Archive for ‘financial aid’

April 15, 2015

You could lose your tax refund if you have a past-due student loan

by Grace

Say good-bye to your tax refund if you have past-due student loans.

In most cases, creditors are unable to touch tax refunds. Not so with student loans.

While credit card companies and other private debt collectors are barred from garnishing money coming to taxpayers from Uncle Sam, some federal and state creditors can help themselves to tax refunds via a process known as ‘offsetting.’ Under the Treasury Offset Program, these entities get a whack at your tax refund if you have an outstanding debt in certain categories, including:

  • past-due child support payments
  • back taxes
  • any unemployment compensation owed to the state
  • past-due student loans

This is another reason to pay your student loans on time, or better yet, make sure you only take on as much debt as you can afford to pay back.

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Aron Macarow, “You Can Lose Your Tax Refund if You Have Student Loans”, Attn:, March 21, 2015.

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April 14, 2015

A college financial planning timeline

by Grace

Don’t wait until your child’s senior year of high school to begin planning how to pay for college.  The first 18 years go quickly, and it’s never too soon to begin preparing.

Here’s one simplified approach showing some important steps along the timeline to college, with a focus on the financial planning aspect of the process.

20150412.COCPlanningTimelineB

 

Before High School

Start saving for college ASAP:  This is the relatively uncomplicated part.  Although we can’t predict the costs of college over a child’s lifetime, it almost always makes sense to begin saving early on.  Even if MOOCs or other innovations make higher education more affordable in the future, there’s usually not much of a risk in saving too much since there are options for dealing with “left-over money in your 529 plan”.

Before Junior Year of High School

  • NMS potential:  If your child tends to score in the 95%ile of standardized tests, he may have a shot at earning a National Merit Scholarship.  A little test prep can make the difference in qualifying for significant merit financial aid.
  • Base Income Year (BIY): If there is a chance your family may qualify for need-based financial aid, you should explore ways to minimize income during the BIY, the 12-month period that begins January 1 during your child’s junior year.  Since the BIY is used as a snapshot for determining financial need, you may want to consider strategies such as not selling stocks or property that will create large capital gains, refrain from converting to a Roth IRA, or defer bonus or other income.

Junior Year of High School

  • Create list of schools:  Get serious and make a realistic list that includes academic and financial safeties.
  • Can we afford it? 1-2-3:  Determine affordability by using the 1-2-3 Method or something similar.

Senior Year of High School

Senior year is the busiest time for families as they handle the many details of the college application process, including final determination of how they will be paying.  Some important acronyms:

The two main forms used in determining financial aid eligibility are the FAFSA and PROFILE.
FAFSA is the acronym for Free Application for Federal Financial Aid. It is a form submitted to the government that collects the financial information needed to decide your eligibility for federal FA. It’s also used by many colleges to determine institutional aid.
PROFILE is a financial aid application service offered by the College Board, used by about 400 colleges to learn if students qualify for non-federal student aid. There is a fee to submit a PROFILE, whereby the FAFSA is free.

The SAR (Student Aid Report) is a summary of your FAFSA responses and provides “some basic information about your eligibility for federal student aid”.


It’s important to get started.

While this outline only hits the highlights along the road to paying for college, it can be used as a springboard for further research and action.  It makes sense to start with an outline, and then fill in the details as you go along.

April 13, 2015

Only some colleges count home equity in financial aid calculations

by Grace

While most colleges that use the CSS/Financial Aid PROFILE do include the value of your home in calculating eligibility for financial aid, there are some exceptions.

PROFILE Schools That Ignore Home Equity*

  • Bard College
  • Bucknell University
  • California Institute of Technology
  • DePauw University
  • Hamilton College
  • Harvard University
  • Princeton University
  • Santa Clara University
  • University of Virginia
  • Washington University, St. Louis
  • Whitman College

*This list was compiled last year, and changes may have occurred since then.

Additional information about how other PROFILE schools treat home equity can be found by clicking the link above.

Summary:

  • Schools that only use the FAFSA (Free Application for Federal Student Aid) to determine eligibility for financial aid do not use home equity in the calculation.
  • Schools that use the CSS/Financial Aid PROFILE to determine eligibility usually use home equity in the calculation, but often the amount is capped as a percentage of a family’s income.

