Federal student loans have lower interest rates, more favorable terms (such as income-based loan repayment), don’t require a co-signer, and freeze your repayments and interest while you’re in school. All these factors, coupled with the instability of the private loan market starting last fall, make federal student loans a much better option than private student loans for students.

Congress concurs, which is why a House committee recently took up a bill to more closely regulate private student loans within its overhaul of banking regulations. If approved, the Consumer Financial Protection Agency Act of 2009 would create a new centralized federal agency to oversee various forms of consumer credit, including private student loans, credit cards and mortgages.

Meanwhile, the College Board issued its Trends in Student Aid Report last week, which shows that the amount of private student loans taken out in 2007-2008 dropped by more than 50 percent from the previous year. Last year, students privately borrowed $11 billion — representing just 13% of the total student loan market for that year. In 2006-2007, $22.8 billion was borrowed, or 25% of the total market.

Did everyone suddenly realize that federal loans were a better deal? Maybe, but there not necessarily, say the experts. There were a variety of factors that led to the scale-back, including:

• Tightening up of the financial markets — there are now fewer private lenders, with tighter restrictions on eligible borrowers

• More families are qualifying for federal student loans now, with so many out-of-work parents

• Congress increased the federal limits on federal student loans from $23K to $31K for ‘dependent’ undergrads last year — more money to borrow federally, making private loans less necessary

Are you seeing this trend in your family? Do you prefer federal student loans to private student loans?

A group of 15 senators is introducing a new bill to change this, providing immediate student loan debt relief to active-duty soldiers and members of the National Guard. According to a blog post from Senator Arlen Specter (R-PA), the bill

would prohibit interest from accruing on direct student loans, regardless of the date of origination, for all service members on active duty for up to 60 months. This would save the average service member between $1,183 and $1,479 over the course of a 12- to 15-month activation period.

Between this and the delays with tuition benefits from the new GI Bill, I am feeling rather frustrated for our nation’s soldiers and veterans. Are you a member of the military struggling with paying for your college tuition or your student loan payments? What do you think of the new Spector-sponsored bill?

1. Graduate from college in three years rather than four

2. Go to a local community college for up to two years before transferring to a four-year university

3. Volunteer for AmeriCorps and earn nearly $5,000 toward college

4. Take advantage of education tax credits and deductions to save up to $2,000 per year.

Today I am focusing on a super easy way to save some money for college — by buying the food and other consumable goods your family already purchases. The program is called Upromise, and it was launched a decade ago. Today, there are 10 million members who direct their spending to partners of Upromise, thereby earning ‘cash back’, which gets directed to college savings.

Here’s how it works:

Go here and register your debit/credit cards and shopper cards. Once registered, you can earn in one of three ways:

1. Shop online through upromise.com and earn 1%-25% back from eligible purchases at partner retailers, when paying with a registered credit or debit card.
2. Earn 8% back from over 8,000 partner restaurants, when paying with a registered credit or debit card.
3. Buy eligible items at the grocery or drug store with a registered grocery/drug store card.

Upromise also recently rolled out an ecoupons program, where you upload coupons to your shopper cards. Then, when you “redeem” the coupon, a credit for the coupon value is applied to your college savings account.

Plus, you can ask your friends and relatives to apply their cards to your savings account. Will you earn enough to pay for four years of an Ivy League degree? No, probably not. But a little bit can go along way — especially if you have a number of years to save up those small funds. If you are anyway going to purchase a particular item or eat at a particular restaurant, why not get a few dollars for your kids’ college education, too.

Are you a Upromise member? What do you think so far?

The new GI Bill, which took effect on August 1, 2009, was to provide more money than ever to cover tuition, books and housing. Eligible were veterans who had served since 9/11, as well as their dependents.

Because of the VA’s antiquated technology, however, the Department has been unable to keep up with the more than 277,000 new applications. In fact, the Department reported last week that it had paid tuition for just 20,000 of the applicants, plus made payments to 13,000 more for other educational expenses, such as housing and textbooks.

Processing of the benefit applications is taking as long as eight weeks. With the start of school more than a month ago for most students, this delay is causing major problems with the bursar’s office.

Many colleges are letting vets enroll in classes even without full payment from the VA, but students’ housing and book expenses are having to come out of pocket for the time being. Some veterans are digging into savings, but others are tapped out and turning to student loans to cover the gap.

More than 700 new employees have been hired by the VA to help keep up with the demand for assistance from the new bill, but clearly new technology is required as well. The Department says it is developing a new system that will speed the process, but it won’t be up and running until late 2010.

Read more about the delays and how they are affecting veterans from the New York Times here.

Are you experiencing delays in receiving your GI Bill benefits? Leave us a message in the comments section about your experience.

