February 28, 2007

FAFSA and Taxes

Posted in FAFSA at 9:02 AM by Joe From Boston

It’s the last day in February – have you filed your FAFSA yet?

It’s tax time, and there’s not coincidence that taxes and the FAFSA occur around the same time. Indeed, a lot of what you need to put on the FAFSA will come directly of your 1040 tax form. That’s because the Department of Education needs to know the same things the IRS needs to know, in order to calculate the Expected Family Contribution. The Department of Education asks a lot more – this is true, but the basics are the same.

So what’s the point of all this? Get your taxes done and file your FAFSA as soon as possible! Remember, financial aid is first come first-served.  You may be late already as many schools have a March 1st deadline!!!

February 27, 2007

Our family makes too much money to qualify for financial aid…

Posted in FAFSA, The Financial Aid Process at 9:01 AM by Joe From Boston

Here is a great article from the Orange County Register about whether you should fill out financial aid forms if you think you make too much money.

Apply for aid, even if you think you make too much


Q. Our family makes too much money to qualify for financial aid. Do we need to fill out any financial aid forms?

A. Every family should complete (minimally) the FAFSA (Free Application for Federal Student Aid) form in January of the student’s high school senior year. Regardless of family income and assets, there are federal entitlement programs for every student, the most common being the Stafford loan.

Additionally, many colleges require the FAFSA form in order for the student to qualify for merit awards and scholarships. These can be offered as a result of academic, athletic, artistic or even leadership excellence.

Along with the FAFSA form, some colleges require the CSS/PROFILE form, and many private schools require their own aid forms.

By the way, many families assume they make too much money to qualify for financial aid, but there are many factors that determine eligibility. The way to accurately determine your eligibility is to learn your EFC (Expected Family Contribution).You should do this when your student is a high school sophomore or, at the latest, a junior.

Q. I am a divorced mother and my daughter is a junior in high school. She has a 3.86 GPA and 1900 SAT score, and she wants to attend a private college. My annual income is $50,000. I don’t own a home and we have little savings. Do we have any alternative other than junior college and then a state school?

A. Your daughter definitely should apply to private schools. For families like yours it often costs less money out of pocket to attend a very expensive ($40,000 to $50,000) private university than a public school costing much less.

Schools such as Pepperdine and Chapman typically offer families like yours a large amount of financial aid with most of it being grants (free money), often called gift aid. When you submit the FAFSA form to the Department of Education, officials calculate your Expected Family Contribution. This EFC is subtracted from the college’s cost of attendance and the difference is your “need.”

Many private colleges will meet most, if not every penny, of your need. If your annual income is about $50,000, your EFC could be less than $5,000. This means that for a $45,000 school, you are eligible for $40,000 of financial aid with the vast majority of this being offered in grants with a small portion being deferred-payment student loans and perhaps a work-study program.

February 26, 2007

FAFSA Questions Answered!

Posted in FAFSA, Grants, Legislation Affecting Students, Saving for College, Scholarships, The Financial Aid Process tagged , , , , , , , , at 11:31 AM by College Admissions

The New York Daily News had a great article on paying  for college, written by George Chin, CUNY’s director of financial aid, with a wonderful Q & A on Financial Aid and the FAFSA Application  that I’m including below:

What information is used to calculate the estimate?

The adjusted gross income (as listed on your tax returns) of you and your parents. Other key factors are assets, family size, the age of the parents and number of kids in college. A student with family income of $38,000 and few assets obviously has a better chance of getting aid than one from a family making $180,000 with a portfolio of investments and a summer home.

What’s considered an asset?

Parental assets include equity in a second home, stocks, bonds, college savings plans, businesses and farms (there aren’t too many of these in our area!). Students’ personal savings, businesses, stocks and bonds are also considered. The main residence and retirement plans such as 401(k)s and individual retirement accounts are not included.

Are we expected to use all of our assets to pay for college?

