What Matters Most today is Financing Your Education. We’re joined today by Jason VanSickle, Vice President & Director of Automated Lending and Laura Helmich, Student Loan Specialist at First United Bank & Trust. We discuss the big decisions and the financial process involved in receiving, applying for or refinancing your student aid: scholarships, federal aid and private student loans for gap coverage.
Helpful links mentioned in the episode:
What Matters Most today is Financing Your Education. We’re joined today by Jason VanSickle, Vice President & Director of Automated Lending and Laura Helmich, Student Loan Specialist at First United Bank & Trust. We discuss the big decisions and the financial process involved in receiving, applying for or refinancing your student aid: scholarships, federal aid and private student loans for gap coverage.
Helpful links mentioned in the episode:
Eric: Welcome to the "What Matters Most" podcast, presented by First United Bank and Trust. That's My Bank. Visit us today at mybank.com.
Hello, and welcome to "What Matters Most," a podcast all about finances, community savings, and security, for you, your family, and your business. This podcast is brought to you by the helpful folks at My Bank, First United Bank and Trust. I'm your host, Eric Nutter, and in today's episode, what matters most is financing your education. And for this discussion, I'm thankful to be joined remotely today by Jason VanSickle, vice president and director of automated lending, and Laura Helmich, student loan specialist at First United. Good morning, everyone. How are you?
Jason: Good, Eric. How are you doing today?
Eric: I'm doing very well. Laura, how are you?
Laura: Good. I'm doing well today, Eric, how's everything going over on your end?
Eric: It's going good. I appreciate you both joining by phone today. You know, this whole pandemic has got us all working in different locations. Are you all in the office? Are you working from home? Where are you at?
Jason: I'm actually in the office today, Eric.
Laura: And I am working remotely from my home office.
Eric: Excellent. All right, well, today's topic is an important one right now. A lot of people are dealing with a lot going on, but in, whether it be with the pandemic, or, you know, trying to understand how they're, you know, dealing with their loans that they owe money on. And student loans are one of those as well. And how to finance your education is a topic that we thought would be a really, really timely one to chat with you all about, and kind of walk us through that process and help people understand what options they have, and how to apply for aid and that sort of thing. So, let's start with, and jump right in with, you know, that confusing bit. So, families could be confused by what's available out there. Can you, Jason, briefly outline that process and what that looks like?
Jason: Sure, Eric, I'd be happy to. So, the financial aid process usually starts after the students have kind of gone around and look at colleges that are interested in attending. They would need to complete the Free Application for Federal Student Aid. What this application does is actually determines the student's need and what types of financial aid that may be available to them. The Free Application for Federal Student Aid can actually be completed October prior to their freshman year, or prior to them starting college. They can list multiple institutions. So, we understand that maybe everyone hasn't made their decision of what school they're going to in October, prior to starting school, but you can actually list multiple institutions on that application so they receive your information.
Once you complete the Free Application for Federal Student Aid, your school is going to receive that information electronically based on you providing their school code. The school code they place on the form lets them know where to send that information. And again, it can go to multiple institutions. Once you complete the Free Application for Federal Student Aid, you're going to receive from your institution something that's called an award letter. And that award letter allows students to know what they've qualified for. And as we go into that topic, you know, let's talk a little bit about the different types of financial aid that are available for individuals and families.
So, one, you know, there's federal grants and scholarships that are available, as well as federal student loans. In addition to that, there's grants and scholarships that are offered by individual institutions, so that could be the college that they are attending. And then, of course, we have, of course, community scholarships, whether it be a local Lions Club, local civic organizations that typically gives scholarships each year to graduating high school students, that will be available to them also.
What we recommend are that students look at all of their financing options that they may need for college. So what they may do is they may look at the grants and scholarships that are out there. Oftentimes there needs to be an application completed for different scholarships or grants. In addition to that application process, some require maybe a short essay of what you may be studying or something that's unique to your position. So there are several free scholarship searches out there available, so we do encourage students to take advantage of those. In addition to those grants and scholarships, if maybe someone doesn't qualify, there's also loans. So we kind of mentioned already the federal loan program. There's also private educational loans that are available, or alternative loans, that are offered by lending institutions and that's up to your local bank.
Eric: Let me hop in there and actually say, so, on the first bit, obviously, you've got the federal loans that you can get, you mentioned, and then, you know, scholarships, essentially. Is it just a Google search, or is there an easy way for people to find what's available?
