How to understand financial aid award letters

Decode College Financial Aid Awards!

Okay, what the heck! Why can’t colleges just be clear about their financial aid offers.

All across the nation, high school seniors are receiving their financial aid award letters from the colleges to which they have been accepted.

Students and parents alike will be overjoyed as they take a first glance at these letters. After all, real professionals have carefully formulated these documents for maximum obfuscation.

Many who receive these well-crafted offers will believe that their top choice college dreams have been fulfilled.

The celebrations will commence. The heady feelings will go on for days. Then, someone may point out a questionable figure in the offer, and the clouds of doubt will move in.

The family will be confused, and as usual it will fall to Mom to interpret the meaning of the cryptic line item.

Mom, the detective, must now spend hours and days on the internet seeking out experts. She will repeatedly call the college or colleges asking questions, the answers for which she has no background to make an informed interpretation.

When, through enormous effort, the bad news is revealed, and it is determined that the dream college is unaffordable, there will be WAILING. And that’s not all…there will also be DOOR SLAMMING. Shall I go on? No, I think you get the picture…

Why, why, why can’t this information be made clear right away. Get the bad news out there and move on.

Do colleges really think that families will somehow make magic money appear? Well, yes. But it will probably be the magic money known as soul-crushing student loan debt.

It’s time for all financial aid award letters to be standardized to help consumers. So far, the only thing out there is the Education Department’s Financial Aid Shopping Sheet. Thankfully, it’s being adopted, albeit slowly, by some correct-thinking colleges.

My hope for the future is that all colleges and universities get on the transparency bandwagon!

Student Loan help right now!

Get Student Loan Help!

Now that the President has decreed a new “Student Aid Bill of Rights”, the ship of state will turn slowly toward a better way for student borrowers to manage all their loans through one portal. A new centralized complaint system will give more borrowers the ability to resolve disputes with loan servicers and debt collection agencies.

Thanks to the National Consumer Law Center and it’s Student Loan Borrower Assistance project, a prototype of this new system exists now. Watch this video to get a guided tour of how the Student Loan Borrower Assistance (.org) website links the pieces of the new system together.

If I was asked to magically build a new system to  get student loan help, I would create the new loan management portal using the building blocks provided by the the National Student Loan Data System. Currently, this system provides credentialed visitors with access to all their Federal student loan information. However, the visitor cannot find information about his/her private student loans. This is the next important task. But it’s just too hard to think about compiling private student loan information, so my magic wand would just “Make It So”!

As for the centralized complaint reporting piece of the new “Student Aid Bill of Rights”, I would just (poof!) combine the best parts of the two existing Student Loan Ombudsman offices. The Department of Education now handles complaint arbitration for Federal student loan disputes. The Consumer Financial Protection Bureau’s Student Loan Ombudsman office makes a specialty of resolving private student loan disputes. Cue the magic MixMaster!

And finally, just like the Student Loan Borrower Assistance website, I would have a whole list of free legal help right there on the new centralized complaint system website. Hey, not every student loan complaint can be resolved in a tidy fashion. What’s more, the rule against discharging student loan debt through bankruptcy looks like it’s on the table for revision. New bankruptcy rules will produce a tsunami of borrowers who will need legal guidance. Or a fairy godmother!

PAYE – Pay As You Earn Student Loan Repayment Plan – Morphing yet again!

So the President is expanding and changing his favorite student loan repayment plan…Pay As You Earn…again!

PAYE, is an apt acronym for the Pay As You Earn plan. If you borrowed money from the government to attend college, you are going to PAYE, but maybe not as much as you expected.

If you are a taxpayer, you are going to PAYE for a portion of someone’s education, and maybe more than you expected.

And then there are the colleges and universities who will, as usual, plan their yearly tuition increases around the latest proposals to increase the availability of ever more liberal student loan repayment schemes. Maybe it IS time for a change.

Take a look at my video, in which I try to make PAYE more understandable!

As much as I’d like to see the PAYE plan help student borrowers, and it will, I’d also like to see if any of the proposed PAYE plan limitations will help to put the brakes on the insidious cycle of tuition creep.

