Financial Aid

How Can I Fill the Gap Between Financial Aid and My Ability to Pay?

Mark Kantrowitz

July 03, 2011

How Can I Fill the Gap Between Financial Aid and My Ability to Pay?
What to do when the school you plan to attend practices financial aid gapping.
I’m a soon-to-be college freshman. My tuition is close to $40,000 but financial aid only covers $19,000. My mother is a single parent making only $18,000 a year and I was wondering if there are any other options I can get besides loans that financial aid can help me with. — D.V. Something doesn’t add up. The amount of financial aid you are receiving seems very low given your family’s financial situation. The gap of $20,000 per year is clearly unreasonable given that it exceeds your mother’s income. There are two possible explanations. One is that there is a significant error, either in the information submitted on the financial aid application forms or in the amount of financial aid provided to you. The other possibility is that the college practices gapping. Since you are receiving a full Pell Grant, corresponding to a zero expected family contribution (EFC), it is unlikely that there is an error on the Free Application for Federal Student Aid (FAFSA). But it is possible that there are errors or differences in the assessments from other financial aid application forms. About 250 mostly non-profit colleges use the CSS/Financial Aid PROFILE form for awarding their own financial aid funds. It is possible that the PROFILE form yielded a significantly different EFC, affecting the amount of grant money from the college. Some of the most common reasons for a big difference in treatment under the federal and institutional need analysis formulas include differences in the consideration of certain assets (e.g., the family’s home or a small family-owned business), differences in the consideration of paper losses (e.g., depreciation, net operating loss carry-forwards, business/farm losses, capital losses) and differences in the consideration of the finances of the non-custodial parent in divorce cases.
Gapping occurs when the college fails to meet the full demonstrated financial need of the student, leaving the student with unmet need (also called a gap). Some colleges, especially for-profit colleges and small tuition-bound non-profit colleges, may routinely leave some of their students with gaps of up to $5,000 to $10,000. But a $20,000 gap seems unusually high. Either way, you should call the college’s financial aid office to ask for a review of your financial situation and for an increase in your financial aid package. Point out that the gap between the cost of attendance and the financial aid package is more than your mother earns in a year. The financial aid administrator will identify the error, if any, and adjust the financial aid package accordingly, or explain why the college is leaving you with such a big gap.
If the college is making an unreasonable assumption in the awarding of their own funds, explain to them why the assumption is unreasonable. For example, a business might have a high asset value because of capital equipment, facilities or inventory necessary to run the business. A farm may have a lot of land, but the land is necessary to grow crops and raise livestock. The non-custodial parent may be incapable of contributing to college costs (e.g., dead, whereabouts unknown, incarcerated or institutionalized) or there may be evidence that the non-custodial parent is unlikely to cooperate (e.g., a failure to pay child support for many years or a court has issued a protection from abuse order or restraining order against the parent). There aren’t any resources that could fill such a large gap, other than loans. The summer is a little late in the year to apply for scholarships for the fall. Most of the scholarships with upcoming deadlines are for the next year, not this year. Moreover, very few students win private scholarships that provide that much money, so you’d be facing a lot of competition. The education tax benefits, such as the Hope Scholarship tax credit, won’t make much of a dent in your college costs. For example, the Hope Scholarship tax credit is only $2,500 and at most $1,000 of the tax credit is refundable. You could try working a part-time job to earn additional money to pay for college and minimize the debt, but $20,000 is a very big gap to try to fill. If your mother borrowed the money through the Federal Parent PLUS loan, she would end up with total debt that is more than four times her income. The monthly payments would be more than two-thirds of her take-home pay under a standard 10-year repayment term and more than a third of her take-home pay under a 30-year repayment term. (Income-based repayment is not available for Parent PLUS loan borrowers.) She can’t afford to repay this amount of debt. Even if she could somehow manage to repay the loans, she’d be stuck with the debt until well into retirement. It is highly likely that she will default on this debt. But even then there’s no getting away from the debt, since it is almost impossible to get federal education loans discharged in bankruptcy, there is no statute of limitations on federal education loans and the government can garnish up to 15% of the wages and Social Security benefits of a defaulted borrower.
If your mother is denied a Parent PLUS loan, you will be able to borrow under the same unsubsidized Stafford loan limits that are available to independent students. But this provides only an additional $4,000 a year during your freshman and sophomore years and an additional $5,000 a year during your junior and senior years. That would force you to borrow the remaining money through higher-cost private student loans. Even if you could find a way to borrow the money to fill the $20,000 annual gap, you shouldn’t. If you were to borrow this money on top of the Stafford loans included in your financial aid package, you’d graduate with more than $100,000 in debt for your Bachelor’s degree. That’s more student loan debt than 99% of your peers. A good rule of thumb is to borrow no more than your expected starting salary for your entire education and ideally a lot less. With a six figure debt for a Bachelor’s degree, you will struggle to repay the loans. Your annual loan payments on a standard 10-year repayment term might exceed the amount of money your mother earns in a year. You’d be forced to use a longer repayment term and even so will be at high risk of default. You might try working full-time in a public service job for ten years after graduation to qualify for public service loan forgiveness, but the forgiveness would be limited to federal education loans. Private student loans are not eligible for public service loan forgiveness and you would struggle to repay the private student loans on top of your federal education loans. Unless the college significantly improves your financial aid package, you cannot afford to enroll at this college. You should consider switching to a less expensive college, such as an in-state public college or a more generous non-profit college that doesn’t practice gapping.

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