U.S. Troops Given a Break on Student Loan Repayment

According to federal regulations, mobilized military, including those in active duty, National Guard and Ready Reserves called to active duty, are not required to make student loan payments during their absences. This applies to the 145,000 troops currently involved in the Middle East conflicts, representing a significant percentage of student loan borrowers. The Department of Education has required that these troops receive a level of leniency from student loan lenders.

U.S. Education Secretary Rod Paige said earlier this year, "As they [deployed troops] defend the freedoms we cherish, our soldiers should not have to worry about their student loan obligations and resuming their studies." The Department of Education directed lenders to continue deferment status for all activated service members who recently left school or who were students prior to deployment.

Borrowers holding subsidized student loans are eligible to have the Federal Government assume the interest payments on their loans while deployed. Similarly, the Department of Education strongly encouraged colleges and universities to provide full refunds of tuition and related expenses to students required to withdraw from school and fulfill their military obligations.

ACFS -- a student loan consolidation firm -- representative Nicole Knight stated, "We want our troops to know that their efforts are appreciated. That's why provisions have been made that will remove any anxiety or stress associated with student loans and school."

In the 2002-2003 school year, approximately $75.8 billion in federally guaranteed student aid was disbursed to students. Federal regulations were implemented to ease the minds of those who received this aid and are currently involved in the Middle East conflict. These regulations are more relevant today than ever, as thousands of soldiers have been overseas for more than a year.

Presidential Candidates Recognize Importance of Higher Education Reform

As the upcoming Presidential election approaches, there is an increasing focus on educational programs. Often overlooked, higher education has become a platform both Democratic and Republican candidates are paying more attention. President George W. Bush and candidate Senator John Kerry have included unprecedented proposals regarding higher education in their campaigns.

President Bush suggests increasing Pell Grants by 47 percent, over those disbursed in 2001, in an effort to make post-secondary education more affordable to low-income students. The State Scholars program will award an additional $1,000 in Pell Grant funding, increasing the maximum to $5,050.

Moreover, increasing AmeriCorps Education awards will allow the President to expand access to higher education. Full-time members will receive an education award of $4,725 to pay for college or graduate school. The plan is to support 75,000 AmeriCorps members.

David Eisner, CEO of the Corporation for National and Community Service, states, "This budget request is a sign of how vital our programs are to President Bush's goal of creating a new culture of citizenship, service, and responsibility in our nation."

Student loan reformation has taken a front seat in political agendas for significant reasons. Each year, higher education institutions increase tuition rates by an average of 7 percent (even more in private institutions). Currently, first-year students are limited to $2,625 in federally backed student loans, an amount far below the average tuition rates nationwide. President Bush plans to increase this amount to $3,000 and allow more flexibility in loan disbursements for schools with low default rates.

Bush's plan will also encourage dual enrollment, allowing high school students to earn both high school and college credits simultaneously and graduate in less time. As an incentive to promote dual enrollment programs, President Bush will provide $125 million to community colleges who participate. Additional incentives will be provided to states that facilitate the transfer of credits earned at community colleges to four-year institutions.

With recognition of the imminent challenges faced by low-income families trying to afford higher education, Senator John Kerry has voiced his own agenda on the issue. According to Kerry, if elected he will offer a fully refundable College Opportunity Tax on up to $4,000 of tuition for every year of college. Additional aid will be provided to states that keep tuition down.

Senator Kerry's plan requires approximately $13 billion in new resources over 10 years. Kerry's plan will eliminate the subsidized and guaranteed profits currently received by private lenders of student loans (i.e., banks and credit unions) and redirect them to an aid program. If elected, Kerry will require banks to bid for student loan business in an open auction.

Kerry further promises to provide nonprofit organizations and campus service-learning initiatives with the means and the training necessary to entice student involvement in community service. Young people who sustain part-time effort in service will receive up to $2,000 annually to aid with their higher education expenses.

