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Ask Kantro: Dad Died, Mom Remarried; Grandma Moved In. How do These Changes Affect My FAFSA?

Mark Kantrowitz / Publisher of FinAid and FastWeb — Mon, 16 Nov 2009 05:30:00 -0800

We recently had an addition in the family. Not a new sibling, but
my mother's mom is now living with us. She's great and we love having
her, but she's not free. Should I change any info on my FAFSA because
of this?
— Sana B.

If your grandmother lives with and receives more than half her support
from your parents, she can be included in household size. Increasing
household size may decrease your expected family contribution by up to
$2,000.

If your grandmother receives more than half her support from your
parents, but lives in a nursing home, ask the college to conduct a
professional judgment review. The college could decide to include her
in household size even though she doesn't live with your parents or
they could decide to reduce income by the amount of the eldercare
expenses. Usually the latter results in a greater reduction in the
expected family contribution.

If this change in household size occurred after the FAFSA was
submitted, household size can and must be updated only if your FAFSA
is selected for verification. If your grandmother joined your
household before the FAFSA was submitted, you can correct the error
online.

Incidentally, unborn children count in household size so long as the
child will be born during the academic year and will receive more than
half support from the parents from birth through the end of the award
year.

Foster children do not count in household size because they are
supported by the government, not the family. Foster care payments
received by the family are not reported as income on the FAFSA either.

My first husband is dead and I have remarried. So when the FAFSA
asks for my son's father do I put biological father (deceased) or
stepfather? Also he receives Social Security benefits until May when
he graduates. Where do I put this tax exempt income on the form? Is it
reported as his income or mine?
— Veronica E.

If the parent responsible for completing the FAFSA has remarried as of
the date the FAFSA was submitted, the stepparent's income and assets
must be reported and the stepparent is included in household size. All
of the stepparent's income from the prior tax year must be reported on
the FAFSA even if the marriage occurred in the middle of the year or
after the end of the year. The inclusion of the stepparent's income
and assets is a statutory requirement and supersedes any prenuptial
agreements. (The relevant reference is section 475(f) of the Higher
Education Act of 1965.)

Untaxed Social Security benefits are no longer reported on the
FAFSA due to a change enacted by the College Cost Reduction and Access
Act of 2007 that went into effect for the 2009-10 academic year.

Ask Kantro is written by Mark Kantrowitz, an expert on paying for
college and publisher of FinAid.org and FastWeb.com, the leading free
web sites for information about student financial aid, student loans
and scholarships. Write to Ask Kantro at AskKantro@FastWeb.com.

The Horrors of Defaulting on Education Debt

Mark Kantrowitz / Publisher of FinAid and FastWeb — Thu, 12 Nov 2009 11:17:00 -0800

This is a cautionary tale of the consequences of defaulting on education debt, based on the experiences of seven borrowers of federal and private student loans. The stories are all true, but names and inconsequential details have been changed to protect the borrowers.

Education debt is a necessary evil. Most students graduate from college with debt. For example, seven out of every eight Bachelor's degree recipients in 2007-08 who applied for federal student aid graduated with student loans. Every graduate and professional student who applied for federal student aid and graduated with a degree in business, law or medicine had to borrow to pay for their education. The bottom line is that college means debt, since student loans are unavoidable for all students except for those who come from the wealthiest of families.

If education debt is evil, then defaulting on your student loans is a one-way ticket to hell. The following borrowers have each encountered some of the more horrific consequences of defaulting on federal and private student loans, in most cases through no fault of their own. The toll is not just financial, but extends into their personal lives and affects their families too. Many experience very high levels of stress and feelings of self-loathing, even resulting in clinical depression, hospitalization and thoughts of suicide. Their debts are so severe that trying to find money to pay bills for necessary expenses is like trying to squeeze blood from a stone. When Halloween is a distant memory, these borrowers will still be living with the nightmare of their student loans.

Revenge of the Universal Default

Richard graduated from undergraduate school with little debt, having attended an in-state public college. But his career aspirations in the social sciences and humanities require a doctorate, and attending the top graduate school in his field meant a move to New York City. The only available financial aid involved borrowing federal and private student loans, and a lot at that. To try to make ends meet Richard also worked 30 hours a week. Even so, he accumulated a hefty balance on his credit cards on top of the student loans. Moving out of New York helped cut his costs, but not by enough.

An attorney advised him to file for bankruptcy on the credit cards, telling him that he'd then have some breathing room to complete his education and begin repaying the student loans. The attorney said that bankruptcy would not prevent him from continuing to get federal student loans, but it would likely disqualify him from obtaining any further private loans. (If credit card debt is your only reason for filing for bankruptcy, don't do it. If you simply stop making payments on the credit cards you'll be no worse off, and you may be able to negotiate with the credit card issuers to reduce the payments to a more manageable level.)

To his surprise, it turns out that his private student loans had a universal default clause. (Universal default clauses were banned for credit cards and open-ended consumer credit plans by the Credit Card Act of 2009 (P.L. 111-24), but not for private student loans.) After Richard's Chapter 7 bankruptcy discharged his credit card debts, the holder of his private student loans told him that he was now considered in default on his private student loans because of the bankruptcy filing. As a result, his private student loans were now due and payable in full even though he was still enrolled in graduate school. Even if he hadn't filed for bankruptcy, he would have had only a few years left on the in-school deferment, since his private student loans capped the in-school deferment at four years.

He has been forced to take leaves of absence from the graduate program to work full-time to deal with his debt. The heavy work load and stress from the oppressive debt has prevented him from finishing his doctorate. He's now living in another country while he works on his dissertation. He's thinking about staying there after he graduates because he won't be able to maintain a normal lifestyle and also repay the private student loans given how much the collection charges have caused the balance to grow. (He has not and does not intend to default on his federal education loans.)

Richard offers several lessons to future student borrowers: Read the fine print on your student loans carefully, especially any limitations on the duration of the in-school deferment and also any universal default clauses. Be aware that graduate school in the social sciences and humanities is likely to lead to a heavy debt load. Try to find a way to focus full-time on your studies, as dividing your attention between work and school will cause delays in completing your degree.

Next: The Resurrection of the Settled Debt

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The Resurrection of the Settled Debt

Nancy graduated with about $70,000 in federal and private student loans in 1993. The federal and private student loans were originated by the same lender. The lender never clearly drew a line between the federal and private loans, often using the same forms to apply for both types of loans. She defaulted in 1995 because she was unable to both repay the student loans and pay for basic living expenses. She tried negotiating for a temporary reduction in her monthly payment until she could get her career off the ground, but the lender refused.

The lender filed for a default claim on the federal loans in 1996 with the state guarantee agency. After Nancy rehabilitated the loans by making a year of full voluntary on-time payments, the guarantee agency sold the federal loans back to the original lender.

With her parents' assistance she was able to settle her debts in 2003 for $65,000. The lender told her that all of her student loans would be paid off in full, and the settlement letter and her check were both annotated "in satisfaction and accord of all student loans."

But in 2004 she received a demand letter from her state guarantee agency asking for $100,000. She hired an attorney to get the collection agency to stop harassing her at work over the debt that was supposed to have been paid off in full, to no avail. (The collection agency employed by the state guarantee agency, incidentally, is a subsidiary of the original lender.) She was ultimately let go by her employer because of these "outside activities." (Federal law bars employers from terminating employment because of a wage garnishment order. However, the termination occurred because of events preceding the wage garnishment order.)

When the guarantee agency informed her that her wages would be subject to an administrative wage garnishment order, she asked for a hearing. The guarantee agency did not send out a timely notice of the hearing; her attorney at the time received the letter on the day of the hearing. The guarantee agency also tried changing the venue to a different state.

She eventually was able to get a hearing, but the supposedly independent administrative law judge told her that the purpose of the hearing was just to inform her of the wage garnishment amount and the date it would start. (Federal law requires the guarantee agency to prove the existence and amount of the debt and it allows the borrower to dispute the existence or amount of the debt.) The guarantee agency did not have copies of any of the original loan documents signed by the borrower, nor any documentation of the default claim paid. Rather, they had only a computer printout ("business records") of amounts they asserted she owed, some of which were clearly erroneous and were not corroborated by any supporting documentation. The administrative law judge said that he would abstain from making a decision and would allow the guarantee agency time to figure out what had happened. However, about a month later the administrative law judge rendered a decision in favor of wage garnishment without reconvening the hearing. This decision was not supported by the evidence.

When Nancy complained to the office of consumer protection of her state's attorney general she found that the attorney general has an inherent conflict of interest because of obligations to the state guarantee agency. The attorney general represents the state guarantee agency, not the consumer.

Since then Nancy has filed suit in federal court, seeking a temporary restraining order, injunction and declaratory judgment against the guarantee agency. Unfortunately, she can no longer afford an attorney, so she's representing herself in court (pro se), while the guarantee agency is represented by the state attorney general. This is an unfair fight.

It appears that the lender may have applied the settlement funds to pay off the private student loans in full and then filed a default claim on the federal student loans. The guarantee agency appears to have paid $45,000 on the default claim and then tacked on more than $63,000 in penalties, charges and interest. Adding to the confusion is the fact that there were two default claims paid on the same loans to the same lender, once in 1996 and once in 2004.

Next: Default Due to Identity Theft affects Security Clearance

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Default Due to Identity Theft affects Security Clearance

Robert is an active duty member of the U.S. Air Force with 15 years of service to our country. He borrowed several student loans in the late 1980s and early 1990s to pay for graduate school. He paid off these loans in full. When he applied for a home mortgage in 2004, however, he discovered that there was a defaulted student loan in his credit record totaling more than $150,000. He believes he is the victim of identity theft from when his wallet was stolen in 1994. He contacted the state guarantee agency who refuses to offer him any options other than to repay the debt. Even though the debt is not his, he began making payments on it because financial irresponsibility can lead to discharge from the Armed Forces. This debt situation caused a long delay in the upgrade of his security clearance from Secret to Top-Secret because of the impact on his credit rating.

