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Monday, October 14, 2024

15 Huge Financial Aid & FAFSA Mistakes

by Katherine O'Brien (and Jeff Levy)


My colleague, Jeff Levy, shares some significant mistakes families make that can seriously affect their teen’s ability to maximize merit and financial aid.

 

Financial aid and FAFSA mistakes

1. Believing advice from people who aren’t qualified to give it.

I heard from a parent that an English teacher at his daughter’s school recommended “a little-known tip.” At their College Night, the teacher suggested that students select “not applying for financial aid” on their college application and wait until they’re admitted to submit the FAFSA.

This advice couldn’t be more incorrect, unethical, and potentially catastrophic to the family. If you expect to apply for financial aid, check “yes” on the college application and submit your forms well before the college deadlines.

[As a Certified College Planning Specialist, I have been trained in financial aid. I also regularly receive additional training.]

2. Deciding not to apply for financial aid because “we’ll never qualify.”

Most families have no idea whether they will qualify or not. Data consistently shows that many who are the most eligible for need-based aid never submit the FAFSA.

3. Not filing your income tax returns before applying for financial aid.

For current high school seniors enrolling in college in the fall of 2025, the FAFSA will not become available this year until December 1, 2024 because of widespread technical problems that began with last year’s release. Questions on the form will require accurate financial information from the 2023 tax year, and, in almost all cases, those tax returns will need to be provided. [They need to be submitted to the IRS AND processed before the FAFSA filing. During your FAFSA filing process, you will pull data both the parents' and the student's 2023 tax returns right into the FAFSA.]

4. Missing the college’s institutional deadline.

Some parents believe the best way to apply for financial aid is to wait until their student has been admitted. This is exactly what not to do. Be sure to submit your financial aid forms before each institution’s deadline. Keeping track of these can be annoying if your teen applies to many schools with Early Decision, Early Action, and Regular Decision deadlines. But it must be done. Going to each college’s website to gather and collate this information will take you or your child about 20 – 30 minutes.

5. Deciding not to apply for financial aid as a freshman and planning to ask for it later.

Many schools will give a full-pay applicant a bump in the admission process in exchange for the higher net revenue they bring to the institution. If such an applicant unexpectantly [sic] requests financial aid in later years, some schools will not consider that request for institutional aid; others might delay it by a full academic year. Do not make the mistake of “outsmarting” the admission office if there is even a [small] possibility you may require institutional aid in later years.

6. Not having a savings plan for college.

One of the most destructive myths about paying for college is that the financial aid formulas will wipe out your savings. People who advise this are either ill-informed or have a hidden agenda. In the needs calculation, the penalty for savings is five cents on the dollar! The best way to prepare for the cost of college is to save, and the best way to save is to use time to your advantage. Start early and save regularly, even a small amount each month.

7. Taking a work bonus in the FAFSA “base year.”

The most significant factor in determining what a family is expected to pay towards college is their Adjusted Gross Income on line 11 of Form 1040 of their federal tax returns.

Any income that can be postponed from the base year (2023 for students starting college in 2025, 2024 for students starting college in 2026, etc.) to the following year will decrease the applicant’s Student Aid Index (SAI) and increase their eligibility for financial aid.

8. Listing the 529 savings plan as a student asset instead of a parent asset.

Even though the student is the beneficiary of the 529 savings account and the parent the custodian, the Department of Education has stipulated that these savings plans should be listed as parent assets. This is an essential advantage because parent assets are “penalized” about one-quarter as much as student assets in the federal and institutional need methodologies.

9. Accumulating parent savings in a student-owned account.

While this can be a tax advantage, it is always a financial aid disadvantage. You must check with your tax advisor for the best approach. In the financial aid formulas, parent assets are penalized at about five cents on the dollar, while student assets are penalized about between 20 and 25 cents on the dollar. But check with your tax advisor about the best approach for you.

10. Allowing the grandparents to write the check directly to the college.

The FAFSA no longer asks the student if anyone other than their parents has given the student any money or paid any bills on the student’s behalf. So grandparent contributions to college costs is not a problem if the student plans to attend, or is already attending, an institution that only uses the FAFSA in the calculation of need-based aid.

However, any money paid on the student’s behalf from anyone other than parents is reportable on the CSS Profile, a second financial aid form used by about 170 undergraduate institutions. Such a payment or gift will be considered untaxed student income and could significantly reduce the student’s eligibility for need-based institutional aid.

11. When parents are separated or divorced, believing it’s the parent the student spends more time with who will complete the FAFSA.

Beginning with the 2024-2025 FAFSA [the FAFSA for the 24/25 school year], the divorced/separated biological parent who must complete the parent section of the FAFSA is the one who has provided more financial support to the student in the year to date.

12. Borrowing more than you can afford.

College is one of the most expensive purchases a family will make. Borrowing part of this cost to earn a college degree is not an unwise choice, just as borrowing part of the cost of a home can be an intelligent way to make home ownership possible. However, borrowing too much for college can be catastrophic.

