Beginning July 1, 2009, Federal Education Loan interest rates will drop. What does this mean? If you have a variable interest rate on your federal student loans, you can consolidate them after July 1st at a lower rate! Believe me, if you have federal student loans, you will want to look into this. These are the lowest rates in the history of the federal student loan program. New interest rates:

• Stafford Loan Consolidation (In-School/Grace Period): 2.00%
• Stafford Loan Consolidation (Repayment Period): 2.50%
• PLUS Loan Consolidation: 3.38%

Make sure to read this article if you have student loans and want to save a lot of money with a lower interest rate.

Unfortunately, this doesn’t apply to me as my loans were originated after July 1, 2006, but hopefully, this is helpful for some of you! Please comment below to let me know if this was helpful to you and you were able to lock in a lower rate and save money!

Did you know that you can have part or all of your federal educational loans canceled? Under certain circumstances, the government will forgive your student loans. To qualify, you need to fall into one of these categories:
· Perform volunteer work
· Perform military service
· Teach or practice medicine in certain types of communities
· Meet criteria specified by the loan forgiveness program
Volunteer organizations that offer loan forgiveness:
1. AmeriCorps – If you serve for 12 months you can get $7400 in stipends and $4725 for your loans.
2. Peace Corp – If you volunteer, you can apply to have your Stafford loans and Perkins loans deferred. You can also have 15% of your Perkins loans cancelled for each year you volunteer, up to 70%.
3. Volunteers in Service to America (VISTA) – If you volunteer 1700 hours of service to private non-profit groups that help to combat hunger, homelessness, poverty and illiteracy, you could receive $4725.
Military:
If you are a student and in the Army National Guard, you could be eligible for a student repayment program and get $10,000.
Teaching:
If you become a full-time teacher in elementary or secondary schools that serve students from low-income families you can have a portion of your Perkins loan forgiven. You can have 15% of your Perkins loan cancelled for the first and second years of teaching service, 20% for the third and fourth years, and 30% for the fifth. Basically, that adds up to 80% for five years of teaching.
Special education teachers, math teachers, science teachers, foreign language teachers, bilingual teachers, and other fields designated as teacher shortage areas can have portions of their Perkins and Stafford loans forgiven. Check on the US Department of Education’s website to learn more about cancellation/deferment options for teachers or teacher loan forgiveness forms.
Medical:
The US Department of Health and Human Services offer loan forgiveness programs (National Health Service Corps and the Nursing Education Loan Repayment Program) to physicians and registered nurses who agree to practice in areas that lack adequate medical care for a set number of years. The National Institutes of Health repays up to $35,000 per year in student loans for US citizens who conduct clinical medical research.
Other:
If you work for a federal agency, you might be able to have loans repaid by the government. Agencies can repay up to $10,000 in federal student loans each year up to $60,000 total. You can check for these at www.usajobs.opm.gov.

Part 1 – Income

One of In the Money’s readers, Sam, recently asked for me to discuss some points and suggestions for financial aid applications.

This post is meant for those who are applying for financial aid for higher education whether you are a student or a parent of a student. It is important to know the basics of how to maximize your financial aid award. Keep in mind that you should always be honest on your financial aid applications as the penalties of getting caught is considered fraud and has very severe punishments. As a general rule, you should file your FAFSA as soon as possible since most colleges have a limited amount of institutional grant funds to award and when that is gone, students are only eligible for federal and state grants and loans.

In this part, I will discuss the most basic principle to maximizing your financial aid eligibility: reducing your income in the tax year prior to the academic year that financial aid is requested. Here are some tips associated with this principle:

1. Do your taxes early – when you fill out your Free Application for Federal Student Aid (FAFSA) you need to include income numbers. Clearly, the more income you have the higher your expected family contribution will be which means less financial aid award money. To avoid overestimating your income, do your taxes early so you have the right numbers.

2. Do not pay educational expenses with money from your retirement fund – Retirement funds are sheltered from the need analysis process so try to leave them alone or if necessary, borrow against your retirement plan instead of taking a disbursement from it since you can be penalized for taking a disbursement.

3. Try to avoid capital gains in tax year prior to academic year – Capital gains such as gains from selling stocks are considered income. Try to avoid selling your stocks in the year prior to the academic year as it will raise your income.

4. Simplified Needs Test – If you fit into both of these categories, you can increase your eligibility for federal financial aid by a lot:
a. The parents’ adjusted gross income (AGI) is under $50,000
b. All family members are eligible to file an IRS 1040A or 1040EZ income tax return
If the parents’ income is close to $50,000, they should consider taking steps to lower their taxable income by either taking a capital loss through selling off bad investments, reducing their salary if they run their own business, or making a larger contribution to retirement funds.

Next time I will go over another important principle regarding assets.

With the ever increasing cost of higher education, almost all students have some form of student debt. I will address acquiring student loans and comment on the different types of student loans in a separate post. Since I know a number of graduated students in my position are beginning to pay off their student loans I want to address this subject first.

Generally student loans come in two types. You have federal loans and private loans. Federal loans usually have a lower limit for the amount you can borrow, but tend to have much better interest rates. With private loans, you can usually borrow more, but charge you more on the interest rates. Naturally, if you do not consolidate your loans (we will discuss consolidation in another post – leave a comment if you want me to cover this earlier than later) you want to pay off private loans fairly quickly as they have pretty high interest rates. When it comes to federal loans such as the Stafford loan, your interest rates most likely range from 6-8%, which is not all too bad. The question of whether to pay off the student loans first or to invest that money comes to mind.

If you are in the situation in which you only have federal loans to pay off (which have a relatively low interest rate), you should consider just paying the minimum monthly payments instead of paying as much of it down as possible. The reason for this is because you get an above-the-line deduction on your taxes for the interest paid on student loans. Since there is a tax benefit, the interest rate is actually lower than the 6-8% you were paying. This may make it worthwhile for you to invest the extra money you would have used to pay down the debt for a higher return.