user’s personal e-mail account settings may filter it out.

Solution: The user may wish to contact their e-mail provider if they continue to encounter e-mail delivery problems.

• Exceeded Mailbox Size Limit: Most e-mail providers limit the amount of space available for e-mail storage. If the user has exceeded the limit, the SAR or PIN e-mail will not be delivered.

Solution: Verify that the mailbox has available storage space.

• Incorrect E-mail Address: If the user’s e-mail address has changed or was typed incorrectly, the SAR or PIN e-mail will not be delivered. E-mail addresses have a strict format that must be adhered to. An e-mail address must have a domain (.com, .edu, .gov, etc.) and cannot begin with “www.”

Solution: Ensure that the e-mail address is current and that it is typed correctly. Applicants who need a copy of their SAR should access the FAFSA on the Web site at http://www.fafsa.ed.gov and choose the “View and Print Your Student Aid Report” link under the FAFSA Follow-up section.

Applicants who need a copy of their PIN should follow the steps below:

Applicants will receive their PIN by postal mail within 7-10 days or by e-mail within 3 days. We have worked hard to ensure that applicants receive their PIN in the quickest way possible without compromising necessary security standards.

Applicants may check the status of their PIN at any time by following these steps:

Please note that a PIN is not required to submit an electronic FAFSA. The regular, non-renewal, FAFSA on the Web application may be filled out by all applicants and is available at www.fafsa.ed.gov. Applicants without a PIN may choose to print, sign, and mail the signature page after submitting the online application.

One enhancement we have made to our Web sites for 2005-06 is to add the following text: “Some e-mail providers may require an e-mail address to be listed in your e-mail address book before allowing delivery of messages to your inbox from that e-mail address. To ensure that your e-mail notification is delivered to your inbox, please enter our originating e-mail address, cpsnotify@cpsemail.ed.gov, into your address book.” This suggestion should help reduce the number of e-mails that are not received by applicants.

Posted February 1, 2005 on www.NASFAA.org

National Association of Student Financial Aid Administrators
1129 20th Street, NW, Suite 400, Washington, DC 20036-3453
Phone: 202-785-0453 Fax: 202-785-1487
© Copyright 2005 National Association of Student Financial Aid Administrators (NASFAA)

News from NASFAA

Department of Education Electronic Announcement

Someone Impersonating an ED Official Is Offering Students Grants for a Processing Fee

To: All Destination Points

FROM: Kay Jacks, General Manager
FSA Application, School Eligibility and Delivery Services

SUBJECT: Financial Aid Fraud

SUMMARY: Someone impersonating a U.S. Department of Education official is offering students grants for a processing fee.

Dear Colleague:

It was brought to our attention recently that someone claiming to be a representative of the U.S. Department of Education (ED) is calling students, offering them grants, and asking for their bank account numbers so a processing fee can be charged. Specifically, the caller tells the student he understands the student has federal student loans and offers to replace the loans with an $8,000 grant. The caller explains that a processing fee must be charged and obtains the student’s checking account information.

We urge you to remind your students that there is no ED program to replace loans with grants and that there is no processing fee to obtain Title IV grants from ED. Furthermore, students should never provide their bank account or credit card information over the phone unless they initiated the call and trust the company they are calling.

We recommend that you immediately e-mail or otherwise contact your current and incoming students to warn them about this scam. A student who is a victim of this or a similar scam should take the following steps:

1. Immediately contact his or her bank, explain the situation, and request that the bank monitor or close the compromised account.
2. Report the fraud to ED’s Office of Inspector General hotline at 1-800-MIS-USED (1-800-647-8733) or oig.hotline@ed.gov. Special agents in the Office of Inspector General investigate fraud involving federal education dollars.
3. Report the fraud to the Federal Trade Commission (FTC). The FTC has an online complaint form at www.ftc.gov/scholarshipscams and a hotline at 1-877-FTC-HELP (1-877-382-4357; teletype for the hearing impaired: 1-866-653-4261). The FTC will investigate if the fraud is deemed widespread; therefore, it is important that every student contacted by the person or people in question lodge a complaint so the FTC has an accurate idea of how many incidents have occurred.
4. Notify the police about the incident. Impersonating a federal officer is a crime, as is identity theft.

When filing complaints, the student should provide detailed information about the incident, including what was said, the name of the person who called, and from what number the call originated (if the student was able to obtain it via Caller ID). Additionally, if unauthorized debits have already appeared against the student’s bank account, the student should mention this fact in his or her complaint. Records of such debits could be useful in locating the wrongdoer.

For information about identity theft prevention, you and your students may visit www.ed.gov/misused. For information about preventing financial aid scams, visit www.studentaid.ed.gov/lsa.

Sincerely,

Kay Jacks
General Manager

Posted July 14, 2004 on www.NASFAA.org
National Association of Student Financial Aid Administrators
1129 20th Street, NW, Suite 400, Washington, DC 20036-3453
Phone: 202-785-0453 Fax: 202-785-1487

© Copyright 2004 National Association of Student Financial Aid Administrators (NASFAA)

	December 12, 2003

Education Department Creates Site to Help Students Protect Against Identity Theft

The Department of Education announced on Thursday that it has created a Web site to help college students avoid credit-card fraud and other forms of identity theft.

“This is a serious problem that we must focus on, as it is one of the fastest growing crimes against consumers,” Roderick R. Paige, the secretary of education, said in announcing the site during a visit to Howard University. “Most students are educated about protecting their physical well-being — you lock your door and travel in groups.” But students don’t know how to protect their personal information, he said.

More than 10 million people are victims of identity theft every year, and students are particularly vulnerable, Mr. Paige said. They get a lot of credit-card applications, but aren’t careful about how those applications are disposed of. Students also tend not to check their credit-card records and balances.

“Fraud can go undetected for months,” Mr. Paige said.

Also, student-identification numbers, often used to post grades, are sometimes based on Social Security numbers. Thieves use Social Security numbers to get access to records and impersonate people. The department’s site offers some common-sense advice to avoid identity theft: Don’t leave Social Security numbers in places where people can copy them; check credit-card statements for unfamilar purchases; and install security software or hardware on your computer. The site offers addresses and hot lines for investigative bodies and fraud departments to which identity-theft incidents can be reported.

Both the site and a hot line for victims of identity theft will be publicized in the department’s financial-aid brochures and on federal-loan billing statements.

Alicia Gill, a junior at Howard University majoring in classical vocal performance, stood amid a crowd of honors students and resident assistants who had been invited to the announcement. She became a victim of identity theft the summer before she went to college, when someone stole her credit-card number and racked up $300 in charges.

Since then, she says, “I’ve known five people who have had their credit-card numbers stolen. I have a friend who is fighting with Bank of America right now because someone stole her entire identity.” She says that fighting identity theft and repairing damaged credit is “especially hard for college students who don’t have the time and money to defend themselves.”

She thinks the Education Department’s site will help some people avoid careless errors. But once thieves strike, she says, the damage is done. “You can only do so much.”

Walter Czerniak, associate vice president for information technology at Northern Illinois University, says that students would benefit from any warnings and information about identity theft.

“There are a whole lot of people who don’t know that people can steal your personal information,” he says. “Anything we do to advertise that and make people more aware is good.”

But he is not persuaded that students are particularly vulnerable. The university recently made changes to its record-keeping systems to protect Social Security numbers — a reform that was pushed by students, Mr. Czerniak says.

“I think the older folks are more susceptible,” he says. “Students aren’t dumb. Once you point something out to them, they probably check it out and learn more about it than other people.”

Copyright © 2003 by The Chronicle of Higher Education