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.
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.
- 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.
- 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.
- 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.
- 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.
- 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.
For students getting ready to go to college, GPA is an important three-letter abbreviation that can help determine success in finding the right school. But three other letters are about to become equally important in helping students and families find money to pay for that education.
PPY, or “prior-prior year” refers to changes in the Free Application for Federal Student Aid (FAFSA) that will go into effect starting with the 2017-18 FAFSA application, available this fall, that will make it easier for families to file for financial aid.
The most important tool for students looking to find money to help fund their education after high school, a completed FAFSA helps schools create financial aid packages, states determine grant eligibility and qualify students for federal Pell and other grants.
The FAFSA determines financial need for aid based on looking at the tax return submitted by the family, or student if they are funding their own education. In the past, applicants had to wait until they or their family had completed tax returns for the previous year. If a student was completing the FAFSA for the 2016-17 school year, for example, they would be forced to wait for their 2015 tax return to be completed. Considering that many financial aid deadlines hit around May 1, the window of opportunity for getting in tax returns was very small, especially if a family waited until the April 15 tax filing deadline.
In 2015, however, President Obama signed changes to the FAFSA into law that help families apply in a more timely manner starting with the 2017-18 school year. The new FAFSA guidelines not only extend the application filing dates (starting October 1 as of this year), but allows families to use an older tax return, their prior-prior year return.
So in the case of the 2017-18 FAFSA, families can use their PPY return from 2015, as opposed to waiting to complete their 2016 tax return. By allowing this flexibility in which tax returns are needed for the FAFSA, families and students will no longer need to wait to complete the FAFSA as early as possible. And by filing the FAFSA early, students will get information about their financial aid opportunities earlier in the college application process, as well as make themselves eligible for state grants and scholarships well before deadline dates.
As with any changes, PPY might seem intimidating until families better understand the convenience it brings to the FAFSA completion process. Many organizations have created FAFSA toolkits to help navigate the changes in this year’s FAFSA. Both NACAC (National Association for College Admission Counseling) and NASFAA (National Association of Student Financial Aid Administrators) have created FAFSA toolkits aimed specifically at understanding the impact of PPY on this year’s application.
For students that will be looking for financial aid in 2017-18, these sites offer vital tips to navigating the changes in the FAFSA. But all families can benefit from learning how three simple letters will make obtaining college financial aid easier for their students when the time comes.
With the increase in financial literacy education’s presence in classrooms around Iowa, it’s more important than ever the educators find ways to work with students on a wide variety of financial literacy topics. Over the last 16 years, Iowa Jump$tart has helped teach and support Iowans, helping them embrace financial literacy.
The group’s annual conference, taking place July 22 in Ankeny, IA, targets educators looking for the latest information and materials available to help them teach financial literacy, while providing a forum for teacher collaboration and discussion. Speakers at this year’s conference will highlight and motivate audiences on such subjects as financial education, personal finance and financial planning all with an eye toward making Iowa students more fluent in the financial literacy.
Keynote speaker Mitch Matthews will help audience members deal with the worry and stress that blocks creativity and focus, while breakout sessions will delve into a variety of financial literacy subjects including responsible educational borrowing, tips for first-generation families paying for college and ways to make kids more money savvy at an early age. For the first time, the Jump$tart conference will also offer attendees a chance to meet with a financial planner in a one-on-one session to talk about how to put plans into personal action.
As a further benefit to teachers, those who attended the Iowa Financial Literacy Summit in Des Moines this past May can receive teacher credit by registering and attending the Iowa Jump$tart Conference. Teachers can also enter to win a sponsorship to the national Jump$tart conference in November while at the Iowa conference.
A variety of exhibitors will also be on-hand during the conference, including the Iowa Attorney General’s Office, Iowa State Extension and Outreach, TS Institute, Next Gen Personal Finance, Wells Fargo and many more.
Find out more and register for the 2016 Iowa Jump$tart Conference by visiting IowaJump$tart.org.
