Student Loans

Understand The True Cost of College Attendance by Decoding Award Letters

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They’ve waited. They’ve watched the mail for weeks. Finally, the letter arrived: Students are getting notice that they’ve been accepted to the school of their dreams! But after the moment of excitement and congratulations wears off , the realization sets in: it’s going to cost money to go to school.

Even if a family has prepared for years, saving money, investing in 529 plans and being on top of completing their student’s FAFSA, now is a crucial time to pay attention to information from schools and have a clear understanding of the financial aid award letter.

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Financial aid award letters are sent to students in the weeks after receiving their acceptance letter to a school and reflects the cost of attendance as well as the financial options available to families to help pay for their student’s education. As the letters state, a student’s place in the schools incoming class cannot be reserved until a deposit is received based on the financial award letter. But families should take the time to understand their award letter before submitting any form of deposit, as these deposits are not refundable if a student decides not to attend a particular school.

Currently, there is no standard format for schools to report the financial aid being offered to a student. So families should use these tips to better understand what is being offered and make a smart comparison between what different schools will cost. The school with the lowest tuition fees might not always be the best financial choice thanks to financial aid awards. Knowing how to read the financial aid award letter can make all the difference.

  1. Find “free money”
    Many schools offer students institutional scholarships or grants. These types of funding can be seen as “free money” because students and families don’t have to repay this money after graduation. Make sure to look for words such as “scholarship” or “grant” in the name of the financial award. These awards are often given to students based on the information in the Student Aid Report created when completing the FAFSA, based on income or family responsibility. Families may miss these awards because they do not technically apply for them separately.
  1. Consider loans and work study options separately
    To help show families how they can meet the cost of attendance at their school, award letters will also include options that require repayable loans or other options that require further action by the student, such as work study programs. Since there is no standard format for separating these options from other “free money,” families need to recognize that any loans taken out, be they private or federal Stafford loans, will require repayment by either the student or parent (depending on the loan) after graduation. This is not funds being offered by the school, but money that will require repayment.
  1. Know the difference between “direct” and “indirect” costs.
    Attending college features a variety of costs, but not all of them will necessarily be covered the financial aid offered in the award letter. The “cost of attendance” on a financial aid award letter applies to direct school costs, such as tuition, room and board. Indirect costs, such as books for classes or travel to and from school are not considered in an award letter. These costs are those that the student and family will have to bear personally.
  1. Determine if awards are for one year or more.
    Many families fall into the trap of thinking that the financial award letter reflects the costs and awards for all four years of school when, in reality, the letter reflects the cost for one year of school. While many of the loans listed on an award letter will be available to students each year, many of the grants or scholarships listed may require a new application each year or, in some cases, are only available for one year. Determining which of these awards are renewable, or the length of the award, can help families avoid an unpleasant surprise.
  1. Make sure the award letter is final.
    In some cases, an award letter might not reflect the final amount of aid being offered to a student. If any section of the letter uses words such as “estimated,” “tentative” or “pending,” the school may not have all the information from a student’s FAFSA or other document needed to make a final determination of aid. Once this information is provided, it may have an impact on the amount of aid that the student is finally offered.

Understanding the financial award letter that students receive can lead to some difficult decisions about where a student should go to school. By making the best effort to compare award letters from all schools that have accepted a student, families can make an informed choice of which school fits best with a student’s goals while creating a financial plan that will avoid any bad surprises or unexpected debt down the road.

Selected for FAFSA Verification? Don’t Stress! Here’s What to Do!

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Verification is the process by which colleges review student financial aid applications for accuracy where the U.S. Department of Education identifies some FAFSA applications for colleges to review.  In addition, colleges may review additional applications based on answers provided to certain FAFSA questions.