The Higher Education Reconciliation Act of 2005 amended the Higher Education Act of 1965 to provide for a discharge of federal education loans resulting the crime of identity theft committed against an individual. However, the US Department of Education implementation of this discharge provision requires the victim to obtain a court judgment that finds that the individual was a victim of identity theft and that identifies the names of the perpetrators of the crime. Due to these stringent requirements, this statutory change does not provide meaningful relief to most victims of identity theft. The discussion on page 61985 of the 11/01/2007 Federal Register does state that "the individual who is the named borrower on a FFEL or Direct Loan that was falsely certified as a result of the crime of identity theft is not liable for a loan that borrower did not execute or authorize another to execute on the borrower's behalf, whether or not the loan is discharged based on a crime of identity theft" and that "an individual who can demonstrate that his or her signature was forged on a FFEL or Direct Loan note is relieved of the debt under common law and State laws against forgery." But in practice state guarantee agencies seem to ignore this discussion and require repayment of the debt.

The Burden of Collection Charges

John borrowed $37,600 to pay for his education, graduating in 1995. A few years later he defaulted on his loans due to a variety of unfortunate circumstances. A few years after that, he rehabilitated the loans. However, in the 10 years since he entered repayment, he's paid a total of more than $54,200 on his debt and still owes $25,000 on the debt. By the time he's paid off the debt in full, he will have paid a total of more than $100,000. If he hadn't defaulted on the debt, his total payments on a 10-year term would have been a little less than $54,500. The difference is due mainly to collection charges of up to 25%. (The actual cost of collection for his loans was much less than these collection charges, but the US Department of Education currently interprets the Higher Education Act of 1965 as allowing collection charges to be based on the average cost of collection and not the actual cost of collection.)

The consequences of default have also taken a toll on his personal life. When his wages were garnished he was unable to pay his child support obligations, causing a great deal of stress. (While federal regulations allow employers to comply with family support orders, in practice the wage garnishment amounts do not consider child support obligations, leaving very little money available to pay bills.) He has also not been able to buy a home or new car or get a credit card.

This is very frustrating for John, who says, "I didn't get $100K worth of education — why should I pay for it?" He wishes there were some sort of amnesty for defaulted borrowers who have paid their debts.

Next: Harassment of Disabled Borrowers

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Harassment of Disabled Borrowers

Harold received $7,500 in student loans in 1985. He now owes about $25,000. Six years ago he became disabled with severe arthritis and qualified for Social Security Disability. However, the U.S. Department of Education has a garnishment order for 15% of his Social Security benefits because the requirements for a Total and Permanent Disability discharge are much harsher than the requirements for Social Security Disability. He depends on the Social Security disability benefits to pay the rent and to buy food and medicine.

Harold has received relentless phone calls and mail from a half dozen collection agencies, sometimes getting dozens of calls a day. They have even harassed his mother, his sister and his doctor. (You can usually stop most of the phone calls and letters by telling the collection agency in writing to stop contacting you. This does not cancel your obligation to repay the debt and the lender can still garnishee your wages or take other steps to collect the debt, but it does eliminate most of the harassment. See the Fair Debt Collection Practices Act Fact Sheet on the Federal Trade Commission's web site for more information.)

Inability to Renew a Professional License

Joe graduated in 1989 with a chiropractic degree and $80,000 in student loan debt. For the first four years after graduation, however, he earned less than $1,000 a month and was unable to repay his debts. After he exhausted his deferments, his loans went into default. When his income increased he asked the lender if he could start making payments on the loans, but he was told that his only option was to pay back the amount owed in full. By the time he was eventually offered consolidation and rehabilitation as an option, the debt had grown enough that the monthly loan payments were unaffordable. Nobody has ever mentioned the availability of income-contingent repayment to him. He is ineligible for income-based repayment because he has yet to file his most recent federal income tax returns.

His license renewal was denied in 2000, preventing him from working as a licensed chiropractor. This means he will never be able to repay even a fraction of what he owes. The inability to renew a professional license is one of the most counterproductive consequences of defaulting on federal student loans. According to the collection agency he now owes a total of $365,000. (Such extreme growth in the amount owed usually requires an extended period of nonpayment in combination with late fees and collection charges. Collection charges are currently deducted from payments on federal loans but may be added to the loan balance on private student loans. Consolidation of a defaulted federal loan causes the collection charges to be added to the loan balance.)

No Reasonable Options

Judy borrowed $30,000 to pay for her education and now owes almost $70,000. She lives frugally and works 60 hours a week at 3 low-paying jobs, yet the options offered to her by the collection agency ($600 a month for 10 years or $350 a month for 20 years) are unaffordable. She doesn't have enough money to repair her car so that it will pass inspection. She hasn't been able to buy new clothes for a decade.

Judy's got so few options that she's drafted mock suicide notes as a form of dark humor: "Hey mom & dad, I really love you, but life on this planet is so miserable as a slave to debt that I can no longer enjoy my time here. Every day is filled with hardship and misery and self-loathing. Therefore, I am choosing to leave this world. Thanks for trying, sorry I let you down." (Don't worry, she's joking. But it illustrates how oppressed many borrowers feel by their debt. They have no exit. Student loans effectively cannot be discharged in bankruptcy except for the most dire of circumstances. Even then the undue hardship test is applied in an arbitrary and capricious manner, and most borrowers who deserve a discharge do not get one. Most bankruptcy attorneys will no longer file an undue hardship petition because the chances of success are so slim.)

Next: A Few Additional Observations

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A Few Additional Observations

Borrowers who dispute the legality and accuracy of charges piled onto their federal student loans are often unwilling to use income-contingent or income-based repayment because this requires them to affirm the validity of the loan amount. Once the loans are consolidated, they have little or no recourse against the original lender since the consolidation loan is a new loan that pays off the original loans. So even though the alternate repayment plans could provide them with significant repayment relief, they adamantly refuse to take a step which would let the lenders "get away with it" and legitimize the debt.

A tenfold increase in the amount owed is often due to extended period of nonpayment and the impact of collection charges. With federal education loans the collection charges are deducted from each payment, but with private student loans the collection charges are tacked on to the amount owed. (If a borrower consolidates defaulted federal education loans, up to 18.5% in collection charges can be added to the loan balance.) Collection charges on federal Stafford and PLUS loans are capped at 25%, but can reach 40% on Perkins loans. Private student loans can charge even higher collection charges. Also, while federal law requires collection charges to be reasonable, in practice the charges are based on an average figure, not the actual cost of collection. Even with the federal collection charges being deducted from payments, the high charges can double the term required to repay the debt.

Defaulted borrowers often have greater sensitivity to the cost of the loans. It is unclear whether this sensitivity existed before the default, but certainly after the default they find the total interest paid to be outrageously high. Most borrowers will hesitate when the total interest over the life of the loan exceeds the amount borrowed. This is an interesting psychological barrier, even though just a penny of interest means the borrowing is repaying more than the amount borrowed. With defaulted borrowers the threshold is lower, perhaps in part because long deferments and forbearances or long periods of nonpayment (sometimes due to circumstances beyond their control) have caused the loan balance to grow much larger than the original loan amount.

For example, a student borrowing $10,000 through the Stafford loan program at 6.8% interest will pay a total of $3,810 in interest and $13,810 in total over the 10 year term of the loan. If the student instead borrows from a private student loan program charging 10% interest, the borrower will pay a total of $13,162 in interest and $23,162 over the 20 year term of the loan. With defaulted borrowers the collection charges result in a slower repayment trajectory, usually doubling the repayment term and the total amount repaid.

Mark Kantrowitz is a nationally-recognized expert on student financial aid, student loans, scholarships and paying for college. He is the publisher of FinAid.org, the leading free web site for student aid information, advice and tools, and FastWeb.com, the most popular free scholarship matching web site.

Ask Kantro: Questions about Income and the Free Application for Federal Student Aid (FAFSA)

Mark Kantrowitz / Publisher of FinAid and FastWeb — Mon, 09 Nov 2009 05:30:00 -0800

My husband earns about $125,000 in salary and I am a stay at home
mom. My husband just changed jobs and got his deferred salary and his
retirement from 25 years of employment, so last year's income looks
huge when it really wasn't. We also have a 19-year-old child with
autism who lives in a group situation with social and living classes
as well as some college. It costs us $57,000 per year out of pocket
with no financial help for it. We also have large medical expenses as
well as helping an elderly parent financially. My 17-year-old plans on
attending college next year. Will we qualify for student financial
aid? Can we include all this information on the FAFSA form?
— Sara A.

The FAFSA is a one-size-fits-all form that does not currently have a
place where you can list unusual circumstances. Instead, Congress
delegated the authority to college financial aid administrators to
make adjustments on a case-by-case basis to the data items used to
calculate the expected family contribution when justified by special
circumstances. The amount of the adjustment is based on the financial
impact of the special circumstances. After the adjustment the standard
formula is used to calculate a new expected family contribution. This
authority is called professional judgment and is subject to
the financial aid administrator's discretion with no appeal. (Some
colleges call it a special circumstances review or a financial aid appeal.)

You have mentioned several circumstances that should qualify for an
adjustment, including the lump sum retirement distorting income, the
unusually high child care costs for a disabled child, the unreimbursed
medical expenses and the eldercare expenses. You should write a letter
to each college asking for a professional judgment review. The letter
should summarize the special circumstances and their financial impact
on your family. Include photocopies of independent third-party
documentation of the expenses, as the school will need the
documentation before they can make an adjustment.

Note that your husband's retirement funds must be rolled over into a
qualified retirement plan. The college will not make an adjustment to
income or assets if the money is sitting in an unrestricted bank or
brokerage account, as then the money could be used for any purpose.

I’m 49 years old and our son is currently 19 years old going to
college. The college denied us financial aid this year because they
claim we made too much money. I earn about $50,000 and my son earned
about $11,000 last year.
Do I need to kick him out of the house to be able to get help? I can’t
believe that he is old enough to die for this country, but not old
enough to apply for aid without us.
— Ernie G.

The most likely cause of the loss of aid eligibility is your son's
income. The expected family contribution (EFC) includes half of
dependent student income above $3,750. So his $11,000 income increased
his EFC by $3,625. Between that and your income his EFC is probably
above the cutoff for the Pell Grant. But he may be eligible
for low interest loans such as the subsidized Stafford loan. Also,
despite the loss in aid eligibility he still comes out ahead
financially by more than $5,000 because of the extra income.

Kicking him out of the house will not increase his aid eligibility. He
will still be considered a dependent student through age
24. Self-sufficiency has not been considered grounds for a dependency
override since 1992. If you cut off all support and refuse to complete
the FAFSA, the only aid he'll be eligible for is the unsubsidized
Stafford loan.