Jason: Yeah, it's fairly easy to find. They can go out to the federal government's website and do what's available on the federal side. And that's gonna be studentaid.gov, is that website, where they can go and do that search. What's important to let people know is please do not pay for any type of scholarship search, or any type of scholarship individual that may be out there saying, "Hey, you know, we can get you, you know, X amount in scholarships." I'm not saying that those companies are necessarily bad, but there's a lot of individuals out there, whether it be your college, or your local community banks, such as First United, or other banks that may be in your region, that are willing to assist you free of charge and give you the websites and resources needed in order to do those searches.
Eric: Gotcha. Okay, so you've looked at the federal loans available, you've gotten some award there, your scholarships that you've applied for, but then you're still falling short. So what if families and students still need help, what do they do?
Jason: Sure, so we call that, in the industry, we call that gap funding, right. So, they need to make up that gap based on their cost of attendance, which, included in their cost of attendance is often, you know, of course, tuition, room, board, books, money for personal expenses, as well as travel expenses, transportation expenses. So that's, all that included, is considered your cost of attendance. And if there's still a gap, families should probably check with their local lending institutions. A lot of them are going to offer student loans in what we call the private student loan world, or "alternative student loan world," some will call. But what we do is it actually allows them, based on their credit, and most of them will need a cosigner, for example, if they are a traditional student, because most of them don't have a credit history yet. They may need a cosigner. It is credit-based, but they can apply for a private student loan. And that's gonna help them make up that gap whenever they need to go to college.
Eric: Cool. So what's the process for applying for one of those look like?
Jason: Sure, so we recommend, most college bills are usually due the month of July. So we tend to ask people to apply usually the months of June or July for the, going into the fall semester. That way, they have plenty of time for the loan to be processed and approved in order to make payment to the school. So what the process will look like is most all lenders have an online application. So, for example, at First United Bank and Trust, you can actually go to our website and apply online, and you'll complete the application online for both you and your cosigner if you need one. And then additionally, it will allow you to electronically sign that application for submission. Once we receive that application, we will actually make our credit determination and do an approval or denial. And from there, we would send that to your school that you're attending, for the school to take a look at it to see if you do have that eligibility, because, again, it's important for families to remember, you can't borrow more than your cost of attendance. So the school will actually send a certification to us saying, yes, you are eligible to receive that amount, or no, that amount needs to be adjusted down a little bit based on your cost of attendance.
Once you receive that school certification, we will work with your school to actually disperse those funds directly to the school. So what that means is, for example, a lot of the items are included in your cost of attendance aren't necessarily chargeable items, right? So your travel expenses or your personal expenses, things like that, the school will actually then, once that money is dispersed to them, issue you a refund check, okay. And that refund check will usually come to the student via ACH from the school. It's important that most of these programs are available to students that are half time or more enrolled in college. So, again, in most institutions, that's gonna be six credits. Some institutions use units, but you do need to be at least half time to qualify for most of those programs.
Eric: Is there a limit to what they can borrow? Is it just based on your creditworthiness?
Jason: It's really based on your cost of attendance. That determines everything as far as the amount that you can borrow. Some lenders do have annual caps on the amount that they can borrow in a private student loan. But, for example, students that are going to school out of state typically see much higher costs associated with that, compared to going to an in-state school. So a lot of out of state students are gonna see that gap be much larger, and need to apply for some type of additional financing besides what they're receiving from both the federal government and the institution.
Eric: Gotcha. So you've gotten your loans now, and what is, so at some point in time, repayment kicks in. How does that work?
Jason: Sure, so with repayment, for the private student loans, as well as the federal student loans, these are a little bit different than what most loan programs that people are familiar with actually work. So, I'm gonna talk first about the private student loan program. So, there's actually, you know, several repayment options. Students can elect to actually defer both principal and interest until after they graduate. So, essentially what that means is they don't need to make any payments as long as they maintain at least half-time status until the time of graduation, and lenders typically give you up to five years in order to complete your degree.
In addition to the full deferment, you can actually do interest-only payments with a lot of lenders, which means you can pay only the interest payments, and you'll receive a quarterly statement in order to pay that interest, so that loan doesn't continue to grow. Most lenders, just to let borrowers out there know, they do not capitalize interest for student loans until the time of repayment, so you're not paying interest on top of interest if you decide to do the full deferral. But you'll actually be able to cut that cost down if you do have the ability to make interest-only payments while the student is in school. In addition, most all lenders offer, you know, a repayment plan to where you can go into what they call immediate repayment, which means after the second disbursement. And when I say second disbursement, that usually happens in the spring. So what we tend to do with loan proceeds, whether it be on the federal or the private side is we actually take the total amount of the loan, because you wanna borrow the amount you need for the year, and we split that in half. And we give you half of that in the fall and the other half in your spring semester.
