Thursday, June 09, 2011

Help Available for College Students and Borrowers Affected by Natural Disaster

In recent months the country has been battered with floods along the Mississippi,fires in Arizona, and tornadoes from Missouri to North Carolina and to Massachusetts, making this “The Spring of the Natural Disaster”. As communities begin to recover and return to normalcy, so too will students and colleges. For college students and those repaying federal student loans from those affected areas, there are steps that can help them get back on track.

The Higher Education Act of 1965, provides college financial aid administrators with the ability to use Professional Judgement, commonly referred to as PJ, or Special Conditions Review, to use updated and new information to revise a student’s eligibility for federal financial aid. Typically, PJ is used when there is a loss of employment, divorce, death of a parent/spouse or other unusual circumstance. The financial aid administrator will require documentation relating to the event or reason for the request, such as documentation of unemployment or a divorce decree.

The Robert T. Stafford Disaster Relief and Emergency Assistance Act of 1988 (Stafford Act), provides additional regulatory relief to students and parents who receive federal financial aid, expands financial aid administrators’ PJ authority and provides additional guidance to institutions, lenders, guarantee agencies and loan servicers, that are located in or whose students/ borrowers are located in a federally declared natural disaster area. Here are some of the segments of the Stafford Act that relate specifically to college students and federal student loan borrowers.

Any college financial aid applicant from a region hit by a declared natural disaster can request a PJ review. The college financial aid administrator will require documentation related to the disaster and the impact on the student and his or her family. Such documentation may include unemployment compensation and the official declaration of the natural disaster status. See the chart below for further examples of documentation. As a victim of a declared national disaster, any state or federal aid received as a result of the disaster is not counted as income on the Free Application for Federal Student Aid (FAFSA). This would also apply to returning students.

For any student awarded financial aid and enrolled in college at the time of a natural disaster, in addition to being eligible for PJ and the special treatment of certain income, there are other aspects of the Stafford Act that will be of assistance. If a student does not meet the college’s Satisfactory Academic Progress standards, due to the disaster, the college may waive the requirement. However, the college must document the reason for the waiver. A college’s Leave of Absence policy can be waived as well for a student in this type of situation. Requests for a leave of absence may be made without the required written request and after the absence starts, if related to a declared natural disaster. Again, the college must document the circumstances for the waiver of this requirement.

The US Department of Education selects FAFSA applications for a process called Verification. The college will not be mandated to perform verification of student financial aid applications if verification records are damaged or lost due to a declared natural disaster. Also, any student who had a federal workstudy position at the time of a declared natural disaster and is unable to continue performing that job may be eligible to still receive workstudy payments. Students in this situation should contact the financial aid office for clarification of their eligibility to continue receiving workstudy payment.

General federal financial aid regulations provide borrowers with assistance when they are having difficulty making student loan payments. Deferment allows borrowers a temporary suspension payment for a specific situation including economic hardship. During a Deferment period interest payments are not required for subsidized Federal or Direct Student or Perkins loan. Interest payments are required for other Federal and Direct Student loans.

Federal regulations also offer borrowers the option of Forbearance, is temporary suspension of loan principle payments for a specific time. Borrowers are required to make interest payments during Forbearance.

Both student and parent loan borrowers of federal student loans and PLUS loans are also provided some additional protections under the Stafford Act when having difficulty making payments due to a natural disaster. These borrowers may request an Administrative Forbearance based on their status as a victim of a declared natural disaster. In the case of Unsubsidized Stafford, Unsubsidized Direct Stafford or PLUS loans, interests payments may be required. A borrower who has been affected by a disaster and whose federal student loans are in “Collection “ at the time of the disaster may request that the collection activity be suspended for up to three months. The request may also come from a member of the borrower’s family or another reliable source that the student was affected by a disaster. Also, a missed payment will not be held against a borrower in default who has a loan in “Rehabilitation” or a repayment arrangement while they are still affected by the event.

Listed below are examples of the documents that may be requested by the financial aid office, student loan guarantee agency or student loan servicer.

Professional Judgment Required Documentation List

Documentation of Loss of Earned Income
*Documentation of the date & reason for loss of income
* Documentation of unemployment compensation
* Last pay stub
* Employer’s written notice of termination
* Documentation of all sources of income

Documentation of Medical expenses or Disability
*Documentation of medical expenses
*Attending physician's statement of disability
*Documentation of Worker’s Compensation

Documentation of Natural Disaster Status
*Documentation of Official Declaration of Natural Disaster status

Other Documentation
*Letter of explanation regarding your situation

It is always advisable for a college financial aid recipient to contact the financial aid office, when any change in the student’s family situation occurs or a natural disaster is declared, to ensure the Aid Office is aware of the situation and to receive guidance on the steps needed to be taken by the student or parent. If a borrower has any private student loans, it is important to also contact the lender or loan servicer directly to determine what assistance may be available.

Resources For Students and Borrowers

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