Running the Net Price Price calculator for a particular college will usually show if home equity is counted, but the best way to be sure is to ask the school.

Schools can be flexible in awarding financial aid, and Lynn O’Shaughnessy reminds us of this important point:

By the way, how schools treat home equity can also depend on how desirable an applicant is.

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Lynn O’Shaughnessy, “Will Your Home Equity Hurt Financial Aid Chances?”, The College Solution, August 7, 2014.

April 8, 2015

How to ask for more college financial aid

by Grace

College financial aid letters have just been sent, and you may want to think about how to negotiate for more money.

Many families don’t realize it, but there is often a little wiggle room in financial aid awards. FAFSA, the form the government and colleges use to determine need- and some merit-based aid, doesn’t capture all circumstances that might affect a family’s ability to pay for school. For instance, there’s no line to include the cost of caring for an elderly parent or special needs child, the kind of expenses that could warrant more aid, said Mark Kantrowitz, publisher of Edvisors.com, a college planning Web site. So if you weren’t able to share that kind of information with the school, now is the time to bring it up to see if that shakes free some more assistance.

You can request a professional judgement review.

If you do decide to negotiate, you can appeal to the school’s financial aid administrator for what’s known as a professional judgment review. Gather up every piece of documentation of any changes to your family finances or special circumstances that could impact your ability to pay for school. If the financial impact is significant enough, the school may adjust your child’s award.

Don’t attempt to haggle.

“Colleges are not car dealerships, where bluff and bluster can get you a better deal. Very few colleges will make a revised financial aid offer when a student gets a more generous financial aid offer from a competitor,” he said.

But some schools, like Cornell and Carnegie Mellon, will consider matching offers of peer institutions.

You “should be careful in the language and manner” of your approach.

“We won’t ‘negotiate,’ but we might ‘review.”

Looking for more tips?  “Want to appeal your college financial aid? Go for it”

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Danielle Douglas-Gabriel, “How to negotiate a better financial aid package”, Washington Post, April 2, 2015.

April 6, 2015

Stanford just became free for more students

by Grace

Stanford University just got more affordable for upper middle-income families.

Stanford University announced last week that tuition will be free for students whose families earn less than $125,000 a year. The standard had been $100,000. Students whose families’ annual incomes are lower than $65,000 will also be exempt from paying room and board, up from the current $60,000 cutoff.

Wealthy students help pay for the free ride received by other students. 

… Stanford is able to fully subsidize the tuition of these students because of the high number of wealthy students who attend….

Cost of attendance at Stanford before financial aid is “roughly $65,000″ per year.

Of course, before getting the great tuition deal, students will have to gain admission at the “Toughest College to Get Into in the United States”.

… Stanford University is the toughest college to get into in the nation. Yes, harder to get into than Harvard.

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Fred Imbert, “Stanford just made tuition free for these students”, CNBC, April 2, 2015.

Liz Dwyer, “What’s the Toughest College to Get Into in the United States? Hint: Not Harvard”, TakePart, April 01, 2015.

March 25, 2015

Tips for older student loan borrowers

by Grace

How can older Americans sidestep student debt trouble?

With the need to retool career skills or pursue new vocations, more Americans are taking on loans to finance education later in life — for new degrees, certificates or course work called continuing education units to improve knowledge in demanding professions.

According to the Government Accountability Office, student debt held by those 65 and older has risen significantly in recent years, growing to about $18.2 billion in 2013, from about $2.8 billion in 2005. While it’s not known how much of that is the result of college loans co-signed for children or grandchildren, a good portion is for continuing education. Before the last recession, the working-age population pursuing “re-entry” courses jumped 27 percent over a decade, according to the Education Department.

The New York Times’ advice for senior citizens seems to be the same that younger student loan borrowers should follow.

… “Do a cost-benefit analysis. How will it maximize my earnings? Will I be able to service the debt?”…

“Evaluate your postgraduate payment plan,” Mr. Weber suggests. “What will your salary be after graduation? Will there be an immediate payoff in terms of a higher salary?”…

You can overpay for a degree or certificate that will yield little career advancement or salary increases. Mr. Weber warns against for-profit colleges that market aggressively and says their programs and graduation rates should be carefully vetted.