The kids might be starting summer break, but that doesn’t mean that planning for college needs to take a vacation. May 29 is National 529 Day, celebrating 529 savings plans, like those offered by College Savings Iowa, that allow family members to help save and prepare for a college education with a dedicated savings account that can be funded by any family member, anywhere in the country. For less than the cost of a backyard BBQ ($25), families can start an account for their student at any age.
And just like any grillmaster knows the secrets to making delicious BBQ, a few tips can make families masters of college savings:
- Just like smoking ribs, college savings plans can work best by adding small amounts over time and letting compound interest turn investments into a war chest. Automatic investment plans (AIP) are a “set it and forget it” approach that helps families set up automatic contributions to a 529 plan on a regular basis by connecting their savings account with their financial institution. Already use an AIP? Consider increasing the contribution amount this summer. Even a few extra dollars a month could mean big savings when it comes time to write that first college check. Knowing that this set amount will be withdrawn automatically each month makes it easier to budget summer plans without sacrificing savings.
- Any good grill master knows that you have to check the heat every once in a while to make sure the meat cooks properly. The same is true for college costs. Keeping an eye on college costs through Net Price Calculators or other online tools can give families an idea of how much to save. Even families with younger students will benefit from reviewing current college costs as it will help start the conversation around college affordability. Iowa College Aid’s website offers profiles of all Iowa colleges and universities, including current tuition fees, books and other costs of living and also links to net price calculators for each school. Check it out here.
- The best BBQs offer a variety of sides to compliment the main course. When it comes to saving for college, diversification is just as important to successful planning. Focusing on individual portfolios instead of an age-based option may not factor in targets such as high school graduation and starting college. Think of it as making sure there’s enough potato salad alongside the coleslaw. Summer is a great time to revisit plans and determine any asset reallocation needed.
- Good BBQ should be bragged about. While no one’s saying that families should brag about their savings plans, making it a part of the conversation can create positive habits. Even at an early age, students who know about the cost of college will take their future education more seriously. Rather than make money a taboo topic, talking about the benefits of a 529 plan with friends and family is also a great way to encourage savings. Encourage them to open a 529 account for their own children or to give holiday and birthday gifts in the form of a 529 plan or even a contribution.
When it comes time to fire up the grill this summer, think about savings. Planning for your student’s future with a smart approach to savings is one of the easiest ways to make sure their college possibilities don’t go up in smoke.
For students graduating from colleges all over the country this month, 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.
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.
As college seniors look toward their graduation and the promise of starting a new life with a new career, many might feel tied down by the debt they find themselves facing after having paid for their education. While some look at student loan debt as a burden that must be dealt with immediately and as quickly as possible, others accept their monthly payments as just another aspect of adult life and budget accordingly.
New grads looking to start their life on a good financial path may set a goal of paying their loans back early. But aggressively approaching student loan debt might lead to other financial issues that can make the best money plans take a wrong turn. Here are some tips to help keep a good focus when considering early repayment.
Make Sure To Budget
While student loans may seem daunting right now, they’re only one part of the financial picture for new grads. Taking extra money from the monthly budget and putting it toward early student loan repayment may seem like a good idea, but grads should first make sure to establish a good personal finance foothold by creating an emergency fund. Even $1,000 in a savings account will help prepare for unforeseen emergencies and help prevent taking on more debt if they have to deal with an unplanned sickness or accident.
Know the Details of the Repayment Plan
While paying off student loans early makes sense, certain repayment plans may already have students covered. If grads are working in a field covered by a Loan Forgiveness program, they are already receiving a benefit that makes paying extra back on their loan payments unnecessary. Meanwhile, Extended Repayment Plans often stretch the repayment of loans over 25 years and result in paying back far more than the original loan amount when interest is factored in over the life of the plan. Paying early on these plans will certainly save money in the long run. It’s important to make sure that grads find a repayment plan that they can stick to and work to find a plan that will adjust to their changing income as they start their professional career.