For your enjoyment, I copied this right out of the Department of Education’s 2015 Proposed Budget:

The 2015 Budget proposes to extend Pay As You Earn (PAYE) to all student borrowers and reform the PAYE terms to ensure that program benefits are targeted to the neediest borrowers. The reforms also aim to safeguard the program for the future, including by protecting against institutional practices that may further increase student indebtedness. In addition, to simplify borrowers’ experience while reducing program complexity, PAYE would become the only income-driven repayment plan for borrowers who originate their first loan on or after July 1, 2015, which would allow for easier selection of a repayment plan. Students who borrowed their first loans prior to July 1, 2015, would continue to be able to select among the existing repayment plans (for plans for which they now qualify and for loans originated through their current course of study), in addition to the modified PAYE.

The Budget proposes additional changes to PAYE that include:

  • Eliminating the standard payment cap under PAYE so that high-income, high-balance borrowers pay an equitable share of their earnings as their income rises; (Listen up doctors, lawyers and dentists!)
  • Calculating payments for married borrowers filing separately on the combined household Adjusted Gross Income; (so the message is, don’t get married?)
  • Capping Public Service Loan Forgiveness (PSLF) at the aggregate loan limit for independent undergraduate students to protect against institutional practices that may further increase student indebtedness, while ensuring the program provides sufficient relief for students committed to public service; (the cap would be $57,500)
  • Establishing a 25-year forgiveness period for borrowers with balances above the aggregate loan limit for independent undergraduate students; (this is aimed at lower income borrowers who used the higher threshold PLUS loans).
  • Preventing payments made under non-income driven repayment plans from being applied toward PSLF to ensure that loan forgiveness is targeted to students with the greatest need; and
  • Capping the amount of interest that can accrue when a borrower’s monthly payment is insufficient to cover interest costs, to avoid ballooning loan balances. (Currently 10%)

If your eyes have not glazed over by all this budget stuff that really won’t take effect until early 2016, here are the contents of the “special sauce” that I mentioned in the video. The two big deals about the PAYE plan are that your monthly payments are kept low by a calculation of what 10% of your discretionary income would be according to your salary. This calculation of your payment can never be greater than what you would have paid if you had been using the Standard Repayment Plan. If the calculation shows that, in any year, your payment IS greater than the Standard plan, a loud buzzer goes off and you are OUT…yes, you are sent back to the hell of HUGE monthly payments! The message is: have a good accountant who will warn you and make sure you send in proof of your eligibility and family size each and every year. Because they will throw you out for forgetting that too!
Here’s the other big deal part of the special sauce: a 10% limit on capitalization for unpaid accrued interest! For those moderate non-doctor borrowers (60K to about 150K) that means that they will never find their loan amount ever gets bigger than 10% more than the amount they originally borrowed. There you have it. Special Sauce!

And now, having read the proposed new PAYE rules, you know why the doctors, lawyers, and dentists are going to be spitting fire at the Administration. You would too if you’d had to borrow $400,000 or more just to get through school, and then had to face a 6K a month payment for the next ten Standard Plan years

Learn about PAYE
PAYE. It’s complicated, but important!

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President Obamas speech sparks new interest in saving for college with 529 Plans.

The 529 College Saving Plan lives to fight another day!

The 529 College Saving Plan just got about 7 days of the finest publicity you can’t even buy…the free kind! All this, courtesy of the President of these United States, no less.

Way to go, Mr. President, apparently you scared the socks off of middle America as a way of galvanizing public attention. Well done…that is, IF proposing to tax 529 College Saving Plans was just a clever ploy!
Before you read on, take a short refresher course in 529 plans by watching my video on the subject:

It was during the State of the Union address that the President introduced his budget proposals which included ways to fund his ideas to improve college access for millions more students. One of those ideas was to make tuition for community colleges free. But, nothing is really free, so where would the money to pay for this come from? Well, how about taxing the college savings of millions of American Moms and Dads? It’s all right there in those lovely 529 plans. Those Moms and Dads would gladly give up their tax-free earnings to help others, right?

At this point I thought you might like to see what the President looked like when he was putting forth his proposal. Pretty calm, right?

Why worry?
The president exhibits preternatural calm.

Let’s assume for a moment that he actually knew what he was doing…raising awareness about the 529 College Plan. Let’s also assume that he really wanted folks to wake up and notice that it’s time to save for college. Moreover, maybe he wanted to make sure this plan would be around for a long time to come. Free publicity, people!

Wow! Genius! Look at the firestorm of tweets on the subject. And this went on for days!

Loads of Tweets
Angry/concerned Tweeters

Newspaper articles were written, TV and radio guests discussed, and blogs got posted, endlessly explaining the facets of the 529 College Saving plan. If you were alive at all you could not miss the clamor. And you could not avoid thinking about getting a 529 plan for YOUR kids’ college years.