My Mom and Dad have both been unemployed for the last couple of
years. This year my Dad started withdrawing money from his IRA in
order to pay the bills, since my parents have used up their other savings.
Since distributions from an IRA count as part of taxable income, next
year's FAFSA will show a big increase in income even though our
financial situation is worse. I will not qualify for a Pell Grant or
the Cal Grant because my EFC will be too high due entirely to the IRA
withdrawals. Is there anything I can do?
— Nancy A.

While money in a qualified retirement plan is disregarded as an asset,
current year contributions are treated as untaxed income and current
year distributions are included in taxable income. As you noted, this
can affect aid eligibility the same as if it were earned income.

After you submit your FAFSA next year, send a letter to the college
financial aid office asking for a professional judgment
review. Include photocopies of current documentation of your parents'
unemployment (ideally dated within 90 days) as well as copies of
documentation showing that most of their income was from a hardship
withdrawal from your father's IRA. Also mention whether they are
receiving unemployment benefits or not, and if so, the total
unemployment benefits for the year. The financial aid administrator
will review the information you have provided and determine whether or
not to make an adjustment. There is no appeal beyond the financial aid
office, so be polite and promptly respond to any requests for
additional information.

Ask Kantro: Questions about Assets and the Free Application for Federal Student Aid (FAFSA)

Mark Kantrowitz / Publisher of FinAid and FastWeb — Tue, 03 Nov 2009 05:30:00 -0800

There are many college financial planners in my area who claim to
be able to help us "legally and ethically" reposition our assets to
lower our expected family contribution (EFC) and save us thousands of
dollars per year in college costs. Are there really such secrets out
there that will help us that much?
— Larry C.

Less than 4% of dependent students have any contribution from parent
assets. Since the EFC is much more heavily weighted toward income that
assets, shifting assets is unlikely to have much of an impact on aid
eligibility with one exception. Assets in the child's name are
assessed at a 20% rate while assets in the parent's name are assessed
at a maximum rate of 5.64%. Assets in the parent's name are also
partially sheltered by an asset protection allowance. So moving assets
out of the child's name may significantly improve aid eligibility. The
simplest way to do this is sell the child's assets and use the cash
proceeds to fund a custodial 529 college savings plan, ideally at
least two tax years prior to enrollment. Federal law treats such a
custodial 529 plan as though it were a parent asset. Another good tip
is to use financial assets to pay down consumer debt, since the assets
might count against you while the debt doesn't help. Plus, paying off high
interest debt with money that is earning a paltry return on investment
will save you money. However, before you start manipulating your
family's assets, use an EFC calculator to play what-if games to
evaluate the impact on aid eligibility. There's no point in moving the
assets if it doesn't affect aid eligibility.

There's also no reason to pay for this sort of advice, since it is
available for free on the FinAid site. See
Maximizing Your Aid Eligibility
for additional tips.

I'm 19 years old and am going off to college in next fall.
Will the insurance money my mother received this year from my father's
death be counted against me on the FAFSA, leaving me with less aid?
— Christopher B.

Insurance proceeds count as income on the FAFSA in the year
received. They also count as assets. After you submit the FAFSA you
should ask the college for a professional judgment review. Most
colleges will adjust the FAFSA to stop the insurance proceeds from
being counted as untaxed income, but will retain it as an asset. After
all, life insurance proceeds are a one-time event that is not
reflective of income during the award year. The college may also make
an adjustment to income to exclude your father's income for similar
reasons. If your mother has any unusual expenses, such as unreimbursed
expenses associated with a disability or medical condition, she should
tell the college about them.

Note that if your mother's income is less than $50,000 and she is
eligible to file a 1040A or 1040EZ or meets certain other criteria,
the federal need analysis methodology will ignore her assets.
Otherwise she should consider whether to use the life insurance
proceeds to pay down debt such as a mortgage, auto loan and credit
card bills. Consumer debt is not considered by need analysis formulas,
while financial assets are counted against you. Assets are reported as
of the date you submit the FAFSA.

When applying for financial aid, do cash assets prevent you from
obtaining aid?
— Tammy T.

Financial assets, whether in a bank, brokerage or college savings plan
account or stuffed in a mattress, must be reported on the FAFSA.

The impact of these assets on eligibility for financial aid depends on
whether they are treated as student or parent assets. If a 529 college
savings plan, prepaid tuition plan or Coverdell Education Savings
Account is owned by a dependent student it is treated as a parent
asset. If it is owned by an independent student it is treated as a
student asset. If it is owned by a parent it is treated as a parent
asset. If it is owned by a grandparent it is not reported on the FAFSA.

Student assets are assessed at a much higher rate than parent
assets. Money in a qualified retirement plan (401(k), 403(b), IRA,
Keogh, etc.) is disregarded, as is the net worth of the family home
and any small businesses owned and controlled by the family. A portion
of parent assets are sheltered by an asset protection allowance which
is based on the age of the older parent. For most parents of
college-age children (median age 48) this protects about $50,000 of
parent assets. Then any excess assets are assessed according to a
bracketed scale, with a top bracket of 5.64%. Student assets, on the
other hand, are assessed at a flat rate of 20% with no asset
protection allowance.

Low income families may have their assets disregarded entirely if they
qualify for the simplified needs test. The simplified needs test
disregards all family assets if the parents income (for a dependent
student) or student and spouse income (for an independent student) is
less than $50,000 and they satisfy certain other criteria, such as
being eligible to file an IRS Form 1040A or 1040EZ instead of an IRS
Form 1040 or a member of the household qualifies for certain federal
means-tested benefit programs or is a dislocated worker.

Ask Kantro: Questions about Obtaining and Repaying Student Loans

Mark Kantrowitz / Publisher of FinAid and FastWeb — Mon, 26 Oct 2009 05:30:00 -0700

How will my credit score effect my ability to get the funding I
need for graduate school? If my credit is not great, will I be able
to get the loans I need to cover my college costs?
— Katy C.

The federal Stafford loan does not depend on your credit history. As a
graduate student you will be able to borrow up to $20,500 a year and
$138,500 in total (including undergraduate debt) from the Stafford
loan program. The Stafford loan limits are $40,500 a year and $224,000
in total at certain medical schools.

If you need more money than is available through the Stafford loan
program, you may be able to borrow money from the federal Grad PLUS loan
program. This is similar to the Parent PLUS loan for parents of
undergraduate students, but with the graduate or professional student
as the borrower. The PLUS loan has no aggregate limit, and the annual
limit is based on the college's cost of attendance minus other aid
received. Eligibility for the Grad PLUS loan depends on your credit
history but not your credit score. PLUS loan borrowers must not have
an adverse credit history which is defined as having had a
foreclosure, repossession, tax lien, wage garnishment, default
determination or bankruptcy discharge in the last five years, or a
current delinquency of 90 or more days.

If you don't qualify for the Grad PLUS loan, your options are
limited. Students who do not qualify for a Grad PLUS loan are unlikely
to qualify for a private student loan because lenders usually have
stricter credit underwriting criteria for private student loans than
for federal student loans. This can include requiring a minimum credit
score, using a 7 or 10 year lookback for bankruptcy discharges,
disallowing current delinquencies of 60 or more days, and requiring a
creditworthy cosigner. Some graduate schools may have their own loan
programs or a Perkins loan allocation.

I am scheduled to start repaying my student loans soon, but I am
currently unemployed. What are my options?
— Richard L.

There are several options for federal education loans.

The income-based repayment plan
bases your monthly payments on a percentage of your discretionary
income. Discretionary income is based on the amount by which your
adjusted gross income (AGI) exceeds 150% of the poverty line. If your income
is at or below 150% of the poverty line your monthly payment will be
zero. AGI is based on the prior year's income tax returns. However,
during the first year you elect to use income-based repayment or if
there has been a drop in your income the lender will require you to
complete a form documenting your current income.

Another option is to use the economic hardship deferment.
This suspends your repayment obligation for up to 3 years if you are
unemployed or have very low income. The government will pay the
interest on any subsidized Stafford loans (or the portion of a federal
consolidation loan that repaid subsidized Stafford loans). The
interest on unsubsidized loans continues to accrue and is capitalized
(added to the amount owed).

If you've already exhausted your eligibility for the economic hardship
deferment, you may be able to get a forbearance for up to 5 years. The
difference between a deferment and a forbearance is that the
government does not pay the interest on subsidized Stafford loans in a
forbearance. Instead you are responsible for the interest on all your
loans and it will be capitalized if you decide to not pay it during
the forbearance.

Options for private student loans are more limited. Most lenders will
offer forbearances in three month increments for up to a year in total
duration. Some lenders charge a fee for a forbearance. You are more
likely to get a forbearance if you agree to make interest-only
payments during the forbearance instead of capitalizing the
interest. The economic hardship deferment and income-based repayment
are not available for private student loans.

See Trouble Repaying Debt
for additional options.

One of my current colleges says I should consolidate my loans since
I have reached my subsidized limit and also have very little left in
unsubsidized. They say that this will allow me to get more subsidized
Stafford loans. Will I have to start repaying the loans if I
consolidate? Will I qualify for more money?
— Amanda H.

This advice is not accurate. The percentage of a consolidation loan
attributable to an underlying subsidized or unsubsidized Stafford loan
is counted against the corresponding aggregate loan limits.
Consolidating your loans will not make you eligible for
additional Stafford loans, subsidized or unsubsidized. This is per the
regulations at 34 CFR 682.204(j) and 34 CFR 685.203(h).

Perhaps the college is confused about the treatment of capitalized
interest? Capitalized interest is not counted against the aggregate
limits, regardless of whether the loans have been consolidated or
not.

You can consolidate your loans only if they are in the grace period or
repayment period. You cannot consolidate them if you are still
in an in-school period. If you consolidate your loans in the grace
period you will lose the remainder of the grace period. Repayment
begins within 60 days of consolidating the loans. However, if you
re-enroll in college you may be eligible for an in-school deferment on
the loans.

