USA TODAY recently ran an article about the shrinking pool of financial aid, and how there is more stiff competition than ever for the financial aid that does exist.
Here is the down and dirty according to USA TODAY:
Several states have reduced scholarships or toughened eligibility criteria for financial aid. Eligibility for the maximum Pell Grant, the largest source of federal financial aid, has also been tightened. Meanwhile, the number of families applying for financial aid has soared. More than 21 million families filled out the Free Application for Federal Student Aid (FAFSA) for the 2010-11 academic year, last fall, up 49% from two years earlier.
This sounds like depressing news, but I would give a much rosier view of the situation. Yes, the Federal Pell Grant applicant pool has grown tremendously. However, the Pell Grant is a guaranteed award. Meaning if you qualify, you earn it. Our government has set aside enough funds to cover every student that applies. This may not say good things about our government’s fiscal policy, but it should give you some comfort in applying for the Pell Grant. Also, Pell Grant funding has been secured through 2015 according to new legislation.
The article also notes that states have tightened the reins on qualifying for state supported scholarships. This is a sad trend but not one without hope. The positive trend that I have seen in recent years is that colleges have stopped relying as heavily on state supported scholarships, and they have begun relying more on school supported scholarships. Athletic departments are pumping money back into schools to be earmarked for Academic scholarships. Private donors are increasing their contributions which are earmarked for scholarships. Cost cutting measures have freed up University funds to be put back into the scholarship program. Colleges and universities have begun to realize that students are their greatest asset. Just like great employees make a company profitable, great students make a school excel. Scholarship money is one of the main lures to attract top tier students.
The USA TODAY article does go on to give three tips to deal with what they believe is a worsening financial aid situation:
1. Pay attention to deadlines.
2. Be on the lookout for private scholarships.
3. Use net price calculators as a screening tool, but exercise caution.
I actually strongly agree with all 3 of these points. We have talked numerous times here about how important financial aid deadlines are. Missing a crucial financial aid deadline could mean the difference in thousands of dollars in aid.
Private scholarships, and especially local scholarships, are in my opinion the absolute best source of financial aid. You compete against a limited applicant pool, and you can gain the support of your local community. It’s a win – win!
Finally, the article mentions the debacle that is a net price calculator. The intent was good, the end result was a confusing mess. The net price calculator was a mandate from the Department of Education for all schools to be able to give prospective students an estimate of what they could expect to pay. The net price calculator gives all students an estimate of their tuition and fees, and then subtracts an estimate of their financial aid. The problem is that these estimates are almost always way off. The calculator often does not include private scholarships, and never includes student loans. These differences are not explained to students, which gives them a very skewed view of the financial aid that they can actually expect to receive from one school versus another.
With that said, I firmly agree with this author’s suggestion to take the net price calculator with a grain of salt. It can be a good tool, but should not be your deciding factor.
Have you noticed any drop in financial aid in recent years?
You’ve all heard it before, “The only two things in life that are certain are death and taxes!” Well, I would like to add a third statement to the mix, “The only three certain things in life are death, taxes, and rising college tuition!”
I imagine that many of you parents who are currently paying, have recently paid, or are researching college prices will readily agree with me. Historically, college tuition rates have increased at roughly 8% annually since 1958. But I am not telling you anything that you don’t already know. College can be expensive!
One of the best ways to mitigate the cost of a rising college tuition is to take advantage f the financial aid funds that are made available by the U.S. Government. Agree with them or not, free money is free money. In fact, it’s partially your money, as these programs are funded by our tax dollars. It is simply a smart idea to take advantage of these funds.
Like everything with the U.S. Government there is red tape, but the Department of Education has made big strides in the past few years to streamline the financial aid application process.
Complete your FAFSA Early
As of January 1, 2012 you are able to complete the 2012 – 2013 Free Application for Federal Financial Aid or FAFSA. This application is a one-stop-shop which will qualify you for every federal aid program, including student loans. You can complete your FAFSA for free here: FAFSA . **A word of caution, there are many sites which will charge you to complete the FAFSA (fafsa dot com). These are not typically scam sites, but rather FAFSA advisors who will do the same thing for you that you can do yourself. Save the $80 and complete your own FAFSA**
It pays to complete your FAFSA as early as possible. Many schools set priority deadline for FAFSA applications. These priority deadlines dictate whether or not you qualify for institutional scholarships and grants, as well as limited federal funds that each school receives. Many federal programs such as the Federal Pell Grant are available to any student who qualifies. The Department of Education estimates this number each year, and allocates sufficient funds to cover these awards. Many other awards however, such as the Federal Supplemental Educational Opportunity Grant (FSEOG) are limited funds, and are distributed by schools on a first come first served basis. The one metric that financial aid offices use to determine this priority status is the date which your FAFSA was submitted.
