January 16, 2014 by Edward Irish
As the new year begins, looking a bit at the federal financial aid scene may be helpful.
As always, the primary concern in Washington is with the Pell Grant program. All other federal aid programs are secondary. One of the current Pell issues is something called “prior prior” year. Historically, aid eligibility for a given school year is based on the most recently completed calendar year, e.g. 2014-15 aid is based on 2013 family income. In the eyes of some members of Congress, however, waiting until after January 1 to apply for aid is too late in encouraging some students to look at college. If we were to use the “prior prior” year, 2012 could be used to let students apply much earlier. It also would dovetail with federal efforts to tie FAFSA income with IRS submissions, something which is currently problematic as many FAFSA filers do so before 1040 completion. There are, of course, some significant shortcomings with this approach, such as 2013 income being dramatically lower than 2012. In any event, it is something to monitor.
Recent federal focus is also on the federal PLUS (Parents’ Loan) program, which allows credit-worthy parents to borrow the difference between the student’s cost of education and other aid being received. The credit test, which is generally much more liberal than that used for other consumer loans, was tightened somewhat last year and resulted in some parents’ being cut off from eligibility. The Department of Education then backtracked and approved most of those who asked for another review. Nonetheless, there is still much worry about how far into debt some families are going. Again, something to watch.
See you next time.
June 6, 2013 by Edward Irish
Among the many complex paths of financial aid procedures, perhaps no other rivals the multitude of repayment options for student loans. New federal legislation seems to appear almost weekly, which makes keeping abreast of the rules challenging for many borrowers. Compounding the changes is the unfortunate and frustrating fact that Congress has decided to select winners and losers in the process. The difference between falling into a “good” vs “bad” federal category can be staggering.
Federal student loan repayment regulations greatly favor those who go into public service employment and non-profit employment vs. those in a regular private sector position. Consider two students, Amanda and Sam, who both graduate with a $50,000 federal student loan debt. Amanda decides to become a public school teacher with a starting salary of $40,000. She qualifies for Public Service Loan Forgiveness, which will allow her to pay off her loan by making 10 years of loan repayments based on 15% of her discretionary income.
Since Amanda did not work during her last year in college and therefore had no income, her loan repayment per month for her first year will actually be $0. For the second, it will only be about $27 per month as her second year will be based on the September-December (approximately $13,333) portion of her first year of teaching. In years 3-10, she will repay $360 per month. Over the ten years, she will repay a total of $34,884.
Sam accepts a job a manager in a retail store. For his repayment, in contrast, he has several options, all of which pale in comparison to the bargain which Amanda receives. The standard 10-year repayment term for him is a loan of 6.8%, which results in a $575 per month repayment for a total repayment amount of $69,000, just about twice of that for Amanda. He can lower his monthly payments by repaying over 25 rather than 10 years, but the total repaid will be even larger. Moreover, depending on this plan, he may have to pay taxes on any amount not repaid at the end of 25 years. Amanda’s Public Service plan does not have a similar requirement.
Unfair…you betcha!…but those are the rules. Take advantage of them if you can.
See you next time.
December 21, 2011 by Edward Irish
If you are a college feeding in the federal financial aid trough, you have to eat what you are given. Unfortunately, we are stuck with a diet rich in red tape and ever-changing regulations. The culinary soup du jour for the coming year is verification.
Verification, or the need to make sure that the data submitted on the FAFSA are accurate, has been around for many years. Until the coming year, however, we have been able to accept paper copies of families’ 1040s. Not anymore. You now either have to do an IRS data match on your FAFSA or request an IRS transcript.
Both of these approaches can get complicated. For the data match, you will not be able to do it if your 1040 is not completed when you submit the FAFSA. Moreover, you cannot do it under some other circumstances, such as married filing separately, or being separated or divorced, but still filing a joint return. In these cases, you will need to do an IRS transcript. You supposedly can get a transcript within two weeks, but you will be requesting it during the peak tax filing season, so all timing bets are off.
What should you do? Getting your 2011 tax forms submitted as early as possible and making sure that, if you can, you do the FAFSA IRS data match will help reduce potential problems. You also need to respond as quickly as possible to any follow-up letters you will receive from us.
See you next time.
November 30, 2011 by Edward Irish
I’m sure you have seen the pervasive media coverage of increasing student loan debt. At the College, we are not immune to that problem and unfortunately have examples of students who have borrowed far too much money for their education. Fortunately, those numbers are much smaller here than many other schools.
What has sometimes been lost in the debt coverage is some measure of perspective. We wish we could meet all students’ need in grant, but borrowing is a necessary fact of life for many students. As you can see in this document (pdf), the average debt for a graduating student in 2010 was $21,367. Over a 10-year repayment period, someone with that amount of loan obligation would pay about $227 per month. In comparison, consider a student signing a $22,000 5-year note for a new car loan. The monthly amount would be about $386 per month.