Ask Kantro: FAFSA Questions Concerning Assets and Legal Guardianships

Mark Kantrowitz / Publisher of FinAid and FastWeb — Tue, 20 Oct 2009 05:30:00 -0700

I am an incoming freshman in college and my single mom is worried
about the Free Application for Federal Student Aid (FAFSA). We
recently sold our house and are currently living in a rented
apartment. The money from selling the house is in her savings
account. We are currently looking for a new house. My mom is worried
that if we haven't bought a house by January-March, the money she has
to buy the house would be included on our FAFSA, which would reduce
the aid.
— Kimberly P.

Money in a bank account is counted on the FAFSA, while the net equity
of your principal place of residence is not. Assets are reported
as of the date the FAFSA is filed. So your mother is correct -- if you
haven't bought a new home by the time you file the FAFSA, the money in
the bank account will count against your aid eligibility.

However, it is still possible that the money in the bank account could
be disregarded. If your mother's adjusted gross income is less than
$50,000 and she satisfies certain other criteria, such as being able
to file an IRS Form 1040A or 1040EZ or qualifying for various federal
means-tested federal benefit programs, the "simplified needs test" will
cause assets to be ignored on the FAFSA.

Even if she doesn't qualify for the simplified needs test, there is an
asset protection allowance based on the age of the older parent that
shelters a portion of parent assets. For most parents of college-age
children (median age 48), the asset protection allowance is about
$50,000. Above this threshold assets are assessed according to a
bracketed scale with a top rate of 5.64%.

In practice, most families who qualify for the Pell Grant will not
lose eligibility just because they sold a home and have not yet
purchased a new home.

There is legislation currently pending in the US Senate that will
eliminate the six asset questions from the FAFSA starting in the
2011-12 academic year. However, this legislation includes an asset cap
that eliminates eligibility for the Pell Grant and other need-based
aid for families with assets greater than $150,000 (US House of
Representatives version of the legislation) or $250,000 (US Senate
version of the legislation).

I have a 17 year old granddaughter who lives with my husband and
me. She has no contact with her mother and her father signed away
parental rights at age 5. The judge has given us custody. Is she
considered independent on the FAFSA? We are retired and have limited
income. Should we as her custodians assume the parental place on the
forms?
— Marsha R.

The College Cost Reduction and Access Act of 2007 (P.L. 110-84) and
the Higher Education Opportunity Act of 2008 (P.L. 110-315) changed
the definition of an independent student to include students who are
or were in a court-ordered legal guardianship immediately prior to
reaching the age of majority. She will be considered independent and
the parent questions on the FAFSA will be left blank. However, any
cash support you provide her (including housing, food, clothing,
medical and dental care, college costs and any other money you paid on
her behalf) will be reported as untaxed income on her FAFSA.

Ask Kantro: When should you apply for scholarships and financial aid?

Mark Kantrowitz / Publisher of FinAid and FastWeb — Tue, 13 Oct 2009 05:30:00 -0700

My son will be applying to colleges this fall since he is a high school senior. Should he wait until he is accepted into a college before applying for scholarships?
— Bryan R.

Your son should start searching for scholarships as soon as
possible. There are scholarships with deadlines in every month of the
year (more in the fall and spring than during the summer) and every
year in school. There are even
scholarships for
children under age 13.

Since scholarship sponsors receive more qualified applications than
they have funds available, to some extent winning a scholarship is a
numbers game. Your odds of winning a scholarship are greater if you
apply for more awards, all else being equal. (But only apply if you
are qualified. You may be a wonderful person, but if you don't satisfy
the eligibility restrictions, you will be wasting your time.)

On the other hand, the Free Application for Federal Student Aid
(FAFSA) cannot be submitted before January 1 because it is based on
your income from the prior tax year, which ends December 31. This form
is used to apply for financial aid from the federal and state
government, all public and most private colleges. You should submit
the FAFSA as soon as possible after January 1 because some states have
very early deadlines. Some colleges also award aid according to
priority deadlines. Do not wait until you've filed your federal income
tax returns or have been accepted into a college.

I lost my job a year ago and only my husband works. We recently had
to file for bankruptcy (Chapter 7). I'm going to college right now
since my son is grown up and out of the house and I got financial aid
from the govenment. Will I still be able to get financial aid from the
government since I filed for bankruptcy? I have one more year of
school left and I am worried that I won't be able to graduate.
— Lorrin Y.

Federal student aid, including the Perkins loan and the Pell Grant,
may not be denied solely because of a bankruptcy filing. However,
colleges may continue to consider the student's post-bankruptcy credit
history in determining willingness to repay a Perkins loan. Also, if some of
the student's federal student loans are currently in default and were
not discharged by the bankruptcy, the student is ineligible for
federal student aid until the loans are rehabilitated. (Federal
student loans that were discharged in bankruptcy have no impact on aid
eligibility.)

Federal PLUS loan borrowers, however, must not have an adverse credit
history. The definition of an adverse credit history includes having
had a bankruptcy discharge in the last five years. See
How does bankruptcy affect PLUS loan eligibility?
for additional details.

Private student loans continue to consider bankruptcy as part of their
credit underwriting, and most will deny a private student loan if the
borrower has had a bankruptcy within the last 7 or 10
years. Previously lenders would make exceptions for events that were
beyond the borrower's control (e.g., extraordinary medical costs or
natural disasters) or to compensate for a bankruptcy with a
creditworthy cosigner, but this leniency has largely evaporated due to
the credit crisis. Borrowers who filed Chapter 11 are more likely to
qualify for a private student loan than borrowers who filed Chapter 7
or 13.

Why does your financial aid get cut off so quickly if you don't
maintain a certain grade point average? Cutting off the aid
effectively prevents you from going back to college. Shouldn't there
be at least a semester grace period to bring your grades up?
— Ollie J.

Federal law requires students to be making satisfactory academic
progress (SAP) in order to continue receiving federal student
aid. This involves maintaining at least a C average (2.0 on a 4.0
scale) at the end of the second academic year. The rationale is that
if a student is not making progress consistent with the requirements
for graduation, it is a waste of taxpayer money to continue funding
that student.

Most colleges will issue a warning if a student is close to or under
this threshold. This is often referred to as "academic probation". There
is also an appeals process whereby a school may temporarily waive the
requirements when the failure to maintain satisfactory academic
progress is due to special circumstances, such as death of a relative
or the personal injury or illness of the student.

Students may regain aid eligibility by improving their cumulative GPA
above the C average threshold. This often requires using their own
financial resources or borrowing private student loans.

Ask Kantro: How do retirement funds affect student aid eligibility?

Mark Kantrowitz / Publisher of FinAid and FastWeb — Tue, 06 Oct 2009 05:30:00 -0700

How do parent contributions to 401(k) or IRA retirement plans
affect financial aid eligibility?
— Stephen C.

The federal need analysis methodology considers both income (taxable
and untaxed) and assets that are reported on the Free Application for
Federal Student Aid (FAFSA).

Money in qualified retirement plans, such as a 401(k), 403(b), IRA,
pension, SEP, SIMPLE, Keogh and certain annuities, is not reported as
an asset on the FAFSA.

However, voluntary contributions from the taxpayer to these retirement
plans during the base year (the prior tax year) are reported on the
FAFSA and are counted as untaxed income. Employer matching
contributions are not reported on the FAFSA. Untaxed income and
benefits have a similar impact on aid eligibility as taxable income.

Non-elective contributions, such as mandatory teacher contributions to
a state retirement system, are not reported on the FAFSA and are not
considered in need analysis.

What happens when you have all your retirement in savings accounts?
Will FAFSA take that into consideration when determining financial
aid?
— Stacey C.

Money in non-qualified retirement accounts, such as a savings or
regular brokerage account or stuffed under your mattress, should be
reported on the FAFSA as an asset. This is the case even if you are
already retired and will be using all of your assets to pay for your
retirement.

The federal need analysis formula shelters assets in qualified
retirement plans, the net worth of the family's principal place of
residence and small businesses owned and controled by the
family. There is also a simplified needs test that excludes
consideration of all assets for families where the parents' income
(dependent students) or student's income (independent students) is
less than $50,000 and certain other criteria are met. For all other
assets there is an age-based asset protection allowance that shelters
some of the remaining assets based on the age of the older parent. For
age 65 and up in 2009-10 this allowance is $84,000.

If you receive a lump-sum distribution from a qualified retirement
plan, it is best to roll it over into an IRA or other qualified plan
in order to shelter it from need analysis.

Does the FAFSA have some mechanism where parents ages are
identified and considered? It seems unfair for parents who will be in
their early 60s when the child graduates to have the same expected
family contribution as a parent in his or her late 40s who has 15 more
years of earning potential. If not, would it be helpful or
detrimental to politely point out to a financial aid office the burden
that loan-only aid would place on a family who has little or no
savings and where both parents will be retiring soon?
— Leah G.

For a dependent student, the FAFSA asks for the parents' date of
birth. This is used to calculate the age of the older parent and to
trigger the asset protection allowance. However, the impact on aid
eligibility is relatively small. The asset protection allowance in
2009-10 for retired parents is $84,000 while the asset protection
allowance for parents aged 48 (the median age of parents of
college-age children) is $52,400. This leads to a difference in the
expected family contribution of at most $1,782.

The Student Aid and Fiscal Responsibility Act of 2009, if enacted,
will eliminate all six asset questions from the FAFSA. This would
eliminate any penalty for saving, even if a family saves for
retirement in non-qualified accounts.

College financial aid administrators do not have the authority to
increase your aid eligibility because you are close to retirement. If
you have high unreimbursed medical or disability related expenses,
they can make an adjustment to income to compensate. But otherwise the
age of the older parent does not represent an unusual circumstance
that justifies a professional judgment adjustment.

You should not borrow a Parent PLUS loan if you believe that you will
be unable to afford the monthly payments. (The new income-based
repayment plan is not available for Parent PLUS loans.) The federal
government may withhold up to 15% of your Social Security benefits if
you default on your federal education loans. The US Supreme Court
upheld the federal government's ability to do this in Lockhart v US
(04-881, December 2005).