Kerry's Helping America's Children Learn initiative would educate today's youth by providing them with real life experiences. Kerry hopes to increase the number of current college students—approximately 60 percent—participating in community service.

Today, the federal student loan program guarantees billions in profits to banks and other private lending institutions. These private agencies receive student payments, government subsidies and a government guarantee protecting them from defaulted loan borrowers. These subsidies are determined by Congress and set at rates as high as 9.5 percent. According to Kerry's platform, studies show that these rates are substantially greater than private agencies need to earn a profit.

Kerry's campaign said in a statement, "The government guarantees lenders a certain interest rate on student loans, currently 3.4 percent. When student interest payments fall short of this rate, the government makes up the difference. Currently, however, when student payments exceed this rate, lenders get to pocket the extra money."

The Kerry plan would award private agencies student loan contracts by bidding at an auction, making all subsidies reasonable and competitive. Kerry expects this reformation to save taxpayers an estimated $12 billion.

Every year, the student loan industry funds billions of dollars in higher education. Reformation to the Higher Education Act is expected frequently, as the industry grows and requires new provisions. According to Rick Castricone, a representative for American Collegiate Financial Services (ACFS), "Typically, most people are quite naïve when it comes to student loans. This includes how they obtained them, who they owe, and how they are going to repay them." Reforming higher education initiatives is increasingly important to make education more accessible.

Bounced Check, Bad Day: Financial Aid Helps Student

(U-WIRE) CHICO, Calif. - The beginning of the semester started and most Chico State University students received their classes, textbooks and financial aid. But one student got much more than she had planned for.

Her rent and bills were due, her checks had bounced and the only thing that could calm Kathryn Bailey's nerves was a Camel Light cigarette.

Bailey's financial aid check was sent to her bank through electronic deposit, and the bank could not find a record of her account. The bank then sent the check back to Chico State's financial aid department.

Meanwhile, Bailey was writing checks to PG&E, the phone Company, the grocery store and more, assuming the financial aid check had been deposited.

"I ended up bouncing $300 worth of checks within a little over a week," Bailey said.

Bailey got a rude awakening when she received her bank statement with a negative balance. She then went on an investigation, playing phone tag with the bank and the financial aid department at Chico State.

After finally ironing out the mix-up, Bailey had to wait five working days for the check to actually go through the banking process.

Broke, irritated and annoyed, Bailey stood in the school's Free Speech Area slightly shaking, smoking a cigarette to ease her mind. The problem was settled, but days still had to pass before all was well.

"I'm really bad at managing money," Bailey said. "I'm constantly trying to figure it out every day."

Students Survive on Loans -- Go on, take the money and run, but be careful

(U-WIRE) CHICO, Calif. - College students occasionally dig themselves into a hole of debt so deep they can barely see the light of day, much less lift the brick of payment pressure off their chests to catch their breath.

In a moment of despair with time running short, students look to be rescued. Loans become the easiest and quickest life jacket used to save students from the drowning debt of their college years.

"I have taken out two short-term loans since I've been in college," said Kathryn Bailey, a Chico State organizational communications major. "My sophomore year I needed a bed and my parents were really broke, so I took out my first loan. I then paid it back with my financial aid."

Students have the option to repay the $250 plus a $3 fee for the short-term loan in 90 days or take the payment out of a student's financial aid. Otherwise, their enrollment is withheld for the following year until paid. Any student can take out a short-term loan without stating a compelling reason.

"I just took out another loan for my spring break cruise because I need that extra $250 in case of an emergency," Bailey said. "I'll probably pay it back over a few months."

Bailey said she is in debt $1,500.

"When I graduate in a year my parents are going to help me out, since they haven't at all so far," Bailey said.

Nellie Mae offers students advice and direction when deciding the right path for their payments in the future.

"Unfortunately, when students are enrolled in school they concentrate on paying their tuition, but at graduation they begin to panic," Nellie Mae marketer Marie O'Malley said. "Students worry about their payment obligations. We essentially talk about what options are available for the student borrowing money. Leavin;g it up to the borrower to decide what is best."