Roughly one-third of all FAFSAs filed are selected for verification and the process must be completed before financial aid can be awarded. If you are selected for verification, you can expect the following:

  1. When you receive your Student Aid Report (SAR) after completing the FAFSA, you will see a comment stating “Your FAFSA has been selected for a review process called verification. Your school has the authority to collect certain financial documents from you”.
  2. Your college’s financial aid office will contact you and inform you of documents you need to submit and any additional forms you need to complete.
  3. Your college may be required to verify the following data elements:
    • Adjusted gross income
    • Taxes  paid
    • Income earned from work (for non-tax-filers)
    • Untaxed portions of IRA distributions or pensions
    • IRA deductions and payments
    • Tax exempt interest income
    • Education credits
    • Household size
    • Number in college
    • Receipt of food stamps/SNAP benefit
    • Child support paid
    • High school completion status
    • Any other inconsistent or conflicting information.
  4. To verify the elements above, the college may ask for documents which may include, but are not limited to:
    • Signed copies of the prior year tax transcripts for parent and student (if the student is dependent) or Federal IRS Data Retrieval.
    • W-2s showing wages, 1099s and supporting schedules.
    • Statement of child support paid, documentation that child support payments were made, and/or copy of the separation agreement or divorce decree that shows the amount of child support to be provided.
    • Verification of net worth.
    • Documentation of food stamps/SNAP benefit.
    • Copy of the applicant’s high school diploma, final official high school transcript that shows the date when the diploma was awarded, GED certificate/transcript, state certificate or transcript received after passing a state-authorized exam (HiSET, TASC or other state-authorized exam) or a copy of the “secondary school leaving certificate” (or other similar document) for students who completed high school in a foreign country.

The best action you can take to reduce the likelihood of being selected for verification is to use the IRS data retrieval tool to automatically populate your (and if you are a dependent student, your parents’) tax information directly from the IRS into your FAFSA. When you use the IRS data retrieval tool, the tax information is considered to be already verified so you will not have to submit documentation.

If you are selected for verification, ensure that you respond to all requests from your college or university. If you do not submit documentation on time your financial aid may arrive after late fees have already been accessed to your account.

Don’t Let Student Loan Repayment Myths Cost You Time, Money

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The thrill of earning a diploma is often being offset by fears of dealing with student loan repayment. While loan repayment is inevitable, many new grads will start on the wrong foot because of assumptions about their student loan responsibilities and ways to pay back their debt.

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As we conclude #FinancialAidAwarenessMonth, here are four common myths that can be easily avoided to prevent students starting down the wrong path. It’s good advice for not just recent grads, but current students and those considering the impact of student loan debt on their educational plans:

If I need help understanding or dealing with student loans, my former college or university won’t help me. Even though a student may have graduated from a school, their financial aid office is still a great resource to help explain loan repayment options and connect students with loan servicers. Financial aid offices have a vested interest in helping students understand and stay on track with their loan repayment, as high default rates can negatively impact a school. So if a student starts to get confused by paperwork, the financial aid department is a great place to start..

I’ll never pay off my loans. Those first payments after graduation may feel a bit overwhelming, and will likely be a large part of any budget as a student gets started in their career. Salary increases, paying extra when budget allows and plain old perseverance will lead to progress. Income-based plans and automatic payments are just two options to “set and forget” loan repayment as a part of monthly budgeting.

Consolidating my student loans into one loan is a good idea. Loan consolidation may offer convenience, but often students will find themselves in situations which either are not eligible for consolidation or can actually negatively impact their repayment. Loan servicers will already use a combined billing for students with Federal loans so that the students have one payment to make and federal loans can’t be combined with private loans in a federal direct consolidation loan. In some cases, consolidating Perkins Loans can lead to students losing repayment benefits that the loan provides.

Filing for bankruptcy means not having to repay student loans. While Chapter 7 or Chapter 13 bankruptcy does help protect against some loans, most borrowers will not be able to discharge their student loans unless it can be proven that the loan repayment will cause an undue financial hardship. Rather than negatively impact a credit record with a bankruptcy, students should consider finding more flexible payment plans that best meet their needs during repayment.

Debunking Two Common Financial Aid Myths

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Financial Aid Awareness Month is dedicated to helping families and students of all ages better understand the options available to them as they look to fund their educational goals and dreams. Iowa College Aid has dedicated a page to discussing some of the common issues facing those looking for financial aid.

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Our staff of financial aid experts have also helped out this month, with advice on how to overcome financial aid issues (see last week’s post). This week they address two of the common myths that students have about applying for grants and scholarships and how to debunk them.