That being said, the regulations at 34 CFR 682.201(a)(3) and 34 CFR
685.203(c)(1)(ii) and (iii) allow a college financial aid
administrator to make a dependent student eligible for the higher
unsubsidized Stafford loan limits available to independent students if
"the student's parent likely will be precluded by exceptional
circumstances from borrowing under the Federal Direct PLUS Program or
the Federal PLUS Program and the student's family is otherwise unable
to provide the student's expected family contribution". You could ask
the school to make your child eligible for the increased unsubsidized
Stafford loan limits because of your lack of savings and imminent
transition to fixed income. Most colleges focus on more extreme
circumstances, such as receipt of only public assistance or disability
benefits or the incarceration or institutionalization of a parent. But
it doesn't hurt to ask. If all else fails, have the parent with the
worst credit apply for the PLUS loan, since a PLUS loan denial will
make your child eligible for the increased loan limits.

Time to panic about prepaid tuition plans?

Mark Kantrowitz / Publisher of FinAid and FastWeb — Mon, 05 Oct 2009 19:15:00 -0700

The New York Times reported on October 5, 2009 that 16 of the 18
state prepaid tuition plans are facing funding shortfalls because of a
combination of stock market losses and increases in tuition at public
colleges. Only five state plans are backed by the full faith and
credit of the state. While the other states will be under political
pressure to make families whole, there's still a possibility of
losses. The prepaid tuition plans are likely to react by closing to
new investment and/or increasing the premiums they charge for a year's
tuition.

Is it time to start panicking about prepaid tuition plans?

These shortfalls are actuarial shortfalls. It means that the plan does
not currently have enough assets to meet all projected future
obligations. Most of the states have 10-15 years before they will run
out of money. So this is not an immediate crisis. It is possible that
the stock market will recover enough to erase the shortfall in the
interim.

College-Age Children

If your child anticipates enrolling in an in-state public college
within the next few years, you should probably continue to
invest. Money should remain available for students matriculating in the
next few years.

Children Who Will Not Enroll in an In-State Public College

If your child will not be enrolling in college, ask about the plan's
refund policies. Some plans are changing their refund policies to
yield no net return on investment (or even a slightly negative return,
after fees are deducted). It would be best to move the money out of
the prepaid tuition plan before this happens.

Likewise, if your child will be enrolling in a private college or an
out-of-state school, you may be better off moving the money to a 529
college savings plan before any change in policies.

Younger Children

There's no point in keeping the money in a prepaid tuition plan if
there's a risk the plan may reneg on its guarantee. The main
attraction of prepaid tuition plans is the ability to shift risk from
the family to the state. But if the prepaid tuition plans are backed
by an empty guarantee, you're still carrying all the downside risk
with none of the upside potential return.

If your child will not be enrolling in college for at least four
years, you should probably roll the money into a 529 college savings
plan.

(Note that if you make an unqualified distribution, you will have to
pay income tax plus a 10% tax penalty on the earnings. However, you
can avoid the tax and tax penalty by rolling the money into a 529
college savings plan.)

If you are thinking about investing in a prepaid tuition plan
for the first time, you would probably be better off investing in a 529
college savings plan. The prepaid tuition plans are likely to increase
the premiums they charge for a year's tuition to help make up the
shortfall. This will reduce your effective return on investment. On
the other hand, a family that is already invested in a plan and
expects to take a qualified distribution in the near future is
probably ok, since the faster-than-inflation increases in public
college tuition yield a better return on investment.

A Complete List of Financial Aid Deadlines- 2009-2010

Thu, 01 Oct 2009 08:29:00 -0700

Not sure when your financial aid applications are due? Here's a complete list of financial aid deadlines for the 2009-2010 academic year-- Federal and State.

The FAFSA Deadline for the 2009-2010 Academic Year is June 30th, 2010

Also note:

*FAFSA on the Web applications must be submitted by midnight Central Daylight time, June 30, 2010.

*Corrections on the Web forms must be submitted by midnight Central Daylight time, September 15, 2010.

*Note: Your school must have your complete and correct information by your last day of enrollment in the 2009-2010 school year.

State Student Financial Aid Deadlines

State deadlines may be earlier than the federal deadline and do not replace filling out the FAFSA. You must fill out the FAFSA to receive federal student aid. In all cases, it's best to apply early before funds run out.

Alabama - Check with your financial aid administrator
Alaska - April 15, 2009
American Samoa - Check with your financial aid administrator
Arizona - March 1, 2009
Arkansas - For Academic Challenge - June 1, 2009
For Workforce Grant - check with your financial aid administrator
For Higher Education Opportunity Grant - June 1, 2009 (fall term); November 1, 2009 (spring term)
California - For initial awards - March 2, 2009
For additional community college awards - September 2, 2009 - date postmarked
Colorado - Check with your financial aid administrator
Connecticut - February 15, 2009
Delaware - April 15, 2009
District of Columbia - June 30, 2009
Federated States of Micronesia - Check with your financial aid administrator
Florida - May 15, 2009 - date processed
Georgia - Check with your financial aid administrator
Guam - Check with your financial aid administrator
Hawaii - Check with you financial aid administrator
Idaho - Opportunity Grant - March 1, 2009
Illinois - First-time applicants - September 30, 2009
Continuing applicants - August 15, 2009
Indiana - March 10, 2009
Iowa - July 1, 2009
Kansas - April 1, 2009
Kentucky - March 15, 2009
Louisiana - July 1, 2009
Maine - May 1, 2009
Marshall Islands - Check with your financial aid administrator
Maryland - March 1, 2009
Massachusetts - May 1, 2009
Michigan - March 1, 2009
Minnesota - 30 days after term starts
Mississippi - MTAG and MESG Grants - September 15, 2009
HELP Scholarship - March 31, 2009
Missouri - April 1, 2009
Montana - March 1, 2009
Nebraska - Check with your financial aid administrator
Nevada - Check with your financial aid administrator
New Hampshire - May 1, 2009
New Jersey - June 1, 2009 if you received a Tuition Aid Grant in 2008-2009
All other applications - October 1, 2009, for fall and spring terms;
March 1, 2010, for spring term only
New Mexico - Check with your financial aid administrator
New York - May 1, 2010
North Carolina - Check with your financial aid administrator
North Dakota - March 15, 2009
Northern Mariana Islands - Check with your financial aid administrator
Ohio - October 1, 2009
Oklahoma - April 15, 2009
Oregon - Check with your financial aid administrator
Palau - Check with your financial aid administrator
Pennsylvania - All 2008-2009 State Grant recipients and all non-2008-2009 State Grant recipients in degree programs - May 1, 2009
All other applicants - August 1, 2009
Puerto Rico - Check with your financial aid administrator
Rhode Island - March 1, 2009
South Carolina - Tuition Grants - June 30, 2009
South Dakota - Check with your financial aid administrator
Tennessee - For State Grant - March 1, 2009
For State Lottery - September 1, 2009
Texas - Check with your financial aid administrator
U.S. Virgin Islands - Check with your financial aid administrator
Utah - Check with your financial aid administrator
Vermont - Check with your financial aid administrator
Virginia - Check with your financial aid administrator
Washington - Check with your financial aid administrator
West Virginia - March 1, 2009
Wisconsin - Check with your financial aid administrator
Wyoming - Check with your financial aid administrator

In Some States:

--Additional form may be required. Contact your financial aid administrator or your state agency.

--Applicants encouraged to obtain proof of mailing.

--For priority consideration, submit application by date specified.

--Deadline by midnight, Central Daylight Time.

--Deadline by midnight, Central Standard Time.

To find our more, visit http://www.fafsa.ed.gov/before003a.htm#federal_aid.

Information compiled from http://www.fafsa.ed.gov/before003a.htm#federal_aid. To complete the FAFSA, go to http://www.fafsa.ed.gov/index.htm.

Ask Kantro: Can I Get a New Financial Aid Package if My Mom Lost Her Job?

Mark Kantrowitz / Publisher of FinAid and FastWeb — Tue, 29 Sep 2009 05:30:00 -0700

I am in my third semester and have already received my financial
aid for this semester; however, our financial circumstances have
dramatically changed. My mother was laid off as of the first of August
and my father has been found to have cancer and will be off work well
into next year with treatments. Is there a way to amend the amount of
aid that has been awarded to me for next semester?
— Shawna L.

Call your college's financial aid office and ask them about their
procedures for a professional judgment review, often referred to as
"PJ". Some colleges call this a special circumstances review or a
financial aid appeal.

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College financial aid administrators have the authority to make
adjustments to the data elements on the Free Application for Federal
Student Aid (FAFSA) on a case-by-case basis when justified by unusual
circumstances. Both job loss and high unreimbursed medical expenses
should qualify for an adjustment, as well as any significant change in
circumstances from last year to this year. Colleges are not required
to make an adjustment, but job loss is the most common circumstance in
which most colleges will make an adjustment. The adjustment will be
based on the financial impact of the unusual circumstance, such as the
change in income. Provide the college with photocopies (not originals)
of the layoff letter and other documentation, as the process is driven
by documentation.

You can ask for a professional judgment review at any time, not just
during the initial financial aid application process.

Read Another "Ask Kantro" Question from This Week's Column!

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I recently found myself out of work. Figuring it would be
an ideal opportunity to return to school, I attempted to apply for
financial aid. I was dissappointed to find that applications for
financial aid are based on one's income for the previous year. Being
unemployed in today's job market does not qualify me for financial aid
because I made too much money last year?
— Ryan S.

The US Department of Education recently issued guidance to college
financial aid administrators in connection with the current economic
downturn. This guidance permits college financial aid administrators
to set the income earned from work on the FAFSA to zero for students
who have recently received unemployment. It also allows colleges to
treat unemployment benefits as zero income for independent students. A
copy of an unemployment benefits letter dated within the last 90 days
is sufficient.

If the information submitted on the FAFSA does not adequately address
your financial situation, you should always ask the college financial aid
administrator for a professional judgment review.

Read Another "Ask Kantro" Question from This Week's Column!

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I currently have a stepson in college and a daughter who is
currently applying for financial aid. My stepson does not live with
us but my husband is still paying child support. Since I have to
include my husband's income when filling out the FAFSA for my
daughter, is it appropriate for me to state that I have a child
currently enrolled in college? I do not want to affect any financial
aid my stepson is currently receiving.
— Sandi L.

If your husband provides more than half your stepson's support, you
should include your stepson in household size and number in college on
your daughter's FAFSA. But then you cannot report the amount of child
support paid on her FAFSA. Likewise, if your husband pays less than
half your stepson's support, you should report the amount of child
support paid on your daughter's FAFSA, but you cannot include your
stepson in household size and number in college on her FAFSA.