1. Graduate from college in three years rather than four

2. Go to a local community college for up to two years before transferring to a four-year university

3. Volunteer for AmeriCorps and earn nearly $5,000 toward college

This week’s tip is to reduce your college expenses by taking advantage of all available education tax credits and deductions. According to a recent survey, most taxpayers don’t even know about these tax breaks — and if they do, they aren’t using them in the most efficient manner possible.

If you or your child is currently in college, education tax credits can help you to offset the costs. The best way to save money is with tax credits. Tax deductions are second best. Let me explain…

A tax deduction reduces the amount of income on which you owe taxes. A tax credit reduces the amount of taxes you actually owe, dollar for dollar. So let’s say you make $50,000 a year and pay 25% to takes. With a tax deduction of $4,000, you would now owe taxes on $46K, rather than $50, so your tax bill would go down from $12,500 to $11,500 — or $1,000. Got that? A tax deduction of $4000, saves you $1,000 come tax time.

A $4,000 tax credit, on the other hand, saves you just that: $4,000. So instead of having to pay $12,500, you would have to pay $8,5000. And if you had already paid in the $12,500 through your job’s payroll, well, then the IRS would send you a refund check in the amount of $4,000.

Since you want to apply for tax credits before tax deductions, here are the two education credits you need to know about:

1. The Hope Credit (also known as the American Opportunity Tax Credit)

• Can be used during the first two years of post-secondary education. It does not apply to 3rd, 4th or higher years of undergrad, nor to graduate school.

• Is worth up to $1,800 per student per year. The first $1,200 of qualified tuition and fees earns you a 100% credit; the next $1,200 gets you 50% (or $600). If you spent more than $2,400 on tuition and fees, there is no additional credit. If you spend less than $1,200, you only earn a credit for that which you do spend.

• Eligible students must be enrolled at least half-time.

• If you get arrested for felony possession during your schooling, you lose your tax credit. (Seriously!)

The Lifetime Learning Credit

• Can be used at any point in your educational career — undergraduate, graduate, job training, etc.

• Is worth 20% of the first $10,000 in post-secondary tuition and fees (i.e. a maximum of $2,000). Any tuition above $10,000 is not eligible for the tax credit. If you pay less than $10,000 in tuition and fees, your tax credit will be proportionately lower.

When can’t you claim an education tax credit?

• If you have already received on credit in a tax year, you can not also receive the other one. Therefore, it is important that you carefully calculate which credit is more beneficial before filing your taxes.

• If your parents still claim you as a dependent on their taxes. They, however, can get the credit — even if you’re the one who footed the tuition bill.

• If your Adjusted Gross Income is over $48,000 (or $96,000 for married filing jointly).

College Tuition Deduction

If you are not eligible to claim either the Hope or the Lifelong Learning Tax credits, you may still be able to reduce your educational costs with the college tuition deduction.  Here’s the basics you need to know:

• Deduct up to $4,000 of total allowable expenses (don’t have to be itemized)

• Phases out starting at $65,000 per year ($130,000 for couples filing jointly)

• Cannot be applied to any costs paid with funds from tax-deferred college savings vehicles (e.g 529 Plans or Coverdell ESAs)

Are you taking advantage of tax credits and/or tax deductions? How much have you saved on your college costs?

The law’s new programs, expected to provide $78 billion in assistance over the next decade, issued their first payments to colleges on August 1st.

In his address to some 350 veterans, Obama confirmed his obligation to America’s servicemen and women. “We owe a debt to all who serve,” said President Obama. “And when we repay that debt to those bravest Americans among us, then we are investing in our future — not just their future, but also the future of our own country.”

Among other new benefits, post-9/11 veterans will be able to attend any in-state public university at no cost. “You pick the school, we’ll help pick up the bill,” said Obama about the new law.  Students will also receive a monthly housing allowance and annual textbook allowance (up to $1,000).

To be eligible for the full higher education benefit, one must have served for at least 90 aggregate days (or 30 consecutive days) since 9/10/2001. Benefits may be used for up to 15 years since the last date of discharge from military service. In addition to paying tuition and fees directly to the school, the new GI Bill will also pay a monthly housing stipend and a yearly books and supplies stipend directly to the individual.

If a school voluntarily enters the Yellow Ribbon Program, students may also have additional charges not covered by the Post-9/11 GI Bill paid for by his or her university. The Department of Veteran Affairs will match each additional dollar paid by the school.

That figure covers tuition, room and board.

The average American family earns $50,000 a year, so cash flowing that kind of money is absolutely impossible. That’s why I’m launching this new series. I’ll be looking at creative or non-traditional ways to reduce the cost of college and make it more affordable for more Americans.

This week I am looking at a new trend among some colleges: the 3-year degree. The topic of three-year degrees has recently come into vogue, causing a great deal of debate among college administrators and educators.

