Archive for ‘financial aid’

April 9, 2014

Want to appeal your college financial aid?  Go for it

by Grace

Ron Lieber in the New York Times has some tips for students hoping to appeal their college financial aid packages before making the final decision on where to enroll in the fall.

A change in a your financial situation holds the best chances for a successful appeal.

Your best shot with an appeal will come from a change in your family’s financial circumstances since you applied for aid. Possibilities include job loss or other reduction in income, new health expenses, death of a parent, disability of a family member, nursing home costs, natural disasters or parental credit woes that make borrowing impossible.

Adjusting need-based aid may be a more straightforward proposition, but that’s not always true since need-based awards are often based on a ‘student’s academic merit’.

Some tips:

Some schools automatically match offers from similar schools.

Cornell instantly corrects itself if you’ve got higher need-based aid offers from other Ivy League schools or M.I.T., Duke and Stanford; it will match that offer, no questions asked.

Carnegie Mellon appears to be acting similarly, noting on its site that the university has “been open about our willingness to review financial aid awards to compete with certain private institutions for students admitted under the regular decision plan.” …

Go for it.
Based on some feedback from colleges, Lieber seems to suggest that the odds are not bad that an appeal will result in increased aid.

The worst that can happen is that the financial aid office says no …

Related:  Will colleges negotiate financial aid packages? (Cost of College)

April 7, 2014

Be careful — your college financial ‘award’ may include loans

by Grace

College financial award letters can sometimes be difficult to decipher.  With the May 1 deadline for fall enrollment decisions fast approaching, families must be careful as they review details about the types of aid listed in these letters.

That number next to the word “financial aid award”? It’s not all a gift This is the single biggest point of confusion, financial aid experts say. There may be a line at the bottom of your letter that reads, “this is your award amount,” and the number next to that phrase could look like a lot of dollars. However, you have to look at the lines above the “total aid award” number to figure out what went into calculating that total – and chances are, there are some loans mixed in. Since loans need to be paid back with interest, these are hardly a “gift.”

This sample award letter shows a $39,000 “award” that “includes “$2,000 you’re expected to earn and another $6,500 you’ll have to pay back”.

20140403.COCFinAwardLetter1

 

What’s worse, Mark Kantrowitz says, you may not be able to quickly tell which items are grants and which are loans. “There’s no interest rate, no monthly payment listed, and they may not use the word loan. They set up a character limit for the name of the award and they use lots of abbreviations. Sometimes they’ll say L or LN instead of using the full word for loan,” he says. So, for instance, you may see “Fed Staff L,” and there may be a “sub” or “unsub” afterwards. This stands for “federal Stafford loan,” a loan that comes from the government and whose current interest rate is 3.9%. “Sub” stands for subsidized, which means the interest does not accrue while you’re in school; “unsub” stands for unsubsidized, which means the interest does accrue while you’re in school so the amount you owe upon graduation will be larger than the amount you borrowed (unless you pay down the interest while you’re in school).

Sometimes loans to parents are included in the award amount.

Stafford loans are loans that go in the student’s name, but parents need to be careful to scan the award letter for the addition of loans that will be in their names, too. Troy Onink, CEO of college planning service Stratagee.com (and a FORBES contributor), says that some schools will even include a Parent Plus loan into the “award” mix. Though this item is just a suggestion — you’re not required to take out a Parent Plus loan, whose interest rate was 6.41% this past academic year and whose 2014-2015 interest rate has not been set yet –some schools include a parental loan to inflate the “award” and make it look better than it is.

Forbes has additional tips for “Decoding College Financial Aid Award Letters.

Related:

April 4, 2014

Two-thirds of families use grants and scholarships to help pay for college

by Grace

The use of grants and scholarship to pay for college is on the rise.

The percentage of families using grants and scholarships for college has increased 30% from five years ago.

According to student loan servicer Sallie Mae, nearly two-thirds of families (65%) used grants and scholarships to pay for college in 2013, up from 61% in 2012 and up from only half of families five years ago. What’s more, 49% of parents say they’re not regularly setting aside money to college savings, and 70% of those parents say the reason they’re not saving is because they simply can’t afford to. In other words: more and more families are counting on grants and scholarships (including tuition discounts from the school itself) to pay for college.

The percentage of students who borrow for college has increased a more modest 10% from five years ago.

