Editor's Note: Samantha Kahn, a financial aid expert who has worked in a variety of institutional settings, has written today's post.
If you're thinking about attending college in the fall, you're probably also thinking about how to pay for it. In the midst of those decisions, it has recently been discovered that some colleges and financial aid officers have had improper links with certain lenders, which has resulted in a lack of choice for students. Unfortunately the coverage has been presented in such a way that all colleges and all financial aid officers are under suspicion.
There are two federal loan programs, the Stafford Loan Program and the Direct Loan Program. The simple difference is that the funds come from different sources. Loan limits and deferment benefits are the same with repayment options differing slightly. If a college is in the Stafford Loan program, you choose your lender. Many schools have used lender lists for informational purposes, and these lists are not intended to limit your choice.
All of the colleges I've worked for used the Stafford loan program and had lender lists, with seven to 22 lenders on it. The list at each of these schools was actually a chart, with the name and contact information of each lender, the loan servicing company (sometimes but not usually the same company that originates the loans) and their contact information, the interest rate and origination fee (set by the US Dept. of Education and the same across the board), and the borrower benefits and conditions. I have never worked in a school that insisted students use a lender on the list.
Borrowers should examine the borrower benefits and conditions, though I've always thought that it was good to know if the originating company would also service the loan. The borrower benefits generally have included an X% reduction on the interest rate you pay if you make Y number of on-time payments, or a refund of all or part of the origination fee. For example, one lender may offer a bigger reduction than another, but the on-time payment period is 48 months instead of 36.
I've worked with students and parents who have reviewed the terms offered by each lender; people who have chosen a lender because a friend chose that lender; people who borrowed from the bank at which they have a checking account or other loans (like mortgages or car loans - be aware that a branch employee will most likely refer you to an 800 number if you have questions about a student or PLUS loan); and even students who have chosen a lender by figuratively throwing a dart at the list.
Obviously, I think it is best to do the research and determine which lender offers the best terms for your needs (or what you think may be your needs when you finish school). In the unlikely event that the college you are attending has been involved in improper conduct with lenders, you'll be protecting yourself from that as well as from signing papers you haven't read, which you know you should never do. Understanding the terms is difficult, particularly if you've never borrowed a loan before, and any financial aid officer should be willing to explain what certain terms mean. Be an informed borrower - it's the best way to protect yourself from any surprises.
Showing posts with label financial aid. Show all posts
Showing posts with label financial aid. Show all posts
Tuesday, May 01, 2007
Thursday, April 05, 2007
How To Read A Financial Aid Award Letter
Editor's Note: The scribe of this post is Samantha Kahn, a financial aid expert who has worked in a variety of institutional settings.
You're probably starting to receive award letters, or award notifications, from the Financial Aid Office at the colleges to which you've applied. These letters are automated and different programs print different information on them in varying styles, which can make them difficult to understand well enough to “compare and contrast.” Most colleges send the original letter via snail mail and post the award on their websites for you to access. When changes are made to your award, such as if you receive another scholarship or the name of an award is changed, those changes are usually only made online, though you may receive another award letter. The only one that is valid is the most recent.
The award letter includes all of the awards for which you are eligible at the time the letter was printed, including state and federal grants as well as institutional grants (that is, scholarships from the college), federal and institutional loans, and work-study. It may also include a category titled “PLUS Loan” or a line item titled “Finance amount.” However, the letter may not include anything like this category at all.
The first thing you must determine to really understand what your award is in relation to the expense of attending a college is the Cost of Attendance (COA). The COA is the total cost of attending the institution for one year, including tuition, room and board, books and supplies, transportation (between home and school), and miscellaneous expenses (ranging from a university t-shirt to toothpaste). The cost for each college will be different, and the COA for students living at home and commuting is different than for those living on campus or in off-campus housing (e.g. their own apartments). Note that the COA is a budget only and you may not spend as much as the budget allows. However, if you spend more, the college is not going to increase your budget just because you ask.
Note that not all universities' award letters include the COA on the letter itself. If that's the case, the booklet or brochure the college sends with the letter will list the COA and its elements, with the dollar amount estimated for each element (such as $600/semester for books). If they do not send a brochure, the cost of attendance will be listed on the financial aid pages of the website. Bear this in mind when it looks as though "Private" University #1 offers more aid than "State" University #1. The COA at "Private" is higher though it may cover less of the total cost.
