Archive for ‘practical info’

May 7, 2014

College financial aid advice for mothers going through a divorce

by Grace

Forbes contributor Jeff Landers answers a few of the most common questions that women going through a divorce have about college financial aid. First, he explains which parent should file the FAFSA.  (The answer is the custodial parent.)  Then he explains why this matters.

Why does it matter who completes the form?

The FAFSA contains many detailed questions about a student’s family’s income and assets. The responses are entered into a formula that determines the Expected Family Contribution – in short, how much money you will be expected to come up with toward your child’s college expenses.

If you are the custodial parent, it’s your income and assets that go on the form. So if, for example, your ex-husband makes $500,000 a year in his business, and you make a tenth that much working part time from home, your child would likely be eligible for more financial aid if the eligibility is determined based on your income alone.

If the custodial parent remarries, the new spouse’s income and assets have to be listed on the FAFSA. Unfortunately, while it may not seem fair, that can lower your child’s eligibility for financial aid.

In his next answer, Landers goes on to shed light on the sometimes confusing details of non-federal financial aid.  Click on the link at the top of this post to see all the questions and answers.

Related:  Divorced or absent fathers are let off the hook in paying for their kids’ college (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.

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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)

January 24, 2014

Some career advice is timeless, and some is only recently relevant

by Grace

Successful entrepreneur Jason Nazar has some advice for 20-year-olds.

… Call me a curmudgeon, but at 34, how I came up seems so different from what this millennial generation expects.  I made a lot of mistakes along the way, and I see this generation making their own….

Some of Nazar’s suggestions have been around for many years, while others are new and relevant to the current business environment.  Here are a few from his list of “20 Things 20-Year-Olds Don’t Get .

When it comes to communication, young people seem to prefer texting and email over talking.  But sometimes a personal touch makes a difference, and the sound of your voice can be important.

Pick Up the Phone – Stop hiding behind your computer. Business gets done on the phone and in person.  It should be your first instinct, not last, to talk to a real person and source business opportunities.  And when the Internet goes down… stop looking so befuddled and don’t ask to go home.  Don’t be a pansy, pick up the phone.

When you’re new on the job, working hard is a must.  Maybe there will be time later on to coast, or maybe not.

Be the First In & Last to Leave ­– I give this advice to everyone starting a new job or still in the formative stages of their professional career.  You have more ground to make up than everyone else around you, and you do have something to prove.  There’s only one sure-fire way to get ahead, and that’s to work harder than all of your peers.

Nobody wants the challenge of managing an employee who lacks initiative and needs to be told what to do.

Don’t Wait to Be Told What to Do – You can’t have a sense of entitlement without a sense of responsibility.  You’ll never get ahead by waiting for someone to tell you what to do.  Saying “nobody asked me to do this” is a guaranteed recipe for failure.  Err on the side of doing too much, not too little.

This one caught me a little by surprise since I have sometimes found myself buying  into the idea that social media ranks highest in what makes a company successful.

Social Media is Not a Career – These job titles won’t exist in 5 years. Social media is simply a function of marketing; it helps support branding, ROI or both.  Social media is a means to get more awareness, more users or more revenue.  It’s not an end in itself.  I’d strongly caution against pegging your career trajectory solely to a social media job title.

If I thought they would take heed, I would send this list to some young people I know.  It’s mainly good advice.

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October 25, 2013

‘passively managed index funds outperform almost all actively managed funds’

by Grace

Economics professor Mark J. Perry shared some investment facts on the occasion of “Eugene Fama winning the Nobel Prize of Economics, largely for his path-breaking academic finance research on market efficiency that ultimately led to the introduction of low-cost mutual funds by Vanguard and others that pursue a passive investment strategy of buying and holding portfolios of stocks that track an index like the S&P 500″.

Here’s one fact that should get every investor’s attention.

Empirical evidence shows that passively managed index funds outperform almost all actively managed funds over long holding periods, adjusted for risk, taxes and expenses.