In 2013 32% of students borrowed to pay for college, up from 29% in 2009. Parent borrowing is down over that same time, from 15% in 2009 to 12% in 2013.

Related:

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Maggie McGrath, “10 Rules For Decoding College Financial Aid Award Letters”, Forbes, 3/31/14.

Sallie Mae, “How America Pays for College 2013″

April 1, 2014

Turbo Tax being used to promote income-based student loan repayment

by Grace

The federal government has begun to use Turbo Tax to promote income-based and other income-dependent college loan repayment programs.

The new push from the Departments of Treasury and Education uses tax time to promote the opportunity for a borrower to have their entire debt repaid after 20 or 25 years. The agencies are partnering with TurboTax, the tax software used by more than 18 million Americans, to advertise the deal….

Turbo Tax users will see information about loan repayment options and a link to the Department of Education website in a section of the program called “My Money Tools.”

They are provided with a link to a calculator that uses tax information, including their adjusted gross income, marital status and household size to determine eligibility for income-based and other income-dependent repayment programs.

The options allow qualified borrowers to lock-in monthly payments that are determined by how much they make, not how much they owe.

This new marketing push coincides with the upcoming introduction of more generous taxpayer subsidies for student borrowers.

Those graduating after 2014 will have the option of applying to an even more generous program Congress passed in 2009 that would set payments at 10 percent of discretionary income for 20 years. After that, the loan is forgiven.

The Turbo Tax promotion comes after the Obama administration and other supporters expressed concern that not enough borrowers were taking advantage of Income Based Repayment (IBR), a student loan forgiveness program.

Kelsey Snell, “Student loan debt deal comes with tax catch”, Politico, 3/26/14.

Related:  Federal student loan programs create perverse incentives (Cost of College)

March 28, 2014

‘Direct PLUS Loan made to a parent cannot be transferred to the child’

by Grace

Don’t make the mistake of thinking a Direct PLUS Loan can be transferred from the parent to the child.

As a parent borrower, can I transfer my loan to my child?

No, a Direct PLUS Loan made to a parent cannot be transferred to the child. You, the parent, are responsible for repaying the loan.

Parents may be lulled into taking on excessive student debt, believing that this obligation can later be easily transferred to their children.  A verbal promise by a student to take over his parent’s debt after he graduates is easy to make at the beginning of the college experience.  But that promise can become hard to keep later on, especially when job prospects don’t pan out or when a student struggles to get his degree.

Parent PLUS loans are ”both remarkably easy to get and nearly impossible to get out from under“.  With good credit, a parent can take out a PLUS Loan up to the total cost of attendance.  That can easily exceed $50,000 each year.

A side agreement can be made to shift the PLUS Loan payment obligation from parent to child, but the government still views the parent as ultimately responsible.

Unlike most other debt, federal student loans can rarely be discharged in bankruptcy.

When can my federal student loans be forgiven, canceled, or discharged?

You must repay your loans even if you don’t complete your education, can’t find a job related to your program of study, or are unhappy with the education you paid for with your loan. However, certain circumstances might lead to your loans being forgiven, canceled, or discharged.

Death or Total and Permanent Disability are two circumstances that allow for loan forgiveness.

Be careful.  It can be challenging to pay off college loans during your retirement years.

Related:  Qualifying for a parent Direct PLUS loan (Cost of College)

March 26, 2014

Colleges seek wealthy students to pay for diversity and more HDTVs

by Grace

Colleges engage in “massive price discrimination” as a way to achieve diversity.

… universities try to charge what the traffic will bear, engaging in massive price discrimination, favoring some students (poorer ones, extremely bright ones, those with preferred skin colors) more than others (more affluent, less bright kids, those whose skin color is less desirable).

A big part of enrollment management is finding enough wealthy applicants who will be able to subsidize their fellow students.  Here’s a success story.

MIDDLETOWN, CT—After carefully scrutinizing the application of high school senior Erica Allson, admissions officers at Wesleyan University confirmed Monday that the 18-year-old was the ideal candidate to subsidize the tuition and fees of three lower-income students. “Erica is truly a perfect fit for us: Not only does she show sufficient academic potential, but her parents are two highly successful professionals capable of paying the school’s annual $47,000 in tuition plus $13,000 in room and board in their entirety,” assistant admissions director Stacey Wright said, adding that she was left in awe after reading Allson’s near flawless income disclosure form. “With the money she’ll bring to campus, we can easily admit several less-well-off students, which will help us project our desired image as a highly progressive and inclusive institution, plus we’ll still have some extra left over to add HDTVs to the dining hall and install a rock-climbing wall in the freshman dorms. It’s all about striking the right balance with our student body.” At press time, administrators confirmed that they had also just admitted a social activist whose contributions to the community would offset the reputations of three football recruits.