Let’s see where we are at the end of 10 years. Your student loan has been paid off and you are reaping a lifetime of intellectual, social, and economic benefits as a result of your education. The car…well, you may be lucky and still have it, but more likely you will be in the middle of repaying a second loan.
Always borrow wisely, but realize it will not sentence you to a lifetime of debt. See you next time.
October 12, 2011 by Edward Irish
Colleges across the country are racing this month to be in compliance with a federal requirement that all schools have a Net Price Calculator (NPC) on their website by October 29. In theory, families will be able to enter a limited amount of financial data and be given a financial aid offer that reflects the institution’s aid philosophy and aid resources. The W&M NPC will be available this week.
Expectations range from… finally…an unveiling of shroud that envelops financial aid to, at the other extreme, the numbers not being worth the virtual space that they will occupy. The reality probably lies somewhere between these opposites. Families are understandably desperate to know much sooner about the potential cost. In many cases, what they will get from the NPC will give them a reasonable idea of eligibility. On the other hand, the usefulness of the estimate will depend on the timing and accuracy of the data entered. Don’t let your seventh grader complete it and hope the estimate will still be valid 6 years later! Moreover, the NPC has no narrative to explain special circumstances and cannot measure the many additional aspects of a family’s situation which cannot be fit into a small number of pre-set fields.
How to view the answer? Treat it as an additional tool to evaluate potential colleges, but realize that it will not be perfect and may be affected by changes in schools’ aid programs and federal regulations.
See you next time.
April 8, 2010 by Edward Irish
Good news! You’ve gotten the proverbial thick envelope from your top school. Time to send the deposit and start packing…but…wait…how am I going to pay for it?
By now, most of you entering students should have received financial aid offers from your accepted schools. I hope that they have all followed the Golden Rule of financial aid awarding…that they have all met your need and you can make your decision on factors other than cost. In all probability, however, different resources and packaging philosophies have resulted in the Golden Rule being totally disregarded, leaving you with a collection of offers that bear little resemblance to each other. Some are only merit, some only need, and some a combination of the two.
Here are several suggestions on how to sort them out to make sensible financial decisions:
- Know the terms. Ask the school whether the funds are merit or need-based. Are there GPA requirements to meet? If they are based on need, what will your package look like in the sophomore year and beyond? Many schools use a self-help (work/loan) base before you can receive grant money…will that base increase in subsequent years?
- Check on cost increases. You can ask schools what the increase will be for subsequent years, but probably won’t get an answer as the question is a difficult one, especially for public schools. However, many schools post the results of their Common Data Set (CDS) survey, which is a nationally used research document. You can search on the school and CDS to find them. You should be able to see many years of historical data.
- Watch your loan debt. This is an issue for both students and parents. Both student and parent direct loans have 10-year repayment periods which result in approximately $12 per month per $1,000 borrowed. If a student borrows 25,000 as undergraduate, for example, he would owe $300 per month for 10 years. Is this manageable…it probably is for some students, but not others. Keep in mind that students can borrow more in Direct Loans each year (5,500 the first year, 6,500 sophomore, and 7,500 the junior and senior), so the temptation is there to go for the annual maximum. The student would therefore have a four-year loan debt of not 22,000 (four times the first year amount of 5,500), but 27,000.
- Look ahead. You can’t project everything that will happen during the next four years, but some changes, like having two or more in college at the same time, are probably more certain. If you are a candidate for need-based aid, the parents’ contribution is divided by the number in college, so, in theory, you should not have to pay anymore for two as financial aid will cover the difference. However, see disregarding the “Golden Rule” above…you can’t assume that all of your need will be met by every school.
- Can you do this four times? To me, this is the most important question. With one-time outside scholarships, savings, and maybe money from Grandma, you may be able to scrape together enough money for one year, but can you do it for four? You certainly should plan to bend financially during the college years, but you do not want to break. Keep those “gotta go to my top school or else” emotions in check until you’ve done the financial analysis.
See you next time.
March 26, 2010 by Edward Irish
Well, this will probably be the only Financial Aid blog which ties together my occupation and the work of singer-songwriter Tom Waits, whose intriguing song ‘What’s He Building in There?” provides a good insight into human nature. In his work, the reclusive object of the song is presumed by his neighbors to be doing something untoward simply because he keeps to himself. Some of you may have had the same reaction to the mountain of Quality Assurance forms that we have requested …what exactly are we “building in there” with them? Let me assure you that we are not using routers and table saws (read the lyrics!) to make our calculations. We are trying to accomplish two goals:
- History corrections- From your 1040s and W2s, we are updating the FAFSA information. Many of you filed before 1040 completion and had to use estimated figures. You may also have made a common reporting error such as listing taxes withheld rather than your actual tax liability. In these situations, we correct the data with the federal processor, which will then send you a corrected family contribution figure.
