Help for Forms and Repaying Loans

Applying for financial aid is about to get a little less annoying, and loan repayment will get more affordable for some students, thanks to recent initiatives from the U.S. Department of Education.

In June, the department announced that it would streamline the electronic version of the 109-question, six-page Free Application for Federal Student Aid. For many years, the FAFSA has been the subject of insults and curses from parents and politicians of all types. But government officials kept making it longer and more complicated to qualify students for specific scholarships and prevent parents from hiding income.

Research shows that the form has become so complex and frustrating that as many as 1 million students are giving up in disgust, thus possibly missing out on financial aid that would help them pay for college. In fact, many of the questions seem silly: After requiring students to enter their date of birth, for example, the 2009 paper form also asks students whether or not they were born before Jan. 1, 1986. Students also have to answer several repetitive questions about their marital status and the amount of school they've completed.

Repetitive questions will be eliminated from the online version of the form, says Secretary of Education Arne Duncan. Starting in January, the Education Department will also make it easy for students and parents who use the online version of the financial aid form to simply have their IRS tax forms automatically fill in many of the FAFSA questions about adjusted gross income, earnings, and the like, he promises.

Eventually, Duncan hopes to make the form even shorter. He plans to ask Congress for approval to cut out an additional 26 questions about savings, investments, and assets.

The simplification announcement was greeted with cheers by college financial aid officers, politicians, researchers, and others. "This is a great first step," says Marcia Weston, director of the YMCA's College Goal Sunday program, which drafts volunteers across the country to help families fill out their FAFSAs on a few Sundays each winter.

But she noted that many disadvantaged students do not have computer access and thus fill out the paper FAFSA, which will not be simplified. Those who need aid the most might still have to suffer through the most annoying form.

Income based. There's encouraging news on the loan repayment front, also. The federal government's new Income Based Repayment plan, which took effect in July, will allow student debtors to cut their payments on their federal loans to less than 15 percent of their incomes.

Anyone thinking of applying for the program should consider a few details:

Are you married or engaged? Marriage just got more expensive, because the government initially plans to base the new payments on "family income" for those who file joint returns, no matter how much one spouse owes. But Edie Irons, spokeswoman for the Project on Student Debt, says a move is afoot to reduce the marriage penalty sometime next year.

Will you work in a public-serv ice job? If you work for a government agency, school, nonprofit, etc., your loans might be forgiven. Consolidate your federal loans directly with the federal government first, and make 10 years of on-time payments. You may be able to get the remaining balance canceled under public-service forgiveness.

Have you been laid off or had a pay cut? Keep good records. The government plans to base the new loan payments on the income debtors report on their previous year's tax filings. Those who want their payments to be based on current, lower incomes will have to provide documentation. Those who get a new job or a raise should plan on higher payments the following year, as debtors have to reapply for IBR, and document their recent income, every year.

Confused by similar-sounding jargon? Watch out. There are several sound-alike programs, including "Income Contingent Repayment" and "Income Sensitive Repayment." Remember: The federal government's Income Based Repayment is generally considered to be the best deal. 

The new IBR applies only to federal student loans, so parents who borrowed to pay for their kids' tuition won't get any help from the new program. Students who took private, signature, or alternative loans from companies like Sallie Mae won't be helped either. The federal government and private lenders do offer other payment plans to help strapped borrowers, however. So, if you're having trouble making your payments, it pays to call them and ask for help.