O'Malley reassures borrowers that they can adjust their payment plans and also defer their payments.

According to the Texas Guaranteed Student Loan Corporation Web site, borrowers are faced with circumstances that will make it difficult to make payments on a loan. If a student is faced with a situation that qualifies postponement or adjustment of loan payments, they may apply for a deferment or forbearance.

It is important to be aware of every aspect of taking out a loan, and to plan for repayment regardless of graduation status. Borrowers should keep in contact with their lender if they change or leave a school, graduate, change enrollment, change an address or phone number or run into financial trouble.

Tips for Managing Your Student Loan Debt

1) Be proactive; find out what you owe and who you owe

• Find out what your total debt is, what kind of loans you have, where they are held, and who you pay.
• Check nslds.com to get a list of your student loans and the details of each loan. Keep records and important paperwork in a safe place.

2) Make your payments on time

• Paying on time will help establish good credit.

• Paying on time will decrease the total interest that accrues on your loan.

• Delinquencies and defaults on student loans will lower your credit rating, and defaulted loans are turned over to the federal government for collection.

3) Make your payments affordable

• Shop for the best benefits. Many lenders offer borrower benefit programs that can lower your interestrate or reduce your loan principle. Choose the best program for your situation.
• Choose a repayment plan that works for you.

Standard – Monthly payments are fixed with a payment term up to 30 years. This plan yields the lowest overall interest cost compared to other repayment plans.

Graduated – Monthly payments are initially lower for the first 2-3 years and then gradually increase over the repayment term.

Income Sensitive – The monthly payment amount is adjusted annually based on your income.

But watch out for any monthly payments that are lower than the actual interest that accrues on your loan each month. This will increase your debt to such a level that you may never be able to pay off the principle.

Is Consolidation for you?

Consolidation is the process by which a lender pays off your individual loans and refinances the total balance into a new consolidation loan with a fixed interest rate and one monthly payment. Because the total balance is higher, you will have a longer repayment term and your monthly payments will be lower. In addition, if you consolidate during your 6 month grace period prior to entering repayment, your interest rate will be fixed at the lower grace period rate.

Consolidation Guidelines:

a) You should have more than $10,000 in federal student loans to make it worthwhile.

b) The loans you wish to consolidate must all be under your social security number.

c) Do not consolidate federal student loans with private student loans. If you consolidate your federal loans into a private consolidation loan, you will lose your federal benefits e.g. fixed interest rate, deferments, subsidized interest, etc.

• Have your monthly payments automatically deducted from your bank account. Most lenders offer a .25% or more interest rate discount for choosing the automatic payment method.

4) Make your payments convenient

• Consolidate your loans (if this is the best option for you) so that you have one monthly payment.
• If you do not consolidate, have your lender combine your loan payments on one monthly bill.
• Have your monthly payments automatically deducted from your bank account.

5) Know what you are entitled to

• Some lenders offer you “benefits” that are not unique benefits; they are really just entitlements that all student loan borrowers receive from the federal government. These include:
  • Fixed interest rates
  • No fees
  • No credit checks
  • No prepayment penalties, and
  • Rates that are “0.6% lower if you consolidate while still in school, or in your grace period.”

• Another entitlement on your federal student loans is the right to have a deferment or forbearance on your loan if you meet the federal requirements. Choosing a certain lender will not affect this entitlement.