Each family will need to decide for themselves how much debt is reasonable. A good rule of thumb is to keep total undergraduate loan debt below what the student expects to earn during their first year out of college. In other words, if students borrow the maximum lifetime limit of $31,000 in undergraduate federal student loans, they can successfully manage monthly repayments if their first job after college pays at least that amount annually before taxes.

13. Not taking advantage of low-interest federal student loans.

Federal student loans are generally packaged as part of the financial aid award. These are low-interest loans with many built-in repayment protections, usually far safer and less costly than private bank loans.

The federal cap on how much a student can borrow over four years of college is $27,000 (with annual caps from $5,500 to $7,500 per year) and the lifetime limit is $31,000. Repayments begin six months after graduation. I recommend taking advantage of this loan program if it helps your family meet the high cost of college.

14. “If she gets into _______, we’ll make it work!”

This thinking usually leads parents straight into the abyss of excessive borrowing. Parent loans (federal and private) have higher interest rates, fees, and stricter repayment terms than federal undergraduate student loans. Parents must think carefully about how many actual earning years they have left before going into substantial debt at an advanced age.

There are often less expensive options for college than high sticker price schools with little financial aid.

15. Not calling the financial aid office when you have a question.

These folks are not the IRS and not your enemy. They are usually happy to answer your questions and can be an excellent resource to help you navigate the complexities of the financial aid system. [Be careful. Sometimes a student worker is the one answering the phone. Be sure to speak with a trained financial aid officer when you call. Even so, remember that their primary job is to help the college meet its institutional financial goals.]


Financial and merit aid resources for students and parents

FAFSA (Free Application for Federal Student Aid)

CSSProfile

 

Link to original article:

https://grownandflown.com/fifteen-biggest-financial-aid-fafsa-mistakes/?











The Tough Talk About How to Pay for College

 by Katherine O'Brien (and Jeff Levy)

Talking with our kids about the realities of paying for college is tough, yet vitally important. He or she needs to understand the real sacrifices involved, and the realities the family faces together. As the college list is finalized and applications are prepared, the financial component is an essential consideration.

My colleague, Jeff Levy, has written on this topic. I share his article here with you...

 It's Time to Have the Tough Talk about How to Pay for College

The beginning of your child’s senior year of high school can be difficult. You have given [him or] her much room to explore [his or] her college options, but it’s time to get realistic about cost. What you want to avoid is the heartbreaking scene of your child learning on April 1 that s/he has just been admitted to the college of [his or] her dreams and you learning moments later that its price is entirely out of reach.

So, if you haven’t begun the dreaded family conversation about how much you can afford to pay for college, the time is now. But before you can sit down to talk and know which colleges will be affordable and which will not, you will need to create a budget to learn what you can pay. And just as important, what you are willing to pay. This is no time for wishful thinking or magical realism.

How much can parents pay for their teen’s college education?

You have many non-discretionary monthly expenses: mortgage or rent, car payments, insurance, groceries, healthcare costs, retirement contributions, etc. Add these up. Then, add up your discretionary expenses: restaurants, entertainment, travel, gifts, etc. Add the two figures together, and subtract it from your after-tax monthly income. Hopefully, there’s a surplus. Add to this surplus the amount you can contribute monthly from savings, and you have arrived at a figure available on a monthly basis for college costs.

 

Paying for college usually requires tightening the family belt, so if you can reduce your discretionary costs, that will help. College will be costly, but what you can contribute must be a number you can reach monthly for nine [or ten] consecutive months each year.

 

Suppose after creating your budget, you learn that you can contribute $30,000 a year towards your child’s college expenses. How big a financial aid package will s/he require? If her dream school has a total cost of attendance (COA) of $80,000, s/he will need a financial aid award of $50,000. But it’s important that you, and your child, understand long before it arrives in the mail what that package will look like.

Three parts of a financial aid award

 

At most colleges, the award will consist of three parts:

 

• Federal student loans

• Campus employment

• Institutional grants and scholarships

1. Federal student loans – typically the first dollars to be packaged because it is government money, not the institution’s.

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A few highly selective schools with large endowments have replaced loans with institutional grants, but most can’t afford to do this.

 

For a first-year student, this portion of the award will likely be $5,500, the federal first-year cap. For second-year students, $6,500. For third- and fourth-year students, $7,500. This equals $27,000, the likely amount of loans packaged in your child’s financial aid awards over four years. Monthly repayments begin six months after graduation for a repayment schedule that lasts ten years.

 

2. The offer of campus employment – the second source of dollars in the financial aid award.

 

It is a commitment by the institution that the student will find an on-campus position reserved for financial aid recipients. These jobs in the library, at the coffee shop, or in the admission office typically pay between $11 and $13 an hour, and the student would receive a weekly or biweekly paycheck to be spent however the family sees fit. A reasonable estimate of total earnings for an on-campus job of 8-10 hours per week is about $2,500. [I have seen minimum wage offered, as low as $7.25 an hour.]