To the extent that the amount of child support is in a gray middle
area, there's a tradeoff between including the stepson in the number
in college and reporting the amount of child support paid. Either option will
reduce your Expected Family Contribution (EFC), but the amount of the
reduction will differ and will depend on your particular financial
circumstances. The parental contribution part of the expected family
contribution is divided by the number of children in college. Total
income is reduced by the amount of child support paid. To determine
which has a greater impact on the EFC, use a
financial aid calculator
to evaluate each scenario.

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If it's clear whether your husband does or does not provide more than
half support to your stepson, don't try to fudge the answer. The
college may ask to see a copy of the divorce decree as part of the
verification process and may perform a detailed calculation to
determine whether or not your husband provides more than half support.

In most cases the information reported on your daughter's FAFSA will
not affect your stepson's FAFSA. Your stepson's mother is responsible
for completing his FAFSA because your stepson lives with her more than
he lives with you. If your stepson lived with both of you equally,
then it would depend on whichever of the two biological parents
provided more support. In that case the treatment of the child support
on the two FAFSAs would need to be consistent (i.e., you can't count
it as providing more than half support on one FAFSA and less than half
support on the other).

Ask Kantro: How Much Income is Too Much When Applying for Need-Based Aid?

Mark Kantrowitz / Publisher of FinAid and FastWeb — Tue, 22 Sep 2009 05:30:00 -0700

In general, with the student not working and in a home with mom and dad both working, what is the maximum income they can earn and still qualify for financial aid?
— Tracee N.

Federal student aid is awarded based on the student and parent income
and assets, household size, number of children in college and a
variety of other factors. It does not, however, have any explicit
cutoffs on need-based aid eligibility.

The number of children in college can have a big impact on aid
eligibility. The Free Application for Federal Student Aid (FAFSA) is
used to calculate the Expected Family Contribution (EFC), a somewhat
harsh measure of the family's ability to pay for college. The EFC is
the sum of a student contribution and a parent contribution. The
parent contribution is roughly divided by the number of children in
college. So if the number of children in college increases, it can
significantly cut the EFC and thereby allow a family to qualify for
student aid despite having a higher income.

It is important to apply for financial aid every year even if you
didn't qualify for grants last year. Suppose you apply for financial
aid for your freshman year in college and don't qualify for any aid because
you are the first in your family to enroll. If
you give up and stop submitting the FAFSA, you might miss out on a lot
of financial aid in a subsequent year when you and one or more
siblings are enrolled in college at the same time.

For example, 95.9% of Pell Grant recipients in 2007-08 had an adjusted
gross income (AGI) of $50,000 or less, 3.5% had an AGI of $50,000 to
$75,000, 0.4% had an AGI of $75,000 to $100,000 and 0.2% had an AGI of
$100,000 or more. But for families with two or more dependent
children in college at the same time the percentages drop to 84.4%,
13.5%, 1.3% and 0.8%. With three or more children in college the
percentages drop to 77.2%, 18.8%, 2.7% and 1.3%. With more children in
college at the same time, your chances of qualifying for the Pell
Grant increase.

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But even if you don't qualify for a Pell Grant it is still worthwhile
to submit the FAFSA. The unsubsidized Stafford loan and the PLUS loan
are available without regard to financial need. You can be extremely
wealthy and still qualify for these loans. The Hope Scholarship tax
credit is available to families with income up to $90,000 (single
filers) and $180,000 (married filing joint).

Note that student employment can have a big impact on aid eligibility,
especially for independent students. A portion of student income is
sheltered from the financial aid formula, but as much as half of
income above this income protection allowance will be counted as part
of the EFC.

For additional information on this topic see
Targeting of Student Aid Programs According to Financial Need.

Read Another "Ask Kantro" Question from This Week's Column!

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My parents don't have a Social Security Number. Is it possible for
me to submit the Free Application for Federal Student Aid (FAFSA) and
qualify for federal student aid?
— Michelle G.

To be eligible for federal student aid, you must be a US citizen or
permanent resident (green card holder). There are also a variety of
types of noncitizens who are eligible for federal student aid, such as
citizens of the Freely Associated States, the Federated States of
Micronesia and the Republics of Palau and the Marshall
Islands. Individuals who have been granted asylum or refugee status
and victims of human trafficking are eligible for federal student aid.

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Your parents, however, do not need to be US citizens or permanent
residents. They can be foreign nationals or even undocumented. If your
parents do not have a Social Security Number, use 000-00-0000 on the
FAFSA where it asks for the parent's Social Security Number. Do not
use a Taxpayer Identification Number (TIN).

If your parents are not US citizens or permanent residents, they will
be unable to borrow from the PLUS loan program. In that case you will
be eligible for increased unsubsidized Stafford loan limits, the same
limits that are available to independent students.

Congress Passes Legislation Ending the Federally-Guaranteed Student Loan Program

Mark Kantrowitz / Publisher of FinAid and FastWeb — Tue, 22 Sep 2009 05:30:00 -0700

The US House of Representatives passed the Student Aid and Fiscal Responsibility Act of 2009 (SAFRA) on September 17, 2009 by a party-line vote of 253 to 171.

This legislation eliminates the federally-guaranteed student loan program and replaces it with 100% direct lending from the federal government. SAFRA uses the savings to fund an increase in the Pell Grant program among other initiatives. The US Senate is expected to consider its own version of the legislation within a few weeks.

The Congressional Budget Office (CBO) estimated that ending the origination of federal education loans by banks and other financial institutions would save the federal government $87 billion over the next ten years.

The education lenders countered with their own proposal, but the CBO scored it as saving $13 billion less. The Obama administration argues that the Direct Loan program saves the government money by eliminating the middleman. However, much of the savings comes from the federal government's lower cost of funds.

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From a practical perspective, most students will not notice much of a difference between the Direct Loan and federally-guaranteed student loan programs. Money is fungible -- it's still green whether it comes from a bank or from the US Department of Education.

The Direct Loan program has a lower interest rate on the PLUS loan program (7.9% versus 8.5%) due to a legislative drafting error that was never corrected. PLUS loan approval rates are also higher in the Direct Loan program. Customer service is a bit better during the loan origination process in the Direct Loan program, but a bit worse during repayment.

However, the US Department of Education has awarded contracts to four of the largest education lenders to service loans in the Direct Loan program. The SAFRA legislation has no impact on existing student loans or borrowers who have already graduated.

About half of the savings will be used to index the maximum Pell Grant to the inflation rate plus 1%. It would increase to $5,550 in 2010-2011 and likely reach $6,900 by 2019-2020. However, it does not turn the Pell Grant into a true entitlement program. Congress could still cut Pell Grant funding during the annual budget appropriations process as it did in 2008.

The legislation also eliminates all of the asset questions and many of the untaxed income questions on the Free Application for Federal Student Aid (FAFSA), cutting about a page from the six-page form. This will eliminate any penalty for savings in the federal need analysis formula, so there will no longer be any disincentive to saving for college.

SAFRA includes several provisions relating to student loans. The interest rate on subsidized Stafford loans for undergraduate students will switch to a variable rate capped at 6.8% starting on July 1, 2012. Otherwise the interest rate would have increased from 3.4% to 6.8% on that date, a big jump.

Annual funding for the Perkins Loan program would increase four-fold from $1.5 billion to $6.0 billion a year. While the new Perkins loan would no longer have subsidized interest, the interest rate would remain at 5.0%. Students at many more colleges would become eligible for the Perkins loan.

The new College Access Challenge Grant program would be focused on increasing enrollment, persistence and completion rates. It would fund financial literacy programs and make it easier for students to transfer from 2-year colleges to 4-year colleges. There would also be a significant increase in funding for community colleges and minority institutions.

Ask Kantro: How does divorce affect eligibility for student financial aid?

Mark Kantrowitz / Publisher of FinAid and FastWeb — Tue, 15 Sep 2009 05:30:00 -0700

I am currently a single parent with a daughter receiving financial
aid. However, I plan to marry and am curious how that affects my
child’s financial aid. Will his income be considered when completing
the FAFSA next year even if we don’t share financial responsibility
for her or commingle our bank accounts?
— Terri S.

If a dependent student's custodial parent remarries before submitting
the FAFSA, the stepparent's income and assets must be reported on the
FAFSA per section 475(f) of the Higher Education Act of 1965. All
of the stepparent's income from the prior tax year must be reported
even if the stepparent and parent got married mid-year or after the
end of the tax year. Prenuptial agreements do not exempt the
stepparent from this requirement; the stepparent's income and assets
must be reported on the FAFSA even if the stepparent refuses to
contribute to the student's college education.

I am a college student currently living with my mother and
stepfather. My parents are divorced and my father lives in a different
state. I just recently found out that my father has been claiming me
as a dependent on his taxes. Does this have any effect on my financial
aid? I have always listed my mother and stepfather on the FAFSA since
I live with them and receive help from them and not my father.
— Erica K.

When a student's parents are divorced, the FAFSA must be completed by
the parent with whom the student lived the most during the 12-month
period ending on the application date. This is regardless of which
parent claimed the student as an exemption on their federal income tax
return.

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If the student lived equally with both parents, the parent who
provided more support to the student during the 12-month period must
complete the FAFSA. It is rare for a student to live equally with both
parents, but it can happen. For example, the student might have lived
with neither parent, the 12-month period may have included an even
number of days because of a leap year, or the divorce may have occurred during
the 12-month period with an even number of days since the divorce. Also, the
definition of support is not the same as the definition used by the
IRS. So while multiple support agreements and divorce decrees may
specify which parent can claim the student on their federal income tax
return, the FAFSA is based on whichever parent actually provided more
support. (Support includes in-kind support, such as food, lodging,
clothing and medical care.) However, if the student's FAFSA is
selected for verification and the student is not claimed as an
exemption on the parent's federal income return, the college financial
aid administrator might ask for an explanation or ask for a copy of
the divorce decree.

If the student lived equally with both parents and received equal
support from both parents during the 12-month period, the parent who
provided more support during the most recent calendar year for which
support was provided is responsible for completing the FAFSA.

The Higher Education Act of 1965 does not specify what happens if none
of these criteria apply. In such a circumstance the decision is
subject to the professional judgment of the college financial aid
administrator. Most college financial aid administrators will require the parent with the greater
income and assets to complete the FAFSA.