I used to work for a mutual fund company with a winning fund manager who consistently outperformed the market over more than 30 years, but he was the exception.  These days I’m a fan of index funds for most of my investing.

20131024.COCActivePassiveInvesting1

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September 25, 2013

Is your college ‘likely to be around for many years to come’?

by Grace

Besides sentimental reasons for wanting your alma mater to “be around for many years to come”, there are practical reasons for hoping your college is able to withstand the intense financial pressures bearing down on higher education today.

Do not ignore financial fitness when making a list of potential colleges to attend.

Lucie Lapovsky, former V.P. of finance at Baltimore’s Goucher College, a higher-ed financial consultant and a FORBES contributor, cautions against ignoring the financial health of the colleges you choose: “Visible signs of financial stress can include fewer classes offered less frequently, more classes taught by adjunct professors, less money for clubs and cutbacks in the upkeep of campus facilities.”

Financial woes are also the leading cause of accreditation suspensions. Indeed, more than a dozen schools among our C- and D-rated colleges are already facing some kind of accreditation inquiry. The last thing you want is for Junior’s college to lose its accreditation. When that happens the feds pull financial aid, enrollment plummets and the lights get turned out.

To help determine the financial health of a college on your list, you can use the FORBES College Financial Grades.  Over 900 private colleges are graded based on several components:

Balance Sheet Health (40%)
Operational Soundness (35%)
Admissions Yield (10%)
Freshmen Receiving Institutional Grants (7.5%)
Instructional Expenses per Full-Time Student (7.5%)

Higher education is facing a tough situation.

The prognosis is ominous in part because institutions of higher education operate in an extremely difficult business environment today. Imagine, if you will, running a company that sells a commodity product, where pricing is opaque and you have hundreds of competitors all clamoring after the same shrinking customer base–which, by the way, happens itself to be in financial distress.

Then consider that one of your other chief revenue drivers, subsidies and grants from federal and state governments, has either been cut back or eliminated. Add to this an evaporating competitive moat being stormed by newly minted for-profit businesses and cheap online alternatives.

Management may be the biggest problem.

… By far the biggest problem at most colleges is that they are governed in a way that flies in the face of sound business practices. The vast majority of colleges in the U.S. are bloated with personnel and programs that make little economic sense.

It’s no surprise that the highest scoring schools on the Forbes list include the Ivy League and other elite institutions.  I was a little surprised to see two local schools, Pace University and Concordia College, at the bottom of the list with D grades.  This financial information would certainly be a factor if I were considering these schools for my child.

June 10, 2013

Preferential packaging – college financial aid as a recruiting tool

by Grace

Preferential packaging of financial aid is commonly used by private colleges and universities.  Because schools are not transparent about this strategy, many families are ignorant of how it works.  Muhlenberg College is unusually open about explaining this practice.

Preferential packaging means, simply, that the students a college would most like to enroll will receive the most advantageous financial aid packages.

There are three basic types of financial aid (FA):  grants, loans, and work.

A preferential financial aid package includes a far greater percentage of grant aid than self-help (loans and work). Because they have discretion over how much grant aid they choose to award a student, a college can award a bigger grant to a student they would really like to enroll….

Willamette University also is exceptionally forthright about its preferential packaging.

For students with demonstrated financial need, the percentage of need that is met with “gift-aid” (scholarships and grants from all sources) will also reflect the students’ academic standing within our admitted applicant pool. In other words, the stronger the student, the greater the scholarship award is likely to be.

Let’s look at an example from a CollegeConfidential post.

In this case the college’s Cost of Attendance (COA) is $40,000, and two applicants have the same financial need but quite different academic credentials.

Student A
ACT 33
GPA 4.0
EFC = $7k
Student B
ACT 24
GPA 3.2
EFC = $7k

Student A is more attractive to the college because his stats would improve the school’s stats.  Perhaps Student A is also an Underrepresented Minority (URM), another desirable factor.  Both students will be offered $10,000 in FA, but Student A will receive a preferential package that does not include a loan.

