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Financial Aid

That Free Financial Aid Seminar May be Just a Worthless Sales Pitch

Mark Kantrowitz

November 18, 2011

Error: The handouts and slides listed the Robert C. Byrd Honors Scholarship Program and the AmeriCorps Program as the two main federal scholarship programs. The Byrd Honors Scholarship Program is defunct. Congress ended funding for the Byrd Honors Scholarship Program on April 15, 2011, in section 1842 of the Department of Defense and Full-Year Continuing Appropriations Act, 2011 (P.L. 112-10). There will be no scholarships in 2011-12 or subsequent years, affecting both current and new recipients. (A handful of states have continued funding for current recipients for a year. The program is not open to new applicants in these states.) Senator Byrd died in June 2010 and was no longer around to defend the scholarship program from funding cuts. The AmeriCorps program is a national service program, not a scholarship program. Students who volunteer can earn an education award equal to the maximum Pell Grant (currently $5,550) for completing a term of full-time service. Error: Contributions to a Coverdell Education Savings Account are deductible on your federal income tax returns. It is a $2,000 deduction. While earnings in a Coverdell ESA accumulate on a tax-deferred basis and distributions for qualified higher education expenses are tax-free, contributions to a Coverdell ESA are made with after-tax dollars and are not deductible on federal and state income tax returns. Contributions to a Coverdell ESA are currently limited to $2,000 per year per beneficiary. This will drop to $500 per year per beneficiary after 2012 if not extended by Congress. The Coverdell ESA was established by section 530 of the Internal Revenue Code of 1986. Nowhere in the authorizing legislation or subsequent amendments to this legislation does it suggest that the contributions are tax deductible. Moreover, IRS Tax Tip 2008-59 states "Contributions to a Coverdell ESA are not deductible, but amounts deposited in the account grow tax free until distributed." Error: Annual tuition inflation is the sum of an 8% increase in tuition plus 3.5% CPI, so investments need to increase by 11.5%. Tuition inflation is the rate at which tuition increases in cost. It is calculated based on the ratio of an index of tuition costs in two specified time periods. There is no need to add CPI to the result, as the tuition inflation figure already includes the decline in the value of the dollar due to general inflation. Error: Self-help is government vernacular for the Federal Work-Study program. Self-help is a term used by college financial aid administrators to refer to the sum of student employment and student loans, not just Federal Work-Study. It is in contrast with gift aid, such as grants, which does not need to be repaid. A typical financial aid packaging philosophy is to require a fixed self-help level of all students receiving need-based financial aid. Only when a student's financial need exceeds the self-help level does the student receive grants from the college.

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