- Professional judgments- These are a lot more complicated. The FAFSA only gives us a small glimpse into your situation. It does not tell us where you work, your monthly expenses, unusual medical costs, where the applicant’s siblings are attending college, and possible loss of employment. All these are factors which can greatly affect your family contribution. We make PJ changes in in one of two different ways. The FAFSA is always initially based on the prior year family income, 2009 for the 2010-11 school year. However, if we decide that a job loss make using estimated 2010 income more practical, we will substitute the estimated 2010 for the actual 2009. On the other hand, we may make no FAFSA changes, but decide that your reported family income, while correct for IRS purposes, may underestimate your true ability to pay. As a result, we may offer less aid than the family contribution might indicate.
So, what we’re “building in there” is a financial offer that we hope measures your complete financial circumstances and ability to pay. We will be in touch soon.
See you next time.
February 25, 2010 by Edward Irish
One of the murky corners of financial aid deals with withdrawals during the semester. Nobody plans on this happening, but it can be a financial headache.
You financial aid credits are to cover your whole semester. As you progress through the term, you “earn” the financial aid that was provided to you at the start of the term. If you withdraw before the end of the semester, you may not be entitled to all of the aid that you have received. You then fall into a tangled web of refund policies that are controlled by College and federal regulations. As a result, you may owe a lot of money back to W&M.
The problem is especially acute if you are an off-campus student who has received a financial aid refund for your living expenses. Here’s an example:
- 5,700 Spring semester tuition and fees for a Va resident
- 11,500 Spring aid credits
- 5,800 Refund
If you withdraw this week (Feb. 22-26), the sixth week of the semester, you will have to pay 60% of your tuition and fee charge. Under federal regulations, the aid adjustments work differently, so you will have “earned” only 34% of your total aid. As a result of the changes, here are your revised charges and credits:
- 3,420 Revised tuition and fees
- 3,910 Revised aid
- 490 Revised refund
But you have already received 5,800 in a refund. You will have to return the 5,310 difference between the original and revised refund. This will undoubtedly be a real financial hardship for you, but it will have to be repaid before you can return to the College or receive transcripts, if you wish to transfer. You can read more about withdrawals at the Student Accounts site http://www.wm.edu/offices/financialoperations/sa/refunds/withdrawals/.
One final point. The Dean of Students (DOS) approves withdrawals that occur before the end of the ninth week of the semester. However, federal aid regulations still require a reduction in aid for about 10 days after the ninth week. You could therefore withdraw before the DOS date and still owe the College money after we make the aid change.
See you next time.
January 26, 2010 by Edward Irish
I was asked at a workshop Saturday whether entering students are required to submit a FAFSA. The short answer is “no,” but there are several compelling arguments in favor of completing it.
I understand the reluctance to tackle the form. You have been pummeled for years with your friends’ tales of how fruitless hours were spent completing the FAFSA….with the only result being loan eligibility. Then there’s the issue of releasing your confidential financial data. Yet, there are very important reasons to apply:
- You may be pleasantly surprised. Need-based aid is a function of your family contribution and the cost of the school. As a Virginia resident, you may not receive any need-based money from W&M, but may be awarded a lot of aid at a much more expensive school.
- Having the FAFSA on file will help us if your financial situation changes. In the current economy, you may be ineligible now, but might be if you lose your job. Having the FAFSA already on hand will save you weeks in getting some help.
- The FAFSA is required for both student and parent loans. We would like nothing better than to give everyone grants, but, here, as well as most schools, much of the aid comes in the form of loans. In most cases, in fact, loans are the base of the aid offer before grant money is awarded.
See you next time.
October 16, 2009 by Edward Irish
“Millions of dollars in unclaimed scholarships!” scream the headlines. You may not be getting any money from us, but you can still tap into this vast sum of money. Well, maybe.
There certainly is money available, with the current W&M freshman class having almost $1M in outside money, but two factors should be noted:
- Most of the scholarships are not from national searches. They come from local sources such as high schools, community organizations, parents’ employers, and places of worship. In Williamsburg, the Williamsburg Community Scholarship Fund provides money for local graduates. There are similar organizations in Richmond and Norfolk. Look nationally, if you wish, but realistically expect the money to be local.
- For the most part, the scholarships are for one year only and will only pay a small fraction of your total cost. You will need to rely much more heavily on your family’s contribution and financial aid from the College. Don’t miss the FAFSA deadline because you’re putting all of your faith in outside money.
How will we treat the new money? We understand perfectly that you have worked hard for these awards and don’t want them swallowed up in a replacement of other W&M grant money. The problem we face, however, is that your aid offer most likely contains money that is based on financial need…need which was calculated based solely on your family’s financial circumstances and before we knew about this additional support. So, we usually have to make an adjustment. In most cases, however, the change will be a reduction in the work/loan part of your offer and we will not need to reduce grant money.
On final issue with outside scholarships. If you have more than one, we may learn about them over a couple of months. This may result in more than one change in your financial aid package.
See you next time.