Category Archives: Student Loans

FAFSA Verification

Every year, about 1/3 of FAFSAs filed are selected for validation, which could be described as FAFSA’s version of an audit. Some FAFSAs are chosen at random for verification, whereas some schools– especially those funding need-based aid out of an endowment– will verify every application. Because verification goes through the school, it’s not unusual for students to first learn about their verification status when they receive an acceptance and financial aid award. Being selected for verification does not typically mean that you’ve done anything wrong, just that you need to provide additional information.

If you are selected for verification, you’ll either see note on your SAR requesting additional documents, or you’ll be contacted by your school, or both. Because some documentation requires time to gather, it’s important to get on this right away if it applies to you. For example, you may be required to submit an IRS transcript of your tax return.

One big issue with verification is that it places a disproportionate burden on lower-income students, since about half of Pell Grant-eligible students will be selected for verification, and this burden has been shown to reduce college attendance– a recent study showed that more than 20% of these students do not complete the verification process, thus denying them access to the Pell Grant (and any other Title VI financial aid). At the same time, a study by the National Association of Student Financial Aid Administrators showed that verification wasn’t effective at rooting out cheaters and in fact served primarily as a deterrent to students: 84% of verified students overall had no change to their EFC or a change too insignificant to impact their Pell Grant award; among students attending two-year schools that increased to 91%.

What to do if you’re selected? Get on it, ASAP. Sometimes the schools simply request documents that you’ll have on hand, but often they want to see your tax return transcript. Here are the Department of Education’s instructions on verification, as well as more details on how IRS DRT and tax return transcripts are handled.

 

Risks of Income-Based Repayment Plans

Income-based repayment, or IBR, can be a great option for recent college graduates who need some breathing room while getting started in a career. However, there are some real risks to it, especially for those who owe significant loan balances or are in career paths where the salary trajectory is fairly level. In these instances, the payments may never make enough of a dent on the loan principal to make a material difference in the balance, and the borrower could find themselves 20 years out with a large taxable loan forgiveness, despite paying substantial sums for 20 or 25 years. Continue reading Risks of Income-Based Repayment Plans

Planning for All Four (or More) Years

A friend whose son is my twins’ age was surprised recently when I told her some of the colleges my daughter was applying to. She thought they seemed unlikely choices given my constant messaging of finding affordable schools. Her son was interested in some of the same ones and the net prices they found were quite high. The answer: we have the benefit of two children in college all four years. That means our EFC gets divided between then and in many cases, this yielded lower likely net costs. Good news for my Continue reading Planning for All Four (or More) Years

Budgeting for Books and Supplies

When comparing the two schools my son is considering, we noticed an interesting data point: one school estimated books and supplies to cost $800 annually; the other $1,146. One of the schools my daughter applied to estimates $1,800. While I can certainly understand that different meal plans or living options might be more or less expensive at different schools, it’s hard to understand why books would cost 50% or 100% more from school to school. Continue reading Budgeting for Books and Supplies

To Borrow or Not to Borrow

Planning for college cash flow can be tricky. It’s not just that the average public university costs over $25,000 per year whereas the average family has saved just over $18,000 total. There’s also the combination of tax credits and their attendant rules, a confusing menu of borrowing options, and misunderstandings about how aid formulas treat savings. Add multiple children with overlapping college years and it’s no wonder many parents throw up their hands in despair. One common theme I hear from parents is a version of, “We’ll just spend our savings until it’s gone and then borrow what we need.” This may or may not be the right answer. Continue reading To Borrow or Not to Borrow

Student Loans and Mortgages

There’s been a great deal of press in recent years about the impact student loans have on the larger economy, especially home purchasing. A Federal Reserve Bank of New York report showed a decline of 8 percentage points in home ownership among 28-to-30-year-olds from 2007 to 2015, and estimated that about 1/3 of that can be attributed to student loan debt. Because that’s all a little abstract, and because decisions families make now about college and student loans have the potential to cast a long shadow on the student’s life, I asked mortgage broker Tim McBratney of Pacific Residential Mortgage to explain how student loans affect the mortgage qualification process. He notes that the process has gotten more difficult with respect to student loan debt. Continue reading Student Loans and Mortgages

Where do Massive Student Loan Balances Come From?

Education is a good investment, and assuming some debt to earn a bachelor’s or advanced degree tends to pay off for most. For example, a student who took out the maximum direct student loan each year for four years would pay a little over $300 per month for 10 years to fully repay their loans. The average salary for a recent college graduate is over $51,000, and the Bureau of Labor Statistics shows median weekly earnings for bachelor’s degree holders being $461 higher than the median for those with Continue reading Where do Massive Student Loan Balances Come From?

College Prep by Grade

I gave a financial aid talk to college and career center volunteers at our high school recently. One question stood out: “This is a lot of information to absorb at once. Can you break it down into some specific suggestions by grade?” Two ideas are important here: College planning is a process that should start well before senior year, and there are things that can be done at any point to make things go more smoothly when the time comes to start applying. So here goes. Continue reading College Prep by Grade

Estimating Post-Graduation Loan Burden

For many teenagers, it’s difficult to understand the true burden of student loans. For someone whose primary source of income has been mowing lawns, the average college graduate starting salary of over $51,000 often seems a little bit like winning the lottery. Unfortunately, it also leaves many feeling like student debt will be no problem. Variations on the theme of, if I’m making $50,000 a year, it won’t take any time to pay off $50,000 in student loans, abound. However, the facts are somewhat different: all-in, Continue reading Estimating Post-Graduation Loan Burden