6) Know what will cause you to lose the benefit the lender offers

• The benefit offering is what many people use to evaluate a consolidation loan. Equally important is knowing what can cause you to lose the benefit.
• Know what the grace period is for a late payment. Some loans do not provide ANY grace for payments. In that situation, a payment due on Saturday has to be processed on Friday or you will be late.
• Look for benefits that become “permanent.” Some benefits will cease if you have one late payment OVER THE LIFE OF THE LOAN.
• Be careful if the automatic withdrawal (referred to as Automatic Clearing House, or ACH) and the benefit are tied together. If you lose the withdrawal option, the benefit goes away, too. There are some very easy ways to lose ACH, such as:
  • The opportunity to sign up for ACH is limited to 30 days from the signing of the application. If the borrower does not follow up with the lender to get ACH WHILE the application is processing, then they can be outside of the sign-up window. ALL benefits are lost before they get their first bill.
  • They are required to sign up to receive their bill via e-mail. In addition, every month they must reply to the e-mail, acknowledging receipt. If they do not, they lose ACH, which causes them to lose their benefits.
  • Returned e-mails, insufficient funds in their checking account and failure to notify the lender of a change of address are additional ways to lose ACH.

How to Choose a Student Loan

Looking for savvy ways to finance your education? Then it's time to go shopping - to look at a range of loan options, that is. As interest rates on federal college loans rise and shift to fixed rates, experts say it's more important than ever to accurately calculate the cost of your education, consider all of your financing options and knowledgably select the ones that will be cheapest over time. Here's how to do it:

INVESTIGATING OPTIONS

"A popular mistake students make [when it comes to college loans] is not knowing all their options," says Raza Khan, president and co-founder of MyRichUncle, which offers private student loans. "The challenge seems so daunting, that most students take the first loan option they're offered."

But as of July 1, 2006 federal college loans, which were previously based on market rates, have moved to fixed interest rates. For the PLUS loan, that means an interest rate of 8.5 percent, and for Stafford loans, 6.8 percent. Khan says, if market interest rates go down, private loans may become a better option.

Even if federal loans remain the best deal, Khan says, the cost of education is so expensive that most students need to supplement the federal loans they're offered with private ones. In this case, he warns, "the loans which a university recommends may not be the cheapest financing option available."

A recent "60 Minutes" investigation revealed that some universities offering students particular financing options were receiving kickbacks from the organizations financing the loans. To make sure you're getting the cheapest interest rate, investigate all of your options, including loans recommended by your school and those available from other sources.

MyRichUncle, for example, offers a variety of loans tailored for particular needs, such as those customized for students who need cash to live on when they complete unpaid internships or are studying abroad at international institutions. Recently, the company began offering pre-prime products, which lend to students who lack credit -- and as a result would typically have a hard time securing loans - based upon unconventional factors such as academic performance.

CHOOSING THE CHEAPEST RATE

It may sound obvious to recommend choosing the cheapest financing option available, but Mark Kantrowitz, publisher of finaid.org, says often students do not.

"A lot of students will select private loans because the student has the obligation for repayment, even though prior to the change in rates PLUS loans were cheaper," he says.

But, even if the loan is technically in your name, most loans require a parent co-signer. Either way, parents are on the hook - so better to go with the cheapest deal. Kantrowitz also emphasizes the importance of accurately calculating the cost of education. Remember that tuition costs are likely to rise each year, so multiplying the cost of tuition for your freshman year by four won't work.

When looking at private loans, take into account all of the costs associated with them - such as origination fees and the ways in which interest will compound over time (Finaid.org has calculators to help you figure this out). And be sure that you're comparing the lowest rate that you will qualify for with each organization, which may differ from the lowest rate on offer based on factors such as your credit.

LUCRATIVE LOOPHOLES

If federal rates remain the cheapest option, being savvy can help you save.

"Once you have been in school for two years, consolidate your PLUS loan every year," Kantrowitz says.

Although the PLUS loan is now fixed at 8.5 percent, the maximum interest rate for consolidated loans is capped at 8.25 percent. By consolidating, you'll save a quarter percent.

Kantrowitz also says you'll lessen the amount of dough that the government believes you can afford to spend on college - known as your Expected Family Contribution, or EFC, on the Free Application for Federal Student Aid (FAFSA) - by limiting the amount of money in your name on bank and other accounts.

While the government looks at 35 percent of your own assets in considering your ability to pay for college -- a number that will change to 20 percent on July 1, 2007 -- the maximum they will consider is 6.4 percent of your parents' assets. So spend your own money first.