The publicity also had an unforeseen destabilizing effect. People thought that the 529 College Saving plan was permanent and could not be changed. Faith in the system was shaken. Commentators wondered aloud if their Roth IRA’s would be raided next.

Then came the anger and the political wrangling, followed by the online petition drives. The No529Tax.org petition built up enough steam to gain White House attention. And finally a bi-partisan effort was launched to convince the President to remove the 529 Plan tax proposal from his budget. Thus, on day 7, the President decided his little ruse had run it’s course, and BOOM the proposal was gone!

Now, nobody likes to be called stupid, even an outgoing President. But that’s what the pundit people and even the real people were saying about him. Maybe crazy-like-a-fox might better describe whatever happened. Or not. I’m just glad that about the results. People are awake and ready to fight. Realizing that the 529 Plan could go away was huge (contributions would have dried up if the proposal had become law, effectively killing the plan).

In the near term, I will wager that 529 plans get a blast of new contributions. Plus, people are now on the alert to make sure retirement plans and health savings accounts don’t become threatened. Hey, that’s another great result of the President’s public awareness ploy! Well played sir, well played. 😉

President Obamas speech sparks new interest in saving for college with 529 Plans.
More people know about these great college savings plans than ever before thanks to our President.
How to graduate on time.

Play “Graduate On Time”. It’s like a giant board game. Losing is costly, very costly.

Here’s how to catapult your high school senior into the future when he can barely think about next week: Talk about the “Graduate On Time” game and it’s rules. It’ll be particularly riveting when you show him how much money an extra year in college will cost your family. Then there’s the potential 5 figure salary that he, personally, might lose each year. Whoa!

Watch my latest video about graduating on time. Don’t worry, there are only 6 rules!

In the video, the part about making a chart is very important. Several of the top-rated private non-profit universities have installed charts in their advising system websites. Students can use these charts to design their paths to graduation with the help of their advisors.

The chart used by the majority of MIT students caught my eye. It’s called Courseroad and it was designed by current senior (’15) Danny Ben-David

MIT's Courseroad Designer
Danny Ben-David, designer of MIT’s Courseroad App.

when he was a freshman. Danny saw a flyer for a contest and designed the Courseroad app as his entry. When he won the icampus prize, MIT’s administration gave him some monetary incentive to finish the app over the summer. Danny’s Courseroad app has become quite popular on campus even with no advertising other than word-of -mouth. Danny says he may open-source Courseroad in the near future to encourage developers at other universities to design their own. One big advantage for Danny in developing Courseroad was MIT’s unique course numbering system. For instance, math is Course 18, not math. All math courses start with 18 followed by a decimal point and one, two, or three places. Differential Equations is 18.03 for example.
Danny included a Courseroad example, shown here,

Danny Ben-David's Courseroad example
Danny used one of his own Courseroad scenarios as an example.

based on his own academic path in a guest blog-post he wrote for the MIT admissions blog. Here a link Danny’s post.

Getting a major is the other big deal. Without a major, a student can’t even start to fill out a chart or Courseroad or Flightpath or any of the other apps designed to organize one’s academic career.

Complete College America, a well-funded organization that advocates for students to graduate on time, recommends that colleges require incoming freshmen to make a choice. The students would choose one of 7 “Meta-Majors” including STEM, Health Services, Business, Social Sciences, Humanities, Education and Arts.

Meta-majors
Meta-majors is a concept advocated by Complete College America.

The idea is that as the student progresses along a well-defined path, he or she would be able (with the help of advisors) to narrow the scope of the meta-major. For example, a meta-major of education might be narrowed to a major in elementary education. Course choices would become ever more limited as graduation time nears, and staying on track would be facilitated by a process called “Intrusive Advising”.

We shall watch and report.

How to graduate on time.
Help your child graduate on time.

Should Community College Be Free?

The President thinks tuition at community colleges should be free for all eligible students. His plan is expensive and controversial, but it shines a much needed spotlight on community colleges.

Here is  my video explaining why community colleges are so valuable to folks who think they can’t afford the high price of going to college. Please watch and then read more about the President’s plan.

The President’s plan aims to help make public community colleges more affordable to high school graduates so that they can ultimately get better paying jobs. Some students may start work after getting their AA degree, some may move on to 4-year colleges, and some may earn occupational certificates for specific lines of work.

