Took out a subsidized loan...then school changes it to unsubsidized?! How?

<p>Our daughter started her freshman year of college last fall and after we got our financial aid, we didn't qualify for much aid and only a $950/ semester subsidized loan. We thought it would help and since we wouldn't have to pay interest, she should go ahead and take it out, then pay it off and it could only help build up her credit. However, TODAY, she got a letter from the college stating that the loan has been changed to subsidezed and we will now be charged interest because they have determined that we don't qualify for the aid, except for $210.00. </p>

<p>I am so confused...how can they change the loan after we have taken it out. We plan to just pay it off, because we are the type that hate paying interest if we don't have ot, but now I don't even know where to send the check to and the school is no help, because they just keep saying that we will get a letter telling us who has the loan now and how much interest we will be charged.</p>

<p>Is this common? Anyone been through this or have advice? Luckily it isn't a bigger amount, but that still really affects our budget.</p>

<p>Thanks in advance for any help......ugh, 3 MORE YEARS!!!</p>

<p>Did this maybe happen because of a scholarship that he was granted after we took out the loan?</p>

<p>Yes, it very well could be because of the scholarship. You can only get the subsidized loan if your need as determined by FAFSA is outstanding after all scholarships are taken into account.</p>

<p>I agree with cptofthehouse on it being a possible scholarship effect.</p>

<p>Does it make since that they would wait until now to tell us? I’m just so frustrated and wish we hadn’t of even taken it out now.</p>

<p>Thanks for your input.</p>

<p>Finding and fixing over awards like this is not easy … especially at a large school. When an over award is discovered, it must be fixed. Switching awards from sub to unsub can happen at any point in the year (and even after the end of the year). Federal regulations must be followed, regardless of the point in time the problem is found.</p>

<p>What really irked me happened to my son in his freshman year. He was offered the unsub stafford of 5500 but earned enough in the summer to cover the first half of the amount on his first semester bill, so in August, he paid the 2750 in cash and didn’t take out the loan. </p>

<p>Come second semester, he needed to borrow 1250. The school split the amount in half and then back charged a 625 loan to his first semester, and the loan started accruing interest as of September 1 even though he didn’t apply for it until January. Is this legal?</p>

<p>Schools are required to split loans into two equal parts across the two semesters. Unless the student specifies that he only wants the amount attributed to the second term, the school will split even the amount borrowed during the second term across both terms. If he does ask for it to only be attributed to the latter term, the school has to document that he is eligible to receive that amount based on the single term cost of attendance/aid.</p>

<p>OK, thanks for the feedback, kelsmom. If this is ever an issue in the future, he’ll have to be more clear with the FA office.</p>

<p>It can take time for things like this to catch up. I’m dealing with a friggin’ tax issue from some years ago. Yes, it would have been nice to have addressed this sooner when the stuff was at my finger tips but it didn’t happen this way. And if this were a mistake on my part, a simple innocent mistake, I could owe a fine and a whopping amount of interest because of the time it took for the IRS to discover this. Fortunately, it is not my mistake and it will be straightened out, but is taking a lot of time for me to get the proof I need due to how long ago this happened. It happens all of the time with administrative things, not just college financial aid issues.</p>

<p>Actually, I was thinking about the unsub loan question. Yes, it has to be split between the two terms, but the interest begins to accumulate on the date it is actually disbursed. So if it is paid in January, the interest should begin in January even if it’s split between the two terms. If there is an existing loan that has been disbursed and a new amount is added to that loan record, the interest would be retroactive. It sounds like maybe your son had a loan that paid out, canceled it, then that loan record was used to reinstate the original loan. </p>

<p>Now that all schools are DL, they have been instructed to create a new loan record for any increases. This avoids the retroactive interest issue. It gets sticky if a student is no longer enrolled & the original record has to be used (because it is too late to use a new record once the term is over), though.</p>

<p>At least the dollar amount in question is relatively small - think how much nastier the surprise if larger numbers were in play.</p>

<p>kelsmom,</p>

<p>When he took out the 1250 in January, this was for the 2009-10 year, and he had no prior loans, as he was a freshman. He filled out the MPN & did the on-line counseling in January, so I don’t see how he could have had a prior loan that they canceled.</p>

<p>He has since paid off this loan, and the amount of interest was small, so we didn’t try to have it corrected. It’s good to understand the policy, though, in case this comes up again. Thanks for your thoughts.</p>

<p>We just recieved the notice to sign the prom. note on the new unsubsidized loan, and it is quite confusing to me, the numbers still don’t make sense. </p>

<p>My ? is, does anyone know if we are obligated to go ahead with this loan, since we had already signed up for the first sub. loan? We would just rather pay the school, since we plan to turn around and pay off this loan immediately.</p>

<p>You can cancel the loan. Just contact the school to find out what they need from your child to cancel the accepted loan.</p>