The federal government offers some flexibility in paying back loans, including income-based repayment (IBR).

But what happens after you’re out of school with continuing education debt if you can’t increase your income or don’t start earning money right away?

If you have federal loans, you can qualify for a break from payments until you can start paying them down. See the Education Department’s federal student aid website to explore the options.

Another option is income-based repayment, available only for federally guaranteed loans. Private loans are the least flexible in terms of repayment.

Retired borrowers may be more likely to qualify for IBR.

“If you’re at or near retirement, your income may be lower, which may affect your ability to repay your loan,” she said. “There is income-based repayment available, which can make repayment more manageable, but can also extend the repayment period, leading to more interest accrual. It’s something to keep in mind as you plan for the future.”

Since assets are not counted in determining eligibility for IBR and similar debt relief programs, senior citizens with substantial home equity and retirement accounts may find it easy to qualify.

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John F. Waskimarch, “Managing Student Loan Debt as an Older Adult”, New York Times, March 19, 2015.

March 19, 2015

New ‘Student Aid Bill of Rights’ makes it easier to pay back student loans

by Grace

The Obama administration’s new “Student Aid Bill of Rights” will “simplify the process to apply for income-based repayment”, a move likely to shift more of the burden for paying back student loans from borrowers to taxpayers.  That is just one of the new benefits for the 40 million borrowers holding $1.3 trillion in student debt.

President Barack Obama announced a new “Student Aid Bill of Rights” Tuesday, directing the Department of Education and other federal agencies to undertake initiatives in three areas to help improve affordability for the estimated 40 million borrowers with federal loans. “We’re going to require that the businesses that service your loans provide clear information about how much you owe, what your options are for repaying it, and if you’re falling behind, help you get back in good standing with reasonable fees on a reasonable timeline,” Obama said during his speech at the Georgia Institute of Technology Tuesday afternoon.

This is the government’s rather magnanimous promise:

A Student Aid Bill of Rights

  1. Every student deserves access to a quality, affordable education at a college that’s cutting costs and increasing learning.
  2. Every student should be able to access the resources needed to pay for college.
  3. Every borrower has the right to an affordable repayment plan.
  4. And every borrower has the right to quality customer service, reliable information, and fair treatment, even if they struggle to repay their loans.

Summary of changes:

1. Create a centralized website that makes it easy to file complaints and to see all your student loans in one place….

2. Try having federal employees collecting debts instead of private contractors…

3. Make it easier for borrowers who become disabled to get their student loans discharged….

4. Ensure that the private debt collectors hired by the Department of Education apply prepayments first to loans with the highest interest rates, unless the borrower requests a different allocation.

5. Make it easier for students to get IRS information to qualify for income-based student loan repayment.

6. Clarify the rules under which students who declare bankruptcy can get their student loans reduced or eliminated….

While I disagree with some of the federal student loan program’s fundamental policies, it’s nice to see the government take the initiative for more clarity and transparency.

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Kelli B. Grant, “Student loan initiatives could benefit 40M borrowers”, CNBC, March 10, 2015.

Kim Clark, “6 Ways the New ‘Student Aid Bill Of Rights’ Will Help Borrowers”, Money, March 10, 2015.

March 16, 2015

Most borrowers take more than 10 years to repay student loans

by Grace

The standard maximum repayment time for federal student loans is 10 years, but in reality most borrowers take longer.

The vast majority of former students entering repayment on their federal student loans in 2012 picked 10-year plans. The numbers were higher for former students from two- and four-year programs, up to 90 percent of which picked the standard 10-year plan.

Recent history indicates that many of those borrowers will be repaying their federal student loans for far longer than 10 years. With a lackluster economy, tepid wage growth and vast numbers of Americans still looking for full-time work, some federal policymakers fear current borrowers will need more time to repay their loans than previous generations.

20150314.COCStudentLoanRepaymentTimes2

Just last month the Obama administration predicted “the increased use of student loan forgiveness programs will cost taxpayers $22 billion next year”. Student loan forgiveness programs allow reduced monthly payments that typically extend the repayment period beyond ten years.