After you have figured out what the COA at each university is, you can start looking at the awards. You want to look at them on a per semester basis. This is particularly the case when costs are skewed toward one semester in colleges that offer an “interim term,” between semesters, and bills for housing accordingly.
Some schools send award letters that list by category and some that list by term. A letter could look like this:
Award FA '07 SP '08 TOTAL
Pell Grant $1200 $1200 $2400
Stafford Subsidized Loan $1750 $1750 $3500
Federal Work Study $1500 $1500 $3000
Finance Amount $2500 $2500 $5000
GRAND TOTAL $13900
It could also look like this:
Award
Pell Grant FA07 $1200
Pell Grant SP08 $1200
STAFSUB FA07 $1750
STAFSUB SP08 $1750
FWS FA07 $1500
FWS SP08 $1500
Finance Amount $5000
GRAND TOTAL $13900
If you can't figure out the codes, they should be explained in the booklet/brochure or on the Financial Aid Office's website. Make sure you understand which awards are grants, which need to be paid back, which need to be earned through work. You may have to take additional steps to accept certain awards to actually receive the funds.
The difference between your awards and the total cost of attendance is what you and your family will need to either pay out of pocket or borrow, like with a PLUS (parent) loan. The college doesn't care how you pay the bill, and you can borrow some and pay the rest, either all at once or in payments if they have a payment plan (most do, with the first payment due in July or August before the first term begins). Questions about payment plans are usually handled by a third-party biller or by the college's Business Office. The phone number and website should be listed in the brochure and/or on the college's website.
At most colleges you can go online to accept or decline awards. Accept all of the grants; it's up to you whether you wish to accept the loans and work-study, if offered to you. One thing to understand about work-study, by the way: You're being offered wages for work, but you are responsible for finding a job and working the hours. If you do not find a job, you will not get those funds. Furthermore, make sure you understand whether or not your college will accept your work-study to pay for tuition, room, and board. I've worked at colleges that don't, so students with work-study had to come up with that amount to pay for tuition upfront, using their work-study earnings for the miscellaneous expenses.
I would suggest that you make a chart for yourself to compare awards at different schools. Make sure the chart includes the total Cost of Attendance as well as any amount not covered by grants, loans, or work-study, particularly if it means that you or your parents will have to borrow the difference. Do not expect that you will be able to cut corners on the COA. With the exception of off-campus housing, which can vary depending on how close you live to the college and how many housemates you have, the budget reflects the actual costs very well.
If a decision deadline is approaching and you have not received award letters from all the colleges to which you were admitted, contact the college with the approaching deadline and request an extension, explaining that you don't have information you need from another college. You'll probably get a week at the most. Then, after checking your account at the other college, contact them and ask when you might expect their award letter, explaining that you have a deadline at another college and you need their information so you can make an informed decision.
FinAid has good explanations of the different kinds of awards (such as Pell Grants, Federal Work-Study, and Stafford, Perkins, and PLUS loans) and how they work. To learn about awards specific to the institutions you're considering, you need to go to the websites for those colleges. If you have questions about an athletic scholarship, you should contact the coach. If you have questions about a scholarship that's based on your SAT or ACT scores and your GPA, you should contact Admissions.
Thursday, February 22, 2007
How Much College Debt is too Much?
Students are increasingly having to borrow money to pay for their education. As someone who has worked in education as well as borrowed to pay for my own schooling, I generally say that student loans are good deals. The interest rates are fairly low (you can lock in rates as low as 4% presently, but that doesn't mean you will always be able to do so) and the time and flexibility you have in paying them back is abundant. However, as debt loads continue to increase (PDF), it is pertinent to examine how much debt is too much.
According to the College Board report linked to above, for 2003-04 college graduates, the average debt students incur is $19,300. According to the report, however,
"Despite median debt levels of under $20,000, 23 percent of borrowers from private nonprofit colleges and 14 percent of those at public four-year colleges graduated with $30,000 of debt or more. Forty percent of those who graduated from four-year programs at for-profit institutions had this much debt. On the other hand, 38 percent of bachelor’s degree recipients from four-year public colleges did not borrow at all and another 30 percent had less than $10,000 in debt when they graduated."