Myth #1: We make too much/my parents make too much – I won’t get anything

Family income is definitely a factor when it comes to handing out financial aid.  The best kind of financial aid is always the “free” kind – the scholarships and grants that are given freely with no expectation of being paid back later.  And often it’s this “free” money that has a “financial need” component to it.  Many scholarship and grant providers want to give their awards to students who show some kind of financial need, and when a student’s/family’s income is high, usually the financial need is low.

Not all scholarships and grants are need-based, however.  If your student is motivated, they can seek out scholarship and grant opportunities that are based on skills, abilities and interests, grades, musical, athletic or dramatic talent, essay-writing, or a number of other merit-based achievements.   The key is looking for them.  You know the saying, “you can’t win if you don’t play”?  That same philosophy applies to scholarship competitions.   Investing some time online searching for “scholarships for high school juniors” or “scholarships for journalism majors” or, if writing essays isn’t a strength for your student, “no essay scholarships” might provide some avenues of funding.

Myth #2: My parents aren’t helping me pay for college so I can’t get financial aid.

Students who are financially independent from their parents can often access additional student loan funds, but a parent’s unwillingness to pay for college doesn’t make you financially independent from them. 

The primary circumstances that cause a student to be financially independent are:

  • Age
  • Orphan/ward of court/foster care/emancipated minor/legal guardianship/homeless status
  • Veteran of the Armed Forces of the United States
  • Graduate or professional student
  • Student’s marriage
  • Student provides support to dependents

Detailed information about these circumstances can be found on the federal Department of Education website https://studentaid.ed.gov/sa/fafsa/filling-out/dependency

 If a student has no contact with their parents, or if the student doesn’t reside with their parents because of an abusive or neglectful situation, the student can approach the financial aid office at their college for special instructions on how to complete the parent section of the FAFSA or to determine if there’s a need for a dependency override.

Keep Loan Debt Down With These Spending Tips

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With college costs rising faster than increases on household income, more and more students have student loans to help fund their education. Often they don’t fully understand all of the terms and fail to track the amounts they borrow. One of the best ways you can stay on top of this process and set yourself up for an easier repayment process, is to limit the amount of student loan debt you accrue. Taking out the smallest amount of money possible in loans will pay off in the long run.

Follow these tips to ensure that you limit the amount of student loan debt you accrue while still in school.

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Borrow only the amount you need.

Many borrowers make the mistake of taking out more loans than necessary. To avoid doing this, create a budget to determine how much loan money you will need and avoid using loan money to pay for unnecessary expenses, such as trips to the movie theater or expensive dinners.

Consider a part-time job.

If your academic schedule allows, consider finding a part-time job on campus to help supplement the cost of unexpected expenses. Be sure to check with your financial aid office to see if you qualify for work study, which will give you the opportunity to work on campus.

Consider paying your loan interest while still in school.

If you start making interest payments on your student loans while you are still in college, you will reduce the total amount you’ll have to repay. Interest payments are usually manageable and by paying off interest as you go keep outstanding interest from capitalizing on any of your balances. Allowing interest to capitalize increases your loan balance essentially requiring you to pay interest on the interest that has been accrued!

Apply for scholarships.

Scholarships can pay for portions, and at times all of your education during an academic year, but you must apply! You can find scholarships that specific to your school or department by talking to a representative from your school’s financial aid office or your department chair. In addition, the following sites are just a few places you can search for scholarships.

Choose a school that fits into the family budget.

Review the financial aid packages from the colleges where you applied and consider how much you would need to borrow from each. Keep the end in mind and select a college where your loan debt can be kept as a reasonable level to your future income potential.

Hit Senior Year Running With These College Prep Tips

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All that hard work is about to pay off! Senior year is the last, and most important, year of high school. Those students and families who have followed our “Your Course to College” tips on preparing for college during their freshman, sophomore and junior years will be ready to roll right into senior year preparations.

