College Financing 2019
Impeachment! Brexit! Trade Talks! There’s a lot to take in, and no, you shouldn’t try to game out how any of these events will impact your investments, because these is no precedent for the conditions that exist. Instead of going back in time to recreate what could happen, your time would be better spent focusing on an area that is within your control: the college financing process.
College financing season is about to begin. The Free Application for Federal Student Aid or FAFSA, which determines how much students and their families will receive in college grants, scholarships and loans is available on October 1 (for academic year 2020-2021). Before you lament, “I won’t qualify for anything,” experts warn that the biggest hurdle to getting money is not spending the time to complete the form.
That said, there a some important points to keep in mind about FAFSA, according to the Department of Education:
Federal student aid includes three different kinds of financial help: grants, low-interest loans, and work-study funds (a part-time job on or near campus). It is important to distinguish among the three, otherwise, you might find end up with a nasty surprise in four years!
You need to create a username and password combination (FSA ID) that serves as a student’s or parent’s identifier to allow access to personal information in various Dept of Ed systems. You can apply online for an FSA ID at any point, even before you are ready to complete the form. Guard the FSA ID with your life, there have been instances of hacking and phishing for this vital and important information.
According to the federal government, which oversees the FAFSA process, “there is no income cut-off to qualify for federal student aid. Many factors, such as the size of your family and your year in school, are taken into account.”
FAFSA is not just for federal funds; it’s also used for states and some schools.
Unlike most loans, the government will not consider a credit score as a means of qualification (except for Direct PLUS Loans). Also, you won’t need a cosigner to get a federal student loan in most cases.
You may qualify for the upcoming academic year, even if you did not last year. This is especially true if your family’s circumstances have changed, but there are also instances when a college or state might create new grants or scholarships.
The process is a pain in the neck, but it has improved. It goes a lot faster if you have a bunch of information assembled before you begin, including: Social Security numbers for the student and parents, the student’s driver’s license number, if applicable, federal tax information, records of untaxed income such as child support, and current bank-account and investment information.
The Department of Education now has access to your tax information through the IRS Data Retrieval Tool. In the finances section of the online form, you will see a “Link to IRS” button if you are eligible to use the IRS DRT. Click the “Link to IRS” button and log in with your FSA ID to be transferred to the IRS to retrieve your info.
BUT WAIT, THERE’S MORE!
In addition to FAFSA, there is another step to take. Also on October 1st, log on to the College Board’s CSS/Financial Aid Profile, which is used by nearly 400 colleges, professional schools, and scholarship programs to award non-federal aid. The CSS requires more work, because it is a more detailed accounting of the family’s finances, but it could be worth it as the CSS distributes about $9 billion in awards.
IMPORTANT NOTE: You should submit both the CSS and the FAFSA as early as possible because some money is awarded on a first come, first serve basis.
There is no doubt that a college education offers big benefits. Graduates earn more over their lifetimes and have lower unemployment rates than those who stop after high school. But assuming a massive debt load to acquire a degree often robs parents and kids of future financial opportunities. That’s why college planning needs to start with honest and sober discussions that take into account the realities for the entire family.
But after countless conversations on the topic, I am often left with the feeling that people are unlikely to heed my advice. After I interviewed economic anthropologist Caitlin Zaloom, I better understood why college funding is so confounding.
In her book Indebted: How Families Make College Work at Any Cost, Zaloom argues that “the problem of paying for college today involves such profound moral, emotional and economic commitments that it has, in fact, redefined the experience of being middle class.” (She defines middle class as those who make too much money to qualify for major grants, but not enough to save or pay for college out of cash flow.)
Zaloom argues that providing the opportunity to attend college has become a moral obligation for parents (and grandparents). But this obligation has become more and more difficult to fulfill over the past few decades, as incomes stagnated and college costs soared. To bridge the gap, “middle class families must now make their way through a thicket of financial policies and programs” that Zaloom calls “the student finance complex”, which includes the Dept of Ed, financial institutions, and universities that provide the funding necessary to claim the golden ticket, a college diploma.
According to a survey from student loan originator Sallie Mae, 90 percent of families view college as an investment. Of course like all investments, this one has risk. Zaloom says the steep cost of a college degree has pushed middle-class families to assume risk or “social speculation,” where parents must bet that money saved or borrowed today will translate into a pay off in the future. “ Unfortunately, there is no guarantee that this bet will pay off, for the parents or the children.”
Additionally, the student finance complex “links students to their families for well into their adult lives, drawing down parents’ resources,” which makes it tough for adult children to become financially autonomous. Zaloom says that until there is a major reform of the U.S. college education financing system, the problem is one that sits squarely on the shoulders of families. The entry point to the system is the FAFSA and CSS, so be kind to yourselves as you try to navigate the choppy waters.