Taxes Not Done Yet? Estimate Your FAFSA!
It’s common knowledge that you will need your prior year tax information to complete the FAFSA. A student’s financial need is based largely on their income and the income of their parents. However, the federal tax deadline is April 15th, and schools need a FAFSA by the middle of February……see the problem?
With this in mind, the Department of Education has implemented a tool which allows you to estimate your income for the current tax year based on your prior year tax returns. This way you can complete your FAFSA well before the tax filing deadline, and still have a fairly accurate picture of your financial status for financial aid purposes. Once you have estimated your taxes and submitted your FAFSA, your priority date will be set by the date which your FAFSA was submitted.
It is important to note however, that if you choose this option, your FAFSA application cannot be completed until your tax returns are officially filed. Your FAFSA application gets routed through the IRS system to check for errors, so they will obviously know if you have submitted a return or not. You can’t cheat this system. So once you have submitted your federal tax return, simply login to the FAFSA application and make a correction to a competed FAFSA. These changes will be sent directly to your school, and they will begin the process of completing your financial aid package.
IRS Data Retrieval Tool
One very cool new feature for the 2012 – 2013 FAFSA is the IRS data retrieval tool. This was piloted on last year’s FAFSA, but they have made significant changes to the program and it is much more effective this year. If you have already submitted your federal tax retrns, you are able to port your tax information directly from the IRS, and fill out the financial piece of your FAFSA application.
This saves you the time of going through the tricky line items on your 1040 tax forms to fill in the correct figures. It also saves on human errors in transposing a number, or adding an extra zero. This has historically been the most challenging part of the FAFSA, so this should provide a bit of comfort for many parents out there who are nervous about completing the FAFSA.
You will once again run into the timing issue with needing to submit your FAFSA early. You cannot use the IRS data retrieval for a prior year tax return to estimate your current year, but you can use the IRS datate retrieval tool when you make a correction to your completed FAFSA. This tool will still save you time, regardless of when you use it.
A Necessary Evil
The FAFSA is certainly not the model for effiiciency and you will realize that as soon as you begin the process. But it has made significant strides in the last 5 years, and more positive changes are on the way.
The FAFSA is however, the ONLY way to qualify for federal financial aid. If you or your student have any desire to qualify for federal grants (free money!) or receive federal Stafford student loans, then the FAFSA is a necessary evil. However, it can also be a great time to sit down with your student and talk about finances. You can use it as a teachable moment, or even take the opportunity to give your child some autonomy and let them complete it on their own. Scary I know, but it might pay big dividends in the end!
According to Credit Karma’s July 2011 survey, the average American carries $29, 910 in student loan debt.
That is a shocking number, and indicative of the state of our financial future. Students are becoming saddled with increasing amounts of debt as they graduate and enter into an economy that is cutting jobs.
Not exactly a pleasant scenario.
How can you take a stand?
As a student, or a recent graduate, what steps can you take to minimize the burden of student loans?
- Only take out the exact amount of student loans you need to cover your academic expenses. Many students receive loan refunds each semester that are above and beyond their actual needs. If you receive a loan refund that you do not need, you can return it to your financial aid office, or make a payment directly back to your lender.
- Pursue grants and scholarships. The more awards you receive that do not have to be repaid, the less reliant on students loans you will need to be. You can start with the FAFSA, and check out places such as Fastweb.com, or your local high school guidance office for local scholarship opportunities.
- Work during college. The number of students who hold part-time jobs while attending school is on the rise. This is an excellent way to help defray some of the costs of education and avoid student loans. This also has the added benefit of giving you work experience, and references to include on your résumé.
- Become an Entrepreneur. The leading source of wealth in the United States is entrepreneurs who have started their own small business. As a college student, or a recent graduate, there is no better time than the present to start a business. Businesses started in the recession have the benefit of low costs, and low barriers of entry. Keep your overhead costs minimal, and your profit margins high. This will allow you to pay off your student loan debt as soon as possible, while focusing on growing your business into a sustainable income.
These are just a few ways that you can take a stand again the rising student loan debt levels.
What have you done to avoid taking out student loans? Please share in the comments below.
Photo used under Flickr Creative Commons Agreement: SMBCollege