Reports of students going into what some might call obscene levels of debt are not uncommon. What drives students to incur so much debt in order to get a college education? Imagine that you really want to go to Name Brand University and in order to do so, you will have to borrow copious amounts of money. You will probably ask yourself at some point if the degree from said University is worth it. However, your borderline obsession with getting a degree from Name Brand U may blind you to the reality of what it means to owe $50,000. Additionally, as the USA Today article points out, students don't just borrow to pay for education costs, they also end up borrowing from credit card companies to subsidize their outside spending. Instead of being on the hook for $50,000, students may instead owe $60,000 when you include credit card debt (an entirely different, less forgiving type of debt).
The federal government is mulling increasing the Pell Grant, but in reality, any increase will have little effect on borrowing. College costs (tuition, books, room and board) have "risen 81 percent, more than double the inflation rate, between 1993 and 2004" (NYT). It is therefore important to consider what you feel is a tolerable level of debt. The articles I referenced in this post can give you some perspective on what other students have borrowed, how they are coping with it, and what you can do to minimize overburdening yourself with loans.
According to the College Board report linked to above, for 2003-04 college graduates, the average debt students incur is $19,300. According to the report, however,
"Despite median debt levels of under $20,000, 23 percent of borrowers from private nonprofit colleges and 14 percent of those at public four-year colleges graduated with $30,000 of debt or more. Forty percent of those who graduated from four-year programs at for-profit institutions had this much debt. On the other hand, 38 percent of bachelor’s degree recipients from four-year public colleges did not borrow at all and another 30 percent had less than $10,000 in debt when they graduated."
Reports of students going into what some might call obscene levels of debt are not uncommon. What drives students to incur so much debt in order to get a college education? Imagine that you really want to go to Name Brand University and in order to do so, you will have to borrow copious amounts of money. You will probably ask yourself at some point if the degree from said University is worth it. However, your borderline obsession with getting a degree from Name Brand U may blind you to the reality of what it means to owe $50,000. Additionally, as the USA Today article points out, students don't just borrow to pay for education costs, they also end up borrowing from credit card companies to subsidize their outside spending. Instead of being on the hook for $50,000, students may instead owe $60,000 when you include credit card debt (an entirely different, less forgiving type of debt).
The federal government is mulling increasing the Pell Grant, but in reality, any increase will have little effect on borrowing. College costs (tuition, books, room and board) have "risen 81 percent, more than double the inflation rate, between 1993 and 2004" (NYT). It is therefore important to consider what you feel is a tolerable level of debt. The articles I referenced in this post can give you some perspective on what other students have borrowed, how they are coping with it, and what you can do to minimize overburdening yourself with loans.
Tuesday, January 02, 2007
Applying for Financial Aid
Editor's Note: This was written by Samantha Kahn, a financial aid counselor with years of experience in all kinds of institutions.
As of January 1st, the FAFSA for the 2007-2008 academic year is available on the web. The US Department of Education strongly advises families to apply for financial aid online rather than with a paper application, because it cuts down on errors and incomplete applications.
Completing the FAFSA online includes three steps. The first is that you and your parent must apply for a USED Personal Identification Number, which you can use as your electronic signature on the FAFSA and on loan applications. Applying for a PIN takes no time at all, you can do so at: http://www.pin.ed.gov/PINWebApp/appinstr.jsp
Be prepared to provide your SSN, address, and other common items. They'll process your application and send you an email with instructions on how to get the PIN. You'll probably receive this email within 72 hours after submitting your application.
Note that the student and the parent each need their own PIN. PINs are essentially a permanent electronic version of signatures, so each person applying needs his or her own. If you and your sibling are applying at the same time, you need a PIN, your brother needs a PIN, and your parent needs a PIN. Your PIN will never change regardless of your own status as a parent or student (or financial aid officer).
The FAFSA itself is a long and complex document, into which you have to put a lot of data. Don't worry, though; it's highly encrypted and your demographic and financial information is safe. However, it's a good idea to use the worksheets provided by the Department to gather all the information together. This way you can sit at the table with your tax returns and bank statements, write in the numbers, and type them in when you go to the FAFSA website.
If you have to use a public computer, such as one at a library, you MUST prepare in advance with the worksheets. Expect it to take at least 45 minutes to complete the FAFSA online.
Here is the link for the FAFSA worksheets: http://www.fafsa.ed.gov/before012.htm. Look for the link for the 07-08 FAFSA worksheet in color. The FAFSA is color coded by year for the students - 07-08 The student information sections will be in yellow. Parent info is always purple. It's important to not put the same information in both sections!
You can go to that link and print out the FAFSA worksheet, which will be eight pages. Then you can fill in the boxes with your year-to-date figures off your's and your parents' 12/31/06 paychecks and statements.