Most education writers opine that this proposal has little chance of passing in the current political climate. But most everyone sees the need to raise the overall education level of the U.S. workforce.

So whether it’s this idea or another, we need to get cracking!

Here’s how the President’s plan lays out:

First and foremost, the feds will contribute three-forths of a student’s tuition. The State will contribute the other one-forth. States can decide whether to opt in or out of the plan.

The federal money would comprise what is known as the “first dollars” of the tuition contribution. This is important because other scholarships and grants can then be used for non-tuition educational expenses.

States that agree to opt in must bring their community colleges up to four-year college standards. Credits earned in a state’s two-year college should be seamlessly transferable to that state’s four-year universities.

Community colleges that have occupational certificate programs must offer courses for in-demand jobs and show good graduation rates.

Students must maintain a C+ average and attend at least half time. They need to show steady progress toward a degree or certificate.

I personally like the plan’s aim to expand community college capacity nationwide. With that goal accomplished, the for-profit colleges that so ill-serve American students will be banished to the dustbin of higher education history.

So, keep your eye on this proposal and others that will be sparked by the controversy surrounding it. College students and their families need a break!

President proposes free community colleges.
Maybe someday we will have free tuition for all students at community colleges.

The Federal Work-Study Program Gets Studied!

Brush up on the topic of Federal Work-Study programs by watching my video. Then please read my blog entry to get the latest info!

 

The Federal Work-Study program has been a feature at a large number of colleges for many years. But lately a report done by the student advocacy group called “Young Invincibles” and funded by the Bill and Melinda Gates Foundation, has called for reforming the system.

The report is titled “A Federal Work-Study Reform Agenda to Better Serve Low-Income Students”. Here is the link to the PDF:  http://younginvincibles.org/wp-content/uploads/2014/09/Federal-Work-Study-Reform-Agenda-Sept-181.pdf

The report says that too much of the federal work-study money goes to large private colleges that have been in the system the longest. For-profit colleges get a hefty amount based on their numerous Pell Grant students. Newer community colleges get the least money, even though they also enroll low-income students.

The report studied how this large pot of Federal money (more than $1 billion) could be better used.
It recommended that the Federal Work Study program should reward schools that enroll low-income students, graduate them at high rates, and make sure they have the skills to get good jobs.

Read between the lines and you’ll find that the notorious for-profit colleges get righteously excluded from work-study funds, even though they “serve” more needy students than anyone else!

The Young Invincibles report also emphasizes the need for work-study jobs to better relate to a student’s field of study. If these reform recommendations were implemented, many of the jobs traditionally grabbed by students who want to work AND study at the exact same time, would disappear. No more manning desks in dorm lobbies or library entrances. Instead, work-study jobs might look more like paid internships where students get real-life career experience.

I can’t see a downside to this. Let me know what you think.

Work, Study and Earn!
Federal Work-Study Programs Are Financial Aid You Earn!
FAFSA Time Again!

FAFSA – Get In Line Early For College Financial Aid!

Please watch this video and see how nerdwallet.com offers a FAFSA tutorial in it’s education section that is the most complete I’ve seen. There are other good tutorials out there and I’ll link you to one that I think is very user friendly further down in this week’s blog.

As I write this entry, it is just a few days before Christmas 2014. Doesn’t it feel like you haven’t gotten everything done yet? But if you are on the hunt for college financial aid, then you’ll need to keep your mind on just one more thing: January 1st at the stroke of 12:01am you can start filling out the 2015 FAFSA form! WooHoo! Just what you wanted to do on New Year’s Eve, right?

Okay, last FAFSA season I wanted our family to be at the head of the line for financial aid, so I actually started my FAFSA in the early morning of January 1st.  I ran into a whole lot of website trouble, which compared eerily to the healthcare.gov launch. Nothing was working correctly and my progress would simply disappear for no apparent reason. I slogged on for hours, saving after each tiny entry. Eventually, I wrestled the FAFSA to the ground and made it submit, literally! Not very fun.

So, my advice is to wait for January 2nd, which is not a holiday. Government offices will be open and the website elves will have the gears oiled up and running smoothly.

Take a moment in the days between Christmas and New Year’s Eve to study the nerdwallet.com video, and another great tutorial produced by the University of California system. Here’s that link: http://www.finaid.ucsb.edu/fafsasimplification/ and here’s a screenshot of it:

UC FAFSA Tutorial
Very Helpful FAFSA Tutorial!