EVERY BIT COUNTS

John Hadeed, a senior studying business management at Fordham University in New York, is keeping his loans in check while he's in school by paying just the interest each month.

"If I waited until I was out of school to start paying, my loans would have gone up by several thousand dollars simply in interest," he says.

You may not be able to pay much while in school - that's the reason for the loan - but small efforts like this can amount to a big difference over time.

Need more information? Finaid.org offers a variety of tools to help, including information on loans and savings, and calculators to estimate the cost of college, your EFC and loan payments. With a bit of work, locking in a better deal could save thousands of dollars over the life of your loan.

Ask YOUNG MONEY: How can I lower my private student loan debt?

Q: I have both federal and private college loans to pay off. I am not too concerned with my federal loans.

After I graduated, I consolidated my federal loans to lock in a low rate and I did a year of AmeriCorps so I was able to get additional money to pay my federal loans. However, my private loans have a variableinterest rate.

I had heard of folks who have taken out home equity loans (or have gotten their parents to do so and then pay them back) to take advantage of a fixed rate and use this to pay off their college loan debt.

I am not a homeowner nor can my parents do this for me and would like to know if there are other (creative) ways to get a fixed interest rate and decrease the burden of my private loans. Thank you!

A: Thanks for writing to ask about solving a private college loan question. You were correct that a homeowner could borrow against the equity in real estate, and often find an interest rate less onerous than that which your private education lender is seeking, and of course interest on home loans is deductible. Sadly for you, neither you nor your parents have a home to use for this purpose, and several years ago you'd probably be out of luck.

Ask YOUNG MONEY: Do I qualify for a student loan?

Q: I am a student attending the University of West Georgia and I was recently informed that I was ineligible for financial aid and would like to know if you could give advice on obtaining a loan because I don't have a cosigner and I also don't have credit history. I've heard of the Perkins and Stafford loans but am not sure whether or not I qualify.

A: The first place I went to learn more about your choice of school was the Internet, where I found www.westga.edu as the web site for the University of West Georgia in Carrolton. They offer the standard panoply of financial aid programs, and I'm sure you can be fitted out with help.

I don't know WHO informed you that you were ineligible for financial aid, but hopefully you won't give up too easily. I can only guess that you had not indicated a desire to attend at least half-time, since financial aid programs are geared to those pursuing at least six hours of credit at the undergraduate level.

Student loans come in several types, and you obviously have done some research as you named the Perkins and Stafford programs correctly. Perkins is awarded by the Financial Aid Office.

The Stafford loan also is processed by the university based on the same FAFSAA, however, the Stafford can either be subsidized (government pays the interest for you while you're in school - determined by your income and current resources), or unsubsidized.

People who do NOT qualify for "need based aid" can still get an unsubsidized Stafford loan, and simply allow the interest from the in-school period accrue and be repaid along with the original principal amount at repayment.

As to the matter of co-signers, you'll find that applies only to private or alternative student loans, which are not guaranteed by the government but are based on your individual credit history. Private loans are the biggest growth area in student lending, but all of us recommend you start first with government programs.

Ask YOUNG MONEY: Which student loan should I pay off first?

Q: I had a question about student loan repayment and I was hoping someone could give me advice. I have two types of loans to repay, $20k in government loans with a lower interest rate and $10k in private loans with an interest rate of 8% to 9%.

Should I pay more on the private loans to get them repaid faster because the interest rate is higher?

A: Thanks for asking YOUNG MONEY this question, but we think you've already got a good idea about the answer. Government loans are almost always the most flexible debt, and offer a number of deferments or forbearance options while you pay off those private loans. And intuitively you've realized that paying off those higher interest rates first, makes the most sense (not to mention saves the most cents too).

Talk to your government loan lender to determine if your financial situation qualifies for a deferment or forbearance, if making both government and private loan payments simultaneously is creating a hardship for you.

If you're unable to make that option work, then you can always seek to spread out the payments through consolidation, thus lowering the required monthly payments on both your government and private educational loans.

