Fiscal Budget Disagreement

A government shutdown is looming large as Republicans and Democrats cannot agree on a fiscal budget.   If an agreement is not reached by midnight Friday, the Federal government will shut down and everyone but essential employees will be furloughed.  What does this mean for higher education?

It is not likely that the shutdown will be noticed by students already enrolled in college. Since colleges operate on their own budgets, they are independent of  any financial burden.  However,  it is likely that new students applying for financial aid may experience a delay in having their  paperwork processed.  But this does not mean that their aid will be denied or that financial aid will no longer be available.  Once the government is up and running, everything should get back on track quickly. University based research is safe from interruption because federal grants and money going towards projects are paid out a year in advance.

1995 Financial Crisis

This is not the first time that the government has shut down. It happened during the Clinton administration in 1995, when a budget could not be reached and caused a 3 week shut down.  College financial aid officers and others are going on what happened in 1995 as a model for what is likely to happen this time around.

In the 1995 shut down, colleges saw a delay in the processing of new financial aid applications because there was no one to verify student  information.  There was also a delay in communication with the Education Department.  Other disruptions involved more upper level management operations of college administration, such as reviews and audits.  Current students with financial aid already in place saw no change because their allotment of money was already paid.

It is unlikely that any shutdown will have long term consequences.  In the 1995 shutdown, federal grant applications had been caught up in only a three month period.

Do you want to know the facts about Financial Aid Options?

That leaves the dreaded college loan. We’ve all heard horror stories about graduates having their credit permanently damaged as a result of not repaying their college loans in a timely manner. Or where balloon interest on a college loan inflates upon graduation, leaving the new graduate to start life so deep in debt, it will take decades just to make a dent.

While it is true that managing any debt requires a fair amount of responsibility and willingness to stay on top of the payments, college loans are not nearly as complicated, scary and financially crippling as they used to be. Basically college loans boil down to three categories: government student loans, parent loans, and private student loans.

Government Student Loans (GSL)

GSLs are funded by the federal government, have extremely low interest rates, don’t require credit checks, and offer a plethora of repayment plans. This is where it gets tricky, because if you defer repayment of your student loans until after you graduate you might become comfortably accustomed to a lifestyle and budget that does not include a monthly student loan payment. So (Surprise!) when the government one day comes knocking, expecting a payment, and you haven’t planned for that, well, things can get financially ugly very quickly.

Your repayment plan depends on which GSL you get. There are two; the Federal Stafford Loan and the Federal Perkins Loan. The Federal Stafford Loan has a fixed rate of 6.8% and repayment can be deferred until after you graduate. However, to help offset your debt upon graduation you can set up payment plans for as little as $25 per month while you’re still in school.

To qualify for the deferred payment option you must show need via your tax returns. Two thirds of Stafford loan recipients have a family adjusted gross income (AGI) of $50,000 per year. However, a smaller percentage of recipients have an AGI of up to $100,000. So unless you’re really rolling in the cash, it’s worth your while to look into a Stafford loan.

The Federal Perkins Loan is a little harder to get because it’s a smaller pool of funds and is awarded to students with extreme financial need. Also, Perkins loans are school-based, meaning the individual schools decide who should get assistance however, the loans are funded with government issued money. The interest rate is 5% fixed and the federal government absorbs all the interest while the student goes to school and up to 9 months after graduation. It’s the best deal around, if you qualify.

Parent Loans

If your parents still claim you as a dependent they can take out a Parent Loan for Undergraduate Students (PLUS) loan. In this case, your parents are on the hook for repayment, not you. Like the Stafford and Perkins loans, PLUS loans are government issued, but have an interest rate of 7.9% fixed. Repayment starts 60 days after the last of the loan has been issued (even if you’re still in school), and your parents can take up to 10 years to pay it off.

