My Two Cents on Financial Aid

Lily over at Law School Virgin had some good questions regarding financial aid and a few other things, and given the anxiety that I recall feeling about this time last year, I figured it would be appropriate to address her concerns. Please note, I’m no expert when it comes to financial aid, but here is what I know and how I understand it working…

Why haven’t I gotten my financial aid information yet?
If you haven’t received your financial aid information yet don’t panic. If you haven’t filled out a FAFSA yet, it's time to do so. However, loan information is not even available until July 1, so most financial aid offices will send out information specific to their schools in late July. If you’re really anxious you can call your financial aid office and they probably have information on their website that you can take a look at regarding lenders, etc.

Applying for loans is a fairly simple process – especially after you’ve applied for the first one. It will only take a few minutes to complete the process, although usually the first time you apply with a lender you have to go through an online loan counseling session.

Now that you are in graduate school, no matter what your FAFSA says your SAR is, lenders will pretty much loan you all of the money up to the "budget" that your school provides. (Financial aid offices come up with a "budget" number -- it's tuition for the average credit load plus rent, food, utlities, etc for 9 months. Budgets are the same for every student and are not adjusted to account for people with kids, mortgages or any other circumstances; which means that you really need to learn to budget if you're going to actually live off the budget.) As long as you have not defaulted on any federal aid money in the past or have no major strikes on your credit report you will get approved for loans without need for a cosigner.

The way that most schools and financial aid work is that the money is all disbursed to the school, they take out what you owe them for tuition and then they send you the leftover. At my school this doesn’t usually happen until the second or third week in September (despite starting classes in August), so make sure that you save some money or can borrow some from a parent to cover the rent and bills for that first month.

Should I get a co-signer?
If you can get loans without a co-signer I would recommend doing so. I believe (and someone correct me if I’m wrong) that if you die before your federal loans are paid off then the government cannot come after your estate or your family members for the remaining money. If you have a co-signer, however, then your creditors will come after them. The last thing I want to do is die and leave $120K in student loans for my husband to pay back, so I did not have him co-sign.

There is a chance with a co-signer that you may get a lower interest rate, but personally I’m a fan of consolidating loans after I graduate so that way I will only have to pay back one or two loans, and given the right program I’ll lock in a fixed interest rate. Some people like to consolidate their loans after each school year. I see this as problematic because: 1) you can’t consolidate a consolidated loan, 2) you can’t consolidate federal with private, and 3) most consolidation programs make you start paying your loans back without a 6 to 12 month grace period. Wait until you are done and consolidate all federal together and all private together.

One more note about consolidation: you can only consolidate all private loans that you have with one bank. So if you take out your private loans with three different banks, you will not be able to consolidate those together. Just something to think about.

What about GraduatePLUS loans?
GraduatePLUS loans are new this year. Use them! It used to be that you could take up to $18,500 in Stafford loans (that’s subsidized and unsubsidized combined) and then you’d have to take out private loans (read: higher interest rates) to cover the rest. Not anymore. Now you can still take your $18,500 in Stafford and then GraduatePLUS to cover the rest. GraduatePLUS loans are basically the same loans that were offered to your parents (as ParentalPLUS loans) when you were in undergrad, but now that you are in graduate school you can take them out yourself.

As I see it, the advantages of GradPLUS compared to regular private loans: they are still federal loans so they can be consolidated with your Staffords and they lock in a lower interest rate then a lot of the private loans(I think like 8.5% this year). Plus, I think that federal loans affect your credit differently then private loans and the type of debt you have outstanding will be taken into consideration after graduation when you decide to start living like a lawyer and buy a new car, a new house and a line of credit to furnish the house.

Both Stafford Loans and GraduatePLUS loans have to be taken out through private lenders. Check with your financial aid office for info regarding which lenders they work with and which ones they prefer. Each lender usually has its own advantages. For example, I chose Wells Fargo because I bank with them, and last year they had an incentive that after 36 months of on-time payments they’ll pay off 10% of my interest. Find a private lender that works for you.

Should I get insurance?
If you can milk your parents’ health insurance for a little while more (although most companies will kick you off once you turn 25), then by all means, do so. If you can’t stay on a parents’ health insurance, check out the options that your school offers. Most of them have a student health services that you can drop into for the little things, and several schools will also offer a health insurance option that is usually pretty reasonable. Just remember that your law school “budget” given to you by financial aid probably doesn’t cover health insurance.

As far as getting supplemental insurance for a life insurance policy, I think as long as you don’t have the co-signer on the loans, then you probably don’t need one. However, if you’ve got a co-signer and don’t want to leave them in a bad position, then it might be a good idea. Honestly, I don’t know a lot about how insurance policies for repayments of loans work. If someone else out there does, please chime in.

Should I try to get residency where I’m going to be attending school?
Yes. Unless there is some major advantage to staying a resident where you live now, then change your address with the school to where you’ll be living during the school year and change your driver’s license. Even if you don’t stay in that apartment all three years, you’ll still be in the same vicinity. Plus, if you have a chance of getting residency and thus cheaper tuition always go for it.

Residency is usually pretty easy to establish, and actually, since there is no national DMV, you can have valid licenses in two states at the same time. (Not saying you should here, just that it is possible.)

You can change your residency and still remain on your parent’s health insurance. If you’ll be going to a doctor that is out-of-network, then it might be wise to sit down with your parents and see what options their health insurance has for PPOs. (Co-pays and coverage rates can get a little sticky if you are not seeing a preferred provider.)

This really only begins to touch on the questions that LSV raised and is based solely on my own experience. Most schools are similar, but each one can have its quirks. Ultimately, call up and harass your financial aid office. Don't feel guilty about it - just remember that your tuition is helping to pay their salaries.