Financial Aid Offered
Student A:  $8,000 grant; $2,000 work-study – Total = $10,000
Student B:  $3,000 grant; $5,000 loan; $2,000 work-study – Total = $10,000

Note that these awards are technically “need-based”, but in fact do take merit into consideration.  If it is the official policy of this college only to offer FA based on need and not on merit, another student with the highest of academic credentials but lacking any financial need (EFC = COA) would receive nothing.

What it means to applicants

  • Students seeking to maximize financial aid should apply to schools where their statistics place them in the upper third of the applicant pool.
  • Students with no financial need are shut out of many merit awards that include a need component.

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March 20, 2012

Postponing remarriage to get more college financial aid

by Grace

There are a many “tricks” that will increase your odds of getting college financial aid, including postponing remarriage so that household income looks low.

I Do! (In a Few Years)
The Fafsa asks a seemingly absurd question: “Who is considered a parent?” Yet frequently families react with frustration when I explain how the government defines parents for financial aid purposes. If both parents are alive and married to each other, they check off the “married” box and include their information on the Fafsa.

If there has been a divorce or legal separation, you need to determine who the student lived with more than 50 percent of the time the previous year. That’s the custodial parent. Only the custodial parent’s income and assets appear on the Fafsa; the noncustodial parent’s income and asset information don’t (though a child support question and another untaxed income question can reflect household support).

This is true even if the divorce arrangement says the noncustodial parent has to pay for the whole expense, or things are split evenly.

Here’s the surprise for some stepparents: Let’s say mom, the custodial parent, marries stepdad. Both mom and stepdad’s income and assets appear on the form. Maybe when they married they had a deal: he would pay for his children, she would pay for hers. Not happening. Of course, I don’t recommend holding off on saying, “I do!” (again) until after all the children have their degrees, but be aware of the rules.

February 29, 2012

Your chances for merit aid are better at less selective schools

by Grace

Less selective schools offer more merit money but less need-based money.  But if you qualify for need-based aid, your chances are generally better at the more selective schools.  [UPDATE: Tables revised to show corrected admission rates]

If you do not qualify for need-based aid, your chances for merit aid are generally better at less selective schools.  In the first chart above, moving down one step from the most selective private colleges more than doubles the average merit aid amount.  The standard advice is to apply to colleges where your test scores and grades would put you well within the top 25% of the student body to improve your odds for receiving aid.  Your statistics are viewed as a way to boost the school’s prestige.

“Schools compete with each other to attract talented students… “If you want to recruit some of those kids, one way to do it is through merit aid.”

… “Universities compete based on prestige, so if they want to increase their rankings in U.S. News & World Report, an easy way to do that is to bribe high-scoring students to come to your university with non-need-based aid,”…

In addition to boosting prestige, colleges know that relatively small tuition discounts that attract higher-income talented students often yield them more net revenue than the more generous scholarships they offer to lower-income students.

“That’s a fairly significant percentage of what’s happening, especially for universities and colleges that operate on a tight margin and where tuition revenue is an important part of keeping the lights on,” said Jonathan Burdick, dean of financial aid and admissions at the University of Rochester. “In those circumstances, giving $5,000 against a $25,000 tuition charge is just like the discounting you’d see in a retail operation to bring traffic to the door.”

The Harvard Effect is a factor, causing some colleges to feel compelled to follow Harvard and Yale’s lead in price-discounting to affluent families.

Universities say they also have been forced to pay out more aid to people who don’t need it thanks to widely publicized changes in financial-aid policies introduced in recent years by highly selective universities including Harvard, Yale and Stanford, which raced one another to give grants to families with income as high as $200,000.


* Merit aid is defined as grants “awarded to students without financial need or awarded in excess of need”.

Source data is from College Board Trends in Student Aid 2011:

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