No. The formula acknowledges other important expenses, such as saving for retirement. An “asset protection allowance” also is applied to offset a family’s net assets.

My parents are in their 60s. Does that affect the calculation?

Absolutely. The asset protection allowance, recomputed annually, grows as parents grow older.

Does a student get a break if more than one child is in college at a time?

There’s an adjustment lowering the estimated contribution. With two kids in college, the estimate for one is roughly halved; for three, it’s cut into thirds, etc.

How is family size a factor?

Income is offset based on household size. A family of four with one child in college has $23,560 offset against income. A family of six with a kid in college gets $32,510 offset.

Is the estimated contribution what we’re expected to pay the college in cash?

No. Part of it covers costs normally incurred for kids in school, such as clothes and food. You cover the rest from savings and loans.

Will all colleges rely on the estimated family contribution to determine whether I get financial aid?

Yes and no. All colleges use the amount for federal aid. Info from the College Board is another measure used by many, more expensive private colleges when they award institutional aid. The College Board system, called Profile, collects more financial data than the Free Application for Federal Student Aid for a more complete analysis of a family’s ability to pay. Under FAFSA, for example, 7% of gross income is offset as an allowance against local taxes. Profile applies different offsets to different income levels. For all colleges, fill out FAFSA first. Colleges will tell applicants if they require a Profile form, as well.

How high can my estimated family contribution go?

To $99,999 (no need-based aid there). If you attend a modestly priced private school or CUNY and have annual school costs of $11,000 and an estimated contribution of $11,000, you won’t qualify for aid. Your estimated contribution is the same whether you apply to CUNY, Harvard, NYU or Stony Brook University. It’s based on your finances, not your school.

For more advice, visit:

February 23, 2007

What do you put on a FAFSA for blended families?

Posted in FAFSA, Student Loan News at 2:48 PM by Joe From Boston

In this day and age, there are many blended families out there, so that the old phrase “Yours, mine and ours” is quite commonplace.  Ok – but what do you put on the FAFSA for the various children involved???  Here’s a short answer from teh New York Times.  A free subscription is needed to view the article.

School aid rules byzantine

February 20, 2007

Filling out financial aid forms is difficult enough, but it can be particularly challenging for today’s blended families.

Ask Bill from Elkton.

Bill is divorced and his two daughters live with his ex. He lives with his second wife and her son. He’s working on the Free Application for Federal Student Aid form for his stepson. Bill says it looks like his income will be included on his stepson’s FAFSA along with the income of the boy’s father.

“This seems like a double whammy,” he says.

How will the federal government and college financial aid offices consider his income for his two daughters and his stepson? he asks in an e-mail.

Kalman Chany, author of Paying for College Without Going Broke, says the FAFSA can be so confusing for blended families that he includes a section on it in his book under the heading “Soap Opera Digest.”

FAFSA requires the income of the custodial parent, in this case the mother, as well as the stepparent, Bill, says Chany. The earnings of the boy’s father are not included. (When Bill’s daughters fill out the FAFSA, his income won’t be included.)

This is for federal aid. Private colleges use different rules for awarding their own money, and might ask about the income of all adults, Chany says.

February 21, 2007

Are financial aid offices biased agains small business owners?

Posted in FAFSA, Student Loan News at 4:48 PM by Joe From Boston

Here’s a really interesting article from SmartMoney.com about how private colleges and universities have a major bias against Small business owners.

A Financial-Aid Bias?

IF YOU HAVE a college-bound child in your home, I probably don’t need to tell you that April can be a stressful month. While high school seniors fret over what schools are going to admit them, their parents — along with the parents of current college freshmen, sophomores and juniors — anxiously wait to find out what next year’s financial-aid packages hold. I have to admit, however, that as we waited last year to hear from the four schools my daughter had applied to, I was relatively calm on both scores. Our daughter had already won early acceptance at M.I.T., and we thought it likely that she would get into the other schools she applied to. I, meanwhile, having seen the federal- and private-aid estimates of our financial need, was confident that we’d also be getting the assistance we’d require to be able to put our daughter through college without ending up in the poorhouse.

