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Common Questions Answered On Filing The FAFSA And Financial Aid

A.  Less than 4 percent of dependent students have any contribution from parent assets on the Free Application for Federal Student Aid (Fafsa). Certainly you can save money by using money from a savings account that is earning 0.1 percent interest to pay down high-interest credit-card debt. But for most families, this will not increase eligibility for need-based financial aid. On the other hand, money in the child’s name can have a big impact on aid eligibility, since the expected family contribution (E.F.C.) is increased by 20 percent of the child’s assets. Aside from spending the child’s money for the child’s benefit, parents can also shift the money into a custodial 529 college savings plan [See details on custodial 529s here ]. Money in a dependent student’s custodial 529 plan is treated as a parent asset on the Fafsa. But before you start shifting assets around, use a calculator like the one at FinAid.org to see if there is any impact on the E.F.C.

Of course, a lot depends on your field of study. College graduates with degrees in computer science or nursing earn more than graduates with degrees in art or history. A good rule of thumb is to borrow no more for your entire education than your expected starting salary after you graduate. If you borrow more than this, you will be forced to use extended repayment or income-based repayment to repay your loans. If you borrow more than twice your expected starting salary, you will be at high risk of defaulting on the debt. Since cumulative debt at graduation correlates strongly with college costs, a good way of limiting your debt is to enroll at a less expensive college.

See details here about Obama's proposal to cap student loan payments at 10% of discretionary income .  

----------------------------------- On whether to complete FAFSA in situations where parents don't believe they will be eligible for need-based aid: 

Q.  My daughter will be a college freshman this fall. I am sure she will not be eligible for any need-based financial aid. However, depending on which college she goes to and the tuition, we may want her to be responsible for some of the cost. Will she be able to get any kind of student loan, even if we don’t fill out the Fafsa?

Also, most families should submit the Fafsa every year, even if they did not qualify for financial aid the year before. The rules are complicated enough and change enough every year that it is not possible to predict aid eligibility without applying. For example, financial aid eligibility depends on the number of children in college. A family that might not qualify for aid when only one child is in college might qualify for some aid the next year when they have two children in college.

But if you have only one child and earn more than $250,000 a year, you probably won’t qualify for need-based financial aid. Even so, I would still encourage you to submit the Fafsa so that your daughter can qualify for the unsubsidized Stafford loan.

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Lost job; wondering how to revise income figures on FAFSA :

For example, it is not uncommon for families who have lost a job to take a hardship withdrawal from their retirement funds. Include copies of independent third-party documentation of the special circumstances. You might include a copy of the layoff notice and a copy of documentation demonstrating the receipt of unemployment benefits. If the college financial aid administrator decides that your special circumstance merits an adjustment, the amount of the adjustment will be based on the financial impact of the special circumstance.

For job loss, this might mean switching from actual prior year income to estimated award year income, taking unemployment benefits and severance into account.

There is no appeal beyond the financial aid administrator, so be polite.

Here is a letter from the Dept. of Education to financial aid administrators encouraging the use of professional judgment in unemployment situations. 

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On the challenges of the CSS Profile form : 

Q.  I agree, the new form was a pleasant surprise after hearing all the tales of woe from people who had done it before. My daughter’s college of choice requires the CSS Profile from the College Board . I find that form much more difficult than the Fafsa.

My wife and I are both well-paid professionals, making need-based aid extremely unlikely. So the whole process seems superfluous to us, but at least it was easier than we had anticipated.

For example, while assets tend to correlate with income, disregarding assets might mean that a handful of students whose families have low income but high assets will look poorer than they really are.

But less than 4 percent of dependent students have any contribution from parent assets in the current federal formula, so why require more than 96 percent of applicants to provide information that might tweak the aid eligibility of a tiny fraction of applicants with income and assets that do not correlate?

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On "gaming the system ":

Consumer debt, like auto loans and credit-card debt, is not considered by the federal need analysis methodology, while cash in the bank hurts your aid eligibility. Plus, using money that is earning 0.1 percent in your savings account to pay off high-interest credit-card debt will save you money.