Setting aside the potential academic and social cost of cutting a year off your degree, there is no doubt that graduating in three years vs. four (or more realistically, five to six years, as is the average, according to the College Board) will save you thousands of dollars. After all, one-forth of $50,000 is $12,500.

The good news is that you don’t need to attend a college that awards three-year degrees to graduate in three years. You can do it all on your own. Just check with your registrar’s office to make sure they don’t have a policy against “early graduation.” (Such policies are rare these days, but if your school does prohibit graduating in less than eight semesters, you can petition the policy on the grounds of your financial situation.)

So, assuming your school is on-board, how do you manage to cut down 25% of the time to graduation? Here are three suggestions:

Double up on courses. Instead of taking four classes a semester, take five or six. If the average Bachelor’s degree requires 36 classes for graduation, you can accomplish this by taking four semesters of five classes, and two semesters of six.

Take summer classes. You can enroll in a class or two every summer session and greatly reduce your course work burden during the year. Even if you don’t spend the summer in the same town as your school, you can still take classes at the local community college and transfer in the credits. (In fact, this is a great way to further reduce the cost of school, since the per-hour fee at a 2-year college is much less than at a 4-year school.)

Take AP classes in high school. Many colleges award you credit for AP classes, which can bump up your standing a semester or even two. If you start out your freshman year with sophomore year standing, you are already on track for a three-year degree.

Are you working on the less-than-four-years-to-graduation time frame? What’s your plan for achieving that goal?

To learn more about the growing three-year trend, see this recent article from the USA Today.

• 36 percent of 1999-2000 bachelor’s degree recipients received at least one Pell Grant while in college.

• Pell Grant recipients had greater undergraduate “risk characteristics,” including delaying post-secondary enrollment or failing to graduate from high school than non-recipients

• Pell Grant recipients whose parents did not attend college took longer to finish their Bachelor’s degree than recipients whose parents held a least a bachelor’s degree. They also enrolled in graduate school at a lower rate.

• When controlling for these risk factors — including parents level of higher education — Pell Grant recipients actually graduated more quickly than non-recipients.

While I don’t think getting a Pell Grant will make or break your graduation time statistic, it is undoubtedly a great way to pay for college.  And if President Obama gets his way, there will soon be more students who are Pell Grant eligible — more than ever before.

Learn more about the Pell Grant for low-income students from FinancialAidFinder.

Known as the Student Aid and Fiscal Responsibility Act of 2009, the President’s plan would expand the number of students eligible for Pell Grants.

Currently 40 percent of American college students receive Pell Grant assistance. In addition, the bill would tie the dollar amount of the Pell Grant to the rate of inflation, allowing for a maximum increase from $5,550 next year to $6,900 by 2019.

In order to pay for the increase in Pell Grant funding, the bill would eliminate subsidies for federal student loans by private lenders such as Sallie Mae, replacing them with direct loans from the federal government. To learn more about the Student Aid and Fiscal Responsibility Act, check out this post from back in February when the President first announced his plan to overhaul student loans.

The viability of financial aid is a major factor for many students in selecting a school, and online schools are no different.

In fact, a new study recently revealed that at least one in five college students in America is facing a shortfall in parental support due to job loss.

Until 2006, U.S. law denied federal financial aid to any student who attended a college that enrolled more than 50 percent of its students at a distance. Fortunately, Congress saw fit to change that law and now online students at accredited schools are eligible for all forms of federal financial aid, including student loans, grants and work-study — assuming their school participates in the program. Here is a quick run-down on what you need to do to qualify for federal loans and grants, plus some tips on winning scholarships for online learning:

Student Loans
If you have been reading this blog for a while, you already know that the only way to qualify for federal student aid, including student loans, is by completing the FAFSA — that’s the Free Application for Federal Student Aid. (Review FAFSA FAQs, Common FAFSA Errors and an Essential Document Checklist). If you haven’t yet completed your FAFSA, the federal deadline is June 30, 2009 — so get cracking! Also, be sure to check with your financial aid officer (yes, even online schools have offices of financial aid!) to make sure that your school is part of the Stafford and Perkins loan program.

Federal Grants
Just like student loans, qualifying for federal grants like the Pell Grant or the SMART Grant requires you to have completed the FAFSA. You may also be eligible for state grants, including support for former military members (did you know that more military vets are going online to get their degrees more than ever before?) Again, check with your financial aid officer to find out which federal and state grant programs you may be eligible for.

Scholarships
Wondering whether or not you can qualify for scholarships as an online learner? The answer is yes, most of the time. Some scholarships do unfortunately exclude students enrolled at online schools, but most scholarship opportunities are open to distance learners as long as their school is accredited. (Here’s more information on accreditation of online degrees.) And, there are even scholarships designed just for online learners, like the $1,000 Excellence in Online Education Scholarship from GetEducated.com. To learn more about winning free money to pay for your online degree, be sure to visit us every Friday when we feature three scholarships with upcoming deadlines.