Eric: Right.
Jason: And so, once that second disbursement hits in the spring semester, at that point, you'll enter into immediate repayment if that's what you've selected, and at that time, you'll start paying both principal and interest on that loan. The federal loan program offers very similar repayment structures. There's some additional ones there as well, that you can check that, the Federal website that we gave earlier. But again, you can defer those payments for your federal loans while you're in school, as well as the Parent PLUS loan if that's needed.
Eric: Gotcha. So year-to-year just keeps kind of rolling until you get to your graduation year, and that's when that repayment begins?
Jason: That is correct.
Eric: So, and for a lot of folks, they've got the federal loans, they've got private loans. Hopefully, they've gotten scholarships to help ease the burden some, but they get to the end, and now they've got loans from a lot of different areas that they need to deal with. What options do graduates have then to kind of deal with that bulk of loans? Are there refinance options that people can do to kind of combine everything together?
Laura: Yes, Eric, I can take care of that question for you. We do have refinancing options available for students once they have graduated. Most lenders will offer a variety of different types of payment terms. Usually, they range from about five years to up to 20 years that a student would have opportunity to repay back those consolidations, or those private loans, and they offer both fixed and variable rates for students.
Eric: Got it. Is that...are there benefits to that? Is that a good idea or a best practice? Should people look to refinance, like, their federal and private loans, and kind of combine them all together, or what's your thoughts there?
Laura: Well, I think that once a student graduates, they should always take a look at all of their loans. Usually, once they have graduated, and they go through their six-month grace period, they will start seeing all their college bills coming in. So most students are going to have a combination of federal loans and possibly private loans, not only from one lender, but they may have, during their course of college, lent with multiple lenders. So it's a great opportunity for them to take a good look at those loans and see what their interest rates are, see what their payments are. So the benefits of doing that refinancing could be possibly being able to get a lower interest rate than what they currently had when they were in school.
Another benefit on that is that sometimes, with the private loans, the students would have had a cosigner on those. Now, once they graduate from school, they may be in a better situation with their credit that they may want to try to refinance these loans to remove that cosigner from their original loans. So there's a lot of different benefits associated with it. It just depends on what that student's need is at the time.
So, when I'm speaking with students, usually they will tell me that they either have high interest rates and they would like to get lower interest rates. Sometimes it is the point that their loan payments are too high right now for them, and they are looking for a way to possibly be able to lower their monthly payments on their student loans. And the great thing about refinancing of the loans, and, again, students should ask, or borrowers should ask their local lenders, is that there's usually not a prepayment penalty to these loans. So if they do go in and refinance the loans, and let's say they did a 20-year repayment term, because that will probably give them the lowest payment available, they can still double up on those payments and hopefully pay that loan off even sooner, you know, so that they can go on with their life and possibly buy their houses and things of that nature.
Eric: Right. In a previous episode, we were talking about mortgages with Cody and, of course, his world right now was tied up a lot with refinancing on the mortgage side, because rates were so good. Is now a good time to refinance student loans, or do rates fluctuate in the same way there?
Laura: Well, for the refinancing, usually banks will be offering two different types of terms. There's usually a fixed rate option. Now, those fixed rates for lenders are going to adjust. But the fixed rate is always a great option, because it will be the same rate throughout the life of the loan. And those rates are going down because we are getting more into a lower rate environment. Variable rates are also a great option. Right now, you are seeing variable rates as being a very low rate. What you should do is check with your lender, and verify with your lender how often a variable rate is going to adjust. Usually, they're going to adjust on a monthly basis or quarterly basis.
What you would also want to find out if you would opt to go with a variable rate is to verify with that lender how high that rate can go. There is usually an interest rate cap on those variable rates, and a borrower wants to be aware of those. And your lenders will go through that. They will also find out with that any type of disclosure statements that they would be able to view on that, but yes, right now is a great opportunity, you know, to take advantage of lower interest rates.