Well, I was right on one point: My daughter did indeed get accepted to her top picks. But along with those acceptance letters came the financial-aid packages. And those caught me off guard. That’s because they were about $4,000 to $5,000 a year less than I had anticipated.

It turns out that I’m not alone in my sticker shock. As a full-time freelance writer, I’m among the one in 11 American workers who is self-employed, and most private colleges and universities have a built-in bias against the self-employed when it comes to evaluating financial need. How so? They routinely disallow some of the most basic deductions we take for the expenses of conducting a small business — things like meals and entertainment, travel and depreciation. For the self-employed, these are a cost of doing business no different from a corporation’s spending on raw materials or advertising, but America’s private colleges add them back to income when they calculate the resources a family has available to pay for college.

It’s something that most self-employed parents may not realize, and with good reason: The financial-aid determination process is pretty much a black box. You put your data in, whether on the Free Application for Federal Student Aid (FAFSA) form handled by the U.S. Education Department or the College Scholarship Service (CSS) form processed by the College Board, send along last year’s tax forms and out the other end come scholarship and loan packages from the colleges that have accepted your child. How those numbers are determined is up to each school’s own financial-aid office. But there’s a surprising degree of sameness in the way these offices operate — and in the lack of explanation they provide to parents. And it’s no wonder they look so similar: They are all using the same playbook.

The College Board, a membership organization of most colleges and universities in the country, claims it doesn’t tell schools how to evaluate financial need. “We don’t tell them what to disallow or add back to income. That’s a decision made by each college,” says a College Board spokeswoman. In fact, however, the College Board does sponsor workshops that essentially do just that. For the past two decades in the Northeast, for instance, most college financial-aid directors have been attending the same annual workshop on evaluating parents’ financial-aid forms sponsored by the College Board and run by a Vermont-based accountant named James Briggs.

“He’s the guru,” says Heather McDonnell, financial-aid director at Sarah Lawrence College in Bronxville, New York. “We all schlepp up there once a year and he tells us what to look for. He makes it clear that when you walk into the world of the self-employed, basically there are a lot of people who present themselves in ways that are not exactly a reflection of their true cash-flow position.”

As a financial-aid officer at M.I.T. explains, freelancers who are willing to play fast and loose with the tax code may be misrepresenting some ordinary personal spending as business expenses. “You hear so much about people taking a whole group out to a restaurant and writing it off as a meal,” he says. Many school financial-aid officials say they are particularly skeptical about expense deductions when someone has a full-time salaried job, and the Schedule C is for a second-income activity.

Some of the caution is probably warranted. During an audit of FAFSA applications back in 1997, the U.S. Department of Education found that it had overawarded $109 million in Pell Grant scholarships because of fraud, though the overpayments weren’t just to students of self-employed families.

But for self-employed parents who don’t fudge their returns, the result is often financial-aid awards that are lower than they should be. After all, many of the expenses on Schedule C are the sort for which companies routinely reimburse their employees — and no financial-aid office would add a parent’s corporate expense accounts back to his or her income…

View the rest of the article here.

Scholars Suggest Simplifying Federal Student-Aid System By Eliminating A Lengthy Form

Posted in FAFSA, Student Loan News, The Financial Aid Process at 1:54 PM by Joe From Boston

The Chronicle of Higher Education reports on a paper released Tuesday by two scholars at Harvard University’s John F. Kennedy School of Government.

Scholars Suggest Simplifying Federal Student-Aid System By Eliminating A Lengthy Form

“The federal student-aid system should be drastically simplified by eliminating a cumbersome application form and using basic information from tax returns instead to calculate eligibility for financial aid,” “Ms. Dynarski, who is an associate professor of public policy at the Kennedy School, and Ms. Scott-Clayton, who is a doctoral candidate there, say the form is too complicated. Furthermore, they say, it does not let students know how much aid they qualify for, and thus discourages many students from low-income families from applying to college and finishing their degrees.”