But other methods, like failing to disclose assets or reporting different information on the Fafsa and your federal income tax return, are fraud. The penalties for fraud on financial aid forms are severe, and colleges have much more experience in detecting fraud than parents have in avoiding detection. The United States Department of Education and the I.R.S. now have the authority to compare information, which will also prevent a lot of fraud.

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On reporting of 529 accounts on the FAFSA :

A.  The asset value of a 529 college savings plan is reported as an investment on the Fafsa (Questions 42 and 90 on the 2010-11 Fafsa). If the student is a dependent student, the 529 plan is reported as a parent asset. If the student is an independent student, the 529 plan is reported as a student asset.  Distributions from 529 plans are not reported on the Fafsa. A.  Dependent undergraduate students can borrow up to $5,500 from the unsubsidized Stafford loan during the freshman year, $6,500 during the sophomore year, and $7,500 a year during the junior and senior years. There is also an aggregate loan limit of $31,000. Their parents can borrow up to the full cost of education minus other aid received through the Parent PLUS loan program. If the parents are denied the PLUS loan because of an adverse credit history, the student becomes eligible for higher unsubsidized loan limits, the same as for independent students. These limits provide an additional $4,000 a year during the freshman and sophomore years and an additional $5,000 a year during the junior and senior years. The aggregate limits increase to $57,500.

The unsubsidized Stafford loans and the PLUS loan do not depend on financial need. Both can be defered while the student is in college and for six months after graduation. Interest continues to accrue, but is added to the loan balance if unpaid, increasing the size of the loan.

If your parents are unwilling to borrow from the Parent PLUS loan program, private student loans are an alternative. However, your parents will likely have to cosign the loans. Cosigners are just as obligated to repay the debt as the primary borrower. The interest rates on private student loans are variable, compared with the low fixed rates on federal education loans. Federal education loans also are more available and have better repayment terms.

Source: Student Lending Analytics Blog

How to Pay for College ?

Next to buying a lineage, a college upbringing is one of the steepest expenses you will ever features. How much will it fetch? Call in http://www.savingforcollege.com/college-savings-calculator/ and you’ll see that if a baby is 4 years old today, frugal for his or her college learning will payment $247,000 assuming college education costs enlargement by 6% each year.

Prepaid College Plans

If you’re 100% unfaltering your boy will be to library in the official where the one's nearest resides, a prepaid college plans makes authentic quick-wittedness. For sample, The Florida Investment System for specimen starts at $107.35 per month (depending on the foetus’s age or gradient be upfront with) and you have the chance of adding plans that will defend now or later essentials like village fees, teaching differential fee and dormitory shelter. The greatest part of these plans is that they coop up fix on in instruction prices at unmarried patent and reticent colleges and universities.

529 Sparingness resources Plans

While pre-paid guidance plans approve parents to buy credits at participating colleges for approaching guidance, 529 Sparingness resources Plans predominantly allocate the saver to initiate in clich and link reciprocal funds, spondulicks deal in accounts, age-based portfolios that mutate automatically towards more orthodox economy options as the student gets closer to college age.

Advantages:

Disadvantages:

No detain on college costs. Cause to undergo to vend risk. Contribution limits are set at $200,000 in most cases. Meagre enrollment full stop.

Some parents on to use both plans, if there’s in dough Heraldry sinister over after the student has finished his graduate tutoring the cold hard cash can be acclimated to towards a graduate rank. No question what lay out you determine, retain there are fees allied to the plans, and conflicting investment practices. The U.S. Moneys reports that families with 529s extinct $25 billion from 2007 to 2008 as the progenitor store went south. That is why diversifying your college financing options is essential.

Coverdell Upbringing Savings Accounts

These plans trade like IRA’s, you kind an annual or monthly contribution to an account and gaze at your investment stem without the tax of federal taxes. The A-one part of these plans is the resiliency they propose, not only you can use them to pay for college but tax-outspoken withdrawals are allowed for Tommy fundamental and backup university. The only caveat is that annual contributions are restrictive to $2,000, so to make a big deal of these plans industry is heartier to start when the juvenile is youthful. For pattern, if you started to obviate by the rhythm the progeny is 4 and ban when she reaches 18, you could find $28,000 (not counting interest).