Keep Your Goals in Sight
Taking extra money from a paycheck to put toward student loan debt means money not available for other things in a young adult’s life. Looking to buy a house right away or planning to travel? If the goal is to be debt-free, some of these goals will have to be delayed until money can be budgeted in other areas. Make sure that paying down student loan debt early doesn’t create other problems budgeting for both short- and long-term goals.
Compare Interest Rates
Different types of debt are part of adult life. Those who best handle debt are often the ones who meet the realities of debt head-on and take an intelligent approach to managing debt. One key to effective debt management is understanding interest rates. The higher the interest rate, the more money that must be paid. If a student’s loan debt is at a lower interest rate than a credit card or other debt, it might be smarter to focus on those balances with higher interest rates instead of trying to treat all accounts equally.
For many college graduates, the grace period before they have to start making student loan payments is quickly coming to an end. November marks the first month many of these former students will be required to make a payment on the loans they received. The loan repayment process can be confusing and it is easy for many students to relocate without contacting their loan provider, making it even more difficult for their lender to provide them with important information and pressing deadlines.
To avoid future confusion and frustration with your student loans, follow these tips to make certain you are on track to pay off your debt with fewer headaches and in a shorter amount of time!
Understand your loans and your grace period.
There are several student loan options and you may have taken out more than one type. This can make it difficult to remember what loans your borrowed and the grace period associated with each one. It is important to contact your lender or servicer to find this information as soon as possible to avoid missing a payment. You can access information about your federal loans on the National Student Loan Data System (NSLDS), www.nslds.ed.gov (you will need your FSA ID), or by calling the Federal Student Aid Information Center at 800-433-3243. In addition, you can look back at your original promissory note you signed to find this information.
Don’t ignore your loans.
Failing to pay your student loans is commonly called ‘defaulting.’ Defaulting on a student loan will cause your credit score to drop rapidly, and will increase the amount you owe on the loan. Federal student loans go into default after you fail to make a payment for 270 days, but private education loans may go into default sooner. There are serious consequences to defaulting on your loans that will impact you for years. If you are struggling with your student loan payment, ignoring it is not a solution. Contact your lender or servicer immediately to discuss options for postponing or reducing your payments.
Be strategic when paying off your loans.
If possible, it is always good to pay off a loan ahead of time. If you have more than one student loan, you can save money by paying off the loan with the highest interest rate first. If you have both private and federal loans, you may want to pay extra on the private loans first as they tend to have less flexible repayment options and higher interest rates.
Choose a repayment plan that will work for you and your budget.
With federal loans, a variety of repayment options are available to help you manage student loan repayment. Plans such as Pay As You Earn and Income-Based Repayment have monthly payment amounts based on your income and family size. If you are unsure which repayment option is best for your budget, you can estimate the amount of your loan payment under different repayment plans. Repayment calculators can be accessed in the student loan section of www.IowaCollegeAid.gov. You can also discuss your options with your lender or servicer. Doing so will provide them the opportunity to ask questions and determine which options may be best for your situation.
Apply for loan forgiveness programs.
Depending on the field in which you work, loan forgiveness programs may be available. Federal programs such as the Public Service Loan Forgiveness Program and other similar options enable borrowers working in designated public service professions to have a portion or all of their federal student loan debt forgiven. In addition, Iowa has state-based loan forgiveness programs for eligible teachers and healthcare professionals. Check out the Iowa College Aid website to learn more about federal and state loan forgiveness programs available.
Know your lender.
Many borrowers lose contact with their lender or servicer when they move from one place to the next. If you plan to make a move, contact your lender or servicer and provide your current contact information and mailing address. This way, you will ensure you receive information about your loan and won’t end up late on your payment.
Whenever possible, lower your principal amount.
The principal amount on a loan is the actual dollar amount of the loan, it does not include interest or late fees. Each minimum payment is first applied toward any late fees and outstanding interest before reducing the principal balance. By paying more than the minimum payment each month, you can decrease the principle amount of your loan, therefore reducing the amount of interest that will accrue for the next payment. Paying as little as a few additional dollars each month can end up saving you hundreds or even thousands of dollars over the life of the loan depending on your balance.