Read Another "Ask Kantro" Question from This Week's Column!

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I am separated, not divorced. I will be laid off from my job in
October. My friends are advising me to get divorced, as that can help
my kids get scholarships based on need (I have a high school senior
and junior). I'm wondering if that's true; if the kids live with me
and I am divorced, especially without an income, would we qualify for
need-based aid? Is that a smart move when my kids are bright and could
possibly get merit scholarships?
— Sherry H.

The rules are the same for separated parents as for divorced parents,
so there is no need to get divorced in order to qualify for more
need-based aid. Since your children live with you and you are
separated, only your income and assets will be reported on the FAFSA.
You will also have to report any alimony or child support you
are receiving from your ex-spouse.

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The separation does not need to be a legal separation. An informal
separation is treated the same as a legal separation or
divorce. However, parents with an informal separation cannot cohabit
(not even on different floors of the same house), so the college
financial aid administrator will want to see proof that the parents
maintain separate residences, such as copies of utility bills,
leases or mortgage payments for separate residences. College financial
aid administrators will suspect a sham separation if one parent claims
to have slept on a friend's couch or stayed in hotels.

Many parents overestimate the ability of their children to win
scholarships. If your children do win some scholarships, the amount of
need-based aid will be reduced. However, many colleges have favorable
policies that allow all or part of the scholarship to replace loans in the
need-based financial aid package.

Ask Kantro: What types of student aid are available for a second Bachelor's degree?

Mark Kantrowitz / Publisher of FinAid and FastWeb — Tue, 08 Sep 2009 05:30:00 -0700

I am thinking about going back to school to get a second bachelors degree. Because I already have a B.A. degree, it seems that I am not able to receive any aid other than student loans. Is this true or am I missing something?
— Josh S.

Student with a prior Bachelor's degree are ineligible for the Pell
Grant, Academic Competitiveness Grant, National SMART Grant, the
Federal Supplemental Educational Opportunity Grant (FSEOG) and the
Teacher Education Assistance for College and Higher Education Grant
(TEACH Grant) for a second Bachelor's degree. There is an exception for post-baccalaureate teacher
certification and licensure programs in certain circumstances.

Associate's degree recipients remain eligible for these undergraduate
grant programs until they receive a Bachelor's degree.

Students with a prior Bachelor's degree are ineligible even if the
prior Bachelor's degree is from an unaccredited or foreign
school. There is an exception if the college determines that the
foreign degree is not the equivalent of a US bachelor's degree.

Students seeking a second Bachelor's degree may still qualify for the
Perkins Loan, Federal Work-Study (FWS), Stafford Loan and, if still
dependent, the Parent PLUS Loan. Students may also receive the
Stafford Loan for a second bachelor's degree up to any remaining
eligibility under the undergraduate aggregate loan limits.
(If the student has exhausted the undergraduate Stafford loan limits,
a possible workaround is to enroll in a graduate or professional
degree program instead of pursuing a second Bachelor's degree.)

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Students who are seeking an Associate's degree but already have a
Bachelor's degree are subject to the same restrictions. However,
community colleges tend to offer very low cost degree and training
programs. So if you are pursuing a second degree to gain or enhance
job skills or change careers, look into the programs offered by your
local community college. (The US Department of Education will be
providing grants to community colleges to enable the development of
new programs for retraining displaced and unemployed workers.)

Some private scholarship programs are open to students pursuing a
second Bachelor's degree, but these are usually highly competitive.
Some states offer retraining grants through their
one-stop career centers.
A handful of colleges are offering free or reduced tuition to
unemployed alumni, so ask your alma mater if they offer such a
program.

The education tax benefits might help. The
Hope Scholarship tax
credit is limited to the first four years of postsecondary education,
but the Lifetime Learning tax credit does not have such a restriction.

The Elephant in the Room

By The About U Team — Wed, 02 Sep 2009 14:28:00 -0700

Students, you and your parents are so focused on the standard college questions – what school, what degree, how to pay for it – that you overlook the elephant in the room. An Elephant in the room? Yes, the educational Elephant who can cost you and your families thousands of dollars, unnecessarily.

Here’s where the elephant raises his costly tusks. You have carefully calculated and estimated how to pay for a four-year degree. You enter in September of your freshman year and graduate in June of your senior year; four years’ right? Well, not always; in fact rarely.

The shocking fact is that two out of every three college graduates take 5 or more years to complete a 4 year degree*. That’s the elephant--stomping on your best laid plans and carefully crafted estimates and chomping on your hard earned $s.

Now I know that right away you want to say to yourself is “not me, I will graduate on time and be the one in three that does so”. Well, you could be right; but, what is your Plan B if the power of statistical probabilities is not in your favor?

Furthermore, the one in three statistics assumes that you, the four-year graduate has studied, planned and invested in a degree path that was really your right “fit”. This often is not the case.

Instead many of you earn a degree you won’t use and are left wondering what path in life to pursue. The primary reason students take more than four years to graduate is changing majors. This situation has recently been exacerbated as graduates get their degree, pursue their “dream career” only to discover, that the career has changed drastically, no longer exists, or has been outsourced and no longer available in the United States.

Add to this the effect the economy has bludgeoned the economics of education: college prices going up; earning power declining. It’s enough to cause heartburn. How can you deal with this
rogue elephant?

1. Have a plan B. Don’t just assume that you will be one of the few who graduate in four years with a degree that is both good for you and marketable. Consider what the costs of a five-year program would be. Can you handle the finances? Should you start at a community college first?

2. Take the About USM questionnaire at www.about-u.com. If you don’t know what you want, or where you want to end up, how can you realistically chart a course to get there? You have to have a plan and the About U Report can serve as its foundation.

3. Use your About U Report to find some answers about who you are and what you really want to do. The About U Report gives you the guidance and personal information to make informed decisions. For the cost of a large college text book the Report provides:

Interests that motivate you
Your Behavioral Strengths
Ways that you can manage Stress
Job Families in which you can find your best match

The About U helps you to identify your strengths and job families where you have the best opportunity to use the personal characteristics unique to you to make an informed decision on choosing a major. Now you know about the Elephant. Take the About U Report, and get him out of the room.

*GraduationWatch.org

Click here to get your AboutU Report through FastWeb

Ask Kantro: How does bankruptcy affect PLUS loan eligibility?

Mark Kantrowitz / Publisher of FinAid and FastWeb — Tue, 01 Sep 2009 05:30:00 -0700

I applied for a Parent PLUS loan for my son's education starting this
fall. I was turned down due to filing chapter 7 four years ago this
October. They said I would not be able to get funds until October of
2010. My lawyer, who helped me file chapter 7 said that he believed
this was discrimination and not allowed. Is this true? And if so how
can I get around this problem?
— John V.

The short answer is that current federal law requires the denial of
a PLUS loan if the prospective borrower has had a bankruptcy in the
last five years unless there were extenuating circumstances or the
borrower obtains a creditworthy endorser for the PLUS loan. If one
parent has a bankruptcy but the other does not, the other parent might
be able to obtain a Parent PLUS loan approval. Dependent students may
obtain increased unsubsidized Stafford loan limits if their parents
are denied or likely to be denied a Parent PLUS loan. (Talk to the
school's financial aid administrator about obtaining the increased
unsubsidized Stafford loan limits.) Parents who are denied a Parent
PLUS loan are unlikely to be approved for a private student loan,
though the student might be able to qualify on his or her own.

The long answer is a bit more complicated.

Section 313 of the Bankruptcy Reform Act of 1994 (P.L. 103-394)
amended the US Bankruptcy Code at 11 USC 525(c) to prohibit
the denial of federal student aid — including loans, grants and
work-study — because of a prior bankruptcy or current bankruptcy
filing.

However, section 428B(a)(1) of the Higher Education Act of 1965
requires that borrowers of a Federal PLUS loan not have an "adverse
credit history". The regulations at 34 CFR 682.201(c)(2)(ii) and 34
CFR 685.200(c)(1)(vii)(B) define an adverse credit history as having
had a "default determination, bankruptcy discharge, foreclosure,
repossession, tax lien, wage garnishment, or write-off of a Title IV
debt" within the last five years or a current delinquency of 90 or more
days on any debt.

As Dear Colleague Letter GEN-95-40
(see question #7 of the attachment)
explains, the PLUS loan denial does not violate the US Bankruptcy Code as
amended by the Bankruptcy Reform Act of 1994 because the regulations
concerning an adverse credit history provide exceptions if the
prospective borrower demonstrates that extenuating circumstances
existed or if the borrower obtains an endorser for the loan who does
not have an adverse credit history. (Each new PLUS loan must be separately
endorsed.)
The US District Court for the Northern District of Alabama, Eastern Division,
found that the definition of an adverse credit history does not
violate 11 USC 525(c) in Taylor vs US Department of Education (00-G-3151-E; May 21, 2001).
This reversed the decision of the US Bankruptcy Court
(96-43284; June 26, 2000).

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If a dependent student's parent is denied a Parent PLUS loan, the
student becomes eligible for the higher unsubsidized Stafford loan
limits available to independent students. These higher limits provide
for an additional $4,000 a year during the freshman and sophomore
years and an additional $5,000 a year during the junior and senior
years. While these increased limits do not allow the student to borrow
as much as a parent could have borrowed through the PLUS loan program, the
unsubsidized Stafford loan does provide a lower interest rate.

(The regulations at 34 CFR 682.201(a)(3) and 34 CFR 685.203(c)(1)
allow college financial aid administrators to grant the increased
unsubsidized Stafford loan limits even if the parents haven't applied
for a Parent PLUS loan if "the student's parents likely will be
precluded by exceptional circumstances (e.g., denial of a PLUS loan to
a parent based on adverse credit, the student's parent receives only
public assistance or disability benefits, is incarcerated, or his or
her whereabouts are unknown) from borrowing under the PLUS Program and
the student's family is otherwise unable to provide the student's
expected family contribution".)

Note that if only one parent has an adverse credit history, it may be
possible for the other parent to be approved for a PLUS loan. Parents
eligible to borrow from the PLUS loan program include both biological
or adoptive parents (even if divorced), as well as a stepparent whose
income and assets were reported on the Free Application for Federal
Student Aid (FAFSA). Legal guardians and foster parents are not
eligible to borrow from the PLUS loan program.