Private Student Loans

Private Student Loans (PSL) are also called bridge loans because they’re meant to bridge the gap between what the government will loan you to pay for college and what your college tuition actually costs. Unlike the loans mentioned above, PSLs are privately funded by lending institutions, banks, endowments, trusts, and wealthy individuals acting as private lenders. Because there is no safety net in case you default, your credit score pretty much determines if you’ll get a PSL. However, on the bright side there are no lengthy, federal forms to fill out. But because PSLs are privately funded interest rates and repayment plans vary.

Even though a PSL might be easier to obtain (depending on the lender) you should be very careful when you engage in one. To be safe it’s best to have a loan officer or even an attorney check over your lending contract before you take out a privately-funded student loan. Nothing worse than getting into a legal, financial squabble before you even graduate from college.

Now more than ever going back to school is a wise choice. Once the dust settles in this economic downturn wouldn’t you love to be poised to start a new career? That can happen if you take a little time to plan out your college tuition payment options. Depending on your school, major, and financial situation, a college loan may be just the ticket you need to put you on the path to a whole new career.

If you’re still looking for work, then today’s statistic is encouraging, but doesn’t help you right now. Nevertheless, history has shown that no matter how bad the economy gets it does eventually get better. People really do back to work, or even find new and better careers. But in the mean time, you have to eat. To bridge the gap you may have to take temporary work that pays as low as minimum wage, especially if you’re going back to school to increase your odds of obtaining a full-time career that can support you. Because minimum wage is now a key factor in the economy, for the first time since The Great Depression knowing your minimum wage rights is more important than ever.

The first minimum wage laws were enacted at the beginning of the 20th Century. Since then the U.S. Department of Labor has established a federal minimum wage across the board for all states. As of July 24, 2009, the federal minimum wage is $7.25 per hour. Individual states can establish their own minimum wage, in which case the employer has to pay the employee the higher of the two.

This gets sticky, however, in the case of a tipped employee (such as wait staff in a restaurant). For these workers the employer only has to pay the employee $2.13 per hour in direct wages, as long as: A) Your wage plus tips equals $7.25 per hour, B) You get to keep ALL your tips, and C) You typically receive more than $30 per month in tips. If you’re a tipped employee who is not getting enough in tips to total $7.25 per hour, then your employer must make up the difference.

Another gray area involving minimum wage is who should get it. By law, everyone over the age of 20 is entitled to minimum wage per the Fair Labor Standards Act (FLSA). If you’re under 20, however, your employer can opt to pay you only $4.25 per hour for the first 90 consecutive days of your employment (as long as your employer didn’t fire an older worker just so he could hire you on the cheap). This means high school and college students can start out being paid less than federal minimum wage, but after 90 days your employer has to bring you UP to minimum wage. If, however, you’re over 20, then you start at minimum wage as soon as you’re hired.

But for the working college student things can get even grayer. If you are under 20 and a full-time student, your employer may continually pay you only 85% of minimum wage ($6.16 per hour) if he/she actively participates in the Department of Labor’s Full-Time Student Program. However, your employer must be formally enrolled in this program and have a certificate of participation to prove it. It is not unreasonable for you to politely ask to see this certificate if your employer expects to pay you less than minimum wage (but at least $6.16 per hour) on a continuing basis.

Of course, there’s much more to the intricacies of minimum wage, but time prohibits us from getting down to the nitty gritty aspects of your rights. For that we leave it up to the U.S. Department of Labor’s Minimum Wage webpage. Another great resource is the Workplace Fairness on Minimum Wage website, which answers FAQ on employee and employer rights. Chances are your minimum wage question will be answered there before you even know what to ask.

So if your current employment situation dictates that you have to temporarily wait tables or work an office temp job while you go back to school (or you’re just trying to weather the economic storm), take heart in knowing that every moment (good or bad) is only temporary. Things will get better. In the mean time, you want to make sure you’re getting paid what you’re due. Because no matter how you’re presently making ends meet, every penny counts when working toward a better future.