Here’s a listing of federal student loan repayment time frames.  Click the links to find more details. 

REPAYMENT PLAN TIME FRAME
Standard Repayment Plan Up to 10 years
Graduated Repayment Plan Up to 10 years
Extended Repayment Plan Up to 25 years
Income-Based Repayment Plan (IBR) Up to 25 years
Pay As You Earn Repayment Plan Up to 20 years
Income-Contingent Repayment Plan Up to 25 years 
Income-Sensitive Repayment Plan Up to 10 years

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Shahien Nasiripour, “These 9 Charts Show America’s Coming Student Loan Apocalypse”, Huffington Post, 08/20/2014.

March 10, 2015

Which are the ‘altruistic’ professions that deserve special treatment?

by Grace

High school history teacher Kate LeSueur wrote that she wishes to “enlighten” us “on the discrepancy between the price of my education and the salary of an altruistic career such that of an educator”.

She compared a master’s in education with a master’s of business administration, pointing out that individuals with MBA degrees typically enjoy substantially higher salaries and lower student debt levels.

Why is it that we both went to school for the same amount of time and both earned master’s, yet my degree costs more and I get paid significantly less? I am not arguing that I deserve $90,000 a year — only that the cost of my education should be comparable to my salary. Society expects us to accept a fate guaranteeing small paychecks and large student loan bills. I am writing to say, America, we aren’t going to accept it much longer.

I find it hard to accept the rather sweeping statement that teaching is an altruistic career.  Although teacher unions have long maintained the message that all their efforts are “for the children”, I don’t buy it.  I’m not claiming that teaching is rampant with evil, money-hungry people, but neither are most other professions.  A typical MBA working to keep his employer profitable is no less deserving of special adoration than is a typical teacher.  And many people who earn generous salaries show their altruism in other ways, such as donating their time and money to worthy causes.

Furthermore, it’s troubling when the government gets in the business of deciding which jobs deserve special treatment, like the most generous Income Based Repayment benefits that are reserved for government and nonprofit employees.  George Leef points out the consequences of this politicized meddling.

… Whenever the government gets involved in an activity that is not properly any of its business, we get the infamous trio: waste, fraud, abuse, and then the politicians feel the need to meddle still more in an effort to solve the problems they’ve created. The federal student-aid programs are a perfect illustration. Repayment of loans is being politicized, with easy terms for students provided they make the “right” choices in employment. That will only further misallocate resources and help to keep the higher-education bubble inflated.

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Kate LeSueur, “The price of a good education, $80K and counting”, cleveland.com, March 01, 2015.

March 4, 2015

Can we afford this college? The 1-2-3 approach

by Grace

One of the most basic questions during the college planning process is often one of the hardest for a family to answer.

Can we afford this college?

The hard part is usually not in knowing what you can afford to pay, but in trying to find what the net cost of attendance will be for your child.  Here’s a three-step process that may help you answer this question.

  1. Run the Net Price Calculator
  2. Check the college website to find answers to the College Board “dirty dozen” questions
  3. Contact the school’s financial aid administrator


1.  Run the Net Price Calculator (NPC)

The NPC is an online tool that is a useful first step in comparing affordability.  Every college website has a calculator, which typically requires entering family financial information such as income and assets before the estimated net price of attending is generated.  Remember, this is an estimate and may not produce accurate results for business owners and other situations.  Proceed with caution, and check for online resources like the CollegeBoard tip sheet to help in the process.

2.  Check the college website to find answers to the College Board “dirty dozen” questions

A list of 12 questions to get you started on gathering information about a school’s financial aid policies is provided by the CollegeBoard.  In my experience, the answers to most of these questions can usually be found on college websites.  Going through these questions often prompts families to consider other important questions about college costs.

3.  Contact the school’s financial aid administrator

Okay, so not all your answers about costs and financial aid were easily found on the college website or other online resources?  Contact the college’s financial aid office and get the information directly from them.  They should be able to give you information rather quickly, and if they don’t it might be an indication of how transparent and helpful they are in other situations.

For organized families, it’s not a bad idea to create a spreadsheet that can capture important information and allow for efficient comparisons.

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