Colleges warned to give students more variety of lenders

WASHINGTON - In their most aggressive action yet in response to problems in the student loan industry, U.S. Department of Education officials said that they have sent warning letters to more than 900 colleges and universities reminding them not to limit student choice in picking a lender.

The letter was sent to campuses where 80 percent or more of the federal student loan volume in 2006-2007 was handled by one lender.

Jeff Baker, policy liaison at the Education Department's federal student aid office, said a search of a student loan database revealed that a vast majority of students at each of 921 campuses chose the same lender.

"That was a little flag to us that perhaps the institution isn't quite being open enough to their students and parents," Baker told thousands of college financial aid officials gathered for the annual conference of the National Association of Student Financial Aid Administrators.

The letter, dated June 29, marks the first time the department has sent targeted letters to campuses in regards to their use of preferred lender lists.

Baker said that campuses could face fines or be barred from participating in the federal lending program, known as FFELP, if they violate the department's student loan policies. That also includes a prohibition that bans college administrators from accepting gifts, payments or other perks in exchange for steering student borrowers to a particular company.

Some critics say the Education Department's involvement is overdue, coming in the wake of federal and state investigations into the $85 billion student loan industry, including arguably cozy relationships between colleges and universities and lenders.

New York Attorney General Andrew Cuomo has accused the department of being "asleep at the switch" in its oversight of college loans.

"This is a good step ... but they should be far more aggressive in policing the relationships between lenders and colleges," said Michael Dannenberg, education policy director of the non-profit New America Foundation.

The financial aid group's national conference comes soon after several college-aid officials lost their jobs after it was revealed that they held stock in companies on their universities' preferred-lender lists. Meanwhile, other colleges and universities that received fees from lenders based on the number of student loans issued agreed to reimburse students.

But pending federal legislation and proposed regulations by the Education Department would include a requirement that schools list a minimum of three unaffiliated lenders and disclose how the lenders were chosen.

Supporters of such lists, which have become common practice, say they protect students by pointing them to reputable companies.

The Education Department did not provide a list of schools that were sent the letter last month.

At a conference session Monday afternoon, attorney John Dean of Washington Partners, LLC told an overflowing room of financial aid counselors that if their institutions received the letters, they "better take a look at their rationale" for why such a large share was held by one company.

More students seek private loans

The number of students taking out private loans for education is growing rapidly, despite the fact they often are more expensive in the long run.

Borrowing through private loan programs for higher education totaled $17.3 billion in 2005-06, which, adjusted for inflation, is an increase of more than 900 percent since 1995-96, according to a new report on private loans by Jacqueline E. King, director of the American Council on Education Center for Policy Analysis.

Private loan borrowing accounts for 20 percent of all education borrowing, according to the report.

"A lot of times (students and parents) think it might be quicker to do a private loan, even though it's more expensive," said Suzanne Pittman, director of financial aid and assistant vice president for enrollment management at Georgia College & State University.

To qualify for a federal loan, students must fill out the Free Application for Federal Student Aid, better known as the FAFSA. The application takes about an hour to fill out, and then the government and college have to process it, which could take weeks, Pittman said.

"Some people think that process is too cumbersome and complicated," she said. "Sometimes you may have students or families who wait until the last minute to do anything about financial aid, and they think they don't have enough time."

Acquiring a private loan is a simpler application process, although sometimes it may require a credit check, she said.

Other possible reasons a student may choose a private loan over a federal loan include comparable introductory rates, a lack of comparative information and misperceptions about who is eligible for a federal loan, according to the American Council on Education report.

Several students who filled out the FAFSA for federal loans, though, said they didn't find the process difficult.

"It was pretty quick," said Max Kingsley, a sophomore at Mercer University in Macon, Ga.

Jannae Carrick, a Mercer senior, said she did research before applying for a loan and decided a federal loan was right for her.

"I didn't even really consider the private ones because they have a bad reputation because their interest rates are so high," she said.