In case it isn’t sufficiently obvious, this fictional news story comes from The Onion.

Glenn Reynolds has it right:

… One of the weirdest things about the past few years is the way The Onion has gone from a parody site to hard-news. . . .

Related:  College costs – sticker price vs. net price (Cost of College)

March 25, 2014

Do colleges care more about test scores or grades?

by Grace

The ongoing discussion about the relative importance of grades or test scores in predicting college success continues with a recent report from the National Association for College Admission Counseling (NACAC) titled Defining Promise: Optional Standardized Testing Policies in American College and University Admissions.

The report found that high school GPA was more important than test scores in predicting college success.

The National Association for College Admission Counseling (NACAC) finds that there is virtually no difference in college graduation rates among students who did and did not submit standardized test scores. It’s a student’s high school GPA that can play a role in college success.

How important are test scores?

I am skeptical of studies showing that test scores do not play a very important role in college grades.  In some cases selection bias skews results.  At least one study that pulled out SAT scores as an independent variable concluded they are, in fact, a key factor.

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Boston University values high grades over high test scores.

Yesterday I posted a Net Price Calculation showing that in disbursing need-based aid BU awarded more grant money to higher-achieving applicants.  Today’s table* shows that SAT scores don’t seem to help or hurt award amounts.  Grades are more important.

20140324.COCBUNPCLopsided2

The College Board reports how BU rates the relative importance of  these factors in deciding admission:

Very Important

  • Rigor of secondary school record

Important

  • Academic GPA
  • Application Essay
  • Class Rank
  • Recommendations
  • Standardized Test Scores

All students in this NPC illustration took most courses at the “Honors/AP/IB” level.

I keep hearing that grades trump SAT scores in the college admissions game.  Apparently it’s true in the case of Boston University.

* In these examples, total earned income was $80,000/year.

 Kate Rogers, “GPA vs. SAT Scores: Which is More Important?”, FOXBusiness, March 03, 2014.

March 24, 2014

Need-based college financial aid often based on ‘student’s academic merit’

by Grace

When some colleges award financial aid, ‘even “need-based” grants aren’t based solely on need: The size of the grants also depends on a student’s academic merit’.

While families do not usually know the details of how financial aid is disbursed, colleges have access to comprehensive, detailed information about applicants in what amounts to “a massive information imbalance”.

Most colleges offer “vague and superficial” disclosures about how they allocate their financial-aid dollars, said Mark Kantrowitz, a financial-aid expert with Edvisors, which publishes websites about paying for college. “They don’t give details about the actual formulas they use.”

Schools use “financial aid leveraging” to attract stronger students.

While universities don’t want to disclose the details, they have become increasingly strategic in recent years about how they use their aid and which students get it. Aid isn’t just given to students in need, it’s also used now for what schools call “financial aid leveraging” — often to entice high-scoring students who will help a school’s ranking or to give a small, feel-good discount to attract out-of-state students who will still end up paying a higher price.

Boston University is unusually candid about its strategy of using need-based financial aid to attract stronger applicants.

If you are an incoming student, your application for a need-based BU grant award will be considered based on several factors. These include calculated financial eligibility, academic achievement, and the availability of funds for your program of study.

BU publishes informative student profiles showing average aid awards.  I ran some simplified* Net Price Calculations that further illustrate how their financial aid works.  Given the same financial need, the stronger student is would receive more need-based financial aid.

20140324.COCBUNPC4

The Straight-A Student is estimated to receive $35,500 in grants and scholarships, compared to only $12,00 for the Solid B Student.  Remember, this is need-based financial aid.  Merit scholarships may be awarded in addition to these amounts.

* In these examples, total earned income was $80,000/year.