For those who haven’t… Fear not! There’s still time to put together a senior year checklist that will help students and families plan for education after high school without getting overwhelmed. Here are some tips to help stay on the path to college in this crucial year:

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  • Review coursework with your school counselor to be sure you have taken (or are scheduled to take) all the courses you will need for admission to your preferred colleges.
  • If you plan to take the ACT or SAT again to improve your score, make sure to register for a date that is at least two months ahead of the application deadlines for all of the colleges and scholarships you are considering.
  • Prepare a final list of colleges and submit admission applications. Most early decision and early action college applications are due in October 1.
  • Complete and submit the Free Application for Federal Student Aid (FAFSA) online at
    www.fafsa.gov as soon after October 1 as possible. The FAFSA is the first step in the financial aid process. Check with your school of interest for its priority financial aid deadline.
  • Ask your high school to send your official transcripts to the colleges where you are applying for admission.
  • Compare acceptance letters and financial aid awards. Upon admittance, each college or university listed on your FAFSA will send you an award letter that will include the financial aid that you are eligible to receive.
  • Take AP exams for any AP subjects you studied in high school. Some colleges may
    award college credit for the course work based on your exam score. Go to www.collegeboard.org for AP exam information.
  • Decision time! Choose your college and notify them by mailing your commitment deposit check.
  • Talk to those who have been there! Iowa College Aid’s “Education Empowers” video series provides testimonials of students who faced (and overcame) challenges in getting to college.

For more tips and advice to help prepare, plan and succeed in college, check out Iowa College Aid’s “Your Course to College.” This free guide offers advice on everything from finding the right college and narrowing down a major to showing families the steps to finding financial aid and even loan repayment programs for after graduation. “Planning for Our Futures” is a publication produced by Iowa College Aid, Treasurer of State and the Iowa Department of Insurance that takes a closer look at the financial options for families looking to prepare for education after high school.

Be Ready For Fall’s FAFSA Changes With These Summer Tips

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Few tools are more powerful for college financial aid than the Free Application for Federal Student Aid, or FAFSA. For students either heading to college or continuing their education after high school, the FAFSA provides a snapshot of a student’s financial need, giving financial aid counselors at schools the information they need to prepare the best financial aid plans for prospective students in the coming year.

In order to encourage more families and individuals to complete the FAFSA, changes to the FAFSA enrollment period will go into effect this Fall. Previously, and up through applications for the 2016-17 school year, FAFSA applications could be submitted from January 1 – June 30. For the 2017-18 school year, students and families can begin submitting their FAFSA applications online on October 1, 2016. This three-month expansion of the application window allows students and families an opportunity to get their financial plans for education after high school in place much earlier, providing less of a rush and reducing the stress of the FAFSA.

While October may seem far away during the heat of summer, taking the time now to consider these tips will get applicants prepared to take full advantage of the new dates this fall.

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Don’t assume a student will not qualify for financial aid

Many families assume that their income is too high to be considered for any financial aid from colleges and, as a result, ignore completing the FAFSA. The FAFSA provides colleges with a snapshot of a student’s financial need for college, regardless of their family’s income level. Often, many families that end up taking out high-interest private student loans would have been eligible for grants or other student aid that would not require repayment. If taking an hour to complete the FAFSA resulted in hundreds or thousands of dollars being given to a student’s education for free, it would be time well spent, regardless of the family’s income level.

Knowing What Prior-Prior Year Tax Returns Means Will Help

As part of the expansion of the FAFSA completion window, applicants now can submit what is called “Prior-Prior Year” tax returns. Tax returns are the key element that helps determine financial need and what a family or individual can be expected to contribute to their education. Previously, the previous year’s tax return was required for FAFSA completion, but put a burden on families to complete and file their tax return, as well as submit a copy for the FAFSA in the same spring season.

“Prior-Prior Year” allows more flexibility. Starting with October’s application window, applications for the 2017-18 school year will require a 2015 tax return instead of a 2016 tax return.

Review the FAFSA Application Carefully

With a broader window for submission, applicants can avoid feeling rushed to complete their FAFSA application. Reviewing the form before completing the application will make it easy to create a checklist of what information will need to be provided. With a clear checklist, gathering income documents and other relevant information will be easier and save time when completing the application.

Don’t Wait Until the Last Minute

The new FAFSA application windows were created to allow more time to complete the FAFSA, but it won’t make any difference if applicants still wait until the last minute to submit their application. Set a reminder for October 1 and make plans to start the road to college with a clear financial plan by completing the FAFSA.