Financial aid counselors generally tell students to apply for federal loans before private loans for that very reason.

"There are some (private loans) that could have very attractive rates, but we've seen alternative or private loans that are charging 21 percent interest, so it's really all over the board," Pittman said.

The interest rate on a Stafford loan, the most common federal loan, is 6.8 percent.

Generally, private loans should be used to supplement federal loans when more money is needed past the federal loan limit. More than three-quarters of private student loan borrowers also took out a Stafford loan, according to the American Council on Education report.

Colleges recommending lenders to students must adhere to stricter guidelines

CHICAGO - Beginning next school year, colleges that recommend specific lenders to their students must list at least three unaffiliated companies and disclose how they were chosen - reforms prompted by a wide-ranging investigation of student loans that has tripped up universities in Illinois and across the nation.

A final version of the new U.S. Department of Education regulations, which will be published in early November and go into effect in July, also will make it clear that college administrators cannot accept gifts, payments or other perks from lenders eager to get business at the campuses, Education Secretary Margaret Spellings and other officials told reporters during a conference call Wednesday.

"We encourage participants to start adopting these practices sooner rather than later," said Sara Martinez Tucker, Education Dept. undersecretary.

The new rules, similar to those pending in Congress, come toward the end of a year marked by scandals in the student loan industry. The Education Department has come under pressure to beef up its oversight, after numerous revelations of cozy relationships between colleges and lenders.

State and federal investigations found instances where financial aid officials held stock in companies on their universities' preferred-lender lists. In other cases, colleges and universities were receiving fees from lenders based on the number of students' loans.

The new rules for the first time mandate that colleges with preferred lender lists include a minimum number of companies. Critics have said that colleges used the lists to steer students to specific lenders, while supporters of such lists said they protected students by pointing them to reputable companies.

Campuses could be fined or barred from participating in the federal lending program, known as FFEL, if they violate the department's student loan policies.

Earlier this year, the Education Department sent warning letters to 921 colleges and universities where 80 percent of the federal student loan volume in 2006-2007 was handled by one lender. The letters reminded officials not to limit student choice in picking a lender.

Education Department officials said Wednesday that they sent 55 of those schools another letter on Oct. 24 requesting more information about their arrangements with lenders. At 48 of those schools, where federal loan volume exceeded $10 million a year, 95 percent of the loans went to one lender.

The letters went to schools where students had more than $10 million in federal loans last year. The Education Department did not provide a list of the schools.

The letters, also sent to 23 lenders, request copies of any agreements between colleges and lenders; information about cash, stock or other perks provided to college officials or the institutions; and the names of any college employees who served on lender advisory boards.

Paying for Grad School: Tips from an Insider

From a purely economic perspective, going to grad school is an easy decision. According to the U.S. Census Bureau, adults with a master's, doctoral, or professional degree earn an average of $79,946 a year, while those with just a bachelor's degree earn an average of $54,689. However, figuring out how to pay for that advanced degree can be difficult.

This article provides some sound advice to help you understand your options in paying for either a traditional graduate program or a professional degree program.

Unless you are one of the very few students who can just write a check to pay for your education, you should seriously consider applying for financial aid. Financial aid, even federal financial aid programs, is not solely for low-income students. Almost every student can qualify for some form of aid.

To begin the financial aid process, you should complete the Free Application for Federal Student Aid (FAFSA) form. After completing the form, you will learn your eligibility for institutional aid, grants, and federal student loans. Most schools base their aid packages on the FAFSA, so it is always a good idea to complete it. Graduate students are considered independent, so parental information is not required for federal student aid. However, some colleges do review parental information when awarding their own institutional funding.

Of course, the first avenue to explore is financial aid you don't have to pay back, namely, fellowships, grants and scholarships. For fellowship information, contact the financial aid office or the specific academic department where you'll be a student. You may also contact professional organizations for fellowship information. For example, medical students should look at the American Medical Association or the American Osteopathic Association.