Once you have your PIN and between January 1 and the earliest filing deadline (which will probably be March 2 for schools in California, but that information can be checked on college websites), you can go online and enter all the data from the worksheets. If you are not sure what the filing deadline is for any of your prospective colleges, MAKE SURE you know before you miss the deadline! Some schools' filing deadlines for the best/most financial aid eligibility can be as early as February 1.
You will need to put in the school code for all the colleges to which you areapplying (there should be space for at least six on the FAFSA). Codes can be found on the FA pages of the prospective schools' websites or even more easily at http://www.fafsa.ed.gov/fotw0607/fslookup.htm
You can make corrections to the FAFSA and should do so when you and your parents complete your respective tax returns. Don't wait to complete the tax returns before applying for financial aid. This is the only document which is more important to submit on time than it is to submit it correctly. If you don't have financial information when you have to complete the FAFSA, DO NOT put in zeros. Estimate as well as you can; you want the college to offer you the best aid based on the best information.
If your family has experienced some financial setback that isn't reflected in your tax information, such as a layoff late in the year, or high medical expenses that can't be deducted, you should complete the FAFSA so it reflects the tax information and then contact the colleges to which you've applied and advise them of this disparity.
As of January 1st, the FAFSA for the 2007-2008 academic year is available on the web. The US Department of Education strongly advises families to apply for financial aid online rather than with a paper application, because it cuts down on errors and incomplete applications.
Completing the FAFSA online includes three steps. The first is that you and your parent must apply for a USED Personal Identification Number, which you can use as your electronic signature on the FAFSA and on loan applications. Applying for a PIN takes no time at all, you can do so at: http://www.pin.ed.gov/PINWebApp/appinstr.jsp
Be prepared to provide your SSN, address, and other common items. They'll process your application and send you an email with instructions on how to get the PIN. You'll probably receive this email within 72 hours after submitting your application.
Note that the student and the parent each need their own PIN. PINs are essentially a permanent electronic version of signatures, so each person applying needs his or her own. If you and your sibling are applying at the same time, you need a PIN, your brother needs a PIN, and your parent needs a PIN. Your PIN will never change regardless of your own status as a parent or student (or financial aid officer).
The FAFSA itself is a long and complex document, into which you have to put a lot of data. Don't worry, though; it's highly encrypted and your demographic and financial information is safe. However, it's a good idea to use the worksheets provided by the Department to gather all the information together. This way you can sit at the table with your tax returns and bank statements, write in the numbers, and type them in when you go to the FAFSA website.
If you have to use a public computer, such as one at a library, you MUST prepare in advance with the worksheets. Expect it to take at least 45 minutes to complete the FAFSA online.
Here is the link for the FAFSA worksheets: http://www.fafsa.ed.gov/before012.htm. Look for the link for the 07-08 FAFSA worksheet in color. The FAFSA is color coded by year for the students - 07-08 The student information sections will be in yellow. Parent info is always purple. It's important to not put the same information in both sections!
You can go to that link and print out the FAFSA worksheet, which will be eight pages. Then you can fill in the boxes with your year-to-date figures off your's and your parents' 12/31/06 paychecks and statements.
Once you have your PIN and between January 1 and the earliest filing deadline (which will probably be March 2 for schools in California, but that information can be checked on college websites), you can go online and enter all the data from the worksheets. If you are not sure what the filing deadline is for any of your prospective colleges, MAKE SURE you know before you miss the deadline! Some schools' filing deadlines for the best/most financial aid eligibility can be as early as February 1.
You will need to put in the school code for all the colleges to which you areapplying (there should be space for at least six on the FAFSA). Codes can be found on the FA pages of the prospective schools' websites or even more easily at http://www.fafsa.ed.gov/fotw0607/fslookup.htm
You can make corrections to the FAFSA and should do so when you and your parents complete your respective tax returns. Don't wait to complete the tax returns before applying for financial aid. This is the only document which is more important to submit on time than it is to submit it correctly. If you don't have financial information when you have to complete the FAFSA, DO NOT put in zeros. Estimate as well as you can; you want the college to offer you the best aid based on the best information.
If your family has experienced some financial setback that isn't reflected in your tax information, such as a layoff late in the year, or high medical expenses that can't be deducted, you should complete the FAFSA so it reflects the tax information and then contact the colleges to which you've applied and advise them of this disparity.
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