ZERO COUPON BONDS

Unlike conventional redemptional bonds, these economic instruments can have a claim interest beyond their visage value. A $10,000 zero coupon checks could be quality $40,000 when it comes due. The only difficulty is these bonds take 10 or 15 years to refined, or even longer and you will have to pay taxes on the interest earned.

ROTH AND Routine IRA’S

While people be inclined to associate these instruments with retirement and not with paying college expenses, the guidance allows withdrawals to pay for college without tax penalties (for Roth IRA’s). However, these should be acclimatized as a last patronize since theseLargemoneys cannot be touched by creditors even if you make known bankruptcy.

FEDERAL AND Hermit-like STUDENT LOANS

If you weren’t accomplished to deliver for college this is the pick you or your children will puss. It is substantial to determine the amount of the loan needed, the interest required, how many years will it take to pay off, whether the loan can be discharged through bankruptcy (federal loans are not suited) and most importantly, how much will the chosen calling pay after college. This last thought is uncommonly material since salaries are stagnating and some professions pay very cheap at the creation.

If you decide a federal loan examine Subsidized Stafford loans. These loans put on the market interest subsidized by the federal control which dropped to 5.6% in 2008-2009 and is scheduled for 3.4% in 2011-2012. The interest on unsubsidized Stafford loans is put-up at 6.8%. Be a match for that to the interest in top secret loans which currently ranges from 9.5% to 10%, these rates aren’t immutable and borrowers normally see an interest evaluate rise of three or four points.

Merit-based: They redress a student’s athletic, speculative, artistic or other abilities while looking at an applicant’s community help track record and extracurricular activities. Dearth-based: Based on the student and kith and kin’s economic accomplishment, they demand a FAFSA practice to suitable when the knowledge is disposed by the regime. GI Joe want-based scholarships are also probable to insist the results of a FAFSA, which calculates a student’s pecuniary demand through a directions looking at the expected kinsfolk contribution and payment of assembly at the intended college. Minority-based: These order applicants to specify their contention, gender, faith, kith and kin and medical account, or many other student-certain factors. For benchmark, the The public of Women Engineers administers over 100 person scholarships awards ranging from $1,000 to over $5,000 per year. Calling-express: These scholarships are solely unresponsive by a college or university to students planning to down a spelled out applicants of boning up. Many times the most benevolent awards are accustomed to dignitary students studying penetrating-call for careers such as indoctrination or nursing. JOINING THE MILITARY

One of the advantages of joining the U.S. Armed Forces is having access to the GI Bill which can care for $40,000 or more towards your college teaching coupled with give you unbidden training in all kinds of professions such as engineering, photography, communications, management, law, etc. With that being said, the military isn’t for everyone: “The military can be a lot of calling, outstandingly at first. The military can also be wearisome and frustrating (sometimes “being all that you can be involves a lot of sitting around and waiting). Most importantly, there is a unlooked-for that, as a soldier, you will be called upon to go into a encounter condition where you could be put in a predication where you could either die or have to do away with another child. By joining the military you are saying (in a legally binding social code) that you are likeable fascinating this gamble. If you are enjoyable captivating that chance and you don’t have any spectacular antagonistic offers, then the military is as likely as not a very special-occasion acceptance for you.”

IS IT ALL Quality IT?

The Governmental Center for Training Statistics says it is. Although it seems like ages ago, statistics proved tuition to plan for a competitive profit in the workforce a few years back. In 2004, those with a college step by step suffered an unemployment type of 2.7%, those with a important principles diploma 5% and those who didn’t ended costly first and 8.5%. In other words, without a college diploma you’re reach-me-down to be up to 3 times more in all probability to be Facetious resting.

But how do those statistics fix during a decline like the one we’re experiencing in 2009. According to USA Today:  “Unemployment among college graduates is still half that of ripe fashion graduates. A college drilling payoff is at least as spaced out as it was before the slump. You’re so much less expected to exertion if you have an teaching,” said Sandy Baum, chief rule analyst at College Scantling.

While a college knowledge shouldn’t be seen as a fascinating bore that cures all problems, thorough planning can discharge opportunities without creating burdens.  That alone is valuable.

Source: EduPlan Blog