 

3. Institutional grants and scholarships – The third part of the financial aid award which is free money that does not have to be repaid.

 

So our hypothetical $50,000 financial aid offer, including the “parents’ resources”, would look like this:

 

$5,500 Federal student loans
$2,500 Campus employment
$42,000 Institutional grants and scholarships

$30,000 Parent Resources

$80,000 Total cost of attendance

  

If borrowing is essential to make college affordable, as it is for many families, federal student loans are the best choice. The interest rate is low, the fees are low, repayment plans are flexible, the income-based repayment plan can keep monthly payments at reasonable levels, and there are built-in protections against loss of job, illness, injury, and even death.

 

Six things to discuss with your teen about paying for college

Now that you have done your budget and know how much you can afford to contribute towards your [son's or] daughter’s college education, it’s time for the family pow-wow. Here are some items I suggest you discuss as a family long before your child submits her college applications and hopefully as s/he is first assembling her college list:

 

1. How much can you afford to pay each month, and how much are you, the parents, prepared to take on in additional debt? Many parents are reluctant to discuss money matters in front of their children. But college is an investment in [his or] her future; s/he should be in the conversation.

2. If your child is eligible for need-based aid, it is likely that [his or] her financial aid awards will include $27,000 in student loans over four years. Is this a reasonable debt for your child to face after graduation? A helpful rule of thumb on educational debt: Do not borrow more than you expect to earn annually at your first job after college. And there is reason to believe that having skin in the game can motivate academic engagement.

 

With low-interest rates and fees and flexible repayment plans that protect the borrower against loss of job, illness, or injury, these are the first loans to take if needed. But is he aware that s/he will be taking on this debt? Is s/he aware that the loans are in his [or her] name, not yours? When repayment begins six months after graduation, who will make those payments, you or him [or her]?

3. Campus employment will likely be part of her financial aid award. Is s/he okay with a work commitment of 8-10 hours a week for 25 weeks of the school year? Are you?

4. Have you run the net price calculators for each school on your child’s list? These are located on each college’s website. Though not perfect predictors of what the college will cost you, they are a guide. And the difference between what you think you can afford and what you will be expected to pay can be startling. Are there enough affordable schools on his [or her] list? Is s/he willing to add more “financial safeties” if there aren’t?

5. Are there any additional ways your family can tighten the belt to increase your family contribution? Any other sources of funds? Will your child begin to look for outside scholarships? [Be aware that outside scholarships lower eligibility for need based aid dollar for dollar. Take that into consideration as you recalculate what you can afford.]

6. Finally, is your child prepared to walk away from an acceptance to a school that will cost more than you can afford? Are you?

 

As you see, this will be a tough conversation. But don’t focus exclusively on the financial hardships. Explore the enormous advantages that a college education bestows. It is the gateway to your child’s dreams and aspirations and probably the most important investment your family will ever make. But it is also one of the most expensive. The cost of this investment needs to be understood, managed, and embraced by all of you.

 

Link to original article: 

https://grownandflown.com/dreaded-conversation-college-cost/


Katherine O'Brien, a Certified College Planning Specialist, founded Celtic College Consultants in 2004 to provide expert knowledge for the journey to college. Her holistic, student focused program has assisted countless students. To learn more, please visit CelticCollegeConsultants.com



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Monday, September 30, 2024

Who's on Your College Success Team?

Parents are key members of teens' support team. School counselors and teachers are also important. College Consultants like myself wear many hats. These are some of the hats I've been wearing for the past 20 years as I have worked with teens and their families.

Teen Life Coach

Goal Setting. Encouragement. Accountability Partner. Mentor. Coach through Failures and Difficulties. Teach Interpersonal Skills. Encourage Development of Strong Character Traits & Virtues

Academic Coach

Study Skills. Time Management. Task Prioritization. Organization. Foster Healthy Habit Formation.

Leadership Mentor

Identify Opportunities. Teach and Foster Leadership Skills. Troubleshoot Problems. Celebrate Growth.

College Admissions Specialist

Guide Life & College Goal Determination Process. Clarify & Guide College Selection Process. College Essay Writing Coaching & Editing. Application Preparation Management

College Funding Specialist

Identify Opportunities to Lower Costs. Advise on Saving Strategies. Scholarship Strategist. Financial Aid Maximization Coaching

Parent Coach

Stress Management. Effective Communication Facilitator. Subject Matter Expert. Sanity Stabilizer. Prayer Partner.


Want to explore bringing me onto your teen's college success team? Email me, Katherine O'Brien, at KOB@CelticCollegeConsultants.com and request a college prep consultation for your family.

Katherine O'Brien is a Certified College Planning Specialist and the Founder of Celtic College Consultants, an independent education consultancy serving families across the US since 2004. Her Class of 2015 - Class of 2024 College Success Program Clients have averaged nearly $250,000 each in scholarship offers and have headed to campus with goals, skills, and confidence.