College student voices guide you through a series of mini-tutorials on each major section of the FAFSA form. You’ll need to launch each part by clicking the tabs at the top of the page. Notice how well my dog can draw a big red arrow pointing to the tabs!

Yes, I know you don’t have your 2014 taxes done yet. Never mind that little concern. Just go right ahead and use your 2013 tax return. If it’s likely to be nearly the same as this years’ return then you will be just fine. It’s important to get in line for college financial aid early. The FAFSA helps you qualify for more than just federal aid. State aid is linked to this form as well, and funds can run out the longer you wait. Not only that, but colleges that also use the CSS Profile form to hand out their institutional funds, will want to see the results of your FAFSA to help guide their decisions. So don’t wait!

When you are eventually able to file your taxes, you can log back into your FAFSA and use the IRS Retrieval Tool. With slightly disturbing ease,  the Retrieval Tool connects the FAFSA directly to the IRS (!), which will kindly merge your new tax return information into the FAFSA form.

Filing out the FAFSA early assures your place in line. Using the IRS Retrieval Tool almost always keeps you out of the verification process. Do this and the schools that you named to receive the results of your FAFSA will not require you to send them your actual tax returns! One less step for beleaguered parents and students.

Merry Christmas and Happy New Year!

FAFSA Time Again!
FAFSA tutorials are featured in this blog entry.

 

 

For-Profit College Companies Running Charter Schools?

Watch my video to refresh your knowledge of for-profit college companies! Then get a load of their newest business venture: charter schools!

A “little trouble” with the feds can’t stop for-profit college companies from continuing to feed at the public trough! Some of the biggest for-profit college chains have come under federal scrutiny recently. They did not fare well. Several have been told to cease operations for defrauding students. Others have been told to adhere to tougher student achievement standards in order to stay open. And still more are being monitored for their higher-than-usual student loan default rates.

So what would you expect of these huge companies whose business model is to enroll low income students in their colleges, just to gain access to federal education funding, like Pell grants and Student Loans? Would you expect them to just pack up their bags and leave quietly? Well…no.

Sure enough, just like Whack-a-Mole, they’re back with a business model that is not brand-new, but is just now ripe for the picking. How about charter schools? Yes, for-profit education companies have crept their way into the public school systems of many states. Their new name is Education Management Organization or EMO.

Sure, I know, we all think of charter schools as being run by well-meaning non-profit 501(c)(3) corporations. Charter schools are supposed to provide alternatives for students in poorly performing schools, courtesy the state and federal taxpayers.

The only trouble is that many of the non-profit corporations that were originally formed to run these charter schools started needing help with the day-to-day operations of the schools. The non-profits started hiring the EMO’s to run the schools. And while the duties started small at first, the EMO’s were later asked to take over just about everything, student education included!

Oh, and guess what? The for-profit EMO’s wanted to MAKE A PROFIT! Can you believe it? Just one little problem: taxpayers who thought they were providing additional school choice for students in failing schools, now find themselves supporting the bottom line of for-profit companies.

Looks like we’ll be needing some stronger oversight regulations pretty soon. What do you think?

For-Profit College Companies stay alive by running charter schools!
Okay, the For-Profit College companies just want to make a profit. What’s the big deal? Read and decide.

College Applications are Outta Control!

Kids binging on filling out college applications is not a pretty sight. Five new completely different essays each night after school, and when that gets old, then out comes the old “cut and paste” routine. Pretty soon a high school senior starts to think his own personal story is a work of fiction.

Exactly why this is happening has an easy answer…because they can!…thanks to the Common Application which is making it possible to crank out college applications in unprecedented numbers.

Now the hard-to-swallow answer: Nobody is helping these high school seniors, as bright as they may be, to sort through their college application lists. So with no help, seniors are not taking any chances of getting shut out of college.

As long as Mom and Dad will allow their credit cards to get filled up with application charges (at $40-90 a pop!), then students will keep applying. With no counselor to help kids understand which schools they are most likely to be accepted by, and most importantly, to help families understand which schools they might be able to afford, the binge fest will continue.

In this video, I use about one minute more than my normal three, to go down those two critical roads: acceptance probability and family affordability. Please watch to see if I nail it. Please give me comments here or email me at TheCollegeMoneyMom@gmail.com.

College Applications Runneth Over!
College Applications need to be pared down. Watch my video!