Grants can be found just about anywhere, but the federal government and your state government are key sources. Usually, your school can tell you about any grants for which you are eligible. For scholarships, there are many free online search engines to help you find one (or more) you might be eligible for. Under no circumstances, never, ever pay to enter or search for a scholarship - if they ask for money, it is likely a scam.

If savings, scholarships, grants, and fellowships aren't enough to cover your education expenses, student loans are a good option. In fact, student loans are one of the most common ways to pay for graduate school. In the 2003-04 academic year, 63 % of all graduate and professional students received a student loan. However, as with all financial decisions, doing your homework may save you thousands of dollars.

Your first resource for student loans should be the federal student loan program. Federal student loans have more attractive interest rates and payment terms than private, non-federal loans or credit cards. There are three main federal loans for grad students: Perkins loans, Stafford loans, and Grad PLUS loans.

• Perkins Loans. Perkins loans are offered through your school and based largely on financial need. Schools that participate in the Perkins loan program have a limited amount of dollars to lend, so it is important to complete your FAFSA as soon as possible after January 1 of each year.

• Stafford Loans. Stafford loans come in two forms, subsidized and unsubsidized. The difference between the two is interest: for subsidized loans, the federal government pays the interest while you're a student. For unsubsidized loans, you pay the interest that accrues while attending school.

• Grad PLUS Loans. If you have maxed out your Stafford loan eligibility and still need more money for school, Grad PLUS loans are a great option. Grad PLUS loans have a capped, fixed interest rate - currently set at 8.5% for the 2007-08 academic year - and many lenders will offer discounts that effectively lower the rate. To be eligible, you must have no adverse credit; meaning you cannot be 90 days or more delinquent on any debt , be in bankruptcy, foreclosure, repossession, or have a tax lien or wage garnishment. Also, you can expect to pay a 3% origination fee for your Grad PLUS loan.

Both Stafford and Grad PLUS loan can be obtained from almost any lender, but here is where some research will pay off. Lenders offer discounts to get your business, and each lender's discounts are a little different. So be a comparison shopper and choose the most affordable loan for you.

Interestingly, there are nonprofit lenders that often have the best rates for students in particular states. For example, ALL Student Loan offers competitive rates nationwide; and for students in California, rates are even better.

Another option is a private, non-federal loan. Private loan interest rates are variable, and generally do not have a cap. Also, private loans are credit-based, which means the lender will look at your credit score and financial history. Finally, origination fees associated with private loans tend to be higher than with federal loans, sometimes as high as 10%.

Private loans aren't all bad, though. It's just that they should be used only after exhausting federal loan options. For example, ALL Student Loan offers private loans targeted specifically for students who have maxed out of federal loans. Comparison shopping for private loans is especially important because there are literally hundreds of options.

One payment method you certainly want to avoid is credit cards. Credit card interest rates tend to be high, and you generally need to start paying them off while you're still in school. And, because of higher payments with credit cards, you are at a much higher risk of ruining your credit.

Once you finish school, you cannot forget about your loans: they need to be repaid. If you've left school with a lot of debt, and from various lenders, you might want to consider loan consolidation. Loan consolidation basically lumps all of your loans into one manageable payment and works best for those who are struggling to make monthly payments. Consolidation will, however, extend the repayment time to up to 30 years.

Loan consolidation has been a popular option for the past few years. However, recent federal legislation made it harder for banks to finance consolidation loans, so not as many lenders offer them (or only offer them to borrowers with a lot of student loan debt). Thankfully, there is another option: extended repayment.

With extended repayment, the various loans remain independent, but you spread out the payments over a longer period of time, reducing your monthly payment. To see if you qualify for consolidation or extended repayment, contact your lender or call ALL Student Loan (877-255-0006) to find the best option for you.

Remember to apply for as many scholarships and fellowships as you can. If you need a loan, start with federal loans first, check out nonprofit lenders, and closely evaluate your options. Paying for graduate or professional school can be challenging, but if you do your research and become savvy, you'll see that it can be done affordably.