You can read the complete article from the Chronicle of Higher Education on-line. A paid subscription may be required.

February 20, 2007

Removing the FAFSA fear for low-income families

Posted in FAFSA, Student Loan News, The Financial Aid Process at 9:50 AM by Joe From Boston

A novel approach to financial aid – have H & R Block fill out your FAFSA! Inside Higher Ed is reporting a novel experiment currently underway in the Cleveland area; random families who use H & R Block services will be offered free FAFSA filing services along with their tax preparation.

That low-income Americans are far less likely to go to college than their peers are is a fact; less clear are the reasons why. But one oft-cited explanation is that potential college students from lower socioeconomic groups are either unaware of how much need-based financial aid is available or intimidated by the process of applying for federal student aid.

In a memorable stunt at a news conference in September where she discussed the need to simplify that process, Education Secretary Margaret Spellings unfavorably compared the length and complexity of the Free Application for Federal Student Aid (FAFSA) to the standard federal tax form, and the American Council on Education and the Lumina Foundation for Education have begun an aggressive public service campaign aimed, in part, at lowering low-income students’ fear factor in applying for federal aid.

“We have all this financial aid, but it doesn’t seem to be reaching the people who need it most,” says Bridget Terry Long, an associate professor of education and economics at Harvard University, who has written widely about college access. “A lot of people just don’t understand how the system works. And there are lots of calls for simplication, but what does that really mean?”

Long and some fellow researchers are taking an unconventional approach to the problem. The experiment, which is aimed at lower-income people who have teenage or college-age children or are potential college students themselves, seeks to gauge whether making it easier for low- and moderate-income families to apply for financial aid improves their college-going rates. What is unusual, however, is the research design — offering taxpayers a painless way to turn the information on their tax forms into a financial aid application — and the sponsor: H&R Block, the tax preparation company.

Here’s how the project, which involves researchers at Case Western Reserve University and University of Toronto in addition to Long, works: Randomly selected taxpayers with incomes below $45,000 who seek help from their taxes from H&R Block offices in and around Cleveland, Ohio, will be offered help filling out their FAFSA forms (a control group will receive only a brochure with publicly available information about attending and paying for college).

H&R Block’s tax preparers, working with software the company and the researchers jointly created, will help transport the applicants’ tax information into the federal financial aid form (more than half of the FAFSA information comes from the tax form), and help them collect the information for, and complete, the rest of the form. The hypothesis is that using tax data to automatically fill in a large number of answers to the 108 questions on the financial aid form, and offering personal help in filling out the rest, will make the FAFSA less daunting than it might otherwise be.

Next, company representatives, trained by the researchers, will give study participants projections of how much state and federal financial aid they may qualify for, and how far that would go in covering the cost of attending selected colleges in the area. “When we finish that interview, we give them a piece of paper that says, based on the information we’ve gathered today, here’s the tuition and here’s the aid you’d be eligible for,” says Eric P. Bettinger, associate professor of economics at Case Western…

Doug Lederman

Read the rest of the article here.

February 19, 2007

Happy Valentine’s Day, North Dakota students – from your state Senate!

Posted in Student Loan News at 11:59 AM by Joe From Boston

Here’s a great article from the Grand Forks Herald, about Senators voting that the state should help cover the cost of college tuition! There are restrictions of course – read the article snippet below for details.

N.D. Senate agrees state should pay college tuition
By Joseph Marks, Herald Staff Writer
Published Thursday, February 15, 2007
State senators delivered a Valentine’s Day gift to young North Dakotans and their parents Wednesday that could cost the state up to $425 million.

The North Dakota Promise Bill, sponsored by Sen. Tony Grindberg, R-Fargo, promises free tuition beginning in 2017 to North Dakota students who meet certain requirements including a minimum ACT score of 23 and four years of high school math and science.