Eric: Yeah, that's a good tip. So if you're going with a variable rate, they're, you know, it can change monthly or quarterly, but they oftentimes put caps, so the cap might be both a monthly cap or a quarter, you know, whatever the timeframe is that's changing. But also annually too, right, so there would be multiple caps?
Laura: Well, there's just really just one cap. What they will usually do is depending upon the state in which your bank is located, you will see that usually, a cap on a variable rate can range anywhere from, some lenders have a 15% cap, and I have seen the interest rate can be as high as 25% in some states. So, it is something that you would want to make sure that you fully understand before committing to a variable-rate loan. And lenders and your banks are always happy to help review that for you. And, again, it might be something that you might, say you might feel more comfortable within a fixed rate. Another thing to also think about as you're looking at refinancing, even though you're doing it for this first time, if, by chance in the future, rates change or your credit changes, because these are also credit-based type of loans, so, you know, things change, and you can always go and refinance these again if you wanted to, if there was a better opportunity for you.
Eric: Gotcha. Okay. And earlier you mentioned a grace period, too. I just wanna make sure for clarity for our audience. So, at the end of receiving a student loan, there's a six month grace period, you mentioned?
Laura: Yep, that is correct. It depends again, with the federal loans, there is a six month grace period. What that six month grace period is, is that once a student either graduates or drops below a half time course study, that begins their six month grace period. So they would not be required to make principal and interest payments during that time, and then their payments would begin, you know, at that six month point, after that six months ends. That's when you would see your regular monthly bill, of both principal and interest. And that's usually how it's set up with the federal loans. And it is also with your private loans that you may have taken out with other lenders, you know, they usually do offer some type of grace period. But in that, it's also important to note that within those private loans, and with some of the federal loans, the interest is still accruing on that. So they always wanna be careful, or at least recognize or check if there is any outstanding interest on that, because they can pay that at any time.
Eric: Gotcha. All right, well, this has been really helpful. Do you have any final thoughts that either of you would like to share about student lending or, you know, financing your education that we haven't covered?
Laura: Sure. It's, one of the important things that I would always say in regards to either looking for private student loans or even doing the refinancing on that, is to make sure that you can see what your interest rate ranges are going to be. It's very important that you don't want to go around and apply for multiple, through multiple lenders. That can affect your credit score if you are going out and shopping around for it. So I would always recommend, and we have it on our website, but some lenders will offer what is considered a pre-approval process. What that is usually is just some general questions that either the students, the student borrower, or cosigner, would be able to complete to get a pre-approval, or kind of get an idea of what interest rate they would be pre-approved at before submitting a full application. That way, it gives you a chance to maybe shop around and make sure you're finding the best interest rate, and also make sure that, you know, you're speaking with somebody at your local bank, because these are big decisions that you're making as you're going through this process.
Eric: Absolutely.
Jason: And Eric, the only thing I would add to that would be that, you know, there are a lot of resources out there. So, whether it be your lender, the institution that you're deciding to attend, [inaudible 00:22:56] your high school guidance counselor, there's just a lot of people out there that are willing to help you out for free. You know, these are big decisions that a lot of families make, you know, and it's definitely a family decision as far as where people attend and how much funds are gonna be needed. So make sure you take advantage of the resources that are out there, whether they be locally, through your high school, your bank, or the college that you're attending, people will be more than happy to help you out.
Eric: Excellent. Well, Jason, Laura, I wanna sincerely thank you for joining me today and providing such helpful insights for financial education. If any of our listeners have a question or wanna learn more, what's the best way they can get the support that they need?
Jason: Sure, so those that are local to kind of our area where First United Bank and Trust is located, they can go to our website at mybank.com/students, and gain some additional information there. There's a lot of helpful resources out there. In addition, there's Laura's contact information is located on the website, if people would like to talk to her specifically. And then, of course, you know, if you're outside of our area, many lenders offer the same services. I would encourage you to go to their website. And of course, another great resource is always the federal site that we mentioned before, which is studentaid.gov, where you can find information about the federal programs, as well as the repayment options for federal student loans.
Eric: Great. Awesome. Thank you for that. I will make sure that we post the links to everything that was discussed in the show notes, so you can easily find those. And that brings us to the end of our show. You can always find more episodes by visiting mybank.com/podcast, or find us on your favorite podcast app. You can also always leave feedback, ask questions, or request a topic for us to discuss, by sending an email to podcast@mybank.com. Thanks for listening. We'll be back next week with more helpful content, but until then, we wish you the best in focusing on what matters most to you.
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