If a parent is denied a PLUS loan because of a prior bankruptcy, the
parent is unlikely to qualify as a cosigner on a private student loan
because most lenders use a 7 or 10 year lookback for
bankruptcies. However, if the denial is not due to bankruptcy, it is
possible that the family could still qualify for a private student
loan. Several lenders who participate in the federally-guaranteed
student loan program have incorrectly interpreted the definition of an
adverse credit history as involving a 5-year lookback for
delinquencies instead of just a current 90-day delinquency. (This is
technically not a violation of the regulations, as the regulations at
34 CFR 682.201(c)(2)(iii) permit lenders to adopt more stringent
credit underwriting criteria.) This is a stricter standard than is
used for private student loans. Also, a student might qualify for a
private student loan without a cosigner or ask an aunt or uncle
or a friend or other family member to cosign the loan.

Is college worth the cost?

Mark Kantrowitz / Publisher of FinAid and FastWeb — Wed, 26 Aug 2009 12:57:00 -0700

Some people have argued that the high cost of a college education is a
bubble waiting to burst. They draw superficial comparisons with the
housing market, pointing out the high cost, heavy financing with no
down payment, federal subsidies and tax deductible interest.

But unlike a house, a college degree is an asset that enables the
production of income. In a July 2007 paper in the peer-reviewed
Journal of Student Financial Aid, I demonstrated that a bachelor's
degree on average increases lifetime income by $1.2 million as
compared with a high school diploma, representing a 27% return on
investment. Analyses that are based on medians instead of means, such
as those conducted by Sandy Baum of the College Board, demonstrate
about half as much of an increase in lifetime income. But there is
still a net financial advantage to pursuing a college
education.

College graduates also experience lower unemployment rates. People with a Bachelor's degree or higher have unemployment rates that are about half the unemployment rate for people with just a high school diploma. For example, Bureau of Labor Statistics data shows that college graduates with a Bachelor's degree had a seasonally-adjusted unemployment rate of 4.7% in July 2009, compared with 9.4% among high school graduates.

These cash flow analyses consider not only the cost of education and
the accrued interest on the student loan debt, but also the
opportunity cost of not working while one is in college. The payback
period for a Bachelor's degree is 11 years at public colleges based on
median income, and 18 years at a private nonprofit college. The
payback period is 5 years shorter for Associate's degrees because the
cost of education is lower, the cumulative debt at graduation is lower
and the time to graduation is shorter. The payback period is 2-6 years
shorter for minority students than for Caucasian students because a
college degree conveys more of an improvement in annual income for
minority students.

However, the financial value of a college education depends on the
degree and the major. The increase in lifetime income for an
Associate's degree is about half of that for a Bachelor's
degree. Students who pursue degrees in science, technology,
engineering and mathematics will earn higher salaries than students
who pursue degrees in art, music, history, culinary arts or
sociology. Students who attend more expensive colleges, switch majors
or take longer to finish will accumulate more debt, making the
cost/benefit ratio less favorable. Liberal arts degrees may be
intellectually satisfying pursuits, but they don't have the same
payoff as high technology fields.

As a good rule of thumb, students should not borrow more for their
education than their expected starting salary after they
graduate. Students who borrow more than twice their expected starting
salary are at high risk of defaulting on their loans and will need to
rely on
income-based repayment
to have monthly loan payments that are more affordable.
Students who borrow more than $25,000 for an Associate's degree,
$45,000 for a Bachelor's degree, $75,000 for a Master's degree,
$100,000 for a PhD, $160,000 for a law degree and $215,000 for an MD
are probably overborrowing. Students who are pursuing degrees in less
lucrative fields should cut these thresholds by at least one third to
one half.

With the advent of the current economic downturn, college costs began
increasing faster than incomes. If this trend continues, it will erode
the cost/benefit tradeoff and lead to a situation that is not
sustainable. For now, however, the increase in lifetime income
presents a compelling argument for pursuing a college education so
long as students resist the temptation to overborrow.

There are also a variety of
non-financial benefits to a college education
such as improved health and better life expectancy.

Cost of Raising Children from Birth to High School Graduation Up 4.4% to $221,190

Mark Kantrowitz / Publisher of FinAid and FastWeb — Tue, 25 Aug 2009 18:07:00 -0700

The US Department of Agriculture estimates that middle-income
two-parent families will spend $221,190 in 2008 dollars to raise a
child born in 2008 from birth to high school graduation.
The cost per child for low income families (earning less than $56,870)
is $159,870 and the cost per child for upper income families (earning
more than $98,470) is $366,660.

These estimates do not include the cost of college. Based on
data from the National Postsecondary Student Aid Study, the median
cost of attendance at a 4-year college for a student from a
middle-income family born in 2008 will be $102,097 in 2008 dollars,
assuming that college costs increase by 5.7% per year (6.0% for
low-income families and 6.2% for upper-income families). The cost for
students from low-income families will be $97,673 and the cost for
students from upper-income families will be $123,965. These figures
are not reduced by student financial aid. Thus the overall cost of
raising a child, including the cost of college, is $257,543 for
low-income families, $323,287 for middle-income families and $490,625
for upper-income families. The cost of college represents about a
third of the total for middle-income families (32%), about two-fifths
for low-income families (38%) and about a quarter for upper-income
families (25%). If families aim to save about a third of college
costs, that suggests that families should save $210 to $266 a month
or $2,520 to $3,192 per year in each child's college savings plan.

Annual child-rearing expenses ranged from $11,610 to $13,480 in 2008,
increasing with the age of the child. Annual expenses are 28% to 30%
lower for low income families and 66% to 70% higher for upper income families.

Per-child expenses are 25% higher in single-child households than in
two-child households and 22% lower in households with three or more
children. (Hand-me-downs do help save some money!)

About a third of the cost of raising a child is for housing costs,
about a sixth each for food and childcare/education. Transportation
accounts for about one seventh of the costs, health care for one
twelfth and clothing for one seventeenth. Lower income families spend
a greater percentage of the costs on food and upper income families
spend more on childcare and education.

Child-rearing expenses are 14% higher in the urban Northeast and 21%
lower in rural areas.

The report,
Expenditures on Children by Families,
is published by the Center for Nutrition Policy and Promotion, US
Department of Agriculture. The estimates are used to establish state
guidelines for child support and foster case payments. The 2008
figures are 20.5% higher in constant dollars than in 1960 when the
first report was issued.

Ask Kantro: How does job loss affect federal student financial aid?

Mark Kantrowitz / Publisher of FinAid and FastWeb — Tue, 25 Aug 2009 05:30:00 -0700

When I turned in my FAFSA my parents were making a lot more money than they are now. Both my parents were working full time, but now my mom is the only one working for minimum wage, with my dad jobless. Is there anything I can do at this time to change my FAFSA?
— Sam W.

Call or write the college financial aid office and ask about the
procedures for a professional judgment review. (Some colleges call
this a special circumstances review or financial aid appeal.) Colleges
have the authority to make adjustments to the data elements on the
Free Application for Federal Student Aid (FAFSA) on a case-by-case
basis when justified by special circumstances. Special circumstances
can include any financial circumstances that changed from last year to
this year. Job loss and salary or work hour reductions are good
examples, since this year's income will be much lower than last
year. Even if the job loss occured before the FAFSA was filed it might
still qualify for an adjustment.

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A similar situation occurs when last year's income was artificially
inflated by a lump sum severance. That's a one-time event that is not
reflective of the ability to pay during the award year.

The college financial aid administrator will want to see documentation
of the job loss or salary reduction, such as a copy of the layoff
notice. (Give them photocopies, not originals.) They will also want
information about any severance packages and unemployment benefits. If
they decide that your situation merits an adjustment, the adjustment
will be based on the difference between last year's income and
estimated award year income.

The US Department of Education recently sent letters to college
financial aid offices encouraging them to make adjustments in response
to the current economic downturn.

Read Another "Ask Kantro" Question from This Week's Column!

[page]
I am 22 and I work full time but don't make enough to cover
college tuition. I really want to finish my degree and am trying to
figure out how to pay for it. My parents won't help pay for it but I
have to include their income on my FAFSA because of my age. I'd like
to find a way to get my degree without putting myself in tons of debt
if it's possible. — Amanda K.

Students who are age 24 or older as of December 31 of the academic
year are considered automatically independent for federal student aid
purposes. A student who was granted emancipated minor status or was in
a court-ordered legal guardianship prior to reaching the age of
majority is considered independent. Unaccompanied youth who are
homeless or at risk of homelessness and self-supporting and certified
as such by a local educational agency homeless liaison, the director
of a program funded under the Runaway and Homeless Youth Act, the
director of an emergency shelter funded by the McKinney-Vento Homeless
Assistance Act or by a college financial aid administrator are also
considered independent.

There are a variety of other criteria for independent student status,
such as being married, having dependents other than a spouse, being an
orphan, being a graduate or professional student, serving on active
duty in the US Armed Forces for other than training purposes, being a
veteran of the US Armed Forces, or having been in foster care or a
ward of the court on or after reaching age 13.

A student who does not qualify under any of these criteria is
considered dependent and their parent information must be included on
the Free Application for Federal Student Aid (FAFSA). It does not
matter if the student is self-supporting and not claimed on their
parents' income tax returns or if the parents are unwilling to provide
information on the FAFSA or for verification or if the parents refuse
to contribute to the student's college education.

College financial aid administrators have the ability to grant a
dependency override in unusual circumstances, such as an abusive
family environment or abandonment by parents. For example, a
financial aid administrator might grant a dependency override to a
student of divorced parents after the death of the custodial parent if
the student has not had any meaningful contact or financial support
from non-custodial parent in over a year.

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If a dependent student's parents have ended all financial support of
the student and refuse to file the FAFSA, the financial aid
administrator may allow the student to receive an unsubsidized
Stafford loan even without the parents' cooperation. This may not be
enough, but it should help.

If you are independent, as much as half of your income above an
"income protection allowance" will count against your eligibility for
need-based student aid. If you will be quitting your job or reducing
your work hours in order to go to college, ask for a professional
judgment review. The college financial aid administrator can make an
adjustment even if the job loss or reduction in work hours is voluntary.

Talk to your college's financial aid administrator and explain your
situation. They will do their best to try to find a way to help you.