The bill also requires students to attend five of their nine pre-high school academic years in North Dakota and spend all four years of high school in the state. The state would begin by paying 65 percent of eligible students’ tuition in 2012 and increase their share in succeeding years.

The bill must still be passed in some form by the state House of Representatives and signed by Gov. John Hoeven before becoming law. The Senate vote was 40-7 in favor. The bill’s passage won praise from university administrators…

Read the whole article here.

February 16, 2007

More bad news for lenders

Posted in Student Loan News at 2:58 PM by Joe From Boston

Here’s an interesting article from Inside Higher Ed about Senator Kennedy’s newest proposal.

More Bad News for Lenders

An old idea is about to resurface in Washington — potentially adding to the woes the student loan industry is facing in the Democratically controlled 110th Congress.

Sen. Edward M. Kennedy (D-Mass.) is poised to introduce legislation that would require banks and other lenders to compete for the right to make federally guaranteed student loans, with the goal of identifying those who could offer the loans at rates that would cost the government the least, and using the savings for other efforts to make college more affordable for students. A Kennedy spokeswoman said Thursday that “we hope to introduce a bill soon…. This is something Senator Kennedy has been watching closely.” Other details about the proposal, which was first reported Thursday by Bloomberg, were hard to come by.

But similar proposals in the past — from Kennedy and other Democratic politicians — offer some guidance about what the head of the Senate’s education committee may be contemplating. The Clinton administration proposed a pilot program to test an “auction based” approach to setting student loan interest rates in 1998 — which Kennedy sought to incorporate into the Higher Education Act renewal that year — and Sen. John Kerry, in his 2004 run for president, proposed paying for a major expansion of the AmeriCorps service program by setting student loan rates at auction.

More recently, a former Kennedy aide, Michael Dannenberg, who is now director of education policy at the New America Foundation, laid out the rationale for forcing banks to compete for the right to make government-guaranteed loans in an op-ed in The Washington Post. The essay, co-written with Philip Longman, a fellow at the foundation, noted that the government already auctions off Treasury debt and other assets, and estimated that abandoning the system by which the government sets a minimum subsidy it will pay lenders on the loans they offer to students could save the U.S. treasury $15 to $20 billion over five years, based on the 4 percent to 7 percent premium that officials in Missouri earned when the state loan agency there sold off a portion of its portfolio.

The Kennedy spokeswoman cited the Missouri loan sale and a similar one in Illinois as inspiration for the senator’s own proposal, saying he Senator “sees this as an opportunity for the federal government to make similar premiums.”

Banks, predictably, sounded alarms as word of the Kennedy proposal spread, reiterating arguments they have made about past proposals for a student loan auction. John Dean, counsel to the Consumer Bankers Association, said such a plan would cause major complications because of some of the unusual traits of student loans. Because students typically take out loans in multiple years, borrowers and colleges alike could find themselves having to change the lenders they do business with every year. And lenders, if forced to offer their loans at the lowest possible price, might have to cut services for students and investments in technology, he said.

The bankers’ group’s objections this time around are likely to mirror those it offered in response to Kerry’s like proposal in 2004.

The student loan industry is on the defensive in the new political environment so far, being barraged from one side with White House and Congressional proposals to slash lender profits to pay for other student aid priorities in the federal budget, and from the other with Congressional inquiries into various forms of alleged abuse or improprieties.

Doug Lederman

February 15, 2007

Education Department Official Defends Bush’s Plan to Kill Supplemental Grants Program

Posted in Grants, Student Loan News at 9:12 AM by Joe From Boston

“In a speech delivered to college presidents on Tuesday, the new under secretary of education defended the administration’s plan to end the Supplemental Educational Opportunity Grant program and called on colleges to help the department remake the federal student-aid system,” reports The Chronicle of Higher Education. “The implicit message to colleges, and to the council, was that they should focus on the broader goal of increasing access and not spend their time protecting programs that the department regards as inefficient.”

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