Marian Wang,  “How Exactly Do Colleges Allocate Their Financial Aid? They Won’t Say”, ProPublica, Feb. 25, 2014

Related:  Psst – one of Duke’s so-called merit scholarships is actually need-based (Cost of College)

March 19, 2014

Same-sex marriage laws mean less college financial aid for some students

by Grace

The federal government’s recent recognition of same-sex marriage could lead to children of these couples receiving less college financial aid.  And it doesn’t matter if they are married or not.

The 2014 Free Application for Federal Student Aid or Fafsa—which calculates income, assets and family size—now collects financial information about parents “regardless of marital status or gender.” Since the Supreme Court ruled that Section 3 of the Defense of Marriage Act was unconstitutional, same-sex couples must report their marital status if they were married in a state where same-sex unions are legal but reside in a state where they are not, or even if they were married in a foreign country. If the student is one half of a same-sex marriage, he or she may also be considered to have independent financial means. “It’s a recognition of diverse family structures,” says Greg McBride, chief financial analyst with Bankrate.com.

The key factor for all parents is whether they live in the same home as their children.  Whether they are married or just cohabitating, both parents must report their financial information.

There are other new twists in this year’s application: If a student’s parents are unmarried but are living together, they’re now treated as though they were married. “This includes both divorced and never-married parents,” says Mark Kantrowitz, publisher of Edvisors.com , a network of websites about planning and paying for college. “And living apart means maintaining separate residences. Different floors of the same house don’t count.” Fafsa also requires applicants to answer questions about the parent they lived with most during the past 12 months and include a stepparent’s income. In all cases, both partners’ income and assets must be reported on the Fafsa, and all children are counted in household size….

… if the parents of the student seeking aid are unmarried and living separately, only one parent is responsible for completing the Fafsa.

In some cases this new ruling could increase chances of receiving financing aid. 

… However, in some circumstances, the recognition of two gay parents would increase a dependent student’s aid eligibility. (A dependent student’s need may marginally increase with the addition of a second parent because it increases the size of the household. If that increased need exceeds the amount by which the second parent’s income reduces the student’s need, he or she could be eligible for more aid.)

Related:  Divorced or absent fathers are let off the hook in paying for their kids’ college (Cost of College)

March 17, 2014

Can the FAFSA hurt a student’s chances of admission or financial aid?

by Grace

The simple act of submitting a FAFSA could harm an applicant’s chances for admission or financial aid at some selective colleges.

Some colleges are denying admission and perhaps reducing financial aid to students based on a single, non-financial, non-academic question that students submit to the federal government on their applications for student aid.

Millions of high school students and their parents probably have no idea this happens after they fill out the ubiquitous Free Application for Federal Student Aid. The form, known as the FAFSA, is used by nearly every American who needs help paying for college.

Here’s how it works.  Some schools have found that “the order in which students list institutions corresponds to students’ preferred college”.

When would-be college students apply for financial aid using the FAFSA, they are asked to list the colleges they are thinking about attending. The online version of the form asks applicants to submit up to 10 college names. The U.S. Department of Education then shares all the information on the FAFSA with all of the colleges on the list, as well as state agencies involved in awarding student aid. The form notes that the information could be used by state agencies, but there is no mention that individual colleges will use the information in admissions or financial aid — and there is no indication that students could be punished by colleges for where they appear on the list.

But the list has turned out to be very valuable to college admissions offices and private enrollment management consultants: They have discovered that the order in which students list institutions corresponds to students’ preferred college.

Now, some colleges use this “FAFSA position” when considering students’ applications for admission, which may affect decisions about admission or placement on the wait list, said David Hawkins, director of public policy and research for the National Association for College Admission Counseling.

If a student happens to place his favorite college toward the end of the list, he may be hurting his chances of admission.

So the institution is disinclined to use up a precious admissions slot for a student who is unlikely to enroll.

Does this really happen?

Explicit evidence was not provided in the Inside Higher Ed article on this, so I understand the skepticism expressed in the comments and elsewhere.  However, it’s understandable that schools would be reluctant to admit this practice.  Plus, I doubt the National Association for College Admission Counseling is creating this story out of thin air.  So I believe it happens at some selective schools, and as an applicant I would take this into account.

In case it’s true

One approach to avoid the risk of losing out on chances of admission or financial aid would be to submit the FAFSA one school at a time.  That way it removes all possibilities of  being dinged for the order of schools on the list.

It would be better if the government would just stop sharing the